What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-08 compared with 2021-03-02 · 199 added, 263 removed, 295 unchanged (61% of the section changed)

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

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

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

A discussion of the changes in our results of operations between the years ended December 31, 2020 and December 31, 2019 has been omitted from this Annual Report on Form 10-K but may be found in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 2, 2021, which is available free of charge on the SEC's website at www.sec.gov and our corporate website (www.intrepidpotash.com).

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

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

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 have permitted, licensed, declared and partially adjudicated 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.

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For each of the years ended December 31, 2021, 2020, and 2019, a majority of our byproduct sales were accounted for in the potash segment.

Recent Developments

Reverse Stock Split

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

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

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

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

The reverse stock split became effective August 14, 2020.

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

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

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

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

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

Significant Business Trends and Activities

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

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

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

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

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

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

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

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

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

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

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

Economic activity and our financial results improved in 2021 as most cities and states reduced restrictions when compared to 2020.

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

We expect that if governmental authorities increase restrictive orders, such actions may have a material effect on revenue growth, financial

condition, liquidity, and overall profitability in future reporting periods.

Please see further discussion under "Item 1A.

Risk Factors."

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

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Potash remained a significant driver of our profitability, comprising 48% of our total sales in 2021.

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

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

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

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

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

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

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

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

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

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

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

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

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

Our average net realized sales price for potash increased in 2021 to $353 per ton compared to $250 per ton for 2020 due to multiple price increases since the summer of 2020.

The posted price for agricultural potash, announced in December 2021, was $725 per ton or $480 per ton above the 2020 summer fill program.

After this announcement, we booked orders for first quarter 2022 delivery and continue to fill orders as the spring season begins.

Another price increase of $25 per ton was announced in February 2022 for second quarter deliveries.

Strong commodity prices continue to support application rates across our markets and we believe customers see good value in potash in today's market.

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

Our sales volumes into industrial markets improved in 2021 compared to the prior year as oilfield activity rebounded from 2020.

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

Oil price remains supportive of drilling and completion activity although additional or renewed restrictions enacted in response to the COVID-19 pandemic may impact our sales if such actions affect available labor, transportation logistics, or cause supply disruptions.

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

Sanctions on Belarusian potash imports were recently announced and are expected to take effect in April 2022.

Belarusian potash has historically supplied approximately 7% of the annual potash consumption in the United States.

We expect other suppliers will increase their volume of imports in response to the sanctions although timing of these changes and the overall effect of the sanctions on the potash market are uncertain.

As a small producer, domestic pricing of our potash is influenced principally by the price established by our competitors.

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

• Trio ® pricing and demand.

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

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

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

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

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

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

Our average net realized sales price for Trio ® increased to $295 per ton in 2021, compared to $195 per ton in 2020 as we announced multiple Trio ® price increases over the past 18 months.

In December 2021, we announced a $30 to $40 per ton price increase depending on grade, bringing our posted price to $480 per ton for Trio ® granular and $505 per ton for Trio ® premium.

Similar to potash, after the price announcement, we saw good subscription from our historic customers and committed a majority of our first quarter volumes.

We announced a $35 per ton price increase in February 2022, effective immediately, and we are starting to book sales at the higher price levels.

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

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

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

Limited supply of containers and vessels in recent quarters has also increased the cost of international shipments compared to previous years, further pressuring our margins into international markets.

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

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

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• Water sales.

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

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

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

Water sales increased in 2021 to $22.0 million, compared to $20.4 million in 2020 as oilfield activity in the Delaware Basin improved throughout 2021, supported by increasing oil prices.

Compared to previous years, fracs

are requiring more total water and higher daily refresh rates which required us to purchase more third party water than in previous years.

Although water sales have improved compared to previous years, some operators have switched to using exclusively recycled water or a combination of fresh water and recycled water when completing wells.

We believe this change is due to the growing focus on environmentally friendly operations and a response to the large amounts of produced water that is present in certain basins and formations, such as the Delaware Basin in southeast New Mexico.

By recycling and reusing produced water, operators are able to reduce fresh water purchases and decrease the cost of transporting and disposing of produced water into disposal wells.

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

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• Byproduct sales.

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

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

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

Byproduct sales increased to $26.2 million in 2021 compared to $20.5 million in 2020, primarily due to a $3.0 million increase in magnesium chloride sales.

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

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

Our 2021 sales of magnesium chloride were near historic averages.

Salt sales increased $1.6 million in 2021 compared to the prior year due mainly to growth in the pool salt market.

