The following table presents the amounts of gain or (loss) recognized in income on derivatives affecting the consolidated statement of operations for the periods presented (in thousands):

        Please see Note 13—Fair Value Measurements for a description of how the above financial instruments are valued.

Credit Risk

        Intrepid can be exposed to credit-related losses in the event of non-performance by counterparties to derivative contracts. Intrepid believes the counterparties to the contracts to be credit-worthy trading entities, and therefore credit risk of counterparty non-performance is unlikely. U.S. Bank is the counterparty to the interest rate derivative contracts, but, as Intrepid is in a liability position at March 31, 2010, with respect to these interest rate derivative contracts, counterparty risk is not applicable. There were no derivative instruments with credit-risk-related contingent features at March 31, 2010.

Note 13—FAIR VALUE MEASUREMENTS

        Intrepid applies the provisions of the FASB's Accounting Standards Codification™ ("ASC") Topic 820, Fair Value Measurements and Disclosures, for all financial assets and liabilities measured at fair value on a recurring basis. The topic establishes a framework for measuring fair value and requires disclosures about fair value measurements. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The topic establishes market or observable inputs as the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The topic also establishes a hierarchy for grouping these assets and liabilities, based on the significance level of the following inputs:

•

Level 1—Quoted prices in active markets for identical assets and liabilities.



•

Level 2—Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

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INTREPID POTASH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 13—FAIR VALUE MEASUREMENTS (Continued)

•

Level 3—Significant inputs to the valuation model are unobservable.

        The following is a listing of Intrepid's assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of March 31, 2010 (in thousands):

        Financial assets or liabilities are categorized within the hierarchy based upon the lowest level of input that is significant to the fair value measurement. Below is a general description of Intrepid's valuation methodologies for financial assets and liabilities, which are measured at fair value and are included in the accompanying consolidated balance sheets.

        Intrepid uses Level 2 inputs to measure the fair value of interest rate swaps. This valuation is performed using a pricing model that calculates the fair value on the basis of the net present value of the estimated future cash flows receivable or payable. These instruments are allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including the relevant market values, yields, forward prices, and the known contractual terms of the instrument, are readily observable. The considered factors result in an estimated exit price for each asset or liability under a marketplace participant's view. Management believes that this approach provides a reasonable, non-biased, verifiable, and consistent methodology for valuing derivative instruments.

        Credit valuation adjustments may be necessary when the market price of an instrument is not indicative of the fair value due to the credit quality of the counterparty or Intrepid, depending on which entity is in the liability position of a given contract. Generally, market quotes assume that all counterparties have near zero, or low, default rates and have equal credit quality. Therefore, an adjustment for counterparty credit risk may be necessary to reflect the credit quality of a specific counterparty to determine the fair value of the instrument. A similar adjustment may be necessary with respect to Intrepid to reflect its credit quality. Intrepid monitors the counterparties' credit ratings and may ask counterparties to post collateral if their ratings deteriorate. Although Intrepid has determined that the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, any credit valuation adjustment associated with the derivatives would utilize Level 3 inputs. These Level 3 inputs include estimates of current credit spreads to evaluate the likelihood of default by both Intrepid and the counterparties to the derivatives. As of March 31, 2010, Intrepid has assessed the significance of the impact of a credit valuation adjustment on the overall valuation of its derivatives and has determined that the credit valuation adjustment is not significant to the overall valuation of the derivatives. Accordingly, management determined that the derivative valuations should be classified in

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INTREPID POTASH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 13—FAIR VALUE MEASUREMENTS (Continued)

Level 2 of the fair value hierarchy, and no adjustment has been recorded to the value of the derivatives.

        The methods described above may result in a fair value estimate that may not be indicative of net realizable value or may not be reflective of future fair values and cash flows. While Intrepid believes that the valuation methods utilized are appropriate and consistent with the requirements of ASC Topic 820 and with other marketplace participants, Intrepid recognizes that third parties may use different methodologies or assumptions to determine the fair value of certain financial instruments that could result in a different estimate of fair value at the reporting date.

