Intrepid Potash, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1—COMPANY BACKGROUND

We are a diversified mineral company that delivers potassium, magnesium, sulfur, salt, and water products essential for customer success in agriculture, animal feed, and the oil and gas industry. We are the only U.S. producer of muriate of potash (sometimes referred to as potassium chloride or potash), which is applied as an essential nutrient for healthy crop development, utilized in several industrial applications, and used as an ingredient in animal feed. In addition, we produce a specialty fertilizer, Trio®, which delivers three key nutrients, potassium, magnesium, and sulfate, in a single particle. We also provide water, salt, magnesium chloride, brine, and various oilfield products and services.

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 the North compaction facility in Carlsbad, New Mexico, which compacts and granulates product from the HB mine. We produce Trio® from our conventional underground East mine in Carlsbad, New Mexico.

We have permitted, licensed, declared, and partially adjudicated water rights in New Mexico that support our mining and industrial operations.

We also have certain land, water rights, federal grazing leases, and other related assets in southeast New Mexico. We refer to these assets and operations as "Intrepid South." Our Intrepid South property generates revenue from sales of various oilfield related products and services, including but not limited to, water, brine, surface use and right-of-way agreements, a produced water royalty agreement, and caliche.

We have three segments: potash, Trio®, and oilfield solutions. We account for sales of byproducts as revenue in the potash or Trio® segment based on which segment generates the byproduct. Intersegment sales prices are market based and are eliminated.

"Intrepid," "our," "we," or "us" means Intrepid Potash, Inc. and its consolidated subsidiaries.

Note 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statement Presentation—Our unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of interim financial information, have been included. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024.

Recently Adopted Accounting Standards—In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"). This new guidance: (i) introduces a requirement to disclose significant segment expenses regularly provided to the chief operating decision maker ("CODM"), (ii) extends certain annual disclosures to interim periods, (iii) clarifies disclosure requirements for single reportable segment entities, (iv) permits more than one measure of segment profit or loss to be reported under certain conditions, and (v) requires disclosure of the title and position of the CODM. The adoption of this standard did not have an impact on our results of operations, cash flows and financial condition, but resulted in additional disclosures for our reportable segments.

Pronouncements Issued But Not Yet Adopted—In November 2024, the FASB issued ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40)" (ASU 2024-03"). ASU 2024-03 requires additional disclosures about the nature of expenses included in the income statement, such as purchases of inventory, employee compensation and depreciation. ASU 2024-03 is effective for public business entities for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the guidance and expect it to only impact disclosures with no impact to results of operations, cash flows and financial condition.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). ASU 2023-09 requires that an entity disclose specific categories in the annual effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold, certain disclosures of state versus federal income tax expenses and taxes paid. ASC 2023-09 is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the guidance and expect it to only impact disclosures with no impact to results of operations, cash flows and financial condition.

Note 3—EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. For purposes of determining diluted earnings per share, basic weighted-average common shares outstanding is adjusted to include potentially dilutive securities, including restricted stock, stock options, and restricted stock units. The treasury-stock method is used to measure the dilutive impact of potentially dilutive shares. Potentially dilutive shares are excluded from the diluted weighted-average shares outstanding computation in periods in which they have an anti-dilutive effect. The following table shows the calculation of basic and diluted earnings per share (in thousands, except per share amounts):

The following table shows the shares that have an anti-dilutive effect and are excluded from the diluted weighted-average shares outstanding computations (in thousands):

Note 4—CASH, CASH EQUIVALENTS AND RESTRICTED CASH

We consider financial instruments with original maturities of three months or less to be cash equivalents. Total cash, cash equivalents and restricted cash, as shown on the Condensed Consolidated Statements of Cash Flows are included in the following accounts at June 30, 2025, and 2024 (in thousands):

Restricted cash included in other current and long-term assets on the Condensed Consolidated Balance Sheets represents amounts for which use is restricted by contractual agreements with various entities, principally the Bureau of Land Management or the states of Utah and New Mexico, as security to fund future reclamation obligations at our sites.

Note 5—INVENTORY AND LONG-TERM PARTS INVENTORY

The following summarizes our inventory, recorded at the lower of weighted-average cost or estimated net realizable value, as of June 30, 2025, and December 31, 2024 (in thousands):

Parts inventory is shown net of estimated allowances for obsolescence of $1.1 million and $1.2 million as of June 30, 2025, and December 31, 2024, respectively.

