HollyFrontier 2013 Annual Report Download - page 73

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Asset Retirement Obligations: We record legal obligations associated with the retirement of long-lived assets that result from the
acquisition, construction, development and / or the normal operation of long-lived assets. The fair value of the estimated cost to
retire a tangible long-lived asset is recorded as a liability with the associated retirement costs capitalized as part of the asset's
carrying amount in the period in which it is incurred and when a reasonable estimate of the fair value of the liability can be made.
If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is
available to estimate the liability's fair value.
Our asset retirement obligations were $19.1 million and $18.1 million at December 31, 2013 and 2012, respectively, which are
included in “Other long-term liabilities” in our consolidated balance sheets. Accretion expense was insignificant for the years
ended December 31, 2013, 2012 and 2011.
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 less 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 asset might be impaired. 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.
In addition to goodwill, our consolidated HEP assets include a third-party transportation agreement that currently generates
minimum annual cash inflows of $24.7 million and has an expected remaining term through 2035. The transportation agreement
is being amortized on a straight-line basis through 2035 that results in annual amortization expense of $2.0 million. The balance
of this transportation agreement was $42.5 million and $44.5 million at December 31, 2013 and 2012, respectively, and is presented
net of accumulated amortization of $17.7 million and $15.7 million, respectively, in “Intangibles and other” in our consolidated
balance sheets. There were no impairments of intangible assets or goodwill during the years ended December 31, 2013, 2012 and
2011.
Investments in Joint Ventures: We consolidate the financial and operating results of joint ventures in which we have an ownership
interest of greater than 50% and use the equity method of accounting for investments in which we have a 50% or less ownership
interest. Under the equity method of accounting, we record our pro-rata share of earnings, and contributions to and distributions
from joint ventures as adjustments to our investment balance.
HEP has a 25% joint venture interest in the SLC Pipeline that is accounted for using the equity method of accounting. As of
December 31, 2013, HEP's underlying equity in the SLC Pipeline was $59.6 million compared to its recorded investment balance
of $24.7 million, a difference of $34.9 million. This is attributable to the difference between HEP's contributed capital and its
allocated equity at formation of the SLC Pipeline. This difference is being amortized as an adjustment to HEP's pro-rata share of
earnings.
Revenue Recognition: Refined product sales and related cost of sales are recognized when products are shipped and title has
passed to customers. HEP recognizes pipeline transportation revenues as products are shipped through its pipelines. All revenues
are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling
costs incurred are reported in cost of products sold.
Depreciation: Depreciation is provided by the straight-line method over the estimated useful lives of the assets, primarily 20 to
25 years for refining, pipeline and terminal facilities, 10 to 40 years for buildings and improvements, 5 to 30 years for other fixed
assets and 5 years for vehicles.
Cost Classifications: Costs of products sold include the cost of crude oil, other feedstocks, blendstocks and purchased finished
products, inclusive of transportation costs. We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities
in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price
recorded as revenues and the corresponding acquisition cost as cost of products sold. Additionally, we enter into buy/sell exchanges
of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost. Operating
expenses include direct costs of labor, maintenance materials and services, utilities, marketing expense and other direct operating
costs. General and administrative expenses include compensation, professional services and other support costs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued