HollyFrontier 2013 Annual Report Download - page 56

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Intangibles and Goodwill
Intangible assets are assets (other than financial assets) that lack physical substance. Goodwill represents the excess of the cost
of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill acquired in a business combination
and intangible assets with indefinite useful lives are not amortized while intangible assets with finite useful lives are amortized
on a straight-line basis. Goodwill and intangible assets not subject to amortization are tested for impairment annually or more
frequently if events or changes in circumstances indicate the possibility of impairment. Our analysis entails a comparison of the
estimated fair value of these assets that are derived using a combination of both income (discounted future expected net cash
flows) and comparable market approaches against their respective carrying values. Estimates of future cash flows and fair value
of assets require subjective assumptions with regard to future operating results and actual results could differ from those estimates.
There were no impairments of intangible assets or goodwill during the years ended December 31, 2013, 2012 and 2011.
Environmental Costs: Environmental costs are charged to operating expenses if they relate to an existing condition caused by
past operations and do not contribute to current or future revenue generation. Liabilities are recorded when site restoration and
environmental remediation, cleanup and other obligations are either known or considered probable and can be reasonably estimated.
Such estimates require judgment with respect to costs, time frame and extent of required remedial and clean-up activities and are
subject to periodic adjustments based on currently available information. Recoveries of environmental costs through insurance,
indemnification arrangements or other sources are included in other assets to the extent such recoveries are considered probable.
Contingencies
We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required
to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A
determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual
issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.
RISK MANAGEMENT
We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk
exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial position,
capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit.
Commodity Price Risk Management
Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined
products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative
contracts in the form of commodity price swaps and futures contracts to mitigate price exposure with respect to:
• our inventory positions;
• natural gas purchases;
• costs of crude oil and related grade differentials;
• prices of refined products; and
• our refining margins.
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