Byproduct water sales increased $0.7 million compared to 2020 as we saw increased oilfield activity, particularly in the second half of 2021.

• Weather impact.

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

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

Evaporation rates in 2021 were below average across our facilities which led to decreased potash production in the second half of 2021 and will lead to decreased potash production in the spring of 2022 when compared to the prior year.

We received a significant amount of rainfall at our HB facility in Carlsbad, New Mexico late in the summer which limited the amount of solids available in our ponds.

As a result of the reduced potash production, we recorded abnormal production costs of $3.6 million and $2.4 million in the third and fourth quarters of 2021 respectively.

• Diversification of products and services.

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

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

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

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

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

We increased our revenue from byproducts and other oilfield products and services in 2021 when compared to the prior year.

As oilfield activity increased in the Delaware Basin throughout 2021, we saw a corresponding increase in revenue from right-of-way agreements, surface damages and easements, caliche sales, brine sales, and a produced water royalty.

These sales generated revenue of $7.2 million in 2021 compared to $4.2 million in 2020, and with the exception of our brine sales, incur either minimal or no operating expense.

As operators increase the use of recycled water in their completion activity we acquired multiple mobile recycling units in the second half of 2021 with the intent of adding produced water recycling services in 2022.

We announced in the first quarter of 2022 a joint feasibility study alongside the New Mexico Water Consortium and the New Mexico Environment Department to evaluate the potential of using treated produced water from oil and gas operations as injectate for our HB solar solution mine.

Recycling and treatment technology have improved considerably over the last few years and the potential to convert a waste stream into a sustainable source for producing potash is a unique opportunity for the basin and we look forward to the pilot project beginning as early as the third quarter of 2022.

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

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

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

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

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

Consolidated Results

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Gross Margin $ 55,764 $ 10,530 $ 43,478

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

Income (Loss) Before Income Taxes 40,965 (27,149) 13,684

Income Tax Benefit (Expense) 208,869 (5) (53)

Net Income (Loss) $ 249,834 $ (27,154) $ 13,631

Average Net Realized Sales Price per Ton 2

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Consolidated Results for the Years Ended December 31, 2021, and 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our total sales increased $73.4 million, or 37% in 2021, compared to 2020, as potash sales increased $38.0 million, Trio ® sales increased $25.8 million, magnesium chloride sales increased $3.0 million, salt sales increased $1.6 million, water sales increased $1.6 million, brine water sales increased $1.2 million and sales of our other products and services from our oilfield solutions segment increased $2.2 million.

Our combined potash and Trio ® sales increased $63.8 million in 2021, compared to 2020.

Our potash average net realized sales price per ton increased 41% and our Trio ® average net realized sales price per ton increased 51% in 2021 compared to 2020.

Rising crop prices have driven strong demand for potash and Trio ® which, combined with tight supplies have driven the significant increases in both our potash and Trio ® average net realized sales prices per ton during 2021.

Our total water sales, including byproduct water sales increased 8% in 2021 compared to 2020, as oil and gas activities near our facilities in New Mexico continued to rebound from the negative economic effects caused by the COVID-19 pandemic.

Our total byproduct sales, excluding byproduct water sales, increased $5.0 million during 2021 compared to 2020.

Our magnesium chloride sales increased 62% as we had more product to sell during 2021, as compared to 2020, as above average evaporation at our Wendover facility during the summer of 2020 resulted in more product available to sell during 2021.

Our byproduct brine water sales increased 34% as oil and gas activities increased as discussed above.

Our byproduct salt sales increased 18% due mainly to an increase in sales to the pool salt market.

Cost of Goods Sold

Our cost of goods sold increased $25.6 million, or 19%, in 2021, as compared to 2020 due to a $6.0 million increase in labor and benefits expense, a $5.2 million increase in third party water purchases on our South ranch to meet daily frac requirements, and a $3.3 million increase in royalty expense as a result of higher fertilizer prices.

Inflationary pressures and rising commodity prices led to a $3.0 million increase in energy expense across our facilities and a $2.2 million increase in maintenance and operating supplies.

Reduced production at our HB facility also increased our per ton of cost of goods sold compared to the prior year.

Abnormal Production Costs

The Carlsbad, New Mexico area where our HB solar solution mining facility is located, received significant rainfall, well above the historical rainfall average during this period.

Additionally, humidity was higher than normal and temperatures were cooler than average during this period which reduced our pond production and our ability to extract brine.

