What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-08 compared with 2021-03-02 · 156 added, 211 removed, 781 unchanged (32% of the section changed)

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 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

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

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

dispositions of the assets of the company;

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

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

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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

Realizability of de ferred 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.

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

The Company analyzes its valuation allowance using historical and projected future operating results.

During 2021, the Company decreased its valuation allowance by $215.9 million as it concluded that it was more likely than not that it would realize its 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.

Specifically, the Company’s assumptions of projected future taxable income were based primarily on prices for products 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.

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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.

This included controls related to the development of assumptions in determining the projected 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.

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Other assets, net 11,418 10,819

Non-current deferred tax asset, net 209,075 —

Total Assets $ 766,895 $ 550,188

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Other current liabilities 34,571 32,816

Advances on credit facility — 19,817

Current portion of long-term debt — 10,000

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Additional paid-in capital 659,147 656,837

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

Retained earnings (Accumulated deficit) 4,243 ( 245,591 )

Total Stockholders' Equity 663,403 411,259

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

Costs associated with abnormal production 5,973 — —

Gross Margin 55,764 10,530 43,478

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Other operating expense 178 735 1,424

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

Operating Income (Loss) 32,272 ( 23,244 ) 16,360

Other Income (Expense)

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Other income 48 384 355

(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

Gain on extinguishment of debt

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

Weighted Average Shares Outstanding:

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Common Stock Additional Paid-in Capital (1)

Retained Deficit Total Stockholders' Equity

Retained Earnings (Accumulated) Deficit Total Stockholders' Equity

Shares Amount (1)

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

Net income — — — 13,631 13,631

Net loss — — — ( 27,154 ) ( 27,154 )

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

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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

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

Net income (loss) $ 249,834 $ ( 27,154 ) $ 13,631

Depreciation, depletion, and amortization 35,635 35,788 34,121

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(Gain) Loss on disposal of assets ( 2,542 ) ( 4,250 ) 345

Gain on extinguishment of debt ( 10,113 ) — —

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

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Other receivables, net 589 ( 609 ) ( 650 )

Refundable income taxes — — 2,663

Inventory, net 7,358 ( 291 ) ( 11,525 )

Other current assets ( 1,974 ) 2,305 ( 1,019 )

Deferred tax assets, net ( 209,075 ) — —

Accounts payable, accrued liabilities, and accrued employee

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

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

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

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

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

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

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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.

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

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

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

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

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

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

including adverse actions by regulatory authorities.

Such circumstances may include but are not limited to (1) significant

adverse changes in the manner the asset is used, or (2) significant adverse changes in legal factors or economic conditions, including adverse actions by regulatory authorities.

We did no t record any impairments to our intangible assets in 2021 and 2020.

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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.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized 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.

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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.

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

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

which is generally the vesting period of the award.

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

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

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

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

For awards with service only conditions we recognize expense using the straight-line recognition method over the requisite service period of the award, which is generally the vesting period of the award.

recognize expense for awards with service and operational performance conditions using the accelerated recognition method over the requisite service period of the award, which is generally the vesting period of the award.

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

Recently Adopted Accounting Standards — In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-13, as amended by ASU No.

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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"):

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.

The adoption of this standard did not have a material impact on our consolidated financial statements.

Pronouncements Issued But Not Yet Adopted —In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") , which provides optional exceptions to GAAP for certain transactions related to the transition away from The London Interbank Offered Rate ("LIBOR").

The amended guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by the reference rate reform.

Application of the guidance in ASU 2020-04 is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022.

We are currently evaluating the impacts of reference rate reform and the guidance in ASU 2020-04 on our consolidated financial statements.

Note 3 — EARNINGS PER SHARE

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2021 2020 2019

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

Net income (loss) $ 249,834 $ ( 27,154 ) $ 13,631

Basic weighted average common shares outstanding 13,099 12,993 12,905

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Diluted weighted average common shares outstanding 13,391 12,993 13,105

Earnings per share:

Earnings (loss) per share:

Basic $ 19.07 $ ( 2.09 ) $ 1.06

Diluted $ 18.66 $ ( 2.09 ) $ 1.04

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

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

Year Ended December 31,

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Restricted cash included in "Other assets, net" on the balance sheet at December 31, 2021, 2020, and 2019 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.

Restricted cash included in "Other current assets" on the balance sheet at December 31, 2021 represents cash deposits with supply vendors.

Note 5 — INVENTORY AND LONG-TERM PARTS INVENTORY

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Total inventory, net $ 108,107 $ 117,573

During the year ended December 31, 2021, we recorded no charges for lower of weighted average cost or estimated net realizable value on our finished goods product inventory.

During the years ended December 31, 2020 and 2019, we recorded charges or approximately, $ 4.0 million, and $ 1.8 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.

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.

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

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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

December 31, 2021 December 31, 2020

Weighted average remaining lease term - operating leases 2.5 years 2.4 years

Weighted average remaining lease term - finance leases 0.00 years 0.30 years

Weighted average discount rate - operating leases 4.59 % 5.49 %

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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

For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

Operating lease expense $ 2,370 $ 2,434 $ 2,410

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Total lease expense $ 2,492 $ 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):

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As of December 31, 2021, 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 — — —

Years Ending December 31, Operating Leases

Total future minimum lease payments $ 3,601

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$ 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.

Total amortization of intangible assets for the years ended December 31, 2021, and 2020, was $ 0.3 million.

Total amortization for 2019 was $ 0.2 million.

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

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.

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.

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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.

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.

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

We submitted our application for forgiveness of the full amount of the loan in November 2020.

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.

Senior Notes —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.

As of December 31, 2020, we had outstanding $ 15.0 million of Series B Senior Notes.

Our total outstanding long-term debt, net, as of December 31, 2020, was as follows (in thousands):

December 31, 2020

Notes and Payroll Protection Loan $ 25,000

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

Less deferred financing costs ( 74 )

Long-term portion of Notes, net $ 14,926

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

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Total asset retirement obligation, at end of period $ 27,024 $ 23,872 $ 22,250

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 $ 6.7 million in payments may occur in the next five years .

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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.

Contract Balances — As of December 31, 2021, and 2020, we had $ 33.8 million and $ 30.4 million of contract liabilities, respectively, the majority of 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).

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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.

Cash Bonus Programs —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 and we expect to pay in early 2022 a cash bonus to our employees under our 2021 bonus program.

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.

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

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

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The weighted-average grant date fair value per share for restricted shares with service conditions issued in 2021, 2020, and 2019 was $ 37.49 , $ 14.49 , and $ 34.70 , 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.

• Restricted Shares with Service and Market Conditions — Under the Plan in March 2021, the Compensation Committee granted restricted shares of common stock with service and market conditions to certain members of our executive team as part of their annual compensation package.

The grants vest over three years from the quarter ended in which the volume-weighted average share closing price for 20 consecutive 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 days has not met one or more applicable price achievement goals on or before March 11, 2024.

The share price achievement goals of these awards have been met as of December 31, 2021, and will vest over three years subject to continued employment.

Under the Plan in December 2021, 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.

This 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 December 23, 2025.

As of December 31, 2021, share price achievement goals have not been met.

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.

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;

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

As of December 31, 2021, 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.

As of December 31, 2021, the applicable share price achievement targets for the 2019 award have not been met.

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

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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 2021, 2020, and 2019:

2021 2020 2019

Closing stock price on grant date $ 42.03 $ 13.80 $ 33.10

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Estimated volatility 89.0 % 83.9 % 84.5 %

Expected life 6.0 years 4.8 years

Expected life 5.5 years 6.0 years 4.8 years

A summary of all activity relating to our restricted shares for the year ended December 31, 2021, is presented below:

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Vested, service only condition ( 112,221 ) $ 16.63

Vested, service and market conditions ( 18,674 ) $ 13.62

Forfeited, service only condition ( 24,287 ) $ 21.18

Forfeited, service and market conditions ( 3,869 ) $ 23.38

Restricted shares of common stock, end of period 407,597 $ 24.95

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:

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

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:

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

We have not granted any non-qualified stock options to our employees since 2018.

