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Item 7. Management’s Discussion and Analysis

2023-03-07 compared with 2022-03-08 · 166 added, 223 removed, 271 unchanged (59% of the section changed)

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

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

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

Financial Statements and Supplemental Data" of this Annual Report.

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

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

Risk Factors" and elsewhere in this Annual Report.

A discussion of the changes in our results of operations between the years ended December 31, 2021 and December 31, 2020 has been omitted from this Annual Report on Form 10-K but may be found in Item 7.

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

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 have permitted, licensed, declared and partially adjudicated water rights in New Mexico under which we sell water primarily to support oil and gas operations and development in the Permian Basin near our Carlsbad facilities.

We continue to work to expand our sales of water.

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Significant Business Trends and Activities

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

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

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

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

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

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.

Our financial results have been, or are expected to be, impacted by several significant trends and activities, including impacts from global health issues, such as the COVID-19 pandemic, and other global disruptions.

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

We expect that any such disruptions 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.

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

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Potash remained a significant driver of our profitability, comprising 50% of our total sales in 2022.

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.

Our average net realized sales price for potash increased in 2022 to $713 per ton compared to $353 per ton for 2021.

Throughout 2021, strong commodity pricing led to good application rates and multiple price increases during 2021 and the first half of 2022.

Agricultural potash pricing started 2022 at $725 per ton and increased to $800 per ton in April 2022 as Belarusian sanctions and increasing concerns about global potash supply due to Russia's invasion of Ukraine drove further price appreciation.

As a result of the higher pricing and good application rates for potash over the prior year, our customers were reluctant to carry over inventory after the spring season and demand slowed down

considerably in second half of 2022 compared to 2021.

Global demand for potash followed a similar trend in the second half of 2022 leading to ample supply of potash in most markets to end 2022 despite continued strong commodity pricing and favorable farmer economics.

Agricultural potash pricing declined to $480 per ton in January 2023, a price level that has spurred an initial round of orders to start the spring season, although most customers remain cautious to purchase potash for their full spring needs immediately as sufficient supply continues to pressure spot pricing.

Despite the near-term inventory levels, global potash production remains below normal levels due to sanctions on Belarusian potash and reduced production rates.

Canadian producers responded with production increases at existing operations, but we still expect total potash production in 2023 to be below 2021 levels.

Our price expectations could be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases and the price and availability of other potassium products.

As a smaller producer relative to the overall market, 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 ® 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 average net realized sales price for Trio ® increased to $479 per ton in 2022, compared to $295 per ton in 2021, as Trio ® price followed price increases in potash.

Similar to potash trends, buyers were reluctant to hold carryover inventory after the spring season and as potash supply increased in the second half of the year and pricing began to decrease, buyers were reluctant to purchase Trio ® during the fourth quarter of 2022.

In January 2023, we announced an updated Trio ® price of $405 per ton for premium Trio ® , $395 per ton for granular and $365 per ton for standard Trio ® , but supply remains sufficient in most regions and pressure on potash spot prices continues to limit our customers' desire to hold significant inventory that is not committed for immediate application.

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.

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.

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

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

• Water sales.

Water sales 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.

Water sales increased in 2022 to $22.4 million, compared to $22.0 million in 2021 as oilfield activity in the Delaware Basin continued to be supported by strong oil prices.

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.

We believe this change is due to the growing focus on environmentally responsible 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 freshwater purchases and decrease the cost of transporting and disposing of produced water into disposal wells.

We believe operators are also more focused on reducing the initial capital investment for each well and are switching to lower-cost recycled water despite the potential long-term production advantages of fresh water.

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

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

Financial Statements and Supplementary Data" of this Annual Report.

• Byproduct sales.

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.

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.

Byproduct sales increased to $26.7 million in 2022 compared to $26.2 million in 2021, as improved brine and salt sales in our potash segment were mostly offset by reduced byproduct magnesium chloride and byproduct water sales.

• Weather impact.

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.

Evaporation rates in 2021 were below average across our facilities which led to decreased potash production in the second half of 2021 and 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 of 2021, 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 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.

We increased our revenue from other oilfield products and services in 2022, compared to 2021.

As oilfield activity increased in the Delaware Basin throughout 2022, we saw a corresponding

increase in revenue from right-of-way agreements, caliche sales, brine sales, and a produced water royalty.

These sales generated revenue of $11.2 million in 2022, compared to $7.2 million in 2021, 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.

