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Item 8. Financial Statements and Supplementary Data

2021-03-02 compared with 2020-03-03 · 333 added, 230 removed, 659 unchanged (46% of the section changed)

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Change in Accounting Principle

As discussed in Note 8 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (ASC Topic 842).

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update No.

2016-02, Leases (ASC Topic 842).

Basis for Opinions

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A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial

statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Realizability of deferred tax assets

As discussed in Notes 2 and 13 to the consolidated financial statements, the Company records a valuation allowance if it is deemed more likely than not deferred tax assets will not be realized in full.

The ultimate realization of deferred tax assets is dependent upon the generation of certain types of future taxable income during the periods in which those temporary differences become deductible.

In making this assessment, the Company considers the scheduled reversal of deferred tax liabilities, their ability to carry back the deferred tax asset, projected future taxable income, and tax planning strategies.

The Company analyzes its valuation allowance using historical and anticipated earnings amounts.

As of December 31, 2020, the Company has a full valuation allowance against their deferred tax assets.

We identified the evaluation of the realizability of the Company’s deferred tax assets as a critical audit matter.

This evaluation required especially challenging auditor judgment to assess the Company’s estimated future taxable income over the period in which the deferred tax assets will generally reverse.

Specifically, the Company’s assumptions of expected future taxable income were based primarily on prices for product subject to market volatility and forecasted sales volumes.

Changes in these assumptions could have a significant impact on the realization of the Company’s deferred tax assets and the amount of the valuation allowance.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s income tax process.

This included controls related to the development of assumptions in determining the expected future taxable income, including the development of prices for products and forecasted sales volumes.

We assessed the data used in the pricing assumptions used by the Company by comparing them to publicly available pricing data and existing contractual arrangements.

We compared the forecasted sales volumes to historical sales volumes, and we compared the Company’s historical forecasted sales volumes to actual sales volumes to assess the Company’s ability to accurately forecast.

We have served as the Company's auditor since 2007.

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Accounts receivable:

Trade, net 22,516 23,749

Other receivables, net 1,856 1,247

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Property, plant, equipment, and mineral properties, net 355,497 378,509

Water rights 19,184 19,184

Long-term parts inventory, net 28,900 27,569

Other assets, net 10,819 7,834

Total Assets $ 550,188 $ 578,439

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable $ 7,278 $ 9,992

Related parties

Income taxes payable — 50

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Total current liabilities 67,217 87,445

Advances on credit facility 29,817 —

Long-term debt, net 14,926 29,753

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Additional paid-in capital 656,837 653,080

Retained deficit

Accumulated deficit ( 245,591 ) ( 218,437 )

Total Stockholders' Equity 411,259 434,656

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Year Ended December 31,

2020 2019 2018

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

Freight costs 37,135 40,056 37,052

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Lower of cost or net realizable value inventory adjustments 4,015 1,810 1,711

Gross Margin 10,530 43,478 38,271

Selling and administrative 25,476 23,556 20,438

Accretion of asset retirement obligation 1,738 1,793 1,668

Restructuring expense

Care and maintenance expense

Other operating expense (income)

Operating Income (Loss)

Litigation settlement 10,075 — —

(Gain) loss on sale of assets ( 4,250 ) 345 ( 87 )

Other operating expense 735 1,424 758

Operating (Loss) Income ( 23,244 ) 16,360 15,494

Other Income (Expense)

Interest expense, net ( 4,289 ) ( 3,031 ) ( 3,855 )

Income (Loss) Before Income Taxes

Income Tax (Expense) Benefit

Net Income (Loss)

Other income 384 355 252

(Loss) Income Before Income Taxes ( 27,149 ) 13,684 11,891

Income Tax Expense ( 5 ) ( 53 ) ( 108 )

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

Weighted Average Shares Outstanding:

Basic 12,993,225 12,904,916 12,807,070

Diluted 12,993,225 13,105,089 13,098,590

Income (Loss) Per Share:

Basic $ ( 2.09 ) $ 1.06 $ 0.92

Diluted $ ( 2.09 ) $ 1.04 $ 0.90

See accompanying notes to these consolidated financial statements.

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(In thousands, except share amounts)

Additional Paid-in Capital

Retained Deficit

Total Stockholders' Equity

Common Stock Additional Paid-in Capital (1)

Retained Deficit Total Stockholders' Equity

Shares Amount (1)

Balance, December 31, 2017 12,764,653 $ 13 $ 645,928 $ ( 243,851 ) $ 402,090

Adjustment to opening balance

Issuance of common stock

Net income — — — 11,783 11,783

Stock-based compensation — — 4,179 — 4,179

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Balance, December 31, 2018 12,871,659 13 649,318 ( 232,068 ) 417,263

Net income — — — 13,631 13,631

Stock-based compensation — — 4,281 — 4,281

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Balance, December 31, 2019 12,955,351 13 653,080 ( 218,437 ) 434,656

Net income — — — ( 27,154 ) ( 27,154 )

Stock-based compensation — — 3,821 — 3,821

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Balance, December 31, 2020 13,049,820 $ 13 $ 656,837 $ ( 245,591 ) $ 411,259

(1) - Amounts have been retroactively restated for all prior periods to reflect the one-for-ten reverse split of our common stock effected on August 14, 2020 .

See accompanying notes to these consolidated financial statements.

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Year Ended December 31,

2020 2019 2018

Cash Flows from Operating Activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income (loss)

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net (loss) income $ ( 27,154 ) $ 13,631 $ 11,783

Depreciation, depletion, and amortization 35,788 34,121 32,215

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Stock-based compensation 3,821 4,281 4,179

Reserve for obsolescence 492 — —

Allowance for doubtful accounts 75 75 100

Loss (gain) on disposal of assets

(Gain) loss on disposal of assets ( 4,250 ) 345 ( 87 )

Lower of cost or net realizable value inventory adjustments 4,015 1,810 1,711

Other ( 116 ) ( 34 ) ( 4 )

Changes in operating assets and liabilities:

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Proceeds from sale of property, plant, equipment, and mineral properties 4,786 68 110

Long-term investment ( 3,500 ) — —

Net cash used in investing activities ( 15,157 ) ( 80,641 ) ( 16,781 )

Cash Flows from Financing Activities:

Issuance of common stock, net of transaction expenses

Repayment of long-term debt ( 35,000 ) — ( 10,000 )

Debt prepayment costs ( 1,869 ) — ( 402 )

