HollyFrontier 2013 Annual Report Download - page 74

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Deferred Maintenance Costs: Our refinery units require regular major maintenance and repairs which are commonly referred to
as “turnarounds.” Catalysts used in certain refinery processes also require regular “change-outs.” The required frequency of the
maintenance varies by unit and by catalyst, but generally is every two to five years. Turnaround costs are deferred and amortized
over the period until the next scheduled turnaround. Other repairs and maintenance costs are expensed when incurred.
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.
Income Taxes: Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial
and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate
changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The
liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the
assets will be realized.
Potential interest and penalties related to income tax matters are recognized in income tax expense. We believe we have appropriate
support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax liabilities are
adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied
to the facts of each matter.
NOTE 2: Holly-Frontier Merger
On February 21, 2011, we entered into a merger agreement providing for a “merger of equals” business combination between us
and Frontier. On July 1, 2011, North Acquisition, Inc., a direct wholly-owned subsidiary of Holly, merged with and into Frontier,
with Frontier surviving as a wholly-owned subsidiary of Holly. Subsequent to the merger and following approval by the post-
closing board of directors of HollyFrontier, Frontier merged with and into HollyFrontier, with HollyFrontier continuing as the
surviving corporation.
In accordance with the merger agreement, we issued approximately 102.8 million shares of HollyFrontier common stock in
exchange for outstanding shares of Frontier common stock to former Frontier stockholders. Each outstanding share of Frontier
common stock was converted into 0.4811 shares of HollyFrontier common stock with any fractional shares paid in cash. The
aggregate consideration paid in connection with the merger was approximately $3.7 billion. This is based on our July 1, 2011
market closing price of $35.93 and includes a portion of the fair value of the outstanding equity-based awards assumed from
Frontier that relates to pre-merger services.
Our consolidated financial and operating results reflect the operations of the merged Frontier businesses beginning July 1, 2011,
which consists of crude oil refining and the wholesale marketing of refined petroleum products produced at the El Dorado and
Cheyenne Refineries, which serve markets in the Rocky Mountain and Plains States regions of the United States.
Table of Contents HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued