Intrepid Potash, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Intrepid Potash, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Intrepid Potash, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Change in Accounting Principle 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 The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting 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 56 Table of Contents 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. /s/ KPMG LLP We have served as the Company's auditor since 2007. Denver, Colorado March 2, 2021 57 Table of Contents INTREPID POTASH, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2020 2019 ASSETS Cash and cash equivalents $ 19,515 $ 20,603 Accounts receivable: Trade, net 22,516 23,749 Other receivables, net 1,856 1,247 Inventory, net 88,673 94,220 Other current assets 3,228 5,524 Total current assets 135,788 145,343 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 Income taxes payable — 50 Accrued liabilities 12,701 13,740 Accrued employee compensation and benefits 4,422 4,464 Other current liabilities 32,816 19,382 Advances on credit facility — 19,817 Current portion of long-term debt 10,000 20,000 Total current liabilities 67,217 87,445 Advances on credit facility 29,817 — Long-term debt, net 14,926 29,753 Asset retirement obligation 23,872 22,140 Operating lease liabilities 2,136 4,025 Other non-current liabilities 961 420 Total Liabilities 138,929 143,783 Commitments and Contingencies Common stock, $ 0.001 par value; 40,000,000 shares authorized: and 13,049,820 and 12,955,351 shares outstanding at December 31, 2020, and 2019, respectively 13 13 Additional paid-in capital 656,837 653,080 Accumulated deficit ( 245,591 ) ( 218,437 ) Total Stockholders' Equity 411,259 434,656 Total Liabilities and Stockholders' Equity $ 550,188 $ 578,439 See accompanying notes to these consolidated financial statements. 58 Table of Contents INTREPID POTASH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) Year Ended December 31, 2020 2019 2018 Sales $ 196,954 $ 220,075 $ 208,270 Less: Freight costs 37,135 40,056 37,052 Warehousing and handling costs 9,431 8,621 9,281 Cost of goods sold 135,843 126,110 121,955 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 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 ) 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. 59 Table of Contents INTREPID POTASH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share amounts) 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 Net income — — — 11,783 11,783 Stock-based compensation — — 4,179 — 4,179 Vesting of restricted shares, net of common stock used to fund employee income tax withholding due upon vesting 97,506 — ( 903 ) — ( 903 ) Exercise of stock options 9,500 — 114 — 114 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 Vesting of restricted shares, net of common stock used to fund employee income tax withholding due upon vesting 81,617 — ( 521 ) — ( 521 ) Exercise of stock options 2,075 — 2 — 2 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 Vesting of restricted shares, net of common stock used to fund employee income tax withholding due upon vesting 83,969 — ( 172 ) — ( 172 ) Exercise of stock options 10,500 — 108 — 108 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. 60 Table of Contents INTREPID POTASH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 2019 2018 Cash Flows from Operating Activities: 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 Amortization of intangible assets 322 214 — Accretion of asset retirement obligation 1,738 1,793 1,668 Amortization of deferred financing costs 425 303 732 Stock-based compensation 3,821 4,281 4,179 Reserve for obsolescence 492 — — Allowance for doubtful accounts 75 75 100 (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: Trade accounts receivable, net 1,158 1,337 ( 7,484 ) Other receivables, net ( 609 ) ( 650 ) 165 Refundable income taxes — — 2,663 Inventory, net ( 291 ) ( 11,525 ) ( 67 ) Other current assets 2,305 ( 1,019 ) 1,762 Accounts payable, accrued liabilities, and accrued employee compensation and benefits 2,331 2,280 1,740 Income tax payable ( 50 ) ( 865 ) 914 Operating lease liabilities ( 2,234 ) ( 2,090 ) — Other liabilities 13,379 5,374 12,247 Net cash provided by operating activities 31,145 49,381 64,237 Cash Flows from Investing Activities: Additions to property, plant, equipment, mineral properties and other assets ( 16,443 ) ( 63,836 ) ( 16,891 ) Additions to intangible assets — ( 16,873 ) — 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: Repayment of long-term debt ( 35,000 ) — ( 10,000 ) Debt prepayment costs ( 1,869 ) — ( 402 ) 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 ) Employee tax withholding paid for restricted shares upon vesting ( 172 ) ( 540 ) ( 903 ) Proceeds from exercise of stock options 108 21 114 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 Cash, Cash Equivalents, and Restricted Cash, beginning of period 21,239 33,704 1,549 Cash, Cash Equivalents, and Restricted Cash, end of period $ 20,184 $ 21,239 $ 33,704 Supplemental disclosure of cash flow information Net cash paid (received) during the period for: 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 See accompanying notes to these consolidated financial statements. 61 Table of Contents INTREPID POTASH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS "Intrepid," "our," "we," or "us" means Intrepid Potash, Inc. and its consolidated subsidiaries. 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. We are the only U.S. producer of muriate of potash (sometimes referred to as potassium chloride or potash), which is applied as an essential nutrient for healthy crop development, utilized in several industrial applications, and used as an ingredient in animal feed. In addition, we produce a specialty fertilizer, Trio ® , which delivers three key nutrients, potassium, magnesium, and sulfate, in a single particle. We also provide water, magnesium chloride, brine and various oilfield products and services. Our extraction and production operations are conducted entirely in the continental United States. We produce potash from three solution mining facilities: our HB solution mine in Carlsbad, New Mexico, our solution mine in Moab, Utah and our brine recovery mine in Wendover, Utah. We also operate our North compaction facility in Carlsbad, New Mexico, which compacts and granulates product from the HB mine. We produce Trio ® from our conventional underground East mine in Carlsbad, New Mexico. 