Note 14—FUTURE EMPLOYEE BENEFITS

        Defined Benefit Pension Plan—In accordance with the terms of the purchase agreement associated with the acquisition of the Moab assets in 2000 (the "Moab Purchase Agreement"), the Moab subsidiary established the Moab Salt, L.L.C. Employees' Pension Plan ("Pension Plan"), a defined benefit pension plan. Pursuant to the terms of the Moab Purchase Agreement, employees transferring from the seller were granted credit under the Pension Plan for their prior service and for the benefits they had accrued under the seller's pension plan. Approximately $1.5 million was transferred from the seller's pension plan to the Pension Plan to accommodate the recognition of such prior service and benefits. In February 2002, the Pension Plan was "frozen" by limiting participation in the Pension Plan solely to employees hired before February 22, 2002, and by including only pay and service through February 22, 2002, in the calculation of benefits. The Pension Plan is required to be maintained for the existing participants and for the benefits they had accrued as of that date. Intrepid expects to contribute $300,000 to the Pension Plan in 2010, $26,000 of which has been paid through March 31, 2010.

        The components of the net periodic pension expense are set forth below (in thousands):

Note 15—PROPERTY INSURANCE SETTLEMENTS

        In April 2006, a wind-shear struck the product warehouse at the East facility in Carlsbad, New Mexico. The warehouse had an insignificant book value. Damage to the warehouse, damage to the product stored in the warehouse, and alternative handling and storage costs were covered by Intrepid's insurance policies at replacement value, less a $1 million deductible. Through March 31, 2010, Intrepid

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INTREPID POTASH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 15—PROPERTY INSURANCE SETTLEMENTS (Continued)

had received $32.5 million of insurance settlement payments on the related claim; $10.1 million of this was received during 2009 and has been recorded as "deferred insurance proceeds" on the balance sheet at March 31, 2010, pending the insurer's final agreement to the related claims. Additional insurance payments to reconstruct the warehousing facilities are still contingent upon review by the insurer and therefore will be recognized in "Insurance settlements in excess of property losses" as settlements are agreed upon. The previous receipts of $22.4 million net of property losses were recognized as "Insurance settlements in excess of property losses" in 2008 and prior periods, as they represented final settlements with the insurer.

Note 16—RELATED PARTIES

        Intrepid has entered into the transactions described below with Robert P. Jornayvaz III ("Mr. Jornayvaz"), Intrepid Production Corp. ("IPC"), which is owned and controlled by Mr. Jornayvaz, Hugh E. Harvey, Jr. ("Mr. Harvey"), Harvey Operating and Production Company ("HOPCO"), which is owned and controlled by Mr. Harvey, and other entities affiliated with Messrs. Jornayvaz and Harvey identified below. Messrs. Jornayvaz and Harvey are executive officers, directors and significant stockholders of Intrepid and owned a controlling interest in Intrepid's predecessor entity.

        Airplane Use Policy—Under Intrepid's aircraft use policy, Mr. Jornayvaz, Mr. Harvey, and approved executive officers are allowed personal use of Intrepid's plane. Any personal use of aircraft may be taxable to the executive officer as a "fringe benefit" under Internal Revenue Service ("IRS") regulations. Additionally, Mr. Jornayvaz and Mr. Harvey may use the plane under dry-leases and reimburse Intrepid the lesser of the actual cost or the maximum amount chargeable under Federal Aviation Regulation 91-501(d). The value of personal use of the airplane was calculated based on the requirements provided by IRS regulations.

        BH Holdings LLC ("BH"), which is owned by entities controlled by Mr. Jornayvaz and Mr. Harvey, entered into a dry-lease arrangement with Intrepid to allow Intrepid use of an aircraft owned by BH for Intrepid business purposes. Additionally, in January 2009, a dry-lease arrangement by and between Intrepid and Intrepid Production Holdings LLC ("IPH"), which is indirectly owned by Mr. Jornayvaz, became effective to allow Intrepid use of an aircraft owned by IPH for Intrepid business purposes. Both dry-lease rates and dry-lease arrangements were approved by Intrepid's Audit Committee.

