Intrepid Potash Inc

Previous wording

Our extraction and production operations are conducted entirely in the continental United States. We produce potash from three solution mining facilities: our HB solution mine in Carlsbad, New Mexico, our solution mine in Moab, Utah and our brine recovery mine in Wendover, Utah. We also operate our North compaction facility in Carlsbad, New Mexico, which compacts and granulates product from the HB mine. We produce Trio® from our conventional underground East mine in Carlsbad, New Mexico. Until mid-2016, we also produced potash from our East and West mines in Carlsbad, New Mexico.

Current wording

Our extraction and production operations are conducted entirely in the continental U.S. We produce potash from three solution mining facilities: our HB solution mine in Carlsbad, New Mexico, our solution mine in Moab, Utah, and our brine recovery mine in Wendover, Utah. We also operate our North compaction facility in Carlsbad, New Mexico, which compacts and granulates product from the HB mine. We produce Trio® from our conventional underground East mine in Carlsbad, New Mexico.

Previous wording

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."

Current wording

Our financial results have been, or are expected to be, impacted by several significant trends and activities, including impacts from 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."

Previous wording

•Potash pricing and demand. In 2023, potash remained a significant driver of our profitability, comprising 47% of our total sales. Our average net realized sales price for potash decreased in 2023 to $466 per ton compared to $713 per ton for 2022. Agricultural pricing peaked at $800 per ton in April 2022 as a result of sanctions on Belarusian potash and concerns about global potash supply due to Russia's invasion of Ukraine. Prices started to decrease in the fall of 2022 as global potash production rates improved. Agricultural potash pricing was $480 per ton at the beginning of 2023 and decreased from there. Despite the declining potash price, demand remained strong throughout 2023 with two good application seasons in the spring and fall supported by above average commodity prices. In January 2024, a winter-fill agricultural potash program was announced decreasing the list price to $385 per ton in January 2024 during a ten-day order window, before the list price increased by $30 per ton. We saw a good response to the program and expect distributors will continue to layer in tons as the 2024 spring season continues, with most distributors targeting minimal carryover inventory to end the spring. We expect to realize the increased price after the order window on certain spot sales in the first quarter of 2024. 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.

Current wording

•Potash pricing and demand. Our average net realized sales price for potash decreased to $377 per ton in 2024 compared to $466 per ton in 2023 as global potash production improved back to 2021 levels leading to a more balanced global potash market. In January 2025, a winter-fill agricultural potash program was announced decreasing the list price for agricultural potash by $20 per ton to $315 per ton during a one-week order window, before the list price increased back to $340 per ton. Subscription under the fill program was generally positive, with most customers placing orders for the entirety of their first quarter needs. After the fill program and subsequent price increase, U.S potash prices are trading in line with global prices levels, supported by improving crop prices and a positive outlook on spring planting. 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, tariffs, and crop commodity values and outlook, also influence pricing.

Previous wording

•Trio® pricing and demand. Our average net realized sales price for Trio® decreased to $321 per ton in 2023, compared to $479 per ton in 2022, as Trio® price generally followed price decreases in potash. After the January 2024 price announcement for potash, we maintained our posted Trio®price of $330 per ton for premium Trio®, $320 per ton for granular and $290 per ton for standard Trio®, which is approximately $75 per ton below the price levels in January 2023. We've seen good subscription for the 2024 spring season and similar to past years we expect distributors to target minimal carryover inventory into summer. Our ability to realize the increased prices may be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases, and the price and availability of other potassium products.

Current wording

•Trio® pricing and demand. Our average net realized sales price for Trio® decreased to $311 per ton in 2024, compared to $321 per ton in 2023, as increasing sulfate values mostly offset declines in potassium pricing during the year. In January 2025, improving agricultural commodity prices led to strong early season demand and customers were willing to commit to the majority of their spring needs. Given the good demand and continued improvements in sulfate pricing, we increased our posted price for Trio® by $20 per ton in late January to $375 per ton, and expect to realize the higher price levels on tons shipped in the second quarter of 2025. Our ability to realize the increased prices may be affected by, among other things, weather, planting decisions, rail car availability, commodity price decreases, and the price and availability of other potassium products.