Proceeds from short-term borrowings on credit facility

Repayments of short-term borrowings on credit facility

Proceeds from loan under CARES Act 10,000 — —

Proceeds from borrowings on credit facility 10,000 30,317 13,500

Repayments of borrowings on credit facility — ( 10,500 ) ( 17,400 )

Payments of financing lease ( 74 ) — —

Capitalized debt costs ( 36 ) ( 503 ) ( 210 )

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Proceeds from exercise of stock options 108 21 114

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities ( 17,043 ) 18,795 ( 15,301 )

Net Change in Cash, Cash Equivalents, and Restricted Cash ( 1,055 ) ( 12,465 ) 32,155

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Net cash paid (received) during the period for:

Interest, net of $0.2 million of capitalized interest in 2019, and $0.1 million in both 2018 and 2017

Interest, net of $ 0.1 million of capitalized interest in 2020, $ 0.2 million in 2019, and $ 0.1 million in 2018

$ 2,467 $ 2,733 $ 3,470

Income taxes $ 97 $ 942 $ ( 3,469 )

Accrued purchases for property, plant, equipment, and mineral properties $ 344 $ 5,021 $ 1,082

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and its consolidated subsidiaries.

— COMPANY BACKGROUND

Note 1 — COMPANY BACKGROUND

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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We continue to work to expand our sales of water.

In May 2019, we acquired certain land, water rights, other related assets in Lea County, New Mexico, from Dinwiddie Cattle Company.

We refer to these assets and operations as "Intrepid South." The purchase price was $53 million .

A reduction of $12 million from the original $65 million purchase price was agreed upon by the parties prior to closing subject to 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 related to Intrepid South and certain other properties located near Intrepid South.

We capitalized $3.2 million of acquisition fees related to the purchase of the Intrepid South Assets.

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, including restricted use agreements of surface or subsurface rights, to customers, where such sales provide a solution to a customer's operations in the oil and gas industry.

We have three segments:

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We also monitor product inventory levels and overall production costs centrally.

— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries.

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Future mineral prices may vary significantly from the prices in effect at the time the estimates are made, as may estimates of future operating costs.

The estimate of proven and probable mineral reserves, the related present value of estimated future

cash flows, and useful lives of plant assets can affect various other items including depletion, the net carrying value of our mineral properties, the useful lives of related property, plant, and equipment, depreciation expense, and estimates associated with recoverability of long-lived assets and asset retirement obligations.

The estimate of proven and probable mineral reserves, the related present value of estimated future cash flows, and useful lives of plant assets can affect various other items including depletion, the net carrying value of our

mineral properties, the useful lives of related property, plant, and equipment, depreciation expense, and estimates associated with recoverability of long-lived assets and asset retirement obligations.

Specific to income tax items, we experience fluctuations in the valuation of the deferred tax assets and liabilities due to changing income tax rates and the blend of state tax rates.

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In certain circumstances, we may sell product to customers where the sales price is variable.

For such sales, we estimate the sales price we expect to realize based on the facts and circumstances for each sale, including historical experience, and recognize revenue to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal compared to the cumulative revenue recognized under the contract.

For variable consideration sales, we estimate the sales price we expect to realize at contract inception based on the facts and circumstances for each sale, including historical experience, and recognize revenue to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal compared to the cumulative revenue recognized once the uncertainty is resolved.

We update variable consideration estimates at each reporting date for any changes in facts and circumstances, and adjust financial information as necessary in the period the change is identified.

Contract Balances:

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We model normal production levels and evaluate historical ranges of production by operating plant in assessing what is deemed to be normal.

Each production operation typically shuts down periodically for planned maintenance activities.

The costs of maintenance turnarounds at our facilities are considered part of production costs and are absorbed into inventory in the period incurred.

Parts inventory, including critical spares, that is not expected to be used within a period of one year is classified as non-current.

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Maintenance and repair costs are recognized as period costs when incurred.

Capitalized interest, to the extent of debt outstanding, is calculated and capitalized on assets that are being constructed, drilled, or built or that are otherwise classified as construction in progress.

Capitalized interest, to the

extent of debt outstanding, is calculated and capitalized on assets that are being constructed, drilled, or built or that are otherwise classified as construction in progress.

Mineral properties and development costs, which are referred to collectively as mineral properties, include acquisition costs, the cost of drilling production wells, and the cost of other development work, all of which are capitalized.

Exploration costs include geological and geophysical work performed on areas that that do not yet have proven and probable reserves declared.

These costs are expensed as incurred.

Depletion of mineral properties is calculated using the units-of-production method over the estimated life of the relevant ore body.

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We evaluate our finite-lived intangible assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable.

Such circumstances may include but are not limited to (1) significant adverse changes in the manner the asset is used, or (2) significant adverse changes in legal factors or economic conditions, including adverse actions by regulatory authorities.

We did not record any impairments to our intangible assets in 2019 and 2018.

Exploration Costs —Exploration costs include geological and geophysical work performed on areas that do not yet have proven and probable reserves declared.

These costs are expensed as incurred.

Such circumstances may include but are not limited to (1) significant adverse changes in the manner the asset is used, or (2) significant adverse changes in legal factors or economic conditions,

including adverse actions by regulatory authorities.

We did no t record any impairments to our intangible assets in 2020 and 2019.

Asset Retirement Obligations — Reclamation costs are initially recorded as a liability associated with the asset to be reclaimed or abandoned, based on applicable inflation assumptions and discount rates.

The accretion of this discounted liability is recognized as expense over the life of the related assets, and the liability is periodically adjusted to reflect changes in the estimates of either the timing or amount of the reclamation and abandonment costs.

Planned Turnaround Maintenance —Each production operation typically shuts down periodically for planned maintenance activities.

The costs of maintenance turnarounds at our facilities are considered part of production costs and are absorbed into inventory in the period incurred.

Leases — We determine if an arrangement is a lease or contains a lease at inception.

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When we report a net loss, all potentially dilutive securities are considered anti-dilutive and are excluded from the dilutive loss per share calculation.

Reverse Stock Split —On August 10, 2020, after receiving stockholder approval, the Board of Directors approved an amendment to 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 was effected on 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 consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.

Stock‑Based Compensation — We account for stock-based compensation by recording expense using the fair value of the awards at the time of grant.

We have recorded compensation expense associated with the issuance of restricted shares, performance units, and non-qualified stock options, all of which are subject to service conditions and in some cases subject to operational performance or market-based conditions.

The expense associated with such awards is recognized over the service period associated with each grant.

