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Note 12—COMMITMENTS AND CONTINGENCIES
Marketing Agreements—Intrepid has a marketing agreement appointing PCS Sales (USA), Inc. ("PCS Sales") as its exclusive sales representative for export potash sales, with the exception of sales to Canada and Mexico, and appointing PCS Sales as non-exclusive sales representative for potash sales into Mexico. Trio® is also marketed under this arrangement. This agreement is cancelable with thirty-days written notice.
Intrepid also has a sales agreement with Envirotech Services, Inc. ("ESI") appointing ESI its exclusive distributor, subject to certain conditions, for magnesium chloride produced by Wendover, with the exception of up to 15,000 tons per year sold for applications other than dust control, de-icing, and soil stabilization. This agreement is cancelable with two years' written notice, unless a breach or other specified special event has occurred. Sales prices were specified to ESI in the agreement subject to cost-based escalators. Intrepid is also entitled to certain adjustments in the sale price to ESI based on the final sales price ESI receives from its customers, as defined by the agreement. Such adjustments in sales price are settled after ESI's fiscal year end in September; however, Intrepid estimates and recognizes earned excess profits each quarter as the amounts are earned and reasonably determinable.
Reclamation Deposits and Surety Bonds—As of September 30, 2011, Intrepid had $8.7 million of security placed principally with the State of Utah and the BLM for eventual reclamation of its various facilities. Of this total requirement, $1.3 million consisted of long-term restricted cash deposits reflected in "Other" long-term assets on the consolidated balance sheets, and $7.4 million was secured by surety bonds issued by an insurer. The surety bonds are held in place by the payment of 1.2 percent fee paid to the surety bond issuer.
Intrepid may be required to post additional security to fund future reclamation obligations as reclamation plans are updated or if governmental entities change requirements.
Health Care Costs—Intrepid is self-insured, subject to a stop-loss policy, for its employees' health care costs. The estimated liability for outstanding medical costs has been based on the historical pattern of claim settlements. The medical claims liability included in accrued liabilities was approximately $1.1 million as of September 30, 2011, and $1.2 million as of December 31, 2010.
Legal—Intrepid is subject to litigation. Intrepid has determined that there are no material claims outstanding as of September 30, 2011. Intrepid has established a general reserve for loss contingencies that are considered probable and reasonably estimable.
Future Operating Lease Commitments—Intrepid has certain operating leases for land, mining and other operating equipment, an airplane, offices, railcars, and vehicles, with original terms ranging up to twenty years.
Rental and lease expenses follow for the indicated periods (in thousands):
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2011 |
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|
|
|
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For the three months ended September 30, 2011 |
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$ |
1,259 |
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|
For the nine months ended September 30, 2011 |
|
$ |
3,839 |
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2010 |
|
|
|
|
|
For the three months ended September 30, 2010 |
|
$ |
1,596 |
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|
For the nine months ended September 30, 2010 |
|
$ |
5,080 |
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Refundable Credit—In June 2011, Intrepid received notice that its application for a refundable employment-related credit, related to qualifying wages earned for the years 2004 to January 2010, of approximately $4.7 million was approved by the State of New Mexico. Accordingly, during the second quarter of 2011, Intrepid recorded $4.7 million of income, which is reflected in "Other operating (income) loss" for the nine months ended September 30, 2011. The cash collection associated with this credit occurred in October of 2011, and the amount was recorded in "Other receivables" as of September 30, 2011. The receipt of the approval notice from the State of New Mexico confirms the process by which such credits are claimed with sufficient certainty. Accordingly, beginning in the third quarter of 2011, the value of additional estimated credits is and will be recorded in the same period in which the credit is earned as a reduction to our production costs. As a result, Intrepid recorded an additional receivable of $3.8 million related to the refundable employment-related credit for qualifying wages paid in the State of New Mexico in the third quarter of 2011, of which $3.2 million, has been recorded as "Other operating (income) loss" for credits earned for the periods prior to the third quarter of 2011 as the associated inventory for this portion of the credit was sold in prior periods. The credit earned for the three months ended September 30, 2011, has been included as a reduction to our production costs and is reflected in the associated cost of goods sold and in the remaining inventory cost base as of September 30, 2011. |