PBF Energy 2012 Annual Report Download - page 110

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)
Stock-Based Compensation (Continued)
restricted PBF LLC Series A Units granted by PBF LLC to certain directors. The estimated fair value of the options to
purchase PBF Energy Class A Common Stock and the PBF LLC Series A warrants and options, is based on the Black-
Scholes option pricing model and the fair value of the PBF LLC Series B units is estimated based on a Monte Carlo
simulation model. The estimated fair value is amortized as stock-based compensation expense on a straight-line
method over the vesting period and included in general and administration expense.
Income Taxes
As a result of the PBF Energy’s acquisition of PBF LLC Series A Units or exchanges of PBF LLC Series A Units
for PBF Energy Class A common stock, PBF Energy expects to benefit from amortization and other tax deductions
reflecting the step up in tax basis in the acquired assets. Those deductions will be allocated to PBF Energy and will
be taken into account in reporting the Company’s taxable income. As a result of a federal income tax election made
by PBF LLC, applicable to a portion of PBF Energy’s acquisition of PBF LLC Series A Units, the income tax basis
of the assets of PBF LLC, underlying a portion of the units PBF Energy acquired, has been adjusted based upon the
amount that PBF Energy paid for that portion of its PBF LLC Series A Units. PBF Energy has entered into an
agreement with the pre-IPO owners of PBF LLC that will provide for an additional payment by PBF Energy to the
exchanging holders of PBF LLC Units equal to 85% of the amount of cash savings, if any, in U.S. federal, state and
local income tax that PBF Energy realizes as a result of (i) these increases in tax basis and (ii) certain other tax
benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under
the tax receivable agreement. As a result of these transactions, PBF Energy’s tax basis in its share of PBF LLC’s
assets will be higher than the book basis of these same assets. This resulted in a deferred tax asset of $181,257, of
which the majority is expected to be realized over 10 years as the tax basis of these assets is amortized.
Deferred taxes are provided using a liability method, whereby deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary
differences represent the differences between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effect or change in tax laws and rates on the date of enactment. The Company recognizes tax
benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its
technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision
for income taxes on the consolidated statements of operations.
Net Income Per Share
For the period subsequent to the IPO basic net income per share is calculated by dividing the net income
available to PBF Energy Class A common stockholders by the weighted average number of shares of PBF
Energy Class A common stock outstanding during the period. Diluted net income per share is calculated by
dividing the net income available to PBF Energy Class A common stockholders, adjusted for the net income
attributable to the noncontrolling interest and the assumed income tax expense thereon, by the weighted average
number of PBF Energy Class A common shares outstanding during the period adjusted to include the assumed
exchange of all PBF LLC Series A units outstanding for PBF Energy Class A common stock and the potentially
dilutive effect of outstanding options to purchase shares of PBF Energy Class A Common Stock, and options and
warrants to purchase PBF LLC Series A Units, subject to forfeiture utilizing the treasury stock method.
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