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

Property, plant, equipment, and mineral properties were comprised of the following (in thousands):

During the year ended December 31, 2023, we recorded an impairment related to our Trio®segment assets because the net book value of the assets exceeded the estimated fair value of the assets. The fair value of the Trio®segment assets was primarily determined using the expected proceeds received in an orderly sale of the individual assets. For any Trio®segment capital spending during the six months ended June 30, 2025, and 2024, we also estimated the fair value of those assets using the expected proceeds received in an orderly sale of those new assets. As a result, we recorded an additional impairment of $1.9 million and $2.2 million in the six months ended June 30, 2025, and 2024, respectively.

We incurred the following expenses for depreciation, depletion, and amortization, including expenses capitalized into inventory, for the following periods (in thousands):

Note 7 —OTHER LONG-TERM DEFERRED INCOME

Cooperative Development Agreement—In December 2023, we entered into the Third Amendment of Cooperative Development Agreement (the "CDA Amendment") with XTO Holdings, LLC ("XTO Holdings") and XTO Delaware Basin LLC, as successors in interest to BOPCO, L.P. ("XTO Delaware Basin," and together with XTO Holdings, "XTO"), with an effective date of January 1, 2024 ("Amendment Date"). The CDA Amendment further amends that certain Cooperative Development Agreement, by and between us, BOPCO, L.P. and the other parties thereto, effective as of February 28, 2011 (as amended, including by the CDA Amendment, the "CDA"), which was executed for the purpose of pursuing the cooperative development of potassium and oil and gas on certain lands. The CDA restricts and limits the rights of Intrepid and XTO, as successors in interest to BOPCO, L.P., to explore and develop their respective interests, including limitations on the locations of wells. Intrepid and XTO entered into the CDA Amendment in an effort to further the cooperation, remove the restrictions and limitations, and allow for the efficient co-development of resources within the Designated Potash Area ("DPA") consistent with the United States Secretary of the Interior Order 3324.

Pursuant to the CDA Amendment, among other things, we agreed to provide support to XTO for development and operation of XTO's oil and gas interests within the DPA. As consideration under the CDA Amendment, XTO agreed to pay us an initial fee of $50.0 million (the "Initial Fee"). We received a partial payment of $5.0 million of the Initial Fee in December 2023, and we received payment of the remaining $45.0 million from XTO in January 2024.

The CDA Amendment further provides that we shall receive an additional one-time payment equal to $50.0 million (the "Access Fee"), which XTO will pay within 90 days upon the earlier occurrence of (i) the approval of the first new or expanded drilling island within a specific area to be used by XTO or (ii) within seven years of the anniversary of the Amendment Date. XTO is also required to pay additional amounts to Intrepid as an "Access Realization Fee," up to a maximum of $100.0 million, (the "Access Realization Fee") in the event of certain additional drilling activities by XTO.

Because the cooperative development support we are providing under the CDA is not an output of our ordinary business activities, ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") does not apply to the CDA. However, we apply the principles in ASC 606 by analogy to determine amounts of other income to recognize.

Under ASC 606, we are required to identify the performance obligations in the CDA and to determine the transaction price. The transaction price may include fixed consideration, variable consideration, or both. Variable consideration may only be included in the transaction price if it is probable that a significant reversal of amounts recognized willnot occur (referred to as the variable consideration constraint). The Access Realization Fee is considered variable consideration.

Our performance obligation under the CDA Amendment is to "stand-ready" to provide support to XTO, when and as needed, during the term of the CDA Amendment. We estimate the transaction price to be $100.0 million, which is comprised of the $50.0 million Initial Fee and the $50.0 million Access Fee. We are not including any amounts of the Access Realization Fee in the transaction price because of the variable consideration constraint. Since our performance obligation is a "stand-ready" obligation, we are recognizing the transaction price on a straight-line basis over the term of the CDA Amendment which ends on February 28, 2046.