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

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

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

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

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

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

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

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

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

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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$ 337,568 $ 270,332

$ 270,332 $ 196,954 $ 220,075

Cost of Goods Sold $ 152,276 $ 161,421

Gross Margin $ 141,408 $ 55,764

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

Income Before Income Taxes 96,509 40,965

Income Tax (Expense) Benefit (24,289) 208,869

Net Income $ 72,220 $ 249,834

Average Net Realized Sales Price per Ton 2

Potash $ 713 $ 353

$ 295 $ 195 $ 195

1 Sales include sales of byproducts which were $26.2 million, $20.5 million and $26.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

1 Sales include sales of byproducts which were $26.7 million and $26.2 million for the years ended December 31, 2022 and 2021, respectively.

2 Average net realized sales price per ton is a non-GAAP measure.

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Consolidated Results for the Years Ended December 31, 2022, and 2021

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.

Our total sales increased $67.2 million, or 25% in 2022, compared to 2021, as potash segment sales increased $39.6 million, Trio ® segment sales increased $21.8 million, and our oilfield solutions segment sales increased $5.9 million.

Our potash sales increased $38.1 million in 2022, compared to 2021, primarily as our potash average net realized sales price per ton increased 102%, partially offset by a 33% decrease in tons of potash sold.

Generally strong crop prices supported good potash demand and combined with global potash supply concerns due to the uncertainty of potash supplied from Eastern Europe, drove the increase in our average net realized sales price per ton.

Potash tons sold declined in 2022 compared to 2021, as we had fewer tons of potash available to sell during the first half of 2022, and we sold fewer tons during the second half of 2022 as customers were reluctant to purchase tons for the upcoming spring application season due to anticipated price declines.

Our potash segment byproduct sales increased $1.5 million in 2022, due mainly to an increase in byproduct salt and brine water sales, partially offset by a decrease in byproduct magnesium chloride sales.

Our Trio ® sales increased $22.8 million in 2022, compared to 2021, as our Trio ® average net realized sales price per ton increased 62%, partially offset by a 18% decrease in tons of Trio ® sold.

Generally strong crop prices and the relative value of Trio ® compared to potash drove good demand for Trio ® .

Our Trio ® tons sold decreased as we sold fewer tons during the second half of 2022 as, like potash customers, Trio ® customers were reluctant to purchase tons for the upcoming spring application season due to anticipated price declines.

Our Trio ® byproduct sales decreased $1.1 million in 2022, due to a decrease in byproduct water sales.

Our Trio ® byproduct water sales decreased as a larger portion of our total water sales were sourced from our oilfield solution segment.

Our oilfield solutions segment sales increased by $5.9 million in 2022, compared to 2021, as continued robust oil and gas activities near our facilities in New Mexico drove increased demand for our oilfield segment products and services.

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.

Our total cost of goods sold decreased $9.1 million, or 6%, in 2022, as compared to 2021.

Our potash segment cost of goods decreased $10.8 million, or 12%, and our Trio ® segment cost of goods sold decreased $0.2 million, partially offset by an increase $1.9 million in our oilfield solutions segment cost of goods sold.

Our potash cost of goods sold mainly decreased due to selling 33% fewer tons of potash in 2022 compared to 2021.

While we sold fewer tons in 2022, our weighted average carrying cost per ton increased as various production costs increased

due to inflationary pressures.

In addition, we produced fewer tons of potash and, because most of our production costs are fixed, a decrease in tons produced causes our weighted average price per ton to increase.

We also incurred increased royalty expense as our potash sales revenue increased during 2022.

Our Trio ® segment cost of goods sold decreased slightly in 2022 compared to 2021.

While we sold 18% fewer tons of Trio ® in 2022, our weighted average carrying costs increased due to operating an additional shift during 2022 and increases in various production costs due to inflationary pressures.

We also incurred increased royalty expense as our Trio ® revenues increased.

Our oilfield solutions segment cost of goods sold increased in 2022, as we incurred increased utility costs due to inflationary pressures, increased depreciation expense related to new infrastructure placed in service in 2022, and increased royalty expense due to an increase in water revenue.

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.

During the third quarter of 2021, 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, along with higher than normal humidity and cooler than average temperatures, all of which reduced our pond production and our ability to extract brine.

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

Accordingly, we recorded abnormal production costs of $6.0 million in 2021.

We did not incur any abnormal production costs in 2022.

Our gross margin percentage increased to 42% in 2022, compared to 21% in 2021.