Previous wording

Overall average net realized sales price per ton for Trio® will continue to be impacted by the percentage of international sales, particularly to offshore markets. Competition from lower cost alternatives and freight costs continue to negatively impact our average net realized sales price per ton to offshore 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.

Current wording

Overall average net realized sales price per ton for Trio® will continue to be impacted by the percentage of international sales, particularly to offshore markets. Competition from lower cost alternatives and freight costs continues to negatively impact our average net realized sales price per ton to offshore 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.

Previous wording

◦We started construction on a new primary pond in Wendover to increase the brine evaporative area, which will result in two primary ponds when complete. Similar to our caverns at Moab and HB, the primary ponds at Wendover serve as the brine storage area, and adding another primary pond will help us meet our goals of maximizing brine availability, increasing our brine grade, and improving our production. We expect this project to be commissioned in the third quarter of 2024.

Current wording

◦We completed the construction of a new primary pond in Wendover in June 2024 and are in the process of filling the pond with brine. Similar to our caverns at the Moab and HB mines, the primary ponds at Wendover serve as the brine storage area, and adding another primary pond will help us meet our goals of maximizing brine availability, increasing brine grade, and improving production. We expect to see the production benefits of the new primary pond beginning in 2025 - 2026 production year.

Previous wording

•Diversification of products and services. Our revenue from brine and other oilfield products and services recorded in our oilfield solutions segment increased by $0.6 million in 2023, compared to 2022, mainly driven by an increase in brine sales at Intrepid South. Brine sales from our HB facility are recorded as byproduct revenue in our potash segment. Our total brine sales and byproduct brine sales were $8.3 million during 2023, compared to $6.1 million during 2022.

Current wording

•Other oilfield products and services. Our revenue from brine and other oilfield products and services, excluding water, recorded in our oilfield solutions segment decreased to $11.1 million in 2024, compared to $11.7 million in 2023, mainly driven by a $1.0 million decrease in surface use and right of way revenue at Intrepid South.

Previous wording

1 Sales include sales of byproducts which were $30.6 million and $26.7 million for the years ended December 31, 2023 and 2022, respectively.

Current wording

1 Sales include sales of byproducts which were $25.3 million and $30.6 million for the years ended December 31, 2024, and 2023, respectively.

Previous wording

Our total sales decreased $58.5 million, or 17% in 2023, compared to 2022, as potash segment sales decreased $35.5 million, Trio®segment sales decreased $15.6 million, and our oilfield solutions segment sales decreased $7.4 million.

Current wording

Our total sales decreased $24.4 million, or 9% in 2024, compared to 2023, as potash segment sales decreased $31.1 million, partially offset by an increase of $3.2 million in Trio®segment sales and an increase of $3.4 million in oilfield solutions segment sales.

Previous wording

Our total Trio®segment sales decreased by $15.6 million during 2023, compared to 2022, driven by a decrease of $17.6 million in Trio®sales. Our Trio® average net realized sales price per ton decreased 33% during 2023, partially offset by a 16% increase in tons of Trio® sold. Similar to potash, Trio® prices have declined in each succeeding quarter after peaking during the second quarter of 2022. Generally strong crop prices and lower Trio®prices drove good demand for Trio®. The decrease in Trio®sales was partially offset by an increase of $2.0 million in Trio®segment byproduct sales during 2023, as our Trio® byproduct water sales increased as a larger portion of our total water sales was byproduct water used in our Trio® production process.

Current wording

Our total Trio®segment sales increased by $3.2 million during 2024 compared to 2023, driven by an increase of $8.4 million in Trio®sales, partially offset by a decrease of $5.2 million in Trio®segment byproduct sales. We sold 11% more tons of Trio®in 2024 compared to 2023, partially offset by a 3% decrease in our Trio®average net realized sales price per ton during 2024, compared to 2023. Our Trio® byproduct sales decreased as we did not sell any Trio® segment byproduct water in 2024, while we sold $5.3 million in Trio® segment byproduct water in 2023.