Expense associated with awards with service only conditions is recognized using the straight-line recognition method over the requisite service period of the award, which is generally the vesting period of the award.

Expense associated with awards that contain both a service condition and a market condition is recognized using the accelerated recognition method over the requisite service period of the award, which is generally the longest of the explicit service period or the derived service period (expected date the market condition is estimated to be achieved).

We recognize expense associated with such awards over the service period associated with each grant.

For awards with service only conditions and service and operational performance conditions, we recognize expense using the straight-line recognition method over the requisite service period of the award,

which is generally the vesting period of the award.

We recognize expense associated with awards that contain both a service condition and a market condition using the accelerated recognition method over the requisite service period of the award, which is generally the longest of the explicit service period or the derived service period (expected date the market condition is estimated to be achieved).

Reclassification of Prior Period Presentation — Certain prior period amounts have been reclassified in order to conform to the current period presentation.

These reclassifications had no effect on the reported results of operations.

Pronouncements Issued But Not Yet Adopted —In June 2016, the FASB issued ASU No.

Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU No.

2016-13, as amended by ASU No.

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2019-10, Financial Instruments - (Topic 326):

Measurement of Credit Losses on Financial Instruments , which changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life.

This guidance is effective for us for annual and interim periods in fiscal years beginning after December 15, 2019.

Because we have historically experienced minimal bad debt expense related to our trade receivables, the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.

— RECENTLY ADOPTED ACCOUNTING STANDARDS

Measurement of Credit Losses on Financial Instruments ("ASC Topic 326"), which we adopted on January 1, 2020.

ASC Topic 326 changed the way entities recognized impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life.

Because our trade receivables are short-term in nature, the adoption of this new standard did not have a material impact on our consolidated financial statements.

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No.

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As a result of adopting the new standard, we recorded operating lease right-of-use ("ROU") assets of $ 5.9 million and operating lease liabilities of $ 6.1 million on January 1, 2019.

— EARNINGS PER SHARE

Pronouncements Issued But Not Yet Adopted — In December 2019, the FASB issued ASU 2019-12, "Income Taxes ("Topic 740"):

Simplifying the Accounting for Income Taxes," which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amending existing guidance to improve consistent application.

This new standard is effective for our interim and annual periods beginning January 1, 2021, and earlier adoption is permitted.

Most amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.

Note 3 — EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income or loss by the weighted-average number of shares of common stock outstanding during the period.

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Year Ended December 31,

Net income (loss)

2020 2019 2018

Net (loss) income $ ( 27,154 ) $ 13,631 $ 11,783

Basic weighted average common shares outstanding 12,993 12,905 12,807

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Earnings per share:

Basic $ ( 2.09 ) $ 1.06 $ 0.92

Diluted $ ( 2.09 ) $ 1.04 $ 0.90

The following table shows anti-dilutive shares excluded from the calculation of diluted loss per share (in thousands):

Year Ended December 31,

2020 2019 2018

Anti-dilutive effect of restricted shares 246 50 —

Anti-dilutive effect of stock options outstanding 309 165 145

Anti-dilutive effect of performance units

— CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Note 4 — CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Total cash, cash equivalents and restricted cash, as shown on the consolidated statements of cash flows are included in the following accounts at December 31, 2020, 2019, and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

Cash and cash equivalents $ 19,515 $ 20,603 $ 33,222

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Restricted cash included in "Other current assets" on the balance sheet at December 31, 2020 represents a cash deposit with a supply vendor.

— INVENTORY AND LONG-TERM PARTS INVENTORY

Note 5 — INVENTORY AND LONG-TERM PARTS INVENTORY

The following summarizes our inventory, recorded at the lower of weighted average cost or estimated net realizable value as of December 31, 2020, and 2019, respectively (in thousands):

Finished goods product inventory $ 48,961 $ 55,585

In-process mineral inventory

In-process inventory 28,833 25,591

Total product inventory 77,794 81,176

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During the years ended December 31, 2020, 2019, and 2018, we recorded charges of approximately $ 4.0 million, $ 1.8 million, and $ 1.7 million, respectively, as a result of routine assessments of the lower of weighted average cost or estimated net realizable value on our finished goods product inventory.

— PROPERTY, PLANT, EQUIPMENT, AND MINERAL PROPERTIES

Note 6 — PROPERTY, PLANT, EQUIPMENT, AND MINERAL PROPERTIES

" Property, plant, equipment, and mineral properties, net" were comprised of the following (in thousands):

Land $ 27,263 $ 27,274

Ponds and land improvements 67,843 65,992

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Machinery and equipment 265,121 253,536

Vehicles 5,919 6,222

Office equipment and leasehold improvements 9,083 9,136

Operating lease ROU assets 9,622 8,123

Breeding stock 260 —

Construction in progress 1,710 7,124

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Year Ended December 31,

2020 2019 2018

Depreciation $ 29,697 $ 27,889 $ 27,858

Depletion 3,952 4,173 4,357

Amortization of ROU assets 2,139 2,059 —

Total incurred $ 35,788 $ 34,121 $ 32,215

Note 7 — LEASES

We determine if an arrangement is a lease or contains a lease at inception.

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Leases recorded on the balance sheet consist of the following (amounts in thousands):

Classification on the Balance Sheet

Balance, December 31, 2019

Operating lease ROU assets, net

Property, plant, equipment, and mineral properties, net

Current operating lease liabilities

Other current liabilities

Non-current operating lease liabilities

Operating lease liabilities

Leases Classification on the Balance Sheet Balance, December 31, 2020 Balance, December 31, 2019

Operating lease ROU assets, net Property, plant, equipment, and mineral properties, net $ 4,091 $ 6,064

Finance lease ROU assets, net Property, plant, equipment, and mineral properties, net $ 1,301 $ —

Current operating lease liabilities Other current liabilities $ 2,057 $ 2,187

Current finance lease liability Other current liabilities $ 1,258 —

Non-current operating lease liabilities Operating lease liabilities $ 2,136 $ 4,025

Other information related to lease term and discount rate is as follows:

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Weighted average remaining lease term - operating leases (in years) 2.4

Weighted average remaining lease term - finance leases (in years) 0.3

Weighted average discount rate - operating leases 5.49 %

Weighted average discount rate - finance leases 1.75 %

The components of lease expense are as follows (amounts in thousands):

For the Year Ended December 31, 2019

For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

Operating lease expense $ 2,434 $ 2,410

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Total lease expense $ 2,551 $ 2,517

Rental and lease expenses for the years ended December 31, 2018, and 2017 were $3.9 million and $5.7 million , respectively.