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.

The increase was driven primarily by an increase in sales revenue due to an increase in our average net realized sales price per ton for both potash and Trio ® , and not incurring any abnormal production costs during 2022.

Selling and Administrative Expense

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

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

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

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

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

Gain on Sale of an Asset

In 2022, selling and administrative expenses increased $7.8 million or 33% from 2021.

The increase in 2022 was due several factors including a $3.1

million increase in equity compensation expense primarily related to certain market-condition awards that had accelerated expense recognition in 2022 because the market-condition for those awards was met sooner than originally estimated.

We incurred increased wages and benefits expense due to generally a company-wide salary increase in early 2022, and we hired additional employees in 2022.

We incurred increased legal expenses primarily relating to continuing legal issues concerning our water rights and other legal issues.

We also saw increased travel and related expenses because our 2021 travel expenses were lower than average due to the continued COVID-19 concerns.

Finally, we incurred an increase in lease expense, as we leased additional office space in 2022.

Gain (Loss) on Sale or Disposal of Assets

During 2022, we recorded a $7.5 million loss on the sale or disposal of assets compared to a gain of $2.5 million during 2021.

During the fourth quarter of 2022, we worked on drilling a new extraction well for our HB solar solution mine.

During the drilling process, the planned well failed and we expensed approximately $6.2 million of costs related to the project.

In addition, we also incurred approximately $1.2 million in losses related to the disposal of various other assets in the normal course of business

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.

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.

Other Operating Expense

In 2022, we recognized other operating expense of $4.7 million compared to $0.2 million in 2021.

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.

During 2022, we recorded $1.8 million of additions in our allowance for obsolete inventory, accrued $1.7 million for fines and penalties related to an encroachment of surface minerals at Intrepid South, $1.6 million related to potential underpayment of royalties found during an ongoing royalty audit by the Department of the Interior's Office of Natural Resources Revenue ("ONRR") and care and maintenance expenses of $0.6 million.

During 2021, we recorded care and maintenance expenses of $0.6 million that were partially offset by other operating income of $0.4 million 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 decreased $1.4 million in 2022, compared to 2021, 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.

We had no outstanding long-term debt or an outstanding balance on our credit facility during 2022.

Gain on Extinguishment of Debt

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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 2022 we recorded income tax expense of $24.3 million compared to an income tax benefit of $208.9 million in 2021.

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.

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

Our 2022 net income decreased $177.6 million to $72.2 million.

The decrease was primarily due to the income tax benefit recorded in 2021 of $208.9 million related to releasing $215.9 million of our valuation allowance for deferred taxes, and recording a $10.1 million gain related to the forgiveness of the PPP loan, partially offset by the improvement in our 2022 gross margin, as discussed above.

Excluding the release of our valuation allowance for deferred taxes and the gain related to the forgiveness of our PPP loan, our net income would have been approximately $30.9

million in 2021.

Potash Segment Results

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Cost of goods sold 76,524 87,281

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

Costs associated with abnormal production and other — 5,973

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Average Potash Net Realized Sales Price per Ton 3

$ 353 $ 250 $ 284

1 Potash segment sales include byproduct sales which were $21.3 million, $15.6 million and $21.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

1 Potash segment sales include byproduct sales which were $22.8 million and $21.3 million for the years ended December 31, 2022, and 2021, respectively.

2 Depreciation, depletion, and amortization incurred excludes depreciation, depletion, and amortization amounts absorbed in or (relieved from) inventory.

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Our total potash segment sales in 2022 increased $39.6 million, or 26%, as compared to 2021, as potash sales recorded in the potash segment increased 29% and potash segment byproduct sales increased 7%.

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.

Potash sales recorded in the potash segment increased $38.1 million, or 29%, in 2022 compared to 2021, as the average potash net realized sales price per ton increased 102%, partially offset by a 33% decrease in potash tons sold.

Generally strong crop commodity prices combined with global potash supply concerns due to the uncertainty of potash supplied from Eastern Europe drove the increase in our average potash net realized sales price per ton.

We sold 33% fewer tons of potash in

2022 as our agricultural customers were reluctant to purchase potash during the second half of 2022 that was not committed for immediate application.

Potash segment byproduct sales increased $1.5 million, or 7%, in 2022 compared to 2021, due to a $3.4 million increase in byproduct salt sales, a $1.6 million increase in byproduct brine water sales, partially offset by a $3.1 million decrease in byproduct magnesium chloride sales and a $0.4 million decrease in byproduct water sales.