For the three months ended June 30, 2025, and 2024, we recorded other operating income of $1.1 million and $1.1 million, respectively, from the CDA Amendment. For the six months ended June 30, 2025, and 2024, we recorded other operating income of $2.3 million and $2.3 million, respectively, from the CDA Amendment. Because we have not yet been paid the Access Fee included in the transaction price, we recorded a long-term receivable for the amount of the Access Fee that we earned through June 30, 2025, of $3.4 million, which is included in "Other assets, net" on the Condensed Consolidated Balance Sheets. For the amount of the Initial Fee we earned during the three and six months ended June 30, 2025, and 2024, we reduced the "Deferred other income, long-term" liability recorded on our Condensed Consolidated Balance Sheets.

As of June 30, 2025, we had $2.3 million recorded in "Other current liabilities" and $44.4 million recorded in "Deferred other income, long-term" on the Condensed Consolidated Balance Sheets for the unearned portion of the Initial Fee. As of December 31, 2024, we had $2.3 million recorded in "Other current liabilities" and $45.5 million recorded in "Deferred other income, long-term" on the Condensed Consolidated Balance Sheets.

Note 8 —DEBT

Revolving Credit Facility—We maintain a $150 million revolving credit facility with a syndicate of lenders with Bank of Montreal as administrative agent. The revolving credit facility has a maturity date of August 4, 2027. Borrowings under the revolving credit facility bear interest at the Secured Overnight Financing Rate ("SOFR") plus an applicable margin of 1.50% to 2.25% per annum, based on our leverage ratio as calculated in accordance with 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 revolving credit facility are unconditionally guaranteed by several of our subsidiaries.

We occasionally borrow and repay amounts under the revolving credit facility for near-term working capital needs or other purposes and may do so in the future. During the three months ended June 30, 2025, we madeno borrowings and madeno repayments under the revolving credit facility. During the six months ended June 30, 2025, we madeno borrowings and madeno repayments under the revolving credit facility. During the three months ended June 30, 2024, we madeno borrowings and madeno repayments under the revolving credit facility. During the six months ended June 30, 2024, we madeno borrowings and made $4.0 million in repayments under the revolving credit facility. As of June 30, 2025, and December 31, 2024, we hadno borrowings outstanding andno outstanding letters of credit under this facility.

As of June 30, 2025, we were in compliance with all applicable covenants under the revolving credit facility.

Interest Expense—Interest expense is recorded net of any capitalized interest associated with investments in capital projects. We incurred gross interest expense of $0.2 million and $0.4 million for the three and six months ended June 30, 2025, respectively, and $0.2 million and $0.3 million for the three and six months ended June 30, 2024, respectively.

Amounts included in interest expense, net for the three and six months ended June 30, 2025, and 2024 were as follows (in thousands):

Note 9 —INTANGIBLE ASSETS

We have water rights, recorded at $19.2 million at June 30, 2025, and December 31, 2024. Our water rights have indefinite lives and are not amortized. We evaluate our water rights at least annually as of October 1 for impairment, or more frequently if circumstances require.

We account for other intangible assets as finite-lived intangible assets and amortize those intangible assets over the period of estimated benefit, using the straight-line method. As of June 30, 2025, the weighted average amortization period for the other intangible assets was approximately 14.1 years. At June 30, 2025, and December 31, 2024, these intangible assets had a net book value of $4.6 million and $4.8 million, respectively, and are included in "Other assets, net" on the Condensed Consolidated Balance Sheets.

Note 10 —ASSET RETIREMENT OBLIGATION

We recognize an estimated liability for future costs associated with the abandonment and reclamation of our mining properties. A liability for the fair value of an asset retirement obligation and a corresponding increase to the carrying value of the related long-lived asset are recorded as the mining operations occur or the assets are acquired.

Our asset retirement obligation is based on the estimated cost to close and reclaim the mining operations, the economic life of the properties, and federal and state regulatory requirements. The liability is discounted using credit adjusted risk-free rate estimates at the time the liability is incurred or when there are upward revisions to estimated costs. The credit adjusted risk-free rates used to discount our reclamation liabilities range from 6.9% to 12.0%. Revisions to the liability occur due to construction of new or expanded facilities, changes in estimated closure costs or economic lives, or to reflect new federal or state rules, regulations, or requirements regarding the closure or reclamation of mines.

Following is a table of the changes to our asset retirement obligation for the following periods (in thousands):

The current portion of the asset retirement obligation is included in "Other current liabilities" on the Condensed Consolidated Balance Sheet as of June 30, 2025.