A summary of all stock option activity for the year ended December 31, 2021, is as follows:

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

We did 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.

The total intrinsic value of exercised options to purchase stock during 2021, 2020 and 2019 was immaterial for each year.

Note 13 — INCOME TAXES

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Federal ( 157,348 ) — —

Total income tax expense $ 5 $ 53 $ 108

State ( 51,727 ) — —

Total income tax (benefit) expense $ ( 208,869 ) $ 5 $ 53

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

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Change in valuation allowance ( 215,910 ) 6,320 ( 6,754 )

PPP loan forgiveness ( 2,115 ) — —

Change in federal and state tax rates 138 3 2,322

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Other ( 400 ) 699 966

Net expense as calculated $ 5 $ 53 $ 108

Net (benefit) expense as calculated $ ( 208,869 ) $ 5 $ 53

Effective tax rate ( 509.9 ) % — % 0.4 %

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

federal statutory rate due to the valuation allowance.

federal statutory rate due to the change in valuation allowance.

As of December 31, 2021, and 2020, we had gross deferred tax assets of $ 211.1 million and $ 217.9 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.

During the year ended December 31, 2021, our deferred tax assets decreased primarily from our usage of prior year net operating losses to offset current year income.

Included in gross deferred tax assets as of December 31, 2021 were approximately $ 215.0 million of federal net operating loss carryforwards, which expire beginning in 2034, and approximately $ 279.3 million of state net operating loss carryforwards, 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.

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Other 2,883 2,316

R&D credits 1,870 1,870

Federal R&D credits 1,870 1,870

Total deferred tax assets 211,108 217,943

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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 .

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

We continue to maintain a valuation allowance of $ 2.0 million against our deferred tax assets related to federal and state R&D credits as we forecast these will expire before being used.

As of December 31, 2020, we had a full valuation allowance against our deferred tax assets.

During 2021, our valuation allowance decreased $ 215.9 million as we have concluded that we will more likely than not realize most of our deferred tax assets.

Our deferred tax assets, net of the valuation allowance at December 31, 2021, and 2020, was $ 209.1 million and zero , respectively

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.

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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.

A decrease of our state tax rate decreases the value of its deferred tax asset, resulting in additional deferred tax expense being recorded on 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.

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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.

At December 31, 2021, and 2020, we had 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.

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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.

Reclamation Deposits and Surety Bonds —As of December 31, 2021, and 2020, we had $ 23.0 million and $ 22.3 million, respectively, of security placed principally with the State of Utah and the Bureau of Land Management for eventual reclamation of its various facilities.

Of this total requirement, as of December 31, 2021, and 2020, $ 0.5 million consisted of long-term restricted cash deposits reflected in "Other" long-term assets on the balance sheet, and $ 22.5 million and $ 21.8 million, respectively, was secured by surety bonds issued by an insurer.

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

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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 Protestants challenged the validity of our Pecos River water rights, representing approximately 20,000 acre feet per year.

A virtual trial began on December 8, 2020, and concluded on December 18, 2020.

In August 2021, the adjudication court issued its rulings on the validity of our Pecos River water rights.

The adjudication court found that our predecessors had forfeited all but approximately 5,800 feet of water per year, and further ruled that, of the remaining 5,800 acre feet of water that had not been forfeited, all but 150 acre feet of water had been abandoned prior to 2017.

Following briefing on specific issues, requested by the adjudication court, the adjudication court withdrew its initial findings of fact and conclusions of law and entered amended findings of fact and conclusions of law on December 17, 2021.