Rental and lease expenses for the year ended December 31, 2018 was $ 3.9 million.

Supplemental cash flow information related to leases was as follows (amounts in thousands):

For the Year Ended December 31, 2019

For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ 2,480 $ 2,441

Finance cash flows from finance leases 74 —

Right-of-Use Assets exchanged for new operating lease liabilities 216 8,123

Right-of-Use Assets exchanged for new finance lease liabilities 1,332 —

As of December 31, 2020, maturities of lease liabilities are summarized as follows (amounts in thousands):

Years Ending December 31,

Operating Leases

Years Ending December 31, Operating Leases Finance Leases Total

2021 $ 2,168 $ 1,265 $ 3,433

2022 1,515 — 1,515

2023 402 — 402

2024 190 — 190

2025 101 — 101

Thereafter — — —

Total future minimum lease payments $ 4,376 1,265 5,641

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Long-term lease obligations $ 2,136 $ — $ 2,136

As of December 31, 2018, and prior to the adoption of ASC Topic 842, the annual future minimum lease payments were as follows (amounts in thousands):

Years Ending December 31,

Operating Leases

— INTANGIBLE ASSETS

Note 8 — INTANGIBLE ASSETS

We acquired certain water rights, recorded at $ 16.9 million, and other intangible assets, recorded at $ 6.4 million, in the Intrepid South asset acquisition that we completed in May 2019.

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As of December 31, 2020, and December 31, 2019, we have the following amounts recorded for intangible assets (amounts in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Finite-lived intangible assets:

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization

Produced water disposal royalty agreements

$ 2,694 $ ( 225 ) $ 2,700 $ ( 90 )

Surface damage and easement agreements

3,723 ( 311 ) 3,735 ( 124 )

$ 6,417 $ ( 536 ) $ 6,435 $ ( 214 )

Indefinite-lived intangible assets:

Total amortization of intangible assets for the year ended December 31, 2019, was $0.2 million .

We did not record any amortization of intangible assets for the year ended December 31, 2018.

$ 19,184 $ 19,184

Total amortization of intangible assets for the years ended December 31, 2020, and 2019, was $ 0.3 million and $ 0.2 million, respectively.

We did no t record any amortization of intangible assets for the year ended December 31, 2018.

We estimate the annual amortization expense of intangible assets will be $ 0.3 million for each of the next five years.

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:

Note 9 — DEBT

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 $ 15.0 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 1.3 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.

For the ten months ended October 31, 2017, the interest rates on the Notes were 7.73% for the Series A Notes, 8.63% for the Series B Notes and 8.78% for the Series C Notes.

Beginning November 1, 2017, the interest rates on the Notes were reduced to 3.73% for the Series A Notes, 4.63% for the Series B Notes and 4.78% for the Series C Notes.

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 rate 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 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 Notes as of December 31, 2020.

Our outstanding long-term debt, net, was as follows (in thousands):

December 31, 2019

December 31, 2018

Notes, at carrying value

Less current portion of Notes

December 31, 2020 December 31, 2019

Notes and Payroll Protection Loan $ 25,000 $ 50,000

Less current portion of long-term debt ( 10,000 ) ( 20,000 )

Less deferred financing costs ( 74 ) ( 247 )

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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 borrowings outstanding and $1.0 million in outstanding letters 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.

PPP Loan —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 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 on 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 of the loan, if not all, 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.

Interest Expense —Interest expense is recorded net of any capitalized interest associated with investments in capital projects.

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Year ended December 31,

Interest on notes and credit facility

2020 2019 2018

Interest expense on borrowings $ 2,107 $ 2,908 $ 2,849

Make-whole payments 1,868 — 402

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Interest expense, net $ 4,289 $ 3,031 $ 3,855

— ASSET RETIREMENT OBLIGATION

Note 10 — ASSET RETIREMENT OBLIGATION

We recognize an estimated liability for future costs associated with the abandonment and reclamation of our mining properties.

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Year Ended December 31,

2020 2019 2018

Asset retirement obligation, at beginning of period $ 22,250 $ 23,125 $ 21,476

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Total asset retirement obligation, at end of period $ 23,872 $ 22,250 $ 23,125

As of December 31, 2019, $0.1 million of the total asset retirement obligation is included in "Other current liabilities" on the Consolidated Balance Sheets.

At December 31, 2019, $ 0.1 million of the total asset retirement obligation is included in "Other current liabilities on the Consolidated Balance Sheets.

We estimate approximately $ 8.1 million in payments may occur in the next five years .

Note 11 — REVENUE

Revenue Recognition —Under ASC 606, we recognize revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.

Contract Balances —As of December 31, 2019, and 2018, we had $16.6 million and $11.7 million of contract liabilities, respectively, which are included in "Other current liabilities" on the consolidated balance sheets.

Our contract liability relates to payments received from customers for water purchases for which we have not yet delivered the water.

Contract Balances — As of December 31, 2020, and 2019, we had $ 30.4 million and $ 16.6 million of contract liabilities, respectively, which are included in "Other current liabilities" on the consolidated balance sheets, primarily related to cash advances received from a customer for water purchases.

Customer advances received before we have satisfied our performance obligations are accounted for as a contract liability (sometimes referred to in practice as deferred revenue).

We will recognize the deferred revenue at the time the customer calls for water delivery, which we expect will be sourced from our existing long-term water rights.

Our contract liability activity for the years ended December 31, 2020, 2019, and 2018 is shown below (in thousands):

Year Ended December 31,

2020 2019 2018

Beginning balance $ 16,612 $ 11,678 $ —

Recognized as revenue during period

Additions 17,657 11,058 11,678

Recognized as revenue during period from the beginning balance ( 3,850 ) ( 6,124 ) —

Ending balance $ 30,419 $ 16,612 $ 11,678

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Year Ended December 31, 2020