Our salt sales increased as we increased sales in the industrial salt market in 2022.

Our byproduct brine water sales increased due to increased oil and gas activities near our facilities in New Mexico during 2022.

Our magnesium chloride sales decreased as mild winter weather in various parts of the U.S.

in the early part of 2022, followed by wet spring weather reduced demand for magnesium chloride used as a deicing agent in the winter months and as a dedusting agent in the spring and summer months.

Our potash byproduct water sales decreased as a larger percentage of our water sales were from our Intrepid South property.

Water that is used in the production of potash is recorded as byproduct revenue in our potash segment and water sold from our Intrepid South property is recorded as revenue in our oilfield solutions segment.

Generally, the source from where we sell water is based on the location that is nearest to the location where a customer needs the water.

Potash cost of goods sold decreased $10.8 million, or 12%, in 2022, compared to 2021, mainly due to a 33% decrease in potash tons sold.

While our potash tons sold decreased 33% in 2022, our weighted average carrying cost per ton increased due to increased royalties as our sales revenue increased, an increase in labor and benefits expense due to a company-wide salary increase in early 2022, and increased utility expenses due to inflationary pressures and we incurred increased property taxes, and insurance expenses.

Additionally, reduced production at our HB facility also increased our per ton of cost of goods sold because most of our production costs are fixed.

Potash segment freight expense decreased 15%, in 2022, compared to 2021, mainly related to selling 33% fewer tons of potash, partially offset by increased freight rates.

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.

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.

We produced 6% fewer tons of potash during 2022 compared to 2021, as our potash production declined during the first half of 2022, because we had fewer harvestable tons of potash in our HB solution ponds after the abnormally wet weather in the Carlsbad, New Mexico area during the summer of 2021.

Because of the abnormally wet weather during the summer of 2021, we recorded $6.0 million of abnormal production costs in 2021.

We did not record any abnormal production costs in 2022.

Our potash segment gross margin increased $58.9 million in 2022, compared to 2021, due to the $39.6 million increase in potash segment sales, decreases in our cost of goods sold and freight expenses, and not incurring abnormal production costs.

Potash Segment - Additional Information

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Year Ended December 31,

2021 2020 2019

Agricultural 69 % 78 %

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Warehousing and handling costs

4,113 4,574 3,876

Cost of goods sold

54,600 54,847

Lower of cost or NRV inventory adjustments

— 2,885 1,810

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

Gross Margin $ 39,123 $ 16,442

Depreciation, Depletion, and Amortization incurred 2

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Average Net Realized Sales Price per Ton 3

$ 295 $ 195 $ 195

1 Trio ® segment sales include byproduct sales which were $4.9 million, $4.9 million and $5.3 million for the years ended December 31, 2021, 2020, and 2019, respectively.

1 Trio ® segment sales include byproduct sales which were $3.9 million and $4.9 million for the years ended December 31, 2022, and 2021, respectively.

2 Depreciation, depletion, and amortization incurred excludes depreciation, depletion, and amortization amounts absorbed in or (relieved from) inventory.

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Trio ® Segment Results for the Years Ended December 31, 2022, and 2021

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.

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 total Trio ® segment sales increased $21.8 million, or 23%, in 2022, as compared to 2021, as Trio ® sales increased 25%, partially offset by a 22% decrease in Trio ® segment byproduct sales.

Our 2022 Trio ® sales increased $22.8 million, or 25%, in 2022, as compared to 2021, as our average net realized sales price per ton increased 62%, partially offset by an 18% decrease in Trio ® tons sold.

Our Trio ® average net realized sales price per ton increased as generally strong crop prices and the relative value of Trio ® compared to potash drove good demand for Trio ® .

Our Trio ® byproduct sales decreased $1.1 million in 2022, due to a decrease in byproduct water sales.

Our Trio ® byproduct water sales decreased as a larger portion of our total water sales were sourced from our Intrepid South property and recorded in our oilfield solution segment.

Trio ® freight costs decreased 5% in 2022, compared to 2021, mainly related to selling 18% fewer tons of Trio ® , partially offset by increased international sales and increased freight rates.

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

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

Our Trio ® cost of goods sold 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.

Generally, our Trio ® freight expense is higher than our potash freight expense because we generally sell potash to regional customers located closer to our production facilities.

Our Trio ® cost of goods sold decreased slightly in 2022, as compared to 2021.