        In the three months ended March 31, 2010, and 2009, Intrepid incurred dry-lease charges of approximately $40,000 and $63,000, respectively, for BH. As of March 31, 2010, and December 31, 2009, accounts payable balances due to BH were zero and $67,000, respectively. In the three months ended March 31, 2010, and 2009, Intrepid incurred dry-lease charges of approximately $177,000 and $187,000, respectively, for IPH. As of March 31, 2010, and December 31, 2009, the accounts payable balances due to IPH were $22,000 and $23,000, respectively.

        Sublease of Office Space from Intrepid—Intrepid entered into an agreement with IPC and the LARRK Foundation during 2008 to sublease portions of Intrepid's headquarters office space to these entities. The LARRK Foundation is a charitable foundation of which Mr. Jornayvaz is a trustee. The subleases to IPC and the LARRK Foundation are on the same general terms and conditions as the

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INTREPID POTASH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 16—RELATED PARTIES (Continued)

master lease under which Intrepid leases its office space. IPC and the LARRK Foundation have paid their respective shares of the security deposit due under the master lease and paid directly for the build-out of their respective subleased space. The terms of the subleases are from February 1, 2009, to April 30, 2019, for a total of one hundred twenty-three (123) months. As of March 31, 2010, and December 31, 2009, there were net related party accounts payable balances due to IPC for $10,000 and $16,000, respectively, due to prepayments and refundable deposits related to these arrangements. As of March 31, 2010, and December 31, 2009, there was a net related party accounts payable balance due to the LARRK Foundation for $3,000, due to prepayments and refundable deposits related to these arrangements. The rent amounts due from IPC and the LARRK Foundation are billed on a monthly basis and recognized as a receivable due within 30 days.

        Transition Services Agreement and Surface Use Easement Agreements—On April 25, 2008, Intrepid, Intrepid Oil & Gas, LLC ("IOG"), and Intrepid Potash—Moab, LLC ("Moab") executed a Transition Services Agreement, which has been extended until April 24, 2011. Pursuant to the Transition Services Agreement, IOG may request specified employees of Intrepid or its subsidiaries (other than Mr. Jornayvaz and Mr. Harvey) to provide a limited amount of geology, land title, and engineering services in connection with IOG's oil and gas ventures.

        In connection with oil and gas rights owned by IOG that exist below the surface of land owned by Moab, Moab entered into two Surface Use Easement and Water Purchase Agreements with IOG, dated July 14, 2009, and November 16, 2009, respectively. The Audit Committee approved both agreements. In each agreement, Moab granted IOG an easement across a portion of Moab's land to access a drilling site for one of IOG's wells. The term of each easement is for three years and so long thereafter as oil or gas is produced in paying quantities from each well, or from any unit or communitized area that includes each well. Per the agreements, IOG is required to pay the sum of $7,500 upon the anniversary of each agreement during the term of the easement, and Moab agreed to sell IOG water or salt brine to the extent that Moab has excess water or salt brine available that it may legally sell.

        As of March 31, 2010, there was a net related party accounts receivable balance due from IOG for $35,000. As of December 31, 2009, there was a net related party accounts payable balances due to IOG for $20,000, due to prepayments made by IOG. Intrepid's billings to IOG are on a monthly basis and are recognized as a receivable from IOG with collection due within 30 days. In the three months ended March 31, 2010, and 2009, Intrepid's billings to IOG were approximately $65,000 and zero, respectively.

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Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks, uncertainties and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements, among other things, concerning our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, cost of goods sold, operating expenses, products, projected costs and capital expenditures; sales; and competition. In some cases, you can identify these statements by forward-looking words, such as "estimate," "expect," "anticipate," "project," "plan," "intend," "believe," "forecast," "foresee," "likely," "may," "should," "goal," "target," "might," "will," "could," "predict" and "continue," the negative or plural of these words and other comparable terminology. Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason.