Because of the wet, humid weather and cooler temperatures, we have fewer harvestable tons of potash from our HB solution ponds.

Accordingly, we recorded abnormal production costs of $6.0 million, and we may incur additional abnormal production costs in future periods.

We did not incur any abnormal production costs in 2020.

Our gross margin percentage increased to 21% in 2021, compared to 5% in 2020.

The increase was driven primarily by an increase in sales driven by an increase in our average net realized sales price per ton for both potash and Trio ® , partially offset by the increase in abnormal production costs and our cost of goods sold, as discussed above.

Selling and Administrative Expense

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

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

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

In 2021, selling and administrative expenses decreased $1.5 million or 6% from 2020.

This was due mainly to a $1.6 million decrease in legal and other professional services expenses in 2021, as compared to 2020.

During 2020, we incurred increased legal and other professional services expenses relating to the settlement of outstanding litigation during 2020, and defending various protests to our water rights.

The decrease in legal and other professional services expenses was partially offset by increased bonus expense for administrative labor.

Litigation Settlement

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Gain on Sale of an Asset

In May 2021, we sold 326 acres of land in Texas for $6.0 million and recognized a gain on the sale of the land of $2.8 million.

We purchased this land in May 2019 for the development of a produced water disposal facility and had permitted two disposal wells on the property.

Unlike the strategic land sale completed in March 2020 discussed below, we did not include any restrictions on the buyer of this land.

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

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

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

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

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

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

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

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In 2021, we recognized other operating expense of $0.2 million compared to $0.7 million in 2020.

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

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

In 2021, care and maintenance expenses increased $0.6 million that were partially offset by other operating income recorded related to earning certain contractual bonuses on a project to modify the tailings pond at our West facility.

We modified our West tailings pond to allow for the construction of an underground natural gas pipeline near our West facility.

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

Interest Expense

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

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

Interest expense decreased $2.8 million in 2021 compared to 2020, as we repaid the outstanding balance of our Series B Senior Notes in June 2021, and we repaid the outstanding balance on our credit facility in early August 2021.

Gain on Extinguishment of Debt

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

In June 2021, we received notice that the SBA had remitted funds to our bank to fully repay our PPP loan and accrued interest.

Accordingly, we recognized a gain of $10.1 million related to the forgiveness of the PPP loan and the associated accrued interest on the loan.

Income Tax Benefit

During 2021, our valuation allowance for deferred tax assets decreased as we released $215.9 million from the valuation allowance during the fourth quarter.

We released the valuation allowance because our long-term projection of future taxable income indicates that we will be able to realize the value of most of our deferred tax assets in the future.

The release of our valuation allowance allowed us to record a tax benefit of $208.9 million during 2021.

Net income increased from a net loss of $27.2 million in 2020 to net income of $249.3 million in 2021.

The increase was primarily due to releasing $215.9 million of our valuation allowance for deferred taxes, a $10.1 million gain related to the forgiveness of the PPP loan and the improvement in our gross margin, as discussed above.

Excluding the release of our valuation allowance for deferred taxes, our net income would have been $33.9 million.

Potash Segment Results

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

Costs associated with abnormal production and other 5,973 — —

Gross Margin $ 35,845 $ 11,551 $ 27,787

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Potash Segment Results for the Years Ended December 31, 2021, and 2020

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

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

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

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

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

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

during 2019, abated in 2020.

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

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

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

Our total potash segment sales in 2021 increased $43.7 million, or 40%, as compared to 2020, as potash sales recorded in the potash segment increased 41% and potash segment byproduct sales increased 37%.

Potash sales recorded in the potash segment increased $38.0 million, or 41%, in 2021 compared to 2020, as the average potash net realized sales price per ton increased 41%, and we sold 4% more tons of potash.

Strong crop commodity prices and tight near-term inventory levels led to multiple potash price increases during 2021.

We saw increased potash tons sold into the agricultural and industrial markets, while potash tons sold into the animal feed market were similar to prior year.

Potash segment byproduct sales increased $5.7 million, or 37%, in 2021 compared to 2020, due to a $3.0 million increase in byproduct magnesium chloride sales, a $1.5 million increase in byproduct salt sales, an $0.8 million increase in byproduct water sales and a $0.4 million increase in byproduct brine water sales.

Our magnesium chloride sales increased as we had more product to sell in 2021, due to good evaporation during the summer of 2020.

Our salt sales increased as we increased sales in the pool salt market in 2021.