As of December 31, 2024, our total asset retirement obligation was $32.9 million, of which $0.6 million was current and included in "Other current liabilities" on the Condensed Consolidated Balance Sheet.

Note 11 —REVENUE

Revenue Recognition—We account for revenue in accordance with ASC 606. Under ASC 606, we recognize revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration we expect in exchange for those goods or services. The timing of revenue recognition, billings, and cash collection may result in contract assets or contract liabilities.

Contract Balances: As of June 30, 2025, and December 31, 2024, we had a total of $2.6 million and $2.4 million of contract liabilities, respectively, of which $0.8 million and $0.8 million were current as of June 30, 2025, and December 31, 2024, respectively, and included in "Other current liabilities" on the Condensed Consolidated Balance Sheets. Customer advances received before we have satisfied our performance obligations are accounted for as a contract liability (sometimes referred to in practice as deferred revenue).

Our deferred revenue activity for the three and six months ended June 30, 2025, and 2024 is shown below (in thousands):

Disaggregation of Revenue: The tables below show the disaggregation of revenue by product and reconciles disaggregated revenue to segment revenue for the three and six months ended June 30, 2025, and 2024. We believe the disaggregation of revenue by products best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic conditions (in thousands):

Note 12 —COMPENSATION PLANS

Equity Incentive Compensation Plan—Our Board of Directors ("Board") and stockholders adopted a long-term incentive compensation plan called the Intrepid Potash, Inc. Amended and Restated Equity Incentive Plan (the "Plan"). The Plan was most recently amended and restated in May 2022. We have issued common stock, restricted shares, restricted stock units, and non-qualified stock option awards under the Plan. Vested restricted stock units are settled through the issuance of an equal number of common shares of Intrepid's stock. Restricted stock units do not have any of the rights available to owners of common shares of Intrepid's stock. Restricted share awards contain service-based conditions and in some instances contain both service-based and market-based conditions. Certain restricted stock unit awards contain service-based and operational performance conditions (referred to as "operational performance-based RSUs") and other restricted stock unit awards contain service-based and market-based conditions (referred to as "market-based RSUs").

As of June 30, 2025, approximately 0.6 millions hares remained available for issuance under the Plan.

We recognize stock-based compensation associated with the issuance of restricted shares, non-qualified stock options, operational performance-based RSUs, and market-based RSUs by recording expense over the service period associated with each grant, based on the fair value of the grant on the grant date. For service-based awards, grant date fair value is based on Intrepid's closing share price on the grant date and expense is recognized on a straight-line basis over the required service period of the award, which is generally the vesting period of the award. For operational performance-based awards grant date fair value is based on Intrepid's closing share price on the grant date and the probable number of shares expected to vest and expense is recognized using the accelerated recognition method over the required service period, which is generally the vesting period of the award. The probable number of shares expected to vest is updated each reporting period and we record a cumulative catch-up adjustment to expense for changes to the probability assessment. For restricted share awards that contain both service-based and market-based conditions and market-based RSUs, grant date fair value is estimated using a Monte Carlo simulation valuation model and expense is recognized using the accelerated recognition method over the required service period which is generally the longer of the explicit service period or the derived service period, which is generally the expected date the market condition is estimated to be achieved.

During the three and six months ended June 30, 2024, and 2025, the Compensation Committee granted restricted shares of stock to non-employee members of our Board, executives and other key employees. The restricted shares contain service conditions, and certain awards contain both service- and market-based conditions. Restricted shares with service-based conditions granted to employees generally vest over three years and restricted shares with service-based conditions granted to non-employee members of our Board generally vest overone year. Restricted shares with service and market-based conditions vest on the later of the required service period or the achievement of the market condition threshold.

The table below shows the restricted share activity for the three and six months ended June 30, 2025, and 2024.

During the six months ended June 30, 2025, the Compensation Committee granted operational-performance based RSUs to executives and certain other key employees which are eligible to vest based upon potash production cost per ton for the 2027 calendar year. The operational-performance based RSUs can earn between zero and 200% of the target number of units granted.

The table below shows the summary of operational-performance based RSUs during the three and six months ended June 30, 2025. The Compensation Committee did not grant any operational-performance based RSUs during the three and six months ended June 30, 2024. Amounts shown in the table below are based on the target number of units granted.