While we sold 18% fewer Trio ® tons in 2022, our weighted average carrying cost per ton of Trio ® increased as we incurred increased contract labor expenses to operate an additional shift in 2022.

We also incurred higher labor and benefits expenses due to a company-wide salary increase in early 2022, increased royalty expense due to increased sales revenues, increased utility expenses due to inflationary pressures, and we incurred increased property taxes and insurance expenses.

Our Trio ® segment gross margin increased $22.7 million in 2022, compared 2021, mainly due to the increase in our Trio ® average net realized sales price as discussed above.

Trio ® Segment - Additional Information

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Water sales increased $1.9 million in 2022 to $17.5 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.

Sales from right-of-way agreements, surface damages and easements increased $1.9 million, brine water sales increased $1.5 million, and produced water disposal royalties increased $0.5 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.

Overall sales increased due to increased oil and gas activities in 2022, compared to 2021, as oil prices continued to support oil and gas exploration activities in the Permian Basin near our Intrepid South property in southeast New Mexico.

Cost of goods sold increased 10% in 2022, compared to 2021, as we incurred increased contract labor expenses to meet the additional demand for our oilfield solution segment products and services.

We also incurred increased utility costs due to inflationary pressures, increased depreciation related to new infrastructure placed in service in 2022, and increased royalty expense due to increased water revenue.

Gross margin increased $4.0 million, or 116%, in 2022 compared to 2021, due to the factors described above.

Specific Factors Affecting Our Results

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

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

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

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

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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.

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.

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 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.

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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.

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

federal and state income taxes on our taxable income.

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

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

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

We have concluded a valuation allowance of $2.0 million was required as of December 31, 2022, and December 31, 2021.

The amount of valuation allowance was the same in 2022 as compared to 2021.

Our effective tax rate for the years ended December 31, 2022, 2021, and 2020 was 25.2%, (509.9)%, and 0.0%, 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 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.

The effective tax rate for the year ended December 31, 2022, differs from the U.S.

federal statutory rate primarily due to state income taxes, while the effective tax rate for the years ended December 31, 2021, and 2020, differs from the U.S.

federal statutory rate due to the change in valuation allowance.

During the year ended December 31, 2022, we recognized $19.4 million of deferred federal tax expense, $3.9 million of deferred state tax expense, and $1.0 million of current state income tax expense.

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.

For the year ended December 31, 2020, 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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A valuation allowance is recognized for deferred tax assets if it is more likely than not that a portion or all of the net deferred tax assets will not be realized.

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.

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning

strategies, and results of recent operations.

As of December 31, 2022, we were in a cumulative three-year income position.

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Our operations have primarily been funded from cash on hand, cash generated by operations, and proceeds from debt and equity offerings.

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 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").

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.

During 2022, we generated $88.8 million in cash flows from operating activities and we ended the year with $18.5 million of cash and cash equivalents, compared with cash on hand of $36.5 million at December 31, 2021.

As of December 31, 2022, we had $149.0 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 continue to monitor our future sources and uses of cash and anticipate that we will adjust our capital allocation strategies, as 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 revolving credit agreement.

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Year ended December 31,

2021 2020 2019

(In thousands)

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Cash flows used in investing activities $ (79,179) $ (14,823)

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

Cash flows used in financing activities $ (27,704) $ (47,282)

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

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Total cash provided by operating activities for the year ended December 31, 2022, was $88.8 million, an increase of $9.8 million compared with the year ended December 31, 2021.

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

The increase was mainly driven by an increased potash and Trio ® net realized sales price partially offset by reduced sales volumes of both potash and Trio ® .

Operating cash flows included a $32.6 million refund paid in September 2022 of a customer's prepayment for future water deliveries.

Investing Activities

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.

Total cash used in investing activities increased $64.4 million in 2022, compared to 2021, primarily related to a $48.9 million increase in additions to property, plant, equipment, and mineral properties.

Purchases of investments increased $12.0 million compared to the prior year primarily due to investments in investment grade, short-term debt instruments.

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

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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.

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

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

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 had dramatically decreased oil and gas drilling activity.

Total cash flows used in financing activities decreased $19.6 million in 2022, as compared to 2021.

During 2022, we paid $22.0 million under a share repurchase program.

We did not repurchase any shares in 2021.

During 2021, we made payments under our credit facility of $29.8 million and in June 2021, we paid $15.6 million, including the make-whole payment, to retire our Series B Senior Notes.