        These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These risks and uncertainties include changes in the price of potash or Trio™; operational difficulties at our facilities; changes in demand and/or supply for potash or Trio™; changes in our reserve estimates; our ability to achieve the initiatives of our business strategy, including but not limited to the development of the HB Mine as a solution mine and the further development of our langbeinite recovery assets; changes in the prices of our raw materials, including, but not limited to, the price of natural gas; fluctuations in the costs of transporting our products to customers; changes in labor costs and availability of labor with mining expertise; the impact of federal, state or local government regulations, including, but not limited to, environmental and mining regulations, and the enforcement of such regulations; competition in the fertilizer industry; declines in U.S. or world agricultural production; declines in oil and gas drilling; changes in economic conditions; adverse weather events at our facilities; our ability to comply with covenants inherent in our current and future debt obligations to avoid defaulting under those agreements; disruptions in credit markets; and governmental policy changes that may adversely affect our business. These factors also include the matters discussed and referenced in the section entitled "Risk Factors" described in our Annual Report on Form 10-K for the year ended December 31, 2009, and elsewhere in this Quarterly Report on Form 10-Q.

        Unless expressly stated otherwise or the context otherwise requires, the terms "we," "our," "us," and "Intrepid" refer to Intrepid Potash, Inc. and its subsidiaries. Unless expressly stated otherwise or the context otherwise requires, references to "tons" in this Quarterly Report on Form 10-Q refer to short tons. One short ton equals 2,000 pounds. One metric ton, which many of our international competitors use, equals 2,204.68 pounds.

Overview

Our Company

        We are the largest producer of muriate of potash ("potassium chloride" or "potash") in the United States and are dedicated to the production and marketing of potash and langbeinite ("sulfate of potash magnesia"), another mineral containing potassium. Our revenues are generated exclusively from the sale of potash and langbeinite, and we market our langbeinite under the name of Trio™ and Intrepid

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Trio®. Potassium is one of the three primary nutrients essential to plant formation and growth. Since 2005, we have supplied, on average, approximately 1.6 percent of annual world potassium consumption and 9.7 percent of annual U.S. consumption. We are one of two producers of langbeinite, a low-chloride fertilizer that is well-suited for chloride-sensitive crops and has the added benefit of sulfur and magnesium. We also produce salt, magnesium chloride, and metal recovery salts from our potash mining processes, the sales of which are accounted for as by-product credits to our cost of sales. We own five active potash production facilities—three in New Mexico (referenced collectively below as "Carlsbad" or individually as "West," "East," and "North") and two in Utah ("Moab" and "Wendover")—and we have a current estimated productive capacity to produce 910,000 tons of potash and 210,000 tons of langbeinite annually. We own two development assets in New Mexico—the HB mine, which is an idled potash mine that we are in the process of reopening as a solution mine that will utilize solar evaporation techniques in the production of potash, and the North Mine, which was operated as a traditional underground mine until the early 1980s.

        We routinely post important information about us on our website under the Investor Relations tab. Our website address is www.intrepidpotash.com.

Our Products and Markets

Potash

        The majority of our revenues and gross margin are derived from the production and sales of potash. The percentages of our net sales, which we calculate as gross sales less freight costs, and gross margins derived from potash sales were approximately as follows for the indicated periods.

        Our potash is marketed for sale into three primary markets which are the agricultural market as a fertilizer, the industrial market as a component in drilling and fracturing fluids for oil and gas wells, and the animal feed market as a nutrient. Our primary regional markets include agricultural areas and feed manufacturers west of the Mississippi River, as well as oil and gas drilling areas in the Rocky Mountains and the Permian Basin. We also have domestic sales in the southeastern and eastern United States. Our potash production has a geographic concentration in the western United States and is therefore affected by weather and other conditions in this region.