The Compensation Committee has granted restricted stock units ("RSUs") to executives and certain other key employees that contain service and market-based conditions. The RSUs granted contain either a relative total shareholder return ("TSR") market-based condition (referred to as the "rTSR" awards) or an absolute TSR market-based condition (referred to as the "aTSR" awards). The rTSR RSUs are eligible to vest based on our TSR during a three-year period beginning on the grant date of the rTSR award ("performance period") compared the rTSR during the performance period for the individual component companies comprising the Russell 2000 Index ("peer group"). Based on our relative performance against the peer group, rTSR awards may earn between zero and 200% of the target number of RSUs granted.

The aTSR RSUs are eligible to vest based on the achievement of certain total price thresholds during a three-year period beginning on the grant date. Once a price threshold is met, one-half of the total RSUs earned for meeting that price hurdle vest immediately and one-half of the total RSU earned vests on the one-year anniversary date of meeting the price threshold.

The table below shows a summary of all market-based RSU activity during the three and six months ended June 30, 2025. There was no market-based RSUs activity during the three and six months ended June 30, 2024. The amounts shown in the table are based on the maximum number of market-based RSUs that could be earned under the aTSR and rTSR awards.

The Compensation Committee has not granted any stock options since 2018. The table below shows the summary of all non-qualified stock option activity during the three and six months ended June 30, 2025, and 2024. All options outstanding have vested. A majority of the outstanding options expire on September 30, 2025, and the remaining options outstanding expire on November 8, 2026.

Total share-based compensation expenses were $1.3 million and $1.2 million for the three months ended June 30, 2025, and 2024, respectively, and $2.4 million and $2.6 million for the six months ended June 30, 2025, and 2024, respectively. As of June 30, 2025, we had $9.9 million of total remaining unrecognized compensation expense related to awards that is expected to be recognized over a weighted-average period of 1.8 years.

Note 13 —INCOME TAXES

Our anticipated annual tax rate is impacted primarily by the amount of taxable income associated with each jurisdiction in which our income is subject to income tax, as well as permanent differences between the financial statement carrying amounts and tax bases of assets and liabilities.

Our effective tax rate for the three months ended June 30, 2025, was 0.9%. Our effective tax rate for the six months ended June 30, 2025, was 2.8%. Our effective tax rate differed from the statutory rate during this period due to changes in the valuation allowance established to offset our deferred tax assets. Our effective tax rate for the three and six months ended June 30, 2024, was 26.7% and 21.4%, respectively. Our effective tax rate differed from the statutory rate during these periods primarily from the permanent difference between book and tax income for the percentage depletion deduction and the effect of state tax law changes.

Note 14 —COMMITMENTS AND CONTINGENCIES

Reclamation Deposits and Surety Bonds—As of June 30, 2025, and December 31, 2024, we had $30.1 million and $27.0 million, respectively, of security placed principally with the Bureau of Land Management ("BLM") and the states of Utah and New Mexico for eventual reclamation of our various facilities. As of June 30, 2025, $0.6 million consisted of long-term restricted cash deposits and $29.5 million was secured by surety bonds insured by an insurer. As of December 31, 2024, $0.6 million consisted of long-term restricted cash deposits and $26.4 million was secured by surety bonds issued by an insurer. The restricted cash deposits are included in "Other assets, net" on the Condensed Consolidated Balance Sheets and the surety bonds are held in place by an annual fee paid to the issuer.

We may be required to post additional security to fund future reclamation obligations as reclamation plans are updated or as statutory, regulatory, or other agency requirements change.

Legal—We are subject to claims and legal actions in the ordinary course of business. We expense legal costs as they are incurred. While there are uncertainties in predicting the outcome of any claim or legal action, except as noted below, we believe the ultimate resolution of these claims or actions is not reasonably likely to have a material adverse effect on our financial condition, results of operations, or cash flows.

Class Action Claim

On November 6, 2024, we were served with a class action lawsuit filed in federal district court in New Mexico. The suit alleges that Intrepid and Intrepid Potash – New Mexico, LLC violated the New Mexico Minimum Wage Act by failing to properly compensate employees for putting on and removing personal protective equipment (“PPE”). The complaint seeks all unpaid wages for putting on and removing PPE for all class members, which is alleged to exceed $5.0 million. The lawsuit is still in the early stages and we are vigorously defending against the claims. We have not recorded a loss contingency related to this matter.