Previous wording

Our total cost of goods sold increased $35.0 million, or 23%, in 2023, compared to 2022. Our potash segment cost of goods increased $20.9 million, or 27%, and our Trio®segment cost of goods sold increased $19.7 million, or 36%, partially offset by a decrease of $5.6 million, or 27%, in our oilfield solutions segment cost of goods sold.

Current wording

Our total cost of goods sold decreased $15.9 million, or 8%, in 2024, compared to 2023. Our potash segment cost of goods decreased $13.5 million, or 14%, and our Trio®segment cost of goods sold decreased $4.3 million, or 6%, partially offset by an increase of $1.9 million, or 13%, in our oilfield solutions segment cost of goods sold.

Previous wording

Our potash segment cost of goods sold mainly increased due to selling 16% more tons of potash in 2023, compared to 2022. In addition to selling more tons of potash in 2023, our weighted average carrying cost per ton increased as production labor costs, including contract labor and benefits, increased in 2023. We also produced fewer tons of potash during 2023 compared to 2022 and, because most of our production costs are fixed, a decrease in tons produced causes our weighted average price per ton to increase.

Current wording

Our potash segment cost of goods sold decreased 14% in 2024 compared to 2023, due to selling 7% fewer tons of potash in 2024, compared to 2023. In addition to selling fewer tons of potash in 2024, we produced 32% more tons of potash in 2024 compared to 2023, which lowered our per ton production costs. A significant portion of our production costs are fixed and an increase in the number of potash tons produced decreases our per ton production costs.

Previous wording

Lower of Cost or Net Realizable Value Inventory Adjustments

Current wording

Lower of Cost or Net Realizable Value ("NRV") Inventory Adjustments

Previous wording

During 2023, we recorded lower of cost or net realizable value inventory adjustments of $6.5 million as our weighted average carrying costs for certain potash and Trio®products exceeded our expected selling price for those products. As discussed above, our average net realized sales price per ton for potash and Trio®declined during 2023, and our weighted average carrying costs for potash and Trio®increased during 2023. We did not record any lower of cost or net realizable value inventory adjustments during 2022.

Current wording

During 2024, we recorded lower of cost or NRV inventory adjustments of $4.0 million as our weighted average carrying costs for certain potash products exceeded our expected selling price for those products. During the year ended December 31, 2023, we recorded lower of cost or NRV adjustments of $6.5 million as our weighted average carrying costs for certain potash and Trio®products exceeded our expected selling price for those products. As discussed above, during 2024 compared to 2023, our average net realized sales price per ton for potash and Trio®decreased but the amount of lower of cost or NRV inventory adjustments recorded was less in 2024 compared to 2023 because our weighted average carrying costs for potash and Trio®also decreased.

Previous wording

Our gross margin percentage decreased to 13% in 2023, compared to 42% in 2022. The decrease was driven primarily by a decrease in sales revenue due to decreases in our average net realized sales price per ton for both potash and Trio®, increases in both potash and Trio® cost of goods sold, and recording lower of cost or net realizable value inventory adjustments during 2023.

Current wording

Our gross margin percentage decreased to 11% in 2024, compared to 13% in 2023. The decrease was driven primarily by a decrease in sales revenue due to decreases in our average net realized sales price per ton for both potash and Trio®.

Previous wording

During the year ended December 31, 2023, we recorded total impairment charges of $43.3 million. During the year ended December 31, 2022, we recorded no impairment charges.

Current wording

During the year ended December 31, 2024, we recorded total impairment charges of $10.7 million. During the year ended December 31, 2023, we recorded total impairment charges of $43.3 million.

Previous wording

In the fourth quarter of 2023, given the decrease in our gross margin for our Trio® segment we determined that sufficient indicators of potential impairment of our Trio® segment long-lived assets existed. We performed a recoverability test and determined that the carrying value of our Trio® segment long-lived assets was not recoverable. We engaged a third-party valuation firm to determine the fair value of our Trio®segment assets. The fair value of our Trio® segment assets was primarily determined using the expected proceeds received in an orderly sale of the individual assets. The carrying value of our Trio® segment asset group exceeded its fair value, and we recorded an impairment charge of $31.9 million.