The order based on these findings of fact and conclusions of law has not yet been entered, but we expect the adjudication court to enter an order based on its findings of fact and conclusions of law in the near future.

We anticipate filing an appeal of the adjudication court's ruling on the validity of our water rights.

In 2017 and 2018 the New Mexico Office of the State Engineer (“OSE”) had granted us preliminary authorizations to sell approximately 5,700 acre feet of water per year from our Pecos River water rights.

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,

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.

If the adjudication court enters, as expected, an order based on its amended findings of fact and conclusion of law discussed above, and our expected appeal of the adjudication court's ruling is unsuccessful, we may have to repay for the water we sold under the preliminary authorizations.

Repayment of this water can be up to two times the amount of water removed from the river.

Repayment is customarily made in-kind over a period of time but can take other forms including cash repayment.

If we are not able to repay in-kind due to the lack of remaining water rights or logistical constraints, we may need to purchase water to meet this repayment or be subject to a cash repayment.

We cannot reasonably estimate the potential volume, timing, or form of repayment, if any, and have not recorded a loss contingency in our statement of operations related to this legal matter.

In March 2021, we received notice from a customer of a default under the terms of a long-term sales contract because we have not been able to deliver water to diversion points specified in the contract.

We had relied primarily upon our Pecos River water rights to deliver water under this contract, the majority of which are currently unavailable due to the factors discussed above.

Under this contract we have received quarterly installments of approximately $ 3.9 million for the future delivery of water to the customer.

In April 2021, we agreed to suspend the second quarter and future quarterly installments due from the customer as we continue to work to resolve the issue.

In December 2021, we amended our long-term sales agreement with the customer due to our inability to deliver water.

In the amendment, we agreed to suspend all rights and obligations of both parties under the agreement until July 1, 2022.

During the suspension period, we have no obligation to deliver water and our customer has no obligation to take water, if available, or make quarterly payments to us.

After the suspension period, our customer has the right to terminate the agreement for any reason with thirty days written notice at which time we would be required to repay any outstanding balance for undelivered water.

We are continuing to work with the customer to resolve this issue.

If we are not able to resolve the issue, we may have to repay the $ 32.5 million outstanding contract liability we have with this customer as of December 31, 2021.

See Note 11—Revenue above for additional information.

In August 2021, NGL Energy Partners (NGL), our partner in the Joint Marketing Agreement (“JMA”) that was entered into in May 2019, filed suit against us alleging, amongst other items, we overcharged the JMA for various operating costs and that we used third party water to service certain fracs when JMA water should have been used in those fracs.

NGL is seeking to immediately terminate the JMA as well as compensatory damages.

We are vigorously defending against the lawsuit.

Because this matter is at an early stage, we are unable to reasonably estimate the potential amount of loss, if any.

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

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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.

We did not record any adjustments to the $ 3.5 million carrying value of the investment during 2021 or 2020.

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

The fair value of our Notes was 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

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87,281 54,847 19,293 — 161,421

Lower of cost or NRV inventory adjustments

1,130 2,885 — — 4,015

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

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

Gross Margin $ 35,845 $ 16,442 $ 3,477 $ — $ 55,764

Depreciation, depletion, and amortization 2 incurred

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1,130 2,885 — — 4,015

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

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

Depreciation, depletion, and amortization incurred 2

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— 1,810 — — 1,810

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

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

Depreciation, depletion, and amortization incurred 2

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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.

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

Credit risks associated with the collection of accounts receivable are primarily related to the impact of external factors on our customers.

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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.

Note 20 — SUBSEQUENT EVENT

In February of 2022, our Board of Directors approved a $ 35 million share repurchase program.

Under the share repurchase program, we may repurchase shares from time to time in the open market or in privately negotiated transactions.

The timing, volume and nature of share repurchases, if any, will be at our sole discretion and will be dependent on market conditions, liquidity, applicable securities laws, and other factors.

We may suspend or discontinue the share repurchase program at any time.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data