Potash Segment

Trio ® Segment

Oilfield Solutions Segment

Intersegment Eliminations

Product Potash Segment Trio ® Segment

Oilfield Solutions Segment Intersegment Eliminations Total

Potash $ 92,500 $ — $ — $ ( 322 ) $ 92,178

— 65,344 — — 65,344

Water 1,253 4,444 14,701 — 20,398

Salt 8,103 499 — — 8,602

Magnesium Chloride 4,855 — — — 4,855

Brines 1,349 — 438 — 1,787

Other — — 3,790 — 3,790

Total Revenue $ 108,060 $ 70,287 $ 18,929 $ ( 322 ) $ 196,954

Year Ended December 31, 2019

Potash Segment

Trio ® Segment

Oilfield Solutions Segment

Intersegment Eliminations

Product Potash Segment Trio ® Segment

Oilfield Solutions Segment Intersegment Eliminations Total

Potash $ 103,403 $ — $ 2,973 $ ( 1,909 ) $ 104,467

— 64,299 — — 64,299

Water 1,823 4,495 19,339 — 25,657

Salt 12,022 757 — — 12,779

Magnesium Chloride 4,907 — — — 4,907

Brines 2,493 — — — 2,493

Other — — 5,582 ( 109 ) 5,473

Total Revenue $ 124,648 $ 69,551 $ 27,894 $ ( 2,018 ) $ 220,075

Year Ended December 31, 2018

Potash Segment

Trio ® Segment

Oilfield Solutions Segment

Intersegment Eliminations

Product Potash Segment Trio ® Segment

Oilfield Solutions Segment Intersegment Eliminations Total

Potash $ 107,471 $ — $ — $ — $ 107,471

— 64,139 — — 64,139

Water 1,368 2,430 15,999 — 19,797

Salt 6,638 239 — — 6,877

Magnesium Chloride 6,804 — — — 6,804

Brines 1,777 — — — 1,777

Other — — 1,405 — 1,405

Total Revenue $ 124,058 $ 66,808 $ 17,404 $ — $ 208,270

— COMPENSATION PLANS

Cash Bonus Programs —At times, we use cash bonus programs under which employees may receive cash bonuses based on corporate, department, location, or individual performance or other events or accomplishments.

Note 12 — COMPENSATION PLANS

Cash Bonus Programs —At times, we use cash bonus programs under which our employees may be eligible to receive cash bonuses based on corporate, department, location, or individual performance or other events or accomplishments.

We accrue cash bonus expense related to the current year's performance.

We did not meet our performance metrics related to the 2019 cash bonus program, and accordingly, we will not be paying cash bonuses for 2019 under the program.

We did not meet our performance metrics related to the 2018 cash bonus program, and accordingly, we did not pay cash bonuses for 2018 under the program.

We did not implement a cash bonus program for 2017.

While we did meet certain performance metrics related to our 2020 cash bonus program, we did not pay a cash bonus under our 2020 cash bonus program.

We did not meet our performance metrics related to the 2019 and 2018 cash bonus programs, and accordingly, we did not pay a cash bonus for 2019 and 2018 under the program.

Equity Incentive Compensation Plan —Our Board of Directors and stockholders adopted a long-term incentive compensation plan called the Intrepid Potash, Inc.

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In 2020, the Compensation Committee granted 175,027 restricted shares to executives and key employees under the Plan as part of our annual equity award program.

The awards vest over two years, subject to continued employment or service.

In 2019, the Compensation Committee granted 128,395 restricted shares to non-employee members of the Board of Directors and one employee member of the Board of Directors under the Plan for their annual service as directors.

The awards vest over three years , subject to continued employment or service.

In 2020, the Compensation Committee granted 40,865 restricted shares to non-employee members of the Board of Directors.

The restricted shares vest one year after the date of grant, subject to continued service.

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• Restricted Shares with Service and Market Conditions — Under the Plan in 2020 and 2019, the Compensation Committee granted restricted shares of common stock with service and market conditions to a member of our executive team as part of his annual compensation package.

These restricted share grants contain

service and market conditions.

These grants vest over three years .

The market condition for the 2019 award has not been met as of December 31, 2019.

The market condition for the 2017 award was met in August 2017.

We did not grant any restricted shares of common stock with service and market conditions under the Plan during 2018.

These restricted share grants contain service and market conditions.

The 2020 grant vests over two years from the quarter ended in which the volume weighted average share closing price for 20 consecutive trading days has met one of the applicable price achievement targets;

provided, however, that no vesting would occur if the volume-weighted average closing price for 20 consecutive trading days has not met one or more applicable price achievement goals on or before June 8, 2024.

As of December 31, 2020, no share price achievement targets have been met for the 2020 grant.

The 2019 grant vests over three years ;

provided, however, that no vesting will occur unless and until the volume-weighted average share closing price meets the applicable share price achievement goal on or before March 13, 2024.

As of December 31, 2020, the applicable share price achievement goal for the 2019 award has not been met as of December 31, 2020.

We did no t grant any restricted shares of common stock with service and market conditions under the Plan during 2018.

We used a Monte Carlo simulation valuation model to estimate the fair value of these awards on the grant date.

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Estimated volatility 83.9 % 84.5 %

Expected life

Restricted Shares with Service and Performance Conditions —In 2019 the Compensation Committee granted 218,393 restricted shares of common stock to executive officers, and other key employees.

These restricted share grants vest one year after the grant date, subject to continued service and the company meeting certain performance goals.

We did not meet the performance goals and 218,393 restricted shares were canceled.

Expected life 6.0 years 4.8 years

A summary of all activity relating to our restricted shares for the year ended December 31, 2020, is presented below:

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Granted with service only condition 215,892 $ 14.49

Granted with service and performance conditions

Granted with service and market conditions 63,012 $ 19.22

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Forfeited, service only condition ( 14,556 ) $ 33.13

Forfeited, service and performance conditions

Restricted shares of common stock, end of period 362,399 $ 19.06

Non-qualified Stock Options

• Non-qualified Stock Options with Service-Based Vesting —The Compensation Committee did not grant any non-qualified stock options under the Plan during 2019.

• Non-qualified Stock Options with Service-Based Vesting —The Compensation Committee did no t grant any non-qualified stock options under the Plan during 2020 or 2019.

In 2018, the Compensation Committee granted 62,327 non-qualified stock options under the Plan to a member of our executive team as part of his annual compensation package.

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Option valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock.

We used the following assumptions to compute the weighted average fair market value of options with service-based vesting granted in 2018, and 2017:

We used the following assumptions to compute the weighted average fair market value of options with service-based vesting granted in 2018:

Closing stock price on grant date $ 39.00

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Estimated volatility 72.8 %

Expected option life

Expected option life 6.0 years

Our estimate of volatility was based on the historic volatility of our common stock over a period comparable to the expected life of the option.

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Treasury constant maturity yield at the time of grant.

• Non-qualified Stock Options with Service and Market Conditions —The Compensation Committee did not grant any non-qualified stock options with service and market conditions under the Plan during 2019.