Water Rights

In 2017 and 2018 the New Mexico Office of the State Engineer ("OSE") granted us preliminary and emergency authorizations to sell approximately 5,700 acre-feet of water per year from our Pecos River Water rights. The preliminary and emergency authorizations allowed for water sales to begin immediately, subject to repayment if the underlying water rights were ultimately found to be invalid. On March 17, 2022, following a trial to determine the validity of our Pecos River Water rights, the Fifth Judicial District Court in New Mexico entered an order that found that of the 20,000 acre feet of water per year we claimed, our predecessors in interest had forfeited all but approximately 5,800 acre feet of water per year, and that of the remaining 5,800 acre feet of water that had not been forfeited, all but 150 acre feet of water had been abandoned prior to 2017 (the "Order"). The Order limited our right to 150 acre fee per annum of water for industrial-salt processing use.

We appealed the Order to the New Mexico Court of Appeals ("NMCA"), which, on July 7, 2023, affirmed the Order. On November 17, 2023, we filed a request for the New Mexico Supreme Court ("NMSC") to reconsider and review the NMCA's decision to affirm the Order's abandonment determination. The NMSC agreed to review the NMCA's abandonment determination on February 7, 2024, and, on July 5, 2025, issued a decision upholding the NMCA’s findings. The NMSC’s decision renders the Order final.

Given the NMSC’s decision, we will have to repay for the water we sold under preliminary and emergency authorizations. Repayment is customarily made in-kind over a period of time but can take other forms including cash repayment. If we are not able to repay in-kind due to the lack of remaining water rights or logistical constraints, we may need to purchase water to meet repayment obligations or be subject to a cash repayment. Because of the uncertainty surrounding the potential volume of water for repayment and the timing and the form of repayment, we cannot reasonably estimate the amount of the potential liability and have not recorded a loss contingency in our statement of operations related to this legal matter.

Other Legal Contingencies

In May 2025, we reported to the State of New Mexico that we had an unpermitted discharge of brine at our HB facility. We have recorded an estimated liability of $2.2 million related to the potential penalties we may incur related to this unpermitted discharge. The State of New Mexico may require us to perform remediation activities related to this incident. Given the nature and location of the discharge, we have recorded an estimated environmental liability of $0.1 million for any required environmental remediation activities based on our estimate of the costs associated with expected required environmental remediation activities. However, our estimate of any required remediation costs related to the unpermitted discharge could change significantly and could have a material adverse effect on our financial condition, results of operations, or cash flows, if we are required to perform more substantial and costly remediation activities than we currently expect to perform.

We have estimated total contingent liabilities recorded in "Other current liabilities" on the Condensed Consolidated Balance Sheets of $6.9 million as of June 30, 2025. In addition to the amounts accrued for the unpermitted discharge penalty and the estimated related environmental remediation expenses discussed above, we also have accrued a contingent liability of $3.5 million for the potential underpayment of royalties from 2012 to 2016, and $1.2 million accrued for various other items.

As of December 31, 2024, we had $4.8 million in contingent liabilities, mainly related to the potential underpayment of royalties from 2012 to 2016.

Note 15 —FAIR VALUE

We measure our financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs, other than Level 1, that are either directly or indirectly observable.

Level 3 - Unobservable inputs developed using estimates and assumptions which reflect those that market participants would use.

The classification of fair value measurement within the hierarchy is based upon the lowest level of input that is significant to the measurement.

Other financial instruments consist primarily of cash equivalents, accounts receivable, refundable income taxes, investment securities, accounts payable, accrued liabilities, and, if any, advances under our credit facility. With the exception of investment securities, we believe cost approximates fair value for our financial instruments because of the short-term nature of these instruments.

Cash Equivalents—As of June 30, 2025, we had cash equivalents of $5.8 million. As of December 31, 2024, we had cash equivalents of $2.6 million.