Byproduct water and byproduct brine water sales increased in 2021 as oilfield activities increased as many of the containment measures that were adopted during 2020 in response to the COVID-19 pandemic were relaxed in 2021.

Potash cost of goods sold increased $13.8 million, or 19%, in 2021, as compared to 2020, due to a $2.6 million increase in labor and benefits expense, a $1.6 million increase in energy expense, a $1.1 million increase in contract labor for various maintenance projects, and a $2.1 million increase in royalty expense as a result of higher fertilizer prices.

Reduced production at our HB facility also increased our per ton of cost of goods sold compared to the prior year.

Potash segment freight expense increased $0.5 million, or 3%, in 2021, as compared to 2020, mainly driven by an increase in freight expense related to selling 4% more tons of potash.

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

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

We produced 7% fewer tons of potash during 2021 compared to 2020, mainly due to the wet weather and reduced evaporation rates at our HB solar solution facility.

We recorded abnormal production expenses of $6.0 million in 2021, as we had fewer harvestable tons of potash in our HB solution ponds.

We did not record any abnormal production costs during 2020.

We expect our near-term potash production from our HB facility will be lower than average, and we may incur additional abnormal production costs in future periods.

Our potash segment gross margin increased $24.3 million in 2021, compared to 2020, due mainly to the $43.7 million increase in potash segment sales, as discussed above.

Potash Segment - Additional Information

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Feed 16 % 18 % 14 %

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

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

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

Trio ® Segment Results

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— 2,885 1,810

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

Gross Margin (Deficit) $ 16,442 $ (8,505) $ 1,100

Depreciation, Depletion, and Amortization incurred 2

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Trio ® Segment Results for the Years Ended December 31, 2021, and 2020

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

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

Our total Trio ® segment sales increased $25.8 million, or 37%, in 2021, as compared to 2020, as Trio ® sales increased 39%, while Trio ® segment byproduct sales were flat.

Our 2021 Trio ® sales increased $25.8 million, or 39%, in 2021, as compared to 2020, as our average net realized sales price per ton increased 52% and we sold 4% more Trio ® tons.

Our Trio ® average net realized sales price per ton increased as rising crop prices and the continued economic rebound from the COVID-19 pandemic drove an increase in demand.

Trio ® tons sold domestically increased 13% in 2021, as compared to 2020.

Good weather in most parts of the U.S.

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

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

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

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

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

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

during 2019, abated in 2020.

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

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

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

The 2021 increase in domestic tons of Trio ® sold was partially offset by a decrease in international tons sold, as we continue to focus our Trio ® sales on the domestic market, which has a higher average net realized sales price per ton due to lower freight costs incurred for domestic sales as compared to international sales

Trio ® freight costs increased 1% in 2021, compared to 2020.

While we sold 4% more tons in 2021, we sold more tons of Trio ® domestically and fewer tons of Trio ® internationally.

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

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

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

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

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

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

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

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

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

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

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

Our Trio ® cost of goods sold increased 8% in 2021, as compared to 2020, primarily due to a 4% increase in Trio ® tons sold during 2021.

We also incurred higher labor and benefits expense, royalty expense, and increased energy expense compared to the prior year, which increased our per ton costs of goods sold.

We recorded lower of cost or net realized value inventory adjustments of $2.9 million in 2020, as our weighted average price per ton was higher than our average net realized sales price per ton.

As our average net realized sales price per ton increased 52% during 2021, we did not record any lower of cost or net realized value inventory adjustments during 2021.

Our Trio ® segment generated a gross margin of $16.4 million in 2021, compared to a gross deficit of $8.5 million in 2020, due to the factors discussed above.

Trio ® Segment - Additional Information

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Sales $ 22,770 $ 18,929 $ 27,894

Warehouse and handling — — 10

Cost of goods sold 19,293 11,445 12,367

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Oilfield Solutions Segment Results for the Years Ended December 31, 2021, and 2020

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

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

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

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

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

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

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

These other sales totaled $4.2 million in 2020.

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

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

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

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

Our oilfield solutions segment sales increased 20% in 2021, compared to 2020.

Water sales increased $0.9 million in 2021 to $15.6 million.

Sales from right-of-way agreements, surface damages and easements increased $1.2 million, produced water disposal royalties increased $0.9 million and brine water sales increased $0.7 million.

Other sales in our oilfield solutions segment, such as sales of caliche and other oilfield services increased $0.2 million.

Our oilfield solutions sales are highly correlated to oil and gas activities near our facilities in New Mexico.