• Non-qualified Stock Options with Service and Market Conditions —The Compensation Committee did no t grant any non-qualified stock options with service and market conditions under the Plan during 2020 and 2019.

In 2018, the Compensation Committee granted 93,491 non-qualified stock options with service and market conditions under the Plan to a member of our executive team as part of his annual compensation package.

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Valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock.

We used the following assumptions to compute the weighted average fair market value of options with service and market conditions granted in 2018 and 2017:

We used the following assumptions to compute the weighted average fair market value of options with service and market conditions granted in 2018:

Closing stock price on grant date $ 39.00

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Estimated volatility 75.0 %

Expected life

Expected life 10.0 years

Non-Qualified Stock Option Activity

A summary of all stock option activity for the year ended December 31, 2020, is as follows:

Weighted Average Exercise Price

Aggregate Intrinsic Value 1

Shares Weighted Average Exercise Price Aggregate Intrinsic Value 1

Weighted Average Remaining Contractual Life

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options, beginning of period 313,464 $ 32.53

Granted — $ —

Exercised ( 10,500 ) $ 10.30

Forfeited ( 338 ) $ 10.30

Expired ( 6,580 ) $ 108.39

Outstanding non-qualified stock

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1 The intrinsic value of a stock option is the amount by which the market value exceeds the exercise price as of the end of the period presented.

We did not grant any stock options during 2019.

The weighted-average fair value per share of options to purchase stock granted during 2018, and 2017, was $2.33 , and $1.38 per share, respectively.

The total intrinsic value of exercised options to purchase stock during 2019 was $41,000 and was $0.3 million in both 2018 and 2017.

— INCOME TAXES

We did no t grant any stock options during 2020 and 2019.

The weighted-average fair value per share of options to purchase stock granted during 2018, was $ 23.30 per share.

The total intrinsic value of exercised options to purchase stock during 2020 and 2019 was immaterial.

Note 13 — INCOME TAXES

We account for income taxes in accordance with ASC Topic 740, Income Taxes .

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Year Ended December 31,

2020 2019 2018

Current portion of income tax expense (benefit):

Federal $ ( 42 ) $ — $ 23

State 47 53 85

Deferred portion of income tax expense:

Total income tax expense (benefit)

A reconciliation of the federal statutory income tax rate of 21% for 2019 and 2018, and 35% for 2017 to our effective rate is as follows (in thousands, except percentages):

Federal — — —

Total income tax expense $ 5 $ 53 $ 108

A reconciliation of the federal statutory income tax rate of 21 % to our effective rate is as follows (in thousands, except percentages):

Year Ended December 31,

2020 2019 2018

Federal taxes at statutory rate $ ( 5,701 ) $ 2,874 $ 2,497

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Percentage depletion — ( 600 ) ( 656 )

Net expense (benefit) as calculated

Other 699 966 ( 700 )

Net expense as calculated $ 5 $ 53 $ 108

Effective tax rate — % 0.4 % 0.9 %

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federal statutory rate due to the valuation allowance.

During the year ended December 31, 2017, our effective tax rate was impacted by the decrease in our expected future rate at which our deferred tax assets will reverse due to newly enacted federal tax legislation, which reduced the value of our deferred tax assets by $115.5 million .

Since we have a full valuation allowance against our deferred tax assets, a corresponding decrease in our valuation allowance was also required.

The net decrease in our valuation allowance was $104.7 million for the year ended December 31, 2017.

Finally, our effective tax rate was impacted by a benefit of $2.7 million related to our ability to monetize existing alternative minimum tax credits through a carryback as well as an election available to taxpayers in 2017.

As of December 31, 2020, and 2019, we had gross deferred tax assets of $ 217.9 million and $ 211.6 million, respectively.

During the year ended December 31, 2019, our deferred tax assets decreased primarily due to varying business conditions for normal business transactions and operations as well as changes to state tax rates and apportionment laws.

During the year ended December 31, 2020, our deferred tax assets increased primarily from revenue recognized for income tax purposes before recognition for GAAP purposes, and from our 2020 net operating losses.

Included in gross deferred tax assets as of December 31, 2020 were approximately $ 241.3 million of federal net operating loss carryforwards, which expire beginning in 2033, and approximately $ 309.6 million of state net operating loss carry forwards, the majority of which begin to expire in 2033.

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Deferred revenue 7,651 4,371

Other 2,316 2,839

R&D credits 1,870 1,870

Total deferred tax assets 217,943 211,623

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We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing the relative impact of all the available positive and negative evidence regarding our forecasted taxable income using both historical and projected future operating results, the reversal of existing taxable temporary differences, taxable income in prior carryback years, as permitted by regulation, and the availability of tax planning strategies.

In determining how much of a valuation allowance to recognize we primarily 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.

The ultimate realization of deferred tax assets is dependent upon the generation of certain types of future taxable income during the periods in which those temporary differences become deductible.

Assumptions of expected future taxable income are based primarily on prices and forecasted sales volumes which are subject to market volatility.

In making this assessment, we consider the scheduled reversal of deferred tax liabilities, our ability to carry back the deferred tax asset, projected future taxable income, and tax planning strategies.

As of December 31, 2019, and 2018, we have a full valuation allowance against our deferred tax assets because we do not believe it is more likely than not that we will fully realize the benefit of the deferred tax assets.

During 2019, our valuation allowance decreased $6.8 million .

The decrease was mainly due to current year reversals of our deferred tax assets.

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.

Thus, we continue to have a full valuation allowance as of December 31, 2020, and 2019.

During 2020, our valuation allowance increased $ 6.3 million.

The increase was mainly due to current year increases of our deferred tax assets.

Our deferred tax asset, net of the valuation allowance, at both December 31, 2020, and 2019, is zero .

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With few exceptions, we are no longer subject to income tax audits that could result in an assessment for years prior to 2017.

— COMMITMENTS AND CONTINGENCIES

Reclamation Deposits and Surety Bonds —As of December 31, 2019 , and 2018 , we had $22.3 million and $19.0 million , respectively, of security placed principally with the State of Utah and the Bureau of Land Management for eventual reclamation of its various facilities.

Of this total requirement, as of December 31, 2019 , and 2018 , $0.5 million consisted of

long-term restricted cash deposits reflected in "Other" long-term assets on the balance sheet, and $21.8 million and $18.5 million , respectively, was secured by surety bonds issued by an insurer.

Note 14 — COMMITMENTS AND CONTINGENCIES

Reclamation Deposits and Surety Bonds —As of December 31, 2020, and 2019, we had $ 22.3 million of security placed principally with the State of Utah and the Bureau of Land Management for eventual reclamation of its various facilities.