Current wording

In 2023, we recorded an impairment related to our Trio® segment assets because the net book value exceeded the estimated fair value of the assets. We engaged a third-party valuation firm to determine the fair value of our Trio®segment assets. The fair value of our Trio® segment assets was primarily determined using the expected proceeds received in an orderly sale of the individual assets. The carrying value of our Trio® segment asset group exceeded its fair value, and we recorded an impairment charge of $31.9 million. For any Trio® segment capital spending during 2024, we also estimated the fair value of those assets using the expected proceeds received in an orderly sale of those new assets and recorded an impairment of $4.4 million.

Previous wording

Finally, during 2023, we recorded impairment charges of $1.5 million related to certain assets in our Oilfield Solutions Segment, specifically certain water recycling equipment and an investment in a non-operating interest in an oil and gas investment.

Current wording

In 2024, in our Oilfield Solutions Segment we recorded impairment charges of $6.4 million mainly related to our frac sand opportunity and other oilfield related equipment. Although we still hold the necessary permits for the sand operation, it is unlikely we will continue to pursue this opportunity as we focus on our core business. In 2023, we recorded impairment charges of $1.5 million related to certain assets in our Oilfield Solutions Segment, specifically certain water recycling equipment and an investment in a non-operating interest in an oil and gas investment.

Previous wording

Our long-lived assets at our West facility have been in care and maintenance since July 2016. Given the length of time since the assets were placed in care and maintenance, we engaged a third-party valuation firm to determine if the fair value of the West assets supports the carrying value of those assets. The fair value of the West assets was determined using the expected proceeds received in an orderly sale of the individual assets. The carrying value of the West assets exceeded the fair value of those assets, and we recorded an impairment charge of $9.9 million during the fourth quarter of 2023.

Current wording

In 2023 in our potash segment, we recorded an impairment charge of $9.9 million related to the assets at the West facility, which were placed in care and maintenance in 2016, and given the length of time since the assets were placed in care and maintenance, we engaged a third-party valuation firm to determine the fair value of the West assets. The fair value of the West assets was determined using the expected proceeds received in an orderly sale of the individual assets.

Previous wording

During 2023, we recorded a $0.8 million loss on the sale or disposal of assets in the normal course of business, compared to a loss of $7.5 million during 2022. 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.

Current wording

During 2024, we recorded a $2.0 million loss on the sale or disposal of assets in the normal course of business, compared to a loss of $0.8 million during 2023. Our loss on sale or disposal of assets in 2024 resulted from the sale of excess lay flat water tubing.

Previous wording

Our 2023 net income decreased $107.9 million to a net loss of $35.7 million. The decrease was primarily due to the decreased gross margins in our potash and Trio® segments and the impairment expense recorded in 2023.

Current wording

Our 2024 net income decreased $177.2 million to a net loss of $212.8 million. The decrease is due to the increase in the deferred tax assets valuation allowance, partially offset by decreased impairment expense recorded in 2024 compared to 2023.

Previous wording

1 Potash segment sales include byproduct sales which were $24.7 million and $22.8 million for the years ended December 31, 2023, and 2022, respectively.

Current wording

1 Potash segment sales include byproduct sales which were $24.6 million and $24.7 million for the years ended December 31, 2024, and 2023, respectively.

Previous wording

Our total potash segment sales in 2023 decreased $35.5 million, or 19%, compared to 2022, as potash sales recorded in the potash segment decreased 22%, partially offset by an 8% increase in potash segment byproduct sales.

Current wording

Our total potash segment sales in 2024 decreased $31.1 million, or 20%, compared to 2023, as potash sales recorded in the potash segment decreased 24% while potash segment byproduct sales were essentially unchanged.

Previous wording

Our total potash segment sales decreased $35.5 million during 2023, compared to 2022, driven by a decrease of $37.4 million in potash sales. Our potash sales decreased as our potash average net realized sales price per ton decreased 35%, partially offset by a 16% increase in tons of potash sold. Generally strong crop prices supported good potash demand during 2023. Potash prices peaked during the second quarter of 2022 and have steadily declined in each succeeding quarter as global production rates and product availability improved. The decrease in potash sales during 2023 was partially offset by an increase of $1.9 million in potash segment byproduct sales. The increase in potash segment byproduct sales was due to increased byproduct magnesium chloride sales and increased byproduct brine sales. Our byproduct magnesium chloride sales increased as we realized higher prices during 2023, compared to 2022. Our byproduct brine sales increased due to continuing strong oil and gas activities near our facilities in New Mexico during 2023.