        A decline in the agricultural demand for potash began in the fall of 2008 and persisted through much of 2009. The reduction in demand was due primarily to the interaction of historically high potash prices with falling prices for agricultural commodities. Variability in other input costs for the farm producer, as well as uncertainty resulting from the ongoing U.S. and global financial market crisis and recession, were also contributing factors. During the late 2008 to late 2009 period, demand in the agricultural sector for potash was at its lowest level in the last 30 years of recorded data and was driven by farmers who elected to apply granular potash at lower rates than historical application rates as well as fertilizer dealers' unwillingness to take inventory risk and hold inventory on their balance sheets.

        The demand for fertilizer began a recovery late in 2009. This recovery has been driven by several factors. First, agricultural commodity prices stabilized at economically beneficial prices for farmers. Second, potash price negotiations with large international buyers in China and India were concluded for standard potash which provided some actual pricing points as a reference for other buyers and sellers in the potash industry. Finally, we believe there was a realization by farmers of the risk of yield losses resulting from large cuts in fertilizer applications during the prior two growing seasons.

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        Our fourth quarter sales in 2009, which were a large improvement over the prior year's preceding quarters, were in some respects hampered by wet weather. In the first quarter of 2010, sales were brisk as dealers and retailers prepared for the expected spring application season, and we expect a return to more historical sales volumes of potash in North America, though it is possible demand could contract after the surge in early 2010. Over the long-term, we believe that domestic apparent consumption of fertilizers will return to historical averages as the replacement of potassium in the soils is critical to continued high-yield agricultural production. We believe the long-term trends support a return to these historical norms based on data generated by Fertecon Limited, a fertilizer industry consultant, showing that over the past 25 years the domestic apparent consumption for potash has averaged approximately 9.2 million tons with annual volatility of less than 10 percent through historical periods of low agricultural commodity prices, depressed oil and gas drilling, negative farmer margins, and a variety of other negative factors.

        Prices contracted steadily during most of the past year; however, this trend appears to have leveled off and even turned positive once again in the first quarter of 2010. In fact, during the first quarter of 2010, pricing between India and Israeli Chemical, a large potash producer, was concluded at a price above the recent contract rates to China, Belarusian Potash Company raised their spot price in Asia, and several North American producers raised the domestic price of potash. Specific to Intrepid, we raised our posted price for red granular potash to $390 per ton FBO Carlsbad effective March 1, 2010. This represented a $30 per ton increase. Our ability to achieve this increase will depend on the overall markets in the regions where we sell potash. It should be noted that our average net realized sales price is expected to be below this $390 posted price due to discounts and pricing variations in specific markets where we sell our products.

        Industrial demand for our standard potash also declined from historical levels due to a decrease in oil and gas drilling and continued delay in completion of oil and gas wells that was caused primarily by lower oil and gas commodity prices. Demand for standard potash was also impacted by some drillers experimenting with alternatives to standard potash or attempting to forego the use of potash altogether in drilling and completing their wells in an effort to reduce costs. Industrial demand for our standard product may correlate over the long-term with oil and gas pricing, drilling, and well completion activity. Through industry publications, we monitor the oil and gas drilling rig count in the United States as an indicator of activity. Currently, we expect the recovery in our industrial market to be gradual and one that may not return to the high levels experienced in 2007 and early 2008. We are taking steps to ensure we can convert more of our standard product to granular product that is more suitable for agricultural use, in order to ensure our sales mix can be quickly modified for changes in market conditions.

        The feed component of our sales remained steady, although its percentage of our overall sales mix changed. This was driven, not by a decrease in feed sales, but rather by a very robust level of agricultural sales of potash. The percentages of our potash sales volumes for each of our markets were approximately as follows for the indicated periods:

Trio™

        We began producing and marketing Trio™ in late 2005, and we are working to expand our production of this product to meet increasing demand, particularly for the granular-sized product. Trio™ is marketed into two primary markets, the agricultural market as a fertilizer and the animal feed market as a nutrient. We market Trio™ internationally through an exclusive marketing agreement with PCS Sales (USA), Inc. for sales outside the United States and Canada and via a non-exclusive