Held-to-Maturity Debt Investments—During the three months ended June 30, 2025, all of our held-to-maturity debt investments matured and as of June 30, 2025, we did not own any debt investment securities. As of December 31, 2024, we owned debt investment securities classified as held-to-maturity because we had the intent and ability to hold these investments to maturity. Our held-to-maturity debt investment securities consisted of U.S. government issued bonds. These debt securities were carried at amortized cost and consisted of the following (amounts in thousands):

Our held to maturity investments were recorded in "Short-term investments" on the Condensed Consolidated Balance Sheets. As of December 31, 2024, we had $1.0 million in held-to-maturity debt investment securities.

Investments in Equity Securities—In May 2020, we acquired a non-controlling equity investment in W.D. Von Gonten Laboratories ("WDVGL") for $3.5 million. Initially, we accounted for this investment as an equity investment without a readily determinable fair value and elected to measure our investment, as permitted by GAAP, at cost plus or minus any adjustments for observable changes in prices resulting for orderly transactions for the identical or a similar investment of the same issuer or impairment.

In July 2022, WDVGL entered into an agreement (the “Purchase Agreement”) with National Energy Services Reunited Corporation (“NESR”), a British Virgin Islands corporation headquartered in Houston, Texas. Under the terms of the Purchase Agreement, WDVGL was combined with the consulting business owned by W.D. Von Gonten (“Consulting”) to form a new entity, W.D. Von Gonten Engineering, LLC (“Engineering”), and NESR purchased Engineering in a majority stock transaction at an agreed upon selling price. NESR stock received from the sale of Engineering was distributed to investors in WDVGL and Consulting in August 2024.

In February 2023, we received $0.2 million in cash for our investment in WDVGL. Initially, we recorded that cash received as a liability because we were required to return the cash to WDVGL if the sale of Engineering to NESR was not finalized. The sale of Engineering to NESR has since been finalized and the recorded value of our investment in WDVGL was reduced to $3.3 million, which is the aggregate cost basis of the total shares of NESR stock we received in August 2024 related to the sale of WDVGL.

As required by Accounting Standards Codification ("ASC") Topic 321 -Investments-Equity Securities ("ASC 321"), equity securities were valued at fair value and unrealized gains and losses for investments in equity securities were included in the Condensed Consolidated Statement of Operations. In May 2025, we sold all shares of NESR we owned and received proceeds of $2.1 million. Our carrying value of the NESR shares owned was $2.5 million, and we recorded a realized loss of $0.4 million during the three months ended June 30, 2025. For the six months ended June 30, 2025, the total loss related to this investment was $0.9 million, which is included in "Other (expense) income" on the Condensed Consolidated Statement of Operations.

Equity Method Investments—We are a limited partner with a 16% interest in PEP Ovation, LP ("Ovation") as of June 30, 2025, and December 31, 2024. This investment is accounted for under the equity method whereby we recognize our proportional share of the income or loss from our investment in Ovation on a one-quarter lag. This investment is included in "Long-term investments" on the Condensed Consolidated Balance Sheets. For the three and six months ended June 30, 2025, our proportional share of Ovation's net loss was $0.2 million and $0.2 million, respectively. For the three months ended June 30, 2024, our proportional share of Ovation's net loss was $0.1 million. For the six months ended June 30, 2024, our proportional share of Ovation's net gain was immaterial.

Note 16 —BUSINESS SEGMENTS

Our operations are organized into three segments: potash, Trio®, and oilfield solutions. We determine reportable segments based on several factors including the types of products and services sold, production processes, markets served and the financial information available for our chief operating decision maker ("CODM"). Our Chief Executive Officer is our CODM, who uses gross margin to evaluate segment performance. We do not allocate corporate selling and administrative expenses, nor other corporate expenses, to the respective segments. Total assets are not presented for each reportable segment as they are not reviewed by, nor otherwise regularly provided to, the CODM.

Intersegment sales prices are market-based and are eliminated in the "Other" column. Information for each segment is provided in the tables that follow (in thousands).

1 Depreciation, depletion, and amortization incurred for potash and Trio® excludes depreciation, depletion and amortization amounts absorbed in or relieved from inventory.

The following table shows the reconciliation of reportable segment sales to consolidated sales and the reconciliation of segment gross margins to consolidated income before taxes (in thousands):

Significant components of cost of goods sold are also provided to our CODM to further evaluate segment performance and are shown below (in thousands);

1 Other expense includes property taxes, insurance, royalties, and other miscellaneous expenses.