Current wording

Potash segment byproduct sales decreased $0.1 million, in 2024 compared to 2023, due to a $2.8 million decrease in byproduct magnesium chloride sales, partially offset by a $2.6 million increase in byproduct brine sales. Our byproduct magnesium chloride sales decreased in 2024 compared to 2023, due to mild winter weather which decreased demand for our deicing product in the first and fourth quarters of 2024, and we saw less demand from the dedust market impacting sales in the second and third quarters of 2024. Our byproduct brine sales increased due to continuing strong oil and gas activities near our facilities in New Mexico during 2024.

Previous wording

Potash cost of goods sold increased $20.9 million, or 27%, in 2023, compared to 2022, mainly due to a 16% increase in potash tons sold. In addition, our weighted average carrying cost per ton increased mainly due to a 15%, or $3.8 million increase in production labor, contract labor, and benefits expenses in 2023. Our total tons of potash produced decreased 17% in 2023, compared to 2022, which also increased our per ton production costs. Because most of our production costs are fixed, decreases in tons produced result in higher per ton costs.

Current wording

Potash cost of goods sold decreased $13.5 million, or 14%, in 2024, compared to 2023, due to a 7% decrease in potash tons sold and a decrease in our per ton production costs. Our per ton production costs decreased in 2024 compared to 2023, as we produced 32% more tons of potash during 2024 compared to 2023. A significant portion of our production costs are fixed and an increase in tons produced results in lower per ton production costs.

Previous wording

Potash segment freight expenses were virtually unchanged in 2023, compared to 2022, even though we sold 16% more tons of potash. Increases in potash freight expense from selling more tons of potash in 2023 were offset by a decrease in freight expense associated with our potash byproduct salt sales. Our freight expense is 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.

Current wording

Potash segment freight expenses decreased 11% in 2024 compared to 2023, as we sold 7% fewer tons of potash. Our freight expense is 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.

Previous wording

During 2023, we recorded $2.7 million in lower of cost or net realizable value inventory adjustments as our weighted average carry cost per ton exceeded our expected net realizable value per potash ton. As discussed above, our potash average net realized sales price per ton decreased during 2023 while our weighted average carrying cost per ton increased in 2023. We did not record any lower of cost or net realizable value inventory adjustments during 2022.

Current wording

During 2024, we recorded $4.0 million in lower of cost or net realizable value inventory adjustments for certain potash products as our weighted average carry cost per ton exceeded our expected net realizable value per potash ton. While our weighted average carrying cost per ton decreased in 2024, average potash prices also declined in 2024. We recorded $2.7 million in lower of cost or net realizable value inventory adjustments for certain potash products during 2023.

Previous wording

Our potash segment gross margin decreased $59.7 million in 2023, compared to 2022, due to the $35.5 million decrease in potash segment sales, increased cost of goods sold expense, and recording lower of cost or net realizable value inventory adjustments, as discussed above.

Current wording

Our potash segment gross margin decreased $17.6 million in 2024, compared to 2023, due to the $31.1 million decrease in potash segment sales.

Previous wording

1 Trio® segment sales include byproduct sales which were $5.8 million and $3.9 million for the years ended December 31, 2023, and 2022, respectively.

Current wording

1 Trio® segment sales include byproduct sales which were $0.7 million and $5.8 million for the years ended December 31, 2024, and 2023, respectively.

Previous wording

Our total Trio® segment sales decreased $15.6 million, or 13%, in 2023, as compared to 2022, as Trio® sales decreased $17.6 million, or 15%, partially offset by a $2.0 million increase, or 51%, in Trio® segment byproduct sales.

Current wording

Our total Trio® segment sales increased $3.2 million, or 3%, in 2024 compared to 2023, as Trio® sales increased $8.4 million, or 9%, partially offset by a $5.2 million decrease, or 89%, in Trio® segment byproduct sales.