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, 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: potash, Trio ® , and oilfield solutions. We account for the sales of byproducts as revenue in the potash or Trio ® segment, based on which segment generates the byproduct. 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. We manage sales and marketing operations centrally. This allows us to evaluate the product needs of our customers and then centrally determine which of our production facilities to use to fill customer orders in a manner designed to realize the highest average net realized sales price per ton. Average net realized sales price per ton is a non-GAAP measure that we calculate for each of potash and Trio ® as segment sales less segment byproduct sales and segment freight costs, divided by the number of tons of product sold in the period. We also monitor product inventory levels and overall production costs centrally. Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates — The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. Significant estimates include, but are not limited to, those for proven and probable mineral reserves, the related present value of estimated future net cash flows, useful lives of plant assets, asset retirement obligations, normal inventory production levels, inventory valuations, the valuation of equity awards, revenue from products we sell to customers where the price is variable, the valuation of receivables, estimated future net cash flows used in long-lived assets impairment analysis, the related valuation of our long-lived assets, valuation of our deferred tax assets and estimated blended income tax rates utilized in the current and deferred income tax calculations. There are numerous uncertainties inherent in estimating quantities of proven and probable reserves, projecting future rates of production, and the timing of development expenditures. 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 62 Table of Contents 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. Revenue Recognition — We account for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606 Revenue from Contracts with Customers ("ASC 606"). 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. Performance Obligations: A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. The contract's transaction price is allocated to the performance obligations and recognized as revenue when the performance obligations are satisfied. Substantially all of our contracts are of a short-term nature and contain a single performance obligation because the sale is for one type of product and shipping and handling charges are accounted for as a fulfillment cost and are not considered to be a separate performance obligation. The performance obligation is satisfied when control of the product is transferred to the customer, which typically occurs when we ship mineral products or deliver water from our facility to the customer. We account for substantially all of our revenue from sales to customers at a single point in time. Contract Estimates: In certain circumstances, we may sell product to customers where the sales price is variable. 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: The timing of revenue recognition, billings, and cash collection may result in contract assets or contract liabilities. For certain contracts, the customer has agreed to pay us before we have satisfied our performance obligations. Customer payments received before we have satisfied our performance obligations are accounted for as a contract liability. Disaggregation of Revenue: We present disaggregation of revenue by products which we believe best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic conditions. Inventory and Long-Term Parts Inventory — Inventory consists of product and byproduct stocks that are ready for sale; mined ore; potash in evaporation ponds, which is considered work-in-process; and parts and supplies inventory. Product and byproduct inventory cost is determined using the lower of weighted average cost or estimated net realizable value and includes direct costs, maintenance, operational overhead, depreciation, depletion, and equipment lease costs applicable to the production process. Direct costs, maintenance, and operational overhead include labor and associated benefits. We evaluate our production levels and costs to determine if any should be deemed abnormal and therefore excluded from inventory costs and expensed directly during the applicable period. The assessment of normal production levels is judgmental and unique to each period. 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. Parts and supply inventory cost is determined using the lower of average acquisition cost or estimated replacement cost. Detailed reviews are performed related to the net realizable value of parts inventory, giving consideration to quality, slow-moving items, obsolescence, excessive levels, and other factors. Parts inventories that have not turned over in more than a year, excluding parts classified as critical spares, are reviewed for obsolescence and, if deemed appropriate, are included in the determination of an allowance for obsolescence. Property, Plant, Equipment, Mineral Properties, and Development Costs — Property, plant, and equipment are stated at historical cost. Expenditures for property, plant, and equipment relating to new assets or improvements are capitalized, provided the expenditure extends the useful life of an asset or extends the asset's functionality. Property, plant, and equipment are depreciated under the straight-line method using estimated useful lives. The estimated useful lives of property, plant, and equipment are evaluated periodically as changes in estimates occur. No depreciation is taken on assets classified as construction in progress until the asset is placed into service. Gains and losses are recorded upon retirement, sale, or disposal of assets. Maintenance and repair costs are recognized as period costs when incurred. Capitalized interest, to the 63 Table of Contents 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. The lives of reserves used for accounting