Of this total requirement, as of December 31, 2020, and 2019, $ 0.5 million consisted of long-term restricted cash deposits reflected in "Other" long-term assets on the balance sheet, and $ 21.8 million was secured by surety bonds issued by an insurer.

The surety bonds are held in place by an annual fee paid to the issuer.

We may be required to post additional security to fund future reclamation obligations as reclamation plans are updated or as governmental entities change requirements.

Legal —In February 2015, Mosaic Potash Carlsbad Inc.

(“Mosaic”) filed a complaint and application for preliminary injunction and permanent injunction against Steve Gamble and us in the Fifth Judicial District Court for the County of Eddy in the State of New Mexico.

Legal —We are subject to claims and legal actions in the ordinary course of business.

We expense legal costs as incurred.

While there are uncertainties in predicting the outcome of any claim or legal action, except as noted below, we believe the ultimate resolution of these claims or actions is not reasonably likely to have a material adverse effect on our financial condition, results of operations, or cash flows.

Mosaic Settlement

In March 2020, we entered into a definitive settlement agreement with Mosaic Potash Carlsbad Inc.

("Mosaic") related to a compliant originally brought against us and Steve Gamble in February 2015.

Gamble is a former employee of Intrepid and Mosaic.

In August 2015, the court denied Mosaic’s application for preliminary injunction.

In July 2016, Mosaic filed a second complaint against Mr.

Gamble and us in U.S.

District Court for the District of New Mexico.

In January 2018, the two lawsuits were consolidated into one lawsuit pending in the U.S.

District Court for the District of New Mexico.

Mosaic alleges against us violations of the New Mexico Uniform Trade Secrets Act, tortious interference with contract relating to Mr.

Gamble’s separation of employment from Mosaic, violations of the Computer Fraud and Abuse Act, conversion, and civil conspiracy relating to the alleged misappropriation of Mosaic’s confidential information and related actions.

Mosaic seeks $23 million to $28 million in compensatory damages, $28 million to $37 million in exemplary damages, and attorneys' fees, punitive damages, injunctive relief, and future royalty damages in unspecified amounts.

A settlement conference is scheduled for March 25, 2020 and a trial date has been set for April 27, 2020 through May 8, 2020.

The lawsuit has progressed through discovery with many pending motions and additions concerning both the facts and confidentiality procedures concerning trade secrets.

We believe that we have defenses against the claims asserted and we are vigorously defending against the lawsuit.

We have recorded no loss contingency in our statements of operations related to this legal matter.

Under the terms of the settlement agreement, we paid Mosaic an aggregate of $ 10 million in May 2020 to dismiss all current and future claims arising from this matter against us and the matter is now closed.

In February 2019, Pecos Valley Artesian Conservancy District, Carlsbad Irrigation District, and Otis Mutual Domestic Water Consumers & Sewage Works Association (together, the "Protestants") filed an expedited inter se proceeding against us, Henry McDonald, Select Energy Services, LLC d/b/a Gregory Rockhouse Ranch, and Vision Resources, Inc.

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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.

We are currently allowed to sell water associated with 5,700 acre feet per year of these water rights under preliminary authorizations issued in 2017 and 2018 by the New Mexico Office of the State Engineer ("OSE").

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

The trial was subsequently rescheduled to December 2020.

A Mediation Conference was held on December 7, 2020, and since the two sides could not reach an agreement, a virtual trial began on December 8, 2020.

The trial concluded on December 18, 2020, and transcript was completed in late February 2021.

Closing briefs and proposed findings of fact and conclusions of law will be due to the court in April and we expect a ruling from the adjudication court in late spring or early summer of 2021.

We were allowed to sell water associated with 5,700 acre feet per year of these water rights under preliminary authorizations issued in 2017 and 2018 by the New Mexico Office of the State Engineer ("OSE").

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

Separate from the adjudication proceeding, the Protestants have protested these preliminary authorizations before the OSE.

Although the OSE is required to hold a hearing relating to the protests, it has temporarily stayed the hearing process until the adjudication process is complete.

In the adjudication proceeding, the court is expected to make a determination as to the size of our Pecos River water rights.

In addition, the Protestants are asking for unspecified monetary and injunctive relief, as well as attorneys' fees and costs, relating to our sale of water under these water rights and breach of contract claims.

We believe that our legal position with respect to the validity of our water rights is solid, and we are vigorously defending against this matter.

We have not recorded a loss contingency in our condensed consolidated statements of operations relating to this matter.

Separate from the adjudication proceeding discussed above, the Protestants have protested these preliminary authorizations before the OSE.

Although the OSE is required to hold a hearing relating to the protests, it had temporarily stayed the hearing process until the adjudication process is complete.

In December 2019, the protestants filed a Petition for Writ of Mandamus against the OSE concerning the preliminary authorizations.

A hearing regarding this Petition was held in March 2020, in the Fifth Judicial District Court for the County of Eddy in the State of New Mexico ("non-adjudication court") and the non-adjudication court granted the Writ of Mandamus against the OSE and required the OSE to withdraw and cancel seven preliminary authorizations issued to Intrepid in 2017 and 2018.

These seven preliminary authorizations, which allowed us to sell up to 4,700 acre feet of water annually, were cancelled by the OSE on April 1, 2020, and we are currently not allowed to sell water under these cancelled preliminary authorizations.

A Motion for Reconsideration was filed and a hearing was held before the non-adjudication court on September 1, 2020, and was denied by the non-adjudication court on October 5, 2020.

Subsequently, we and the OSE filed an appeal which is pending before the New Mexico Court of Appeals.

If we are unable to sell water from our Pecos River water rights, we may have to find other water sources to meet the water demand from certain customers.

Depending on the costs associated with replacing water from our Pecos River water rights, our margins on water sales to certain customers may decline.

If we are unsuccessful in finding other sources of water,

we could be in default under certain long-term agreements with customers.

We have received significant cash advances for the future delivery of water to a certain customer since 2018.

If we were unable to provide water to this customer, we could be in default under that agreement and we could be obligated to repay the outstanding contract liability.

More detail on our contract liabilities can be found in Note 11—Revenue.

We are subject to other claims and legal actions in the ordinary course of business.

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While there are uncertainties in predicting the outcome of any claim or legal action, we believe that the ultimate resolution of these other claims or actions is not reasonably likely to have a material adverse effect on our financial condition, results of operations, or cash flows.