Previous wording

Trio®freight costs increased 18% in 2023, compared to 2022, mainly related to a 16% increase in Trio®tons sold. 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. Generally, our Trio®freight expense is higher than our potash freight expense because we sell potash to regional customers located closer to our production facilities.

Current wording

Trio®freight costs increased 11% in 2024 compared to 2023, related to an 11% increase in Trio®tons sold. 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. Generally, our Trio®freight expense is higher than our potash freight expense because we sell potash to regional customers located closer to our production facilities.

Previous wording

We recorded $3.8 million in lower of cost or net realizable value inventory adjustments in 2023, due to increased carrying costs of our Trio®inventory and lower realized prices compared to 2022.

Current wording

In 2024, we did not record any lower of cost or net realizable value inventory adjustments. In 2023, we recorded $3.8 million in lower of cost or net realizable value inventory adjustments.

Previous wording

Our Trio®segment gross margin decreased $43.1 million in 2023, compared 2022, due to the factors discussed above.

Current wording

Our Trio®segment gross margin increased by $8.4 million in 2024 compared to 2023, due to the factors discussed above.

Previous wording

Gross margin decreased $1.7 million, or 23%, in 2023 compared to 2022, due to the factors described above.

Current wording

Gross margin increased $1.4 million, or 25%, in 2024 compared to 2023, due to the factors described above.

Previous wording

Our gross sales are derived from the sales of potash, Trio®, water, salt, magnesium chloride, brine water and various other products and services offered to oil and gas producers. Total sales are determined by the quantities of product we sell and the sales prices we realize. For potash, Trio®and salt, we quote prices to customers both on a delivered basis and on the basis of pick-up at our plants and warehouses. Freight costs are incurred on most of our potash, Trio®and salt sales, but some customers arrange and pay for their own freight directly. When we arrange and pay for freight, our quotes and billings are based on expected freight costs to the points of delivery. When we calculate our potash and Trio®average net realized sales price per ton, we deduct any freight costs included in sales before dividing by the number of tons sold. We believe the deduction of freight costs provides a more representative measure of our performance in the market due to variations caused by ongoing changes in the proportion of customers paying for their own freight, the geographic distribution of our products, and freight rates. Freight rates have been increasing, and if we are unable to pass the increased freight costs on to the customer, our average net realized sales price per ton is negatively affected. We manage our sales and marketing operations centrally and we work to achieve the highest average net realized sales price per ton we can by evaluating the product needs of our customers and associated logistics and then determining which of our production facilities can best satisfy these needs.

Current wording

Our gross sales are derived from the sales of potash, Trio®, water, salt, magnesium chloride, brine water and various other products and services. Total sales are determined by the quantities of product we sell and the sales prices we realize. For potash, Trio®, and salt, we quote prices to customers both on a delivered basis and on the basis of pick-up at our plants and warehouses. Freight costs are incurred on most of our potash, Trio®, and salt sales, but some customers arrange and pay for their own freight directly. When we arrange and pay for freight, our quotes and billings are based on expected freight costs to the points of delivery. When we calculate our potash and Trio®average net realized sales price per ton, we deduct any freight costs included in sales before dividing by the number of tons sold. We believe the deduction of freight costs provides a more representative measure of our performance in the market due to variations caused by ongoing changes in the proportion of customers paying for their own freight, the geographic distribution of our products, and freight rates. Freight rates have been increasing, and if we are unable to pass the increased freight costs on to the customer, our average net realized sales price per ton is negatively affected. We manage our sales and marketing operations centrally and we work to achieve the highest average net realized sales price per ton we can by evaluating the product needs of our customers and associated logistics and then determining which of our production facilities can best satisfy these needs.

Previous wording

We pay royalties to federal, state, and private lessors under our mineral leases. These payments typically equal a percentage of sales (less freight) of minerals extracted and sold under the applicable lease. In some cases, federal royalties for potash are paid on a sliding scale that varies with the grade of ore extracted. Our average royalty rate was 4.9%, 4.8%, and 4.7% in 2023, 2022, and 2021, respectively.