purposes are shorter than current reserve life determinations due to uncertainties inherent in long-term estimates. These reserve life estimates have been prepared by us and reviewed and independently determined by mine consultants. Tons of potash and langbeinite in the proven and probable reserves are expressed in terms of expected finished tons of product to be realized, net of estimated losses. Market price fluctuations of potash or Trio ® , as well as increased production costs or reduced recovery rates, could render proven and probable reserves containing relatively lower grades of mineralization uneconomic to exploit and might result in a reduction of reserves. In addition, the provisions of our mineral leases, including royalty provisions, are subject to periodic readjustment by the state and federal government, which could affect the economics of our reserve estimates. Significant changes in the estimated reserves could have a material impact on our results of operations and financial position. Recoverability of Long-Lived Assets — We evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable. An impairment is potentially considered to exist if an asset group's total estimated net future cash flows on an undiscounted basis are less than the carrying amount of the related asset. An impairment loss is measured and recorded based on the excess of the carrying amount of long-lived assets over its estimated fair value. Changes in significant assumptions underlying future cash flow estimates or fair values of asset groups may have a material effect on our financial position and results of operations. Sales price is a significant element of any cash flow estimate, particularly for higher cost operations. Other assumptions we estimate include, among other things, the economic life of the asset, sales volume, inflation, raw materials costs, cost of capital, tax rates, and capital spending. Factors we generally will consider important and which could trigger an impairment review of the carrying value of long-lived assets include the following: • significant underperformance relative to expected operating results or operating losses • significant changes in the manner of use of assets or the strategy for our overall business • the denial or delay of necessary permits or approvals that would affect the utilization of our tangible assets • underutilization of our tangible assets • discontinuance of certain products by us or our customers • a decrease in estimated mineral reserves • significant negative industry or economic trends Intangible Assets — Water rights are accounted for as indefinite-lived intangible assets. We test indefinite-lived intangible assets for impairment at least annually on October 1, and more frequently if circumstances require. We use a qualitative assessment to determine whether it is more likely than not that the fair value of the unamortized intangible is less than its carrying value. If our qualitative assessment indicates it is more likely than not that the fair value of the unamortized assets is less than its carrying value, we estimate the fair value of the unamortized asset and record an impairment loss based on the excess of the carrying amount of the unamortized intangible asset over its estimated fair value. Fair value is estimated using quoted market prices, if available. If quoted market prices are not available, the estimated fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. Changes in significant assumptions underlying fair value estimates may have a material effect on our financial position and results of operations. We also have finite-lived intangible assets consisting of contractual agreements. These intangible assets are amortized over the period of estimated benefit using the straight-line method. No significant residual value is estimated for our finite-lived intangible assets. We estimate the useful life of intangible assets considering various factors, including but not limited to, the expected use of the asset, the expected life of other assets the intangible asset may relate, any legal, regulatory, contractual provisions, or relevant economic factors that may limit the use of the intangible asset. We evaluate the remaining useful lives of intangible assets each reporting period to determine if a revision to the asset's remaining life is necessary. Changes in significant assumptions underlying useful lives may have a material effect on our financial position and results of operations. 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, 64 Table of Contents 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. Leases — We determine if an arrangement is a lease or contains a lease at inception. Operating and finance lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. If readily determinable, we use the implicit rate in the lease to determine the present value of future lease payments. If the implicit rate is not readily determinable, we use an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating right-of-use ("ROU") assets and finance lease assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component and we do not apply the requirements of ASC Topic 842 to short-term leases with a term of one year or less at inception. Income Taxes — We are a subchapter C corporation and, therefore, are subject to U.S. federal and state income taxes. We recognize income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized. We record a valuation allowance if it is deemed more likely than not that our deferred income tax assets will not be realized in full. These determinations are subject to ongoing assessment. Cash and Cash Equivalents — Cash and cash equivalents consist of cash and liquid investments with an original maturity of three months or less. Fair Value of Financial Instruments — Our financial instruments include cash and cash equivalents, restricted cash, accounts receivable, refundable income taxes, accounts payable and current accrued liabilities. These instruments are carried at cost, which approximates fair value due to the short-term maturities of the instruments. Allowances for doubtful accounts are recorded against the accounts receivable balance to estimate net realizable value. The fair value of the long-term debt is estimated using discounted cash flow analysis based on current borrowing rates for debt with