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agreement for sales into Mexico. Increasing the awareness of the benefits of Trio™ is a focus of our marketing efforts. Sales of Trio™ on an international basis tend to be larger bulk shipments and vary as to when such shipments take place; therefore, we see greater variability in our sales volumes from period to period when compared to our domestic sales. Trio™ granular sales continued to be brisk during the first quarter of 2010 as we sold through our available inventory. We recently decided to move forward with a significant capital improvement project that is designed to increase our recoveries of langbeinite from approximately 35 percent to approximately 50 percent, while, at the same time, reducing process water usage and providing the flexibility to allow us to sell all of our Trio™ production into the granular market.

        The mix of our U.S. and export Trio™ sales volumes has changed as demand in the U.S. has remained strong for granular Trio™, while the export market for our standard-sized Trio™ product has lagged historical results. The percentages of our Trio™ sales volumes shipped to destinations in the United States and exported were as follows for the indicated periods.

Specific Factors Affecting our Results

Sales

        Our gross sales are derived from the sales of potash and Trio™ and are determined by the quantities of product we sell and the sales price we realize. 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 only on a portion of our sales. Many of our 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. Our gross sales include the freight that we bill, but we do not believe that gross sales provide a representative measurement of our performance in the market due to variations caused by ongoing changes in the proportion of customers paying for their own freight, in the geographic distribution of our products, and in freight rates. We view net sales, which are gross sales less freight costs, as the key performance indicator as it conveys the sales price of the product that we realize.

        During the first quarter of 2010, we sold more granular potash than we produced as the demand for potash has improved. This is the second consecutive quarter in which we have sold more product than we produced. We anticipated that there would be increased demand for granular potash when the market began to recover in late 2009, and, as a result, we built as much granular inventory as we could prior to the fourth quarter of 2009. By the end of the first quarter of 2010, we had sold through much of our granular inventories, which both generated cash flow and resulted in much of our higher cost inventory being reflected in cost of goods sold.

        The volumes of product we sell are determined by demand for our products and by our production capabilities. We manage our production levels as needed in response to market demand with a view toward managing inventory levels in the near term while ensuring that our balance sheet remains strong. Our profitability is directly linked to the sales price of our product, our production rates, and, to a lesser extent, to the price of natural gas and other commodities used in the production of potash that affect our variable costs. Our operating strategy is to participate in the potash sales markets at market-based prices and to ramp-up production to full productive capacity levels, which, in turn, should lower our per ton costs and benefit our gross margins. Because of the location of our assets, we see different market prices throughout the United States and actively manage our sales to take advantage of the pricing available in individual markets.

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        To some degree, we consider international prices in determining the prices at which we sell our products. Generally, we have benefited from the weakening U.S. dollar in prior periods. The potential impact of a weaker U.S. dollar is that Canadian suppliers may adjust their sales price in U.S. dollars upward in order to retain their local currency equivalent sales price, potentially allowing for increases in the average net realized prices we can obtain for our products. Mitigating the impact of a weaker U.S. dollar is the fact that our sales and costs are denominated in U.S. dollars; therefore, the change in the value of the U.S. dollar against other currencies has less of an effect on us as opposed to our competitors.

        Domestic pricing of our products is influenced by, among other things, the interaction of global supply and demand; ocean, land and barge freight rates; and currency fluctuations. Any of these factors could have a positive or negative impact on the price of our products. Average net realized sales prices for the last five quarters are shown below. The average net realized sales prices are calculated by subtracting freight costs from gross sales revenue and then dividing this result by the number of tons sold. The factors driving the decrease in the average net realized sales price from the first quarter of 2009 to the first quarter of 2010 have been described previously. Because of these factors, a downward trend resulted in the market price of potash during 2009, and our average net realized sales price decreased as well, as reflected below. The outlook for pricing appears to be more stable at this time, though further changes in the near term are possible.