Current wording

We pay royalties to federal, state, and private lessors under our mineral leases. These payments typically equal a percentage of sales (less freight) of minerals extracted and sold under the applicable lease. In some cases, federal royalties for potash are paid on a sliding scale that varies with the grade of ore extracted. Our average royalty rate was 4.9%, 4.9%, and 4.8% in 2024, 2023, and 2022, respectively. In addition to royalties, we are also subject to resource and severance taxes in the state of New Mexico.

Previous wording

We incur costs to transfer water from our water source to our customers' facilities. Our operating costs depend on the distance and amount of water we must transfer. 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. Third parties often protest our applications and the decisions made by the OSE concerning the changes to our water rights permits. As we have worked to sell more water commercially, we have incurred significant legal expenses associated with defending our water rights as they proceed through adjudication and obtaining water permits and approvals.

Current wording

We incur costs to transfer water from our water source to our customers' facilities. Our operating costs depend on the distance and amount of water we must transfer. Additionally, water rights in New Mexico are subject to a stated point of diversion, purpose and place of use, and many of our water rights were originally issued for uses relating to our mining operations, or in the case of the water rights at Intrepid South, for agricultural uses. To sell water commercially under these rights, we must apply for a permit from the OSE to change point of diversion, purpose and/or place of use of the underlying water rights. Third parties often protest our applications and the decisions made by the OSE concerning the changes to our water rights permits. As we have worked to sell more water commercially, we have incurred significant legal expenses associated with defending our water rights as they proceed through adjudication and obtaining water permits and approvals.

Previous wording

We are a subchapter C corporation and are therefore, subject to U.S. federal and state income taxes on our taxable income. We recognize deferred tax assets and liabilities for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at enacted tax rates in effect when the related taxes are expected to be settled or realized. We also reduce deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining how much of a valuation allowance to recognize we consider our projections of future taxable income. All available evidence, both positive and negative, that may affect the realizability of deferred tax assets is identified and considered in determining the appropriate amount of the valuation allowance. We have concluded a valuation allowance of $3.2 million was required as of December 31, 2023, and $2.0 million as of December 31, 2022.

Current wording

We are a subchapter C corporation and are therefore, subject to U.S. federal and state income taxes on our taxable income. We recognize deferred tax assets and liabilities for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at enacted tax rates in effect when the related taxes are expected to be settled or realized. We also reduce deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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, 2024, we were in a cumulative three-year income position as a result of income generated during the year ended December 31, 2022. Since the 2022 income year will cease to be part of the cumulative three-year test in the next twelve months, we forecast that by the end of 2025, we will be in a three-year cumulative loss position which is significant negative evidence that is difficult to overcome when evaluating the realizability of our deferred tax assets. As a result, we have concluded a valuation allowance against our deferred tax assets of $202.2 million was required as of December 31, 2024. Our valuation allowance against our deferred tax assets was $3.2 million as of December 31, 2023.

Previous wording

The amount of valuation allowance increased in 2023 as compared to 2022, due to a change in the forecast of the amount of state net operating losses that may be used before expiration. Our effective tax rate for the years ended December 31, 2023, 2022, and 2021 was 19.0%, 25.2%, and (509.9)%, 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 and the expense for the estimated effect of the disallowed deduction for officers' compensation.

Current wording

Our effective tax rate for the years ended December 31, 2024, 2023, and 2022 was (1,049.8)%, 19.0%, and 25.2%, 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 and the expense for the estimated effect of the disallowed deduction for officers' compensation.

Previous wording

The effective tax rate for the year ended December 31, 2023, differs from the U.S. federal statutory rate primarily due to the change in the valuation allowance. The effective tax rate for the years ended December 31, 2022, and 2021, differs from the U.S. federal statutory rate due to state income taxes, and the change in valuation allowance, respectively.

Current wording

The effective tax rate for the year ended December 31, 2024, differs from the U.S. federal statutory rate primarily due to the change in the valuation allowance. The effective tax rate for the year ended December 31, 2023, differs from the U.S. federal statutory rate primarily due to the change in the valuation allowance.