We did not have any outstanding borrowings under our credit facility in 2022.

Share Repurchase Program

In February 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, is at our sole discretion and is dependent on market conditions, liquidity, applicable securities laws, and other factors.

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

For the twelve months ended December 31, 2022, we repurchased 608,657 shares with a total cost of $22.0 million, or a weighted average price per share of $36.17.

As of December 31, 2022, we have approximately $13.0 million of remaining availability under the share repurchase program.

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.

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Credit Facility

We maintain a secured revolving credit facility with Bank of Montreal.

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.

In August 2022, we and certain of our subsidiaries entered into the Second Amended and Restated Credit Agreement with a syndicate of lenders with the Bank of Montreal, as administrative agent, which provides for a revolving credit facility.

The agreement amended our existing revolving credit facility to, among other things, increase the amount available under the facility from $75 million to $150 million, extend the maturity date to August 4, 2027, and transition from LIBOR (London Interbank Offered Rate) to SOFR (Secured Overnight Financing Rate) as a reference rate for borrowings under the credit agreement.

Borrowings under the amended credit facility bear interest at SOFR plus an applicable margin of 1.50% to 2.25% per annum, based on our leverage ratio as calculated in accordance with the amended agreement governing the revolving credit facility.

Borrowings under the revolving credit facility are secured by substantially all of our current and non-current assets, and 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 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.

For the year ended December 31, 2022, we made no borrowings or repayments under the facility.

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

As of December 31, 2022, and 2021, we had no borrowings outstanding and $1.0 million in an outstanding letter of credit under the facility.

We had $149.0 million available under the facility as of December 31, 2022.

We were in compliance with the applicable covenants under the facility as of December 31, 2022.

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.

Capital Investments

During 2022, we paid cash of $68.7 million to acquire property, plant, equipment, and mineral properties.

Due to the economic uncertainty as a result of the COVID-19 pandemic, particularly in oil and gas markets near our operations, we limited our 2021 capital program to mostly sustaining capital projects.

We expect to make capital investments in 2023 of $60 million to $75 million.

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We may also use our revolving credit facility, to the extent available, to fund capital investments.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

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Our significant accounting policies are further described in Note 2 to our audited consolidated financial statements included in "Item 8.

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

Financial Statements and Supplemental Data" of this Annual Report.

We believe the following accounting policies include a higher degree of subjective and complex judgments in their application and are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.

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Depletion expense is calculated by multiplying the number of tons of product produced by the depletion rate per ton.

Indefinite-lived Intangible Assets

Water rights are accounted for as indefinite-lived intangible assets and are not amortized.

We test indefinite-lived intangible assets for impairment at least annually on October 1, and more frequently if circumstances require.

We use a qualitative assessment to determine whether it is more likely than not that the fair value of the intangible is less than its carrying value.

If our qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying value, we estimate the fair value of the intangible asset and record an impairment loss based on the excess of the carrying amount of the intangible asset over its estimated fair value.

Fair value is estimated using quoted market prices, if available.

If quoted market prices are not available, the estimated fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.

Changes in significant assumptions underlying fair value estimates may have a material effect on our financial position and results of operations.

Asset Retirement Obligations

All of our mining properties involve certain reclamation liabilities as required by the states in which they operate or by the BLM.

Reclamation costs are initially recorded as a liability associated with the asset to be reclaimed or abandoned, based on

applicable inflation assumptions and discount rates.

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

These asset retirement obligations are reviewed and updated at least annually with any changes in balances recorded as adjustments to the related assets and liabilities.

The estimates of amounts to be spent are subject to considerable uncertainty and long timeframes.

Changes in these estimates could have a material impact on our results of operations and financial position.

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

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We use average net realized sales price per ton as a key performance indicator to analyze potash and Trio ® sales and price trends.

Below is a reconciliation of average net realized sales price per ton for potash and Trio ® and to the most directly comparable GAAP measure for the years ended December 31, 2021, 2020, and 2019 (in thousands, except per ton amounts):

Below is a reconciliation of average net realized sales price per ton for potash and Trio ® to the most directly comparable GAAP measure for the years ended December 31, 2022, and 2021 (in thousands, except per ton amounts):

Potash Segment

2021 2020 2019

Total Segment Sales $ 191,378 $ 151,751

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Trio ® Segment

2021 2020 2019

Total Segment Sales

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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 7. Management’s Discussion and Analysis