Cost Associated with Abnormal Production

        We periodically evaluate our production levels and costs to determine if any such items should be deemed abnormal under authoritative GAAP with respect to inventory costing. In the quarters ended March 31, 2010, and 2009, we determined that approximately $0.5 million and $1.2 million, respectively, of production costs would have been allocated to additional tons produced, assuming Intrepid had been operating at normal production rates. As a result, these costs have been excluded from our inventory value and instead expensed in the respective quarters. The result is an acceleration of the recognition of this expense and the exclusion of these costs from cost of sales. The assessment of normal production levels is highly judgmental and is unique to each quarter. We compared actual production relative to what we estimated could have been produced if we had not elected market-related shutdowns and lower operating rates in order to determine the abnormal cost adjustment. It should be noted that the amount of abnormal production costs expensed in the first quarter of 2010 was less than the amount expensed in the fourth quarter of 2009 by approximately $8.9 million because we recommenced full production at our facilities. The only location where we incurred an abnormal adjustment in the first quarter of 2010 was our Wendover operations, where we reduced production due to inventory constraints caused by lower demand for standard potash.

Cost of Goods Sold

        Our cost of goods sold reflects the costs to produce our potash and langbeinite products, less credits generated from the sale of our by-products. Many of our production costs are fixed, and, consequently, our costs of sales per ton move inversely with the number of tons we produce, within the context of normal production levels. Our principal production costs include direct labor and employee benefits, maintenance materials, contract labor and materials for operating or maintenance projects,

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natural gas, electricity, operating supplies, chemicals, depreciation and depletion, royalties, leasing costs, and plant overhead expenses. There are elements of our cost structure associated with contract labor, consumable operating supplies, and chemicals that are variable, which make up approximately 20 percent of our cost base. Production-related costs increased by $6.2 million during the quarter ended March 31, 2010, compared to 2009. This overall increase resulted primarily from increased production volumes, therefore resulting in higher natural gas costs, contract labor costs, royalties incurred upon sales, labor expenses and supplies. These increased expenditures were partially offset by decreases in property tax, insurance costs, and an increase in by-product credits.

        Our labor and contract services costs in Carlsbad, New Mexico may continue to be influenced by the demand for skilled labor in the potash, oil and gas, and the nuclear waste storage industries.

        Production costs per ton are also impacted when our production levels change such as for annual maintenance turnarounds, mine development, or voluntary shutdowns to manage inventory levels. Excluding the effects of the direct expensing of costs associated with abnormally low production rates, our cash cost per ton decreased in the first quarter of 2010 relative to the first quarter of 2009. Our potash cash cost per ton, net of $8 per ton of by-product credits, was $199 per ton in the quarter ended March 31, 2010, compared to $238 per ton, net of $16 per ton of by-product credits, in the same quarter of 2009. The decrease in cash costs per ton resulted from higher operating rates. This trend toward lower cash costs per ton should continue in 2010 as we ramp up production at our West mine.

        Our normal production costs are first absorbed into inventory, and the inventory could take some time to turn over. We experienced higher sales volumes in the first quarter of 2010 compared to the first quarter of 2009, which resulted in the turnover of granular inventory that had a higher average production cost than our current tons due to lower operating rates in the past year. The sale of this inventory has caused a decrease in the carrying cost of our inventoried tons. With the recent uptick in demand, we have resumed a full production schedule at our West mine and are working to increase staffing to be able to run at full operating rates by mid-2010. However, due to the low unemployment levels in the Carlsbad area, we may not be able to hire enough qualified employees quickly enough to achieve our goal of running at full operating rates by mid-2010.

        We pay royalties to federal, state and private lessors under our mineral leases, and such payments are typically a percentage of net sales of minerals extracted and sold under the applicable lease. In some cases, federal royalties for potash are paid on a sliding-scale basis that varies with the grade of ore extracted. In the three months ended March 31, 2010, and 2009, our royalty rate was 3.7 percent. We expect that future average rates will be relatively consistent with this rate.