— FAIR VALUE MEASUREMENTS

Note 15 — FAIR VALUE MEASUREMENTS

We measure our financial assets and liabilities in accordance with Accounting Standards Codification™ ("ASC") Topic 820, Fair Value Measurements and Disclosures.

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• Level 2—Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model‑derived valuations whose inputs are observable or whose significant value drivers are observable

Level 3—Significant inputs to the valuation model are unobservable

• Level 3—Significant inputs to the valuation model that are unobservable

As of December 31, 2020, and 2019, our cash consisted of bank deposits.

Other financial assets and liabilities including, accounts receivable, refundable income taxes, accounts payable, accrued liabilities, and advances on credit facility are carried at cost which approximates fair value because of the short-term nature of these instruments.

As of December 31, 2019, and 2018, the estimated fair value of our outstanding Notes was $50.0 million and $48.1 million , respectively.

In May of 2020, we acquired a non-controlling interest in W.D.

Von Gonten Laboratories ("WDVGL") for $ 3.5 million.

This investment is an equity investment without a readily determinable fair value and is recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer, or impairment (a Level 3 input), and is included in "Other assets, net" on the Consolidated Balance Sheets.

We did not record any adjustments to the $ 3.5 million carrying value of the investment during 2020.

As of December 31, 2020, and 2019, the carrying value and the estimated fair value of our outstanding Notes was $ 15.0 million and $ 50.0 million, respectively.

The fair value of our Notes is estimated using a discounted cash flow analysis based on current borrowing rates for debt with similar remaining maturities and ratings (a Level 2 input) and is designed to approximate the amount at which the instruments could be exchanged in an arm's-length transaction between knowledgeable willing parties.

— EMPLOYEE BENEFITS

Note 16 — EMPLOYEE BENEFITS

We maintain a savings plan qualified under Internal Revenue Code Sections 401(a) and 401(k).

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Internal Revenue Service to the 401(k) Plan (subject to certain restrictions) in before-tax contributions.

In January 2016, we elected to suspend matching employee contributions to the 401(k) Plan and resumed contributions to the 401(k) Plan in August 2016, matching employee contributions on a dollar-for-dollar basis up to a maximum of 2% of the employee's base compensation.

In January 2018, we increased the matching contributions on a dollar-for-dollar basis up to a maximum of 5 % of the employee's base compensation.

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Year Ended December 31, 2018 $ 1,410

— BUSINESS SEGMENTS

Note 17 — BUSINESS SEGMENTS

Our operations are organized into three segments:

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Information for each segment is provided in the tables that follow (in thousands).

Year Ended December 31, 2019

Oilfield Solutions

Year Ended December 31, 2020 Potash Trio ®

Oilfield Solutions Other Consolidated

$ 108,060 $ 70,287 $ 18,929 $ ( 322 ) $ 196,954

Freight costs 17,026 20,431 — ( 322 ) 37,135

Warehousing and handling costs

4,857 4,574 — — 9,431

Cost of goods sold

73,496 50,902 11,445 — 135,843

Lower of cost or NRV inventory adjustments

1,130 2,885 — — 4,015

Gross Margin (Deficit) $ 11,551 $ ( 8,505 ) $ 7,484 $ — $ 10,530

Depreciation, depletion, and amortization 2 incurred

Year Ended December 31, 2018

Oilfield Solutions

$ 26,536 $ 6,068 $ 2,663 $ 843 $ 36,110

Year Ended December 31, 2019 Potash Trio ®

Oilfield Solutions Other Consolidated

$ 124,648 $ 69,551 $ 27,894 $ ( 2,018 ) $ 220,075

Freight costs 18,715 20,514 936 ( 109 ) 40,056

Warehousing and handling costs

4,745 3,876 — — 8,621

Cost of goods sold

73,401 42,251 12,367 ( 1,909 ) 126,110

Lower of cost or NRV inventory adjustments

Gross Margin (Deficit)

— 1,810 — — 1,810

Gross Margin $ 27,787 $ 1,100 $ 14,591 $ — $ 43,478

Depreciation, depletion, and amortization incurred 2

Year Ended December 31, 2017

Oilfield Solutions

$ 25,796 $ 6,163 $ 1,566 $ 810 $ 34,335

Year Ended December 31, 2018 Potash Trio ®

Oilfield Solutions Other Consolidated

$ 124,058 $ 66,808 $ 17,404 $ — $ 208,270

Freight costs 17,682 19,370 — — 37,052

Warehousing and handling costs

5,046 4,225 10 — 9,281

Cost of goods sold

72,322 45,284 4,349 — 121,955

Lower of cost or NRV inventory adjustments

Gross (Deficit) Margin

— 1,711 — — 1,711

Gross Margin (Deficit) $ 29,008 $ ( 3,782 ) $ 13,045 $ — $ 38,271

Depreciation, depletion, and amortization incurred 2

$ 25,134 $ 6,343 $ 343 $ 395 $ 32,215

1 Segment sales include the sales of byproducts generated during the production of potash and Trio ® .

1 unchanged sentence

Total assets are not presented for each reportable segment as they are not reviewed by, nor otherwise regularly provided to, the chief operating decision maker.

— CONCENTRATION OF CREDIT RISK

Note 18 — CONCENTRATION OF CREDIT RISK

Credit risk represents the loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted.

12 unchanged sentences

At times, the balances in the accounts may exceed the $ 250,000 balance insured by the Federal Deposit Insurance Corporation.

— FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS

Note 19 — FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS

OF POSSIBLE FUTURE PUBLIC DEBT

5 unchanged sentences

There are no restrictions on our ability to obtain cash dividends or other distributions of funds from the subsidiary guarantors, except those imposed by applicable law.

— QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share amounts)

Three Months Ended

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

Cost of Goods Sold

Lower of cost or NRV inventory adjustments

Net Income (Loss)

Basic and Diluted Earnings

Three Months Ended

December 31, 2018

September 30, 2018

June 30, 2018

March 31, 2018

Cost of Goods Sold

Lower of cost or NRV inventory adjustments

Net Income (Loss)

Basic and Diluted Earnings

(Loss) Per Share

Certain prior period amounts have been reclassified in order to conform to the current period presentation.

These reclassifications had no effect on the reported gross margin or net income (loss).

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Balance at Beginning of Year

Charged to Costs and Expenses

Balance at End of Year

Description Balance at Beginning of Year Charged to Costs and Expenses Deductions Balance at End of Year

For the Year Ended December 31, 2018

19 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data