similar remaining maturities and ratings. Amounts outstanding under our secured credit facility are carried at cost, which approximates fair value, due to the short-term nature of the borrowings. Earnings per Share — Basic net income or loss per common share of stock is calculated by dividing net income or loss available to common stockholders by the weighted average basic common shares outstanding for the respective period. Diluted net income per common share of stock is calculated by dividing net income by the weighted average diluted common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for the diluted earnings or loss per share calculation consist of awards of restricted shares, performance units, and non‑qualified stock options. The dilutive effect of stock-based compensation arrangements is computed using the treasury‑stock method. Following the lapse of the vesting period of restricted shares, the shares are considered issued and therefore are included in the number of issued and outstanding shares for purposes of these calculations. 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. 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, 65 Table of Contents 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. Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU No. 2016-13, as amended by ASU No. 2019-04 and ASU No. 2019-10, Financial Instruments - (Topic 326): 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. 2016-02, Leases , ("ASC Topic 842"), which we adopted on January 1, 2019, using a modified retrospective method, applying the new standard to all leases existing at the date of initial application. We used the effective date as our date of initial application. Consequently, financial information will not be updated, and disclosures required under the new standard will not be provided for dates before January 1, 2019. The new standard requires lessees to recognize lease assets and liabilities on their balance sheet for those leases classified as operating leases under previous GAAP. These assets and liabilities are recorded generally at the present value of the contracted lease payments, using the rate implicit in the lease if known. If the implicit rate is not known, we use our estimated incremental borrowing rate. We do not account for lease and non-lease components separately and we do not apply the requirements of ASC Topic 842 to short-term leases with a term of one year or less at inception. Lease expense is recognized on a straight-line basis over the lease term. 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. 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. 66 Table of Contents 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. For purposes of determining diluted earnings per share, basic weighted-average common shares outstanding is adjusted to include potentially dilutive securities, including restricted stock, stock options, and performance units. The treasury-stock method is used to measure the dilutive impact of potentially dilutive shares. Potentially dilutive shares are excluded from the diluted weighted-average shares outstanding computation in periods in which they have an anti-dilutive effect. The following table shows the calculation of basic and diluted earnings (loss) per share (in thousands, except per share amounts): Year Ended December 31, 2020 2019 2018 Net (loss) income $ ( 27,154 ) $ 13,631 $ 11,783 Basic weighted average common shares outstanding 12,993 12,905 12,807 Add: Dilutive effect restricted common stock — 121 198 Add: Dilutive effect of stock options outstanding — 79 93 Diluted weighted average common shares outstanding 12,993 13,105 13,099 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 67 Table of Contents 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 Restricted cash included in "Other current assets" 150 150 — Restricted cash included in "Other assets, net" 519 486 482 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 20,184 $ 21,239 $ 33,704 Restricted cash included in "Other assets, net" on the balance sheet at December 31, 2020, 2019, and 2018 represents amounts whose use is restricted by contractual agreements with the Bureau of Land Management or the State of Utah as security to fund future reclamation obligations at our sites. Restricted cash included in "Other current assets" on the balance sheet at December 31, 2020 represents a cash deposit with a supply vendor. 68 Table of Contents 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): December 31, 2020 2019 Finished goods product inventory $ 48,961 $ 55,585 In-process inventory 28,833 25,591 Total product inventory 77,794 81,176 Current parts inventory, net 10,879 13,044 Total current inventory, net 88,673 94,220 Long-term parts inventory, net 28,900 27,569 Total inventory, net $ 117,573 $ 121,789 Parts inventories are shown net of any required allowances. 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. 69 Table of Contents Note 6 — PROPERTY, PLANT, EQUIPMENT, AND MINERAL PROPERTIES " Property, plant, equipment, and mineral properties, net" were comprised of the following (in thousands): December 31, 2020 2019 Land $ 27,263 $ 27,274 Ponds and land improvements 67,843 65,992 Mineral properties and development costs 143,955 143,988 Buildings and plant 81,692 81,468 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 Total property, plant, equipment, and mineral properties, gross $ 612,468 $ 602,863 Less: accumulated depreciation, depletion, and amortization ( 256,971 ) ( 224,354 ) Total property, plant, equipment, and mineral properties, net $ 355,497 $ 378,509 We incurred the following expenses for depreciation, depletion, and amortization of ROU assets, including expenses capitalized into inventory, for the following periods (in thousands): 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 70 Table of Contents Note 7 — LEASES We determine if an arrangement is a lease or contains a lease at inception. We have operating leases for mining equipment, trucks, rail cars, and office space. Our operating leases have remaining leases terms ranging from less than one year to five years. Leases recorded on the balance sheet consist of the following (amounts in thousands): Leases Classification on the Balance Sheet Balance, December 31, 2020 Balance, December 31, 2019 Assets 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 $ — Liabilities 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: December 31, 2020 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, 2020 For the Year Ended December 31, 2019 Operating lease expense $ 2,434 $ 2,410 Short-term lease expense 117 107 Total lease expense $ 2,551 $ 2,517 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): 71 Table of Contents 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 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 Less - amount representing interest 183 7 190 Present value of future minimum lease payments $ 4,193 1,258 5,451 Less - current lease obligations 2,057 1,258 3,315 Long-term lease obligations $ 2,136 $ — $ 2,136 72 Table of Contents 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. We account for our water rights as indefinite-lived intangible assets. We account for the other intangible assets acquired in the Intrepid South asset acquisition as finite-lived intangible assets and amortize those intangible assets over the period of estimated benefit, using the straight-line method. The weighted-average amortization period for the other intangible assets acquired in the Intrepid South asset acquisition was 20 years. These intangible assets are included in "Other assets, net" on the consolidated balance sheets. As of December 31, 2020, and December 31, 2019, we have the following amounts recorded for intangible assets (amounts in thousands): December 31, 2020 December 31, 2019 Finite-lived intangible assets: 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 ) Total $ 6,417 $ ( 536 ) $ 6,435 $ ( 214 ) Indefinite-lived intangible assets: Water rights $ 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. 73 Table of Contents 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. Our fixed charge coverage ratio as of December 31, 2020, was 2.9 to 1.0, therefore we were in compliance with this covenant. • We are allowed a maximum leverage ratio of 3.5 to 1.0 as of the last day of each quarter, measured based on the previous four quarters. 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 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 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, 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 ) Long-term portion of Notes, net $ 14,926 $ 29,753 Credit Facility —We maintain a secured revolving credit facility with Bank of Montreal. In August 2019, we amended and restated the credit facility to change it from an asset-backed facility to a cash-flow facility, to increase the amount available under the facility from $ 50 million to $ 75 million plus an additional $ 75 million accordion, and to extend the maturity date to August 1, 2024 . The revolving credit facility also provides for a $ 7.5 million sublimit for the issuance of letters of credit. As of December 31, 2020, borrowings under the credit facility bore interest at LIBOR (London Interbank Offered Rate) plus an applicable margin of 1.25 % to 2.00 % per annum, based on our leverage ratio. We have granted to Bank of Montreal a first lien on substantially all of our current assets and a second lien on substantially all of our non-current assets. The obligations under the credit facility are unconditionally guaranteed by several of our subsidiaries. We occasionally borrow and repay amounts under the facility for near-term working capital needs or other purposes and may do so in the future. 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, 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. 74 Table of Contents 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. 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. We incurred gross interest expense of $ 4.4 million, $ 3.2 million, and $ 4.0 million for the years ended December 31, 2020, 2019, and 2018, respectively. Amounts included in interest expense for the years ended December 31, 2020, 2019, and 2018 (in thousands) are as follows: Year ended December 31, 2020 2019 2018 Interest expense on borrowings $ 2,107 $ 2,908 $ 2,849 Make-whole payments 1,868 — 402 Amortization of deferred financing costs 425 303 732 Gross interest expense 4,400 3,211 3,983 Less capitalized interest 111 180 128 Interest expense, net $ 4,289 $ 3,031 $ 3,855 Note 10 — ASSET RETIREMENT OBLIGATION We recognize an estimated liability for future costs associated with the abandonment and reclamation of our mining properties. A liability for the fair value of an asset retirement obligation and a corresponding increase to the carrying value of the related long-lived asset are recorded as the mining operations occur or the assets are acquired. Our asset retirement obligation is based on the estimated cost to abandon and reclaim the mining operations, the economic life of the properties, and federal and state regulatory requirements. The liability is discounted using credit adjusted risk-free rate estimates at the time the liability is incurred or when there are upward revisions to estimated costs. The credit adjusted risk-free rates used to discount our abandonment liabilities range from 6.9 % to 9.7 %. Revisions to the liability occur due to construction of new or expanded facilities, changes in estimated abandonment costs or economic lives, changes in the estimated timing of the reclamation activities or if federal or state regulators enact new requirements regarding the abandonment or reclamation of mines. 75 Table of Contents Following is a table of the changes to our asset retirement obligations for the following periods (in thousands): Year Ended December 31, 2020 2019 2018 Asset retirement obligation, at beginning of period $ 22,250 $ 23,125 $ 21,476 Liabilities settled ( 116 ) ( 38 ) ( 19 ) Liabilities incurred — 60 — Changes in estimated obligations — ( 2,690 ) — Accretion of discount 1,738 1,793 1,668 Total asset retirement obligation, at end of period $ 23,872 $ 22,250 $ 23,125 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 . 