Overall sales increased due to increased oil and gas activities in 2021 as compared to 2020 as oil prices continued to improve from the lows made in April 2020 due to the negative economic effects from the COVID-19 pandemic.

Cost of goods sold increased 69% in 2021, compared to 2020, primarily due to a $3.9 million increase in third-party water purchases to meet the significant daily refresh rates for certain fracs on our South ranch.

Additionally, rental, lease, contract labor and depreciation expenses increased in 2021 as compared to 2020.

Gross margin decreased $4.0 million, or 54%, in 2021 compared to 2020, due to the factors described above.

Specific Factors Affecting Our Results

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Our principal production costs include labor and employee benefits, maintenance materials, contract labor, and materials for operating or maintenance projects, natural gas, electricity, operating supplies, chemicals, depreciation and depletion, royalties, and leasing costs.

There are elements of our cost structure associated with contract labor, consumable operating supplies, reagents, and royalties that are variable, which make up a smaller component of our cost base.

Some elements of our cost structure associated with contract labor, consumable operating supplies, reagents, and royalties are variable, but such elements make up a smaller component of our cost base.

Our costs often vary from period to period based on the fluctuation of inventory, sales, and production levels at our facilities.

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For water sold from certain of our water sources, we pay the State of New Mexico $0.11 per barrel of water sold.

Additionally, water rights in New Mexico are subject to a stated purpose and place of use, and many of our water rights were originally issued for uses relating to our mining operations, or in the case of the water rights at Intrepid South, for agricultural uses.

To sell water commercially under these rights, we must apply for a permit from the OSE to change the purpose and/or place of use of the underlying water rights.

Third parties often protest decisions made by the OSE.

As we have worked to sell more water commercially, we have incurred significant legal expenses associated with defending our water rights and obtaining water permits and approvals.

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

the case of the water rights at Intrepid South, for agricultural uses.

To sell water commercially under these rights, we must apply for a permit from the OSE to change point of diversion, purpose and/or place of use of the underlying water rights.

Third parties often protest our applications and the decisions made by the OSE concerning the changes to our water rights permits.

As we have worked to sell more water commercially, we have incurred significant legal expenses associated with defending our water rights as they proceed through adjudication and obtaining water permits and approvals.

We are a subchapter C corporation and, therefore are subject to U.S.

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We have concluded valuation allowances of $2.0 million and $217.9 million were required as of December 31, 2021, and 2020, respectively.

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

The amount of valuation allowance decreased in 2021 as compared to 2020 primarily from a release of $215.9 million of valuation allowance.

Our effective tax rate for the years ended December 31, 2021, 2020, and 2019 was (509.9)%, 0.0%, and 0.4%, respectively.

Our effective income tax rates are impacted primarily by changes in the underlying tax rates in jurisdictions in which we are subject to income tax, the need for a valuation allowance, and permanent differences between book and tax income for the period, including the benefit associated with the estimated effect of the percentage depletion deduction.

Our effective income tax rates are impacted primarily by changes in the underlying tax rates in jurisdictions in which we are subject to income tax, the need for a valuation allowance or release, and permanent differences between book and tax income for the period, including the benefit associated with the estimated effect of the percentage depletion deduction.

The effective tax rate for the years ended December 31, 2021, 2020, and 2019, respectively, differs from the U.S.

federal statutory rate due to the valuation allowance.

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

federal statutory rate due to the change in valuation allowance.

During the year ended December 31, 2021, we recognized $157.3 million of deferred federal tax benefit, $51.7 million of deferred state tax benefit, and $0.2 million of current state income tax expense.

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

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

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In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

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.

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

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

As of December 31, 2021, we were in a cumulative three-year income position.

The cumulative three-year income position is significant positive evidence when evaluating the realizability of our deferred tax assets.

Additionally, industry trends and forecasts as well as internal forecasts of future business show sustained amounts of taxable income.

Thus, we have concluded it is more likely than not that most of our $211.1 million of deferred tax assets will be realized.

Liquidity and Capital Resources

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During 2021, we generated $79.1 million in cash flows from operating activities and we ended the year with $36.5 million of cash on hand, compared with cash on hand of $19.5 million at December 31, 2020.

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

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

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

In June 2021, we repaid the remaining $15.0 million of principal outstanding on our Series B Senior Notes and satisfied all obligations under the related Note Purchase Agreement.

