PBF Energy 2012 Annual Report Download - page 107

PBF ENERGY INC. AND SUBSIDIARIES
(COMBINED AND CONSOLIDATED WITH PBF ENERGY COMPANY LLC AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT AND BARREL DATA)
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue, Deferred Revenue and Accounts Receivable (Continued)
only made with the Company or its subsidiaries’ approval. In December 2012, the Company gave notice that it
was terminating the Offtake Agreements with MSCG, effective as of June 30, 2013.
The Company’s Paulsboro and Delaware City refineries sell and purchase feedstocks under a supply agreement
with Statoil (the “Crude Supply Agreements”). Statoil purchases the refineries’ production of certain feedstocks
or purchases feedstocks from third parties on the refineries’ behalf. Legal title to the feedstocks is held by Statoil
and the feedstocks are held in the refineries’ storage tanks until they are needed for further use in the refining
process. At that time, the products are drawn out of the storage tanks and purchased by the refineries. These
purchases and sales are settled monthly at the daily market prices related to those products. These transactions
are considered to be made in contemplation of each other and, accordingly, do not result in the recognition of a
sale when title passes from the refineries to Statoil. Inventory remains at cost and the net cash receipts result in a
liability which is discussed further in the Inventory note below.
Accounts receivable are carried at invoiced amounts. An allowance for doubtful accounts is established, if
required, to report such amounts at their estimated net realizable value. In estimating probable losses,
management reviews accounts that are past due and determines if there are any known disputes. There was no
allowance for doubtful accounts at December 31, 2012 and 2011.
Excise taxes on sales of refined products that are collected from customers and remitted to various governmental
agencies are reported on a net basis.
Inventory
Inventories are carried at the lower of cost or market. The cost of crude oil, feedstocks, blendstocks and refined
products are determined under the last-in first-out (“LIFO”) method using the dollar value LIFO method with any
increments valued based on average purchase prices during the year. The cost of supplies and other inventories is
determined principally on the weighted average cost method.
The Company’s Paulsboro and Delaware City refineries acquire substantially all of their crude oil from Statoil
under the Crude Supply Agreements. The Company takes title to the crude oil as it is delivered to the processing
units, in accordance with the Crude Supply Agreements; however, the Company is obligated to purchase all the
crude oil held by Statoil on the Company’s behalf upon termination of the agreement at the then market price.
The Company is also obligated to purchase a fixed volume of feedstocks from Statoil on the later of maturity or
when the arrangement is terminated based on a forward market price of West Texas Intermediate crude oil. As a
result of the purchase obligations, the Company records the inventory of crude oil and feedstocks in the
refineries’ storage facilities. The Company determined the purchase obligations to be contracts that contain
derivatives that change in value based on changes in commodity prices. Such changes in the fair value of these
derivatives are included in cost of sales. On September 17, 2012, the Company gave notice to Statoil, that it
would terminate the crude supply agreement for its Paulsboro refinery effective March 31, 2013. On October 31,
2012, the Delaware City crude supply agreement was amended and modified to among other things, allow the
Company to directly purchase U.S. and Canadian onshore origin crude oil and feedstock that is delivered to the
Delaware City refinery via rail independent of Statoil.
The Company’s Toledo refinery acquires substantially all of its crude oil from MSCG under a crude oil supply
agreement (the “Toledo Crude Oil Supply Agreement”). For the period from March 1, 2011 to May 31, 2011, the
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