76 Table of Contents 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, 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 $ — 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 Disaggregation of Revenue — The table below shows the disaggregation of revenue by product and reconciles disaggregated revenue to segment revenue for the years ended December 31, 2020, 2019, and 2018. We believe the disaggregation of revenue by products best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic conditions (in thousands): Year Ended December 31, 2020 Product Potash Segment Trio ® Segment Oilfield Solutions Segment Intersegment Eliminations Total Potash $ 92,500 $ — $ — $ ( 322 ) $ 92,178 Trio ® — 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 77 Table of Contents Year Ended December 31, 2019 Product Potash Segment Trio ® Segment Oilfield Solutions Segment Intersegment Eliminations Total Potash $ 103,403 $ — $ 2,973 $ ( 1,909 ) $ 104,467 Trio ® — 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 Product Potash Segment Trio ® Segment Oilfield Solutions Segment Intersegment Eliminations Total Potash $ 107,471 $ — $ — $ — $ 107,471 Trio ® — 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 78 Table of Contents 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. 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. Amended and Restated Equity Incentive Plan (the "Plan"). We have issued restricted shares, common stock, performance units, and non-qualified stock option awards under the Plan. As of December 31, 2020, 362,399 restricted shares and options to purchase 296,046 shares of common stock were outstanding. As of December 31, 2020, approximately 0.7 million shares of common stock remained available for issuance under the Plan. Total compensation expense related to the Plan was $ 3.8 million, $ 4.3 million, and $ 4.2 million, for the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020, there was $ 4.6 million of total remaining unrecognized compensation expense that is expected to be recognized over a weighted-average period of 1.6 years. When restricted shares and performance units vest and when stock options are exercised, new shares are issued and considered outstanding for financial statement purposes. Restricted Shares • Restricted Shares with Service Conditions —Under the Plan, the Compensation Committee of the Board of Directors (the "Compensation Committee") has granted restricted shares of common stock to members of the Board of Directors, executive officers, and other key employees. The restricted shares contain service conditions associated with continued employment or service. The restricted shares provide voting and regular dividend rights to the holders of the awards. 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 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. We use the closing price of our common stock on the grant date as the grant date fair value for these awards. We record compensation expense monthly using the straight-line recognition method over the vesting period of the award. The weighted-average grant date fair value per share for restricted shares with service conditions issued in 2020, 2019, and 2018 was $ 14.49 , $ 34.70 , and $ 41.60 , respectively. • 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. 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. We record compensation expense monthly using the accelerated recognition method over the longer of the explicit or derived service period of the award. The weighted-average grant date fair value per share of restricted shares with service and market conditions issued in 2020, and 2019, was $ 19.22 and $ 28.90 , respectively. 79 Table of Contents 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 grant date fair market value of restricted stock with service and market conditions granted in 2020 and 2019: 2020 2019 Closing stock price on grant date $ 13.80 $ 33.10 Risk free interest rate 0.6 % 2.2 % Dividend yield — % — % Estimated volatility 83.9 % 84.5 % 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: Weighted Average Grant-Date Fair Value Shares Restricted shares of common stock, beginning of period 199,374 $ 25.95 Granted with service only condition 215,892 $ 14.49 Granted with service and market conditions 63,012 $ 19.22 Vested, service only condition ( 82,649 ) $ 22.62 Vested, service and market conditions ( 18,674 ) $ 13.62 Forfeited, service only condition ( 14,556 ) $ 33.13 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 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. The stock options have a ten-year term from the grant date and vest over three years . In measuring compensation expense for options, we estimated the fair value of the award on the grant date using the Black‑Scholes option valuation model. We record compensation expense monthly using the straight-line recognition method over the vesting period of the award. 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: 2018 Closing stock price on grant date $ 39.00 Risk free interest rate 1.1 % Dividend yield — % Estimated volatility 72.8 % Expected option life 6.0 years 80 Table of Contents 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. The estimate of expected option life was determined based on the "simplified method," giving consideration to the overall vesting period and the contractual terms of the award. This method was used because we have very little option exercise history for options issued under the Plan. The risk-free interest rate for the period that matched the option awards' expected life was based on the U.S. Treasury constant maturity yield at the time of grant. • 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. The stock options vest in three equal annual installments, subject to continued employment; provided, however, that no vesting would occur unless and until the volume-weighted average closing market price or our common stock equals or exceeds $ 58.50 for 20 consecutive trading days on or before the five-year anniversary of the grant date. As of December 31, 2020, the market condition has not been met. We used a Monte Carlo simulation valuation model to estimate the fair value of these awards on their grant dates. We record compensation expense monthly using the accelerated recognition method over the longer of the explicit or derived service period of the award. 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: 2018 Closing stock price on grant date $ 39.00 Risk free interest rate 2.9 % Dividend yield — % Estimated volatility 75.0 % 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: Shares Weighted Average Exercise Price Aggregate Intrinsic Value 1 Weighted Average Remaining Contractual Life Outstanding non-qualified stock 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 options, end of period 296,046 $ 31.66 $ 1,246,835 6.5 Vested or expected to vest, end of period 296,046 $ 31.66 $ 1,246,835 6.5 Exercisable non-qualified stock options, end of period 181,779 $ 27.04 $ 1,246,835 6.1 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. 