Income Taxes

        Intrepid is a subchapter C corporation and therefore is subject to federal and state income taxes on its taxable income. For the three month period ending March 31, 2010, our estimated annual effective rate was 39.3 percent compared to 38.1 percent during the corresponding period in 2009. Our estimated annual effective tax rate is impacted primarily by the amount of taxable income associated with each jurisdiction in which our income is subject to tax, permanent differences between the financial statement carrying amounts and tax bases of assets and liabilities, and the benefit associated with the estimated effect of the domestic production activities deduction.

        For the three months ended March 31, 2010, our total tax expense was $7.7 million. This expense was comprised of $3.1 million of current income tax expense and $4.6 million of deferred income tax expense. For the three months ended March 31, 2009, our total tax expense was $15.2 million. Total tax expense in the first quarter of 2009 was comprised of $8.5 million of current income tax expense and $6.7 million of deferred income tax expense.

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Operating Highlights

Three Months Ended March 31, 2010, and 2009

        Even with higher sales volumes, income before taxes for the three months ended March 31, 2010, and 2009, was $19.5 million and $39.9 million, respectively. The decrease in the comparable periods principally followed from lower average net realized sales prices per ton of both potash and Trio™. We sold 243,000 and 70,000 tons of potash and Trio™ in the three months ended March 31, 2010, as compared to 99,000 and 38,000 tons in the same period of 2009. The increase in sales volumes resulted from higher sales of potash due to rising demand from farmers because of improved economic and weather conditions, the decline in potash prices from their high point in 2009, and the need to replace the nutrients depleted by crops in 2008 and 2009 after lower potash fertilizer application rates in those periods. Industrial-grade potash sales volumes in the first quarter, however, were comparable to the same period in 2009, which represented a decrease from previous periods. The Trio™ sales volume increase was driven largely by increased domestic sales, which suggest an increase in general agricultural demand. Trio™ export shipments are comparatively large bulk sales that tend to vary when they take place throughout the year; therefore, the timing of these sales can lead to large variances in sales tons from quarter to quarter.

        Our production volume of potash in the first quarter of 2010 was 172,000 tons, or 35,000 tons more than in the first quarter of 2009 and 48,000 tons more than in the fourth quarter of 2009. Our production was primarily lower in 2009 due to actions we took to slow production in order to more closely align our supply with market demand and to manage our inventory. As demand has increased through the fourth quarter of 2009 and into 2010, we have been increasing our production.

        Our average net realized sales price of potash was $354 per ton ($390 per metric ton) in the three months ended March 31, 2010, as compared to $727 per ton in the three months ended March 31, 2009. The decrease in our average net realized sales price was the result of price reductions across our industry, including those by our international competitors following their settlements of new contracts at lower prices with large importing countries, such as China, India and Brazil. Given the significant changes in market demand during 2009, average prices have declined from the peak quarterly average of $762 per ton in the fourth quarter of 2008. The long-term trends in population growth and tight global food supplies have not changed materially as a result of the financial crisis, which leads us to believe that demand for potash should continue to increase in the future. Excluding costs associated with abnormal production, our potash gross margin as a percentage of net sales was 31 percent for the three months ended March 31, 2010, as compared to 60 percent in the three months ended March 31, 2009.

        In the first quarter of 2010, we directly expensed $0.5 million of costs related to abnormal production, and our cost of goods sold was $199 per ton, net of by-product credits. This compares to a per ton cost of goods sold for potash in the first quarter of 2009 of $238 per ton, net of by-product credits.

        Our cost of goods sold per ton of Trio™ decreased in the first quarter of 2010 relative to the first quarter of 2009, as we produced and sold more tons in the first quarter of 2010 relative to the same period in 2009. Therefore, costs were spread over more tons in 2010, lowering the costs of goods sold per ton for Trio™.

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Selected Operations Data

        The following table presents selected operations data for the periods presented below. Analysis of the details of this information is presented throughout this discussion. We present this table as a summary of information relating to key indicators of financial condition and operating performance that we believe are important. Average net realized sales prices below are derived from the elements in the table presented below.