In connection with this repayment, the Company paid in aggregate approximately $15.6 million, which consisted of (i) $15.0 million of remaining aggregate principal amount of Series B Senior Notes, (ii) approximately $0.1 million of accrued interest and (iii) a "make-whole" premium of $0.5 million.

As a result of the repayment, the Note Purchase Agreement was terminated.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In June 2021, we received notice that the SBA had remitted funds to our bank to fully repay our PPP loan and accrued interest.

Accordingly, we recognized a gain of $10.1 million related to the forgiveness of the PPP loan and the associated accrued interest on the loan.

As of December 31, 2021, we had $74.0 million available to borrow under our credit facility, no outstanding borrowings, and $1.0 million outstanding in a lette r of credit.

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

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

We may, at any time we deem conditions favorable, attempt to improve our liquidity position by accessing debt or equity markets in accordance with our existing debt agreements.

We may, at any time we deem conditions favorable, attempt to improve our liquidity position by accessing debt or equity markets in accordance with our existing revolving credit agreement.

We also may raise capital in the future through the issuance of additional equity or debt securities, subject to prevailing market conditions.

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Cash flows (used in) provided by financing activities $ (47,282) $ (17,043) $ 18,795

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

In general, the terms of our senior notes prohibit us from declaring and paying a dividend unless our leverage ratio is less than 3.5 to 1, our fixed charge coverage ratio after giving effect to the dividend would be greater than 1.3 to 1, and our cash on hand and availability under our credit facility after giving effect to the dividend, would not be less than $15 million.

In addition, the terms of our credit facility prohibit us from declaring and paying a dividend unless availability under the credit facility after giving effect to the dividend and during a specified period before the dividend is more than $15 million.

More information about how the financial ratios are calculated under our debt agreements is provided below under the heading "—Senior Notes."

Our revolving credit agreement contains restrictions on our ability to declare and pay dividends.

The terms of our credit facility prohibit us from declaring and paying a dividend unless availability under the credit facility after giving effect to the dividend and during a specified period before the dividend is more than $15 million.

Operating Activities

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

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

Total cash provided by operating activities for the year ended December 31, 2021, was $79.1 million, an increase of $47.9 million compared with the year ended December 31, 2020.

The increase was mainly driven by an increased potash and Trio ® net realized sales price.

Investing Activities

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

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

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

Total cash used in investing activities decreased $0.3 million in 2021, compared to 2020, primarily related to a $2.4 million decrease in cash paid for investments and a $1.3 million increase in cash proceeds from the sale of property, plant, equipment, and mineral properties.

Other additions to property, plant, equipment, and mineral properties increased $3.3 million in 2021 compared to 2020.

In May 2021, we sold 326 acres of land in Texas that was adjacent to our South ranch for $6.0 million.

This land was originally purchased in May 2019 for the potential development of a produced water disposal facility.

Proceeds from the sale of property, plant, equipment, and mineral properties totaled $4.8 million during 2020 due primarily to a strategic sale of land on our Intrepid South property.

In the second quarter of 2020, we invested $3.5 million for an 11% equity stake in W.D.

Von Gonten Laboratories ("WDVGL").

WDVGL is an industry leader in drilling and completion chemistry and a strong supporter of the use of potassium chloride in oil and gas drilling and completion activity.

Financing Activities

Total cash flows used in financing activities increased $30.2 million in 2021, as compared to 2020.

During the third quarter of 2021, we made payments under our credit facility of $29.8 million.

In June 2021, we paid $15.6 million, including the make-whole payment, to retire our Series B Senior Notes.

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

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

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

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

As economic activities improved in 2021, our delinquencies declined as compared to 2020.

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

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

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

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

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

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

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

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

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

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

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

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 rates on the Series B Senior Notes was 4.63%.

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

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

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

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

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

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

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

In June 2021 we repaid the remaining $15.0 million of principal outstanding on our Series B Senior Notes and satisfied all obligations under the related Note Purchase Agreement.

As a result of the repayment, the Note Purchase Agreement was terminated.

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 feature, 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 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.

As of December 31, 2021, 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 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.

For the year ended December 31, 2021, we made no borrowings and repaid $29.8 million under the facility.

For the year ended December 31, 2020, we borrowed $10.0 million and made no repayments, under the facility.

As of December 31, 2021, we had no borrowings outstanding and $1.0 million in an outstanding letter of credit under the facility.

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

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

We had $74.0 million available under the facility as of December 31, 2021.

We were in compliance with the applicable covenants under the facility as of December 31, 2021.

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

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

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

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