81 Table of Contents 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 . This standard requires the recognition of deferred tax assets and liabilities for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at enacted tax rates in effect when the related taxes are expected to be settled or realized. We recognize income taxes in each of the tax jurisdictions where we conduct business. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A summary of the provision for income taxes is as follows (in thousands): 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: Federal — — — State — — — 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 Add: State taxes, net of federal benefit ( 1,316 ) 1,245 1,663 Change in valuation allowance 6,320 ( 6,754 ) ( 3,330 ) Change in federal and state tax rates 3 2,322 634 Percentage depletion — ( 600 ) ( 656 ) Other 699 966 ( 700 ) Net expense as calculated $ 5 $ 53 $ 108 Effective tax rate — % 0.4 % 0.9 % Our effective tax rate for the years ended December 31, 2020, 2019, and 2018, differs from the U.S. federal statutory rate due to the valuation allowance. 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, 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. Also included are $ 1.9 million of federal research and development credits which begin to expire in 2031. The federal loss carryforward could be subject to examination by the tax authorities within three years after the carryforward is utilized, while the state net operating loss carryforwards could be subject to examination by the tax authorities generally within three and four years after the carryforward is utilized, depending on jurisdiction. 82 Table of Contents Significant components of our deferred tax assets and liabilities were as follows (in thousands): December 31, 2020 2019 Deferred tax assets (liabilities): Property, plant, equipment and mineral properties, net $ 133,720 $ 133,586 Federal and state net operating loss carryforwards 66,316 63,194 Asset retirement obligation 6,070 5,763 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 Valuation allowance ( 217,943 ) ( 211,623 ) Deferred tax asset, net $ — $ — In assessing the need for a valuation allowance, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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, 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 . The estimated statutory income tax rates that are applied to our current and deferred income tax calculations are impacted most significantly by the tax jurisdictions in which we conduct business. Changing business conditions for normal business transactions and operations, as well as changes to state tax rates and apportionment laws, potentially alter the apportionment of income among the states for income tax purposes. These changes to apportionment laws result in changes in the calculation of our current and deferred income taxes, including the valuation of our deferred tax assets and liabilities. The effects of any such changes are recorded in the period of the adjustment. Such adjustments can increase or decrease the net deferred tax asset on the balance sheet and impact the corresponding deferred tax benefit or deferred tax expense on the statement of operations. A decrease of our state tax rate decreases the value of its deferred tax asset, resulting in additional deferred tax expense being recorded in the income statement. Conversely, an increase in our state income tax rate would increase the value of the deferred tax asset, resulting in an increase in our deferred tax benefit. Because of the magnitude of the temporary differences between our book and tax basis in the assets, relatively small changes in the state tax rate may have a pronounced impact on the value of our net deferred tax asset. Each quarter we evaluate the need for a liability for uncertain tax positions. At December 31, 2020, and 2019, there were no items that required disclosure in accordance with FASB guidance on accounting for uncertainty in income taxes. We operate, and accordingly file income tax returns, in the U.S. federal jurisdiction and various U.S. state jurisdictions. With few exceptions, we are no longer subject to income tax audits that could result in an assessment for years prior to 2017. 83 Table of Contents 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 —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. Mr. Gamble is a former employee of Intrepid and Mosaic. 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. Water Rights 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. in the Fifth Judicial District Court for the County of Chaves in the State of New Mexico. This court serves as the adjudication court for the Pecos Stream System, which includes the Pecos River. The Protestants challenge the validity of our Pecos River water rights, representing approximately 20,000 acre feet per year. 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 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 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, 84 Table of Contents 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. Legal costs are expensed as incurred. 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. 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. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The topic establishes market or observable inputs as the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The topic also establishes a hierarchy for grouping these assets and liabilities based upon the lowest level of input that is significant to the fair value measurement. The definition of each input is described below: • Level 1—Quoted prices in active markets for identical assets and liabilities • 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 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. 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. Note 16 — EMPLOYEE BENEFITS 401(k) Plan We maintain a savings plan qualified under Internal Revenue Code Sections 401(a) and 401(k). The 401(k) Plan is available to eligible employees of our consolidated entities. Employees may contribute amounts as allowed by the U.S. Internal Revenue Service to the 401(k) Plan (subject to certain restrictions) in before-tax contributions. 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. Our contributions to the 401(k) Plan in the following periods were (in thousands): Contributions Year Ended December 31, 2020 $ 1,569 Year Ended December 31, 2019 $ 1,522 Year Ended December 31, 2018 $ 1,410 85 Table of Contents Note 17 — BUSINESS SEGMENTS Our operations are organized into three segments: potash, Trio ® , and oilfield solutions. The reportable segments are determined by management based on several factors including the types of products and services sold, production processes, markets served and the financial information available for our chief operating decision maker. We evaluate performance based on the gross margins of the respective business segments and do not allocate corporate selling and administrative expenses, among others, to the respective segments. Intersegment sales prices are market-based and are eliminated in the "Other" column. Information for each segment is provided in the tables that follow (in thousands). Year Ended December 31, 2020 Potash Trio ® Oilfield Solutions Other Consolidated Sales 1 $ 108,060 $ 70,287 $ 18,929 $ ( 322 ) $ 196,954 Less: 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 $ 26,536 $ 6,068 $ 2,663 $ 843 $ 36,110 Year Ended December 31, 2019 Potash Trio ® Oilfield Solutions Other Consolidated Sales 1 $ 124,648 $ 69,551 $ 27,894 $ ( 2,018 ) $ 220,075 Less: 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 — 1,810 — — 1,810 Gross Margin $ 27,787 $ 1,100 $ 14,591 $ — $ 43,478 Depreciation, depletion, and amortization incurred 2 $ 25,796 $ 6,163 $ 1,566 $ 810 $ 34,335 Year Ended December 31, 2018 Potash Trio ® Oilfield Solutions Other Consolidated Sales 1 $ 124,058 $ 66,808 $ 17,404 $ — $ 208,270 Less: 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 — 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 ® . 2 Depreciation, depletion, and amortization incurred for potash and Trio ® excludes depreciation, depletion, and amortization absorbed in or (relieved from) inventory. 86 Table of Contents 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. 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. Concentrations of credit risk, whether on- or off-balance sheet, that arise from financial instruments exist for counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Our products are marketed for sale into three primary markets. These markets are the agricultural market as a fertilizer, the industrial market as a component in drilling fluids for oil and gas exploration, and the animal feed market as a nutrient. Credit risks associated with the collection of accounts receivable are primarily related to the impact of external factors on our customers. Our customers are distributors and end-users whose credit worthiness and ability to meet their payment obligations will be affected by factors in their industries and markets. Those factors include soil nutrient levels, crop prices, weather, the type of crops planted, changes in diets, growth in population, the amount of land under cultivation, fuel prices and consumption, oil and gas drilling and completion activity, the demand for biofuels, government policy, and the relative value of currencies. Our industrial sales are significantly influenced by oil and gas drilling activity. In 2020, 2019, and 2018, no customer accounted for more than 10% of our sales. Because of the size of our company compared to the overall size of the North American market and the regional demands for our products, we believe that a decline in a specific customer's purchases would not have a material adverse long-term effect on our financial results. In each of the last three years ended December 31, 2020, 2019, and 2018, 97 %, 94 %, and 95 %, respectively, of our total sales were sold to customers located in the United States. All of our long-lived assets are located in the United States. We maintain cash accounts with several financial institutions. At times, the balances in the accounts may exceed the $ 250,000 balance insured by the Federal Deposit Insurance Corporation. Note 19 — FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS OF POSSIBLE FUTURE PUBLIC DEBT Intrepid Potash, Inc., as the parent company, has no independent assets or operations, and operations are conducted solely through its subsidiaries. Cash generated from operations is held at the parent company level as cash on hand and short- and long-term investments. Cash on hand totaled $ 19.5 million and $ 20.6 million at December 31, 2020, and 2019, respectively. In the event that one or more of our wholly-owned operating subsidiaries guarantee public debt securities in the future, those guarantees will be full and unconditional and will constitute the joint and several obligations of the subsidiary guarantors. Our other subsidiaries are minor. 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. 87 Table of Contents SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands) Description Balance at Beginning of Year Charged to Costs and Expenses Deductions Balance at End of Year For the Year Ended December 31, 2018 Allowances deducted from assets Deferred tax assets - valuation allowance $ 221,707 $ — $ ( 3,330 ) $ 218,377 Reserve for parts inventory obsolescence 4,182 15 ( 2,454 ) 1,743 Allowance for doubtful accounts and other receivables 865 100 ( 500 ) 465 Total allowances deducted from assets $ 226,754 $ 115 $ ( 6,284 ) $ 220,585 For the Year Ended December 31, 2019 Allowances deducted from assets Deferred tax assets - valuation allowance $ 218,377 $ — $ ( 6,754 ) $ 211,623 Reserve for parts inventory obsolescence 1,743 — ( 1,127 ) 616 Allowance for doubtful accounts and other receivables 465 75 ( 60 ) 480 Total allowances deducted from assets $ 220,585 $ 75 $ ( 7,941 ) $ 212,719 For the Year Ended December 31, 2020 Allowances deducted from assets Deferred tax assets - valuation allowance 211,623 6,320 — 217,943 Reserve for parts inventory obsolescence 616 492 ( 58 ) 1,050 Allowance for doubtful accounts and other receivables 480 275 ( 200 ) 555 Total allowances deducted from assets $ 212,719 $ 7,087 $ ( 258 ) $ 219,548 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.