PBF Energy 2012 Annual Report Download - page 152

PAULSBORO REFINING BUSINESS
NOTES TO FINANCIAL STATEMENTS—(Continued)
Cost of Sales
Cost of sales included the cost of feedstock acquired for processing by the Business, including transportation
costs to deliver the feedstock to the refinery.
Operating Expenses
Operating expenses consisted primarily of labor costs of refinery personnel, maintenance, fuel and power costs,
chemical and catalyst costs, and third-party services. Such expenses were recognized as incurred.
Stock-Based Compensation
Employees of the Business participate in various employee benefit plans of the Parent, including certain stock-
based compensation plans as discussed in Note 9. Compensation expense for awards under the stock-based
compensation plans was based on the fair value of the awards granted and was recognized in the statements of
income on a straight-line basis over the requisite service period of each award. For new grants that had
retirement-eligibility provisions, the Business used the substantive vesting period approach, under which
compensation cost was recognized immediately for awards granted to retirement-eligible employees or over the
period from the grant date to the date retirement eligibility was achieved if that date was expected to occur before
the nominal vesting periods of the awards was fulfilled.
Income Taxes
Income taxes were accounted for under the asset and liability method. Under this method, deferred tax assets and
liabilities were recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred amounts
were measured using enacted tax rates expected to apply to taxable income in the year those temporary
differences were expected to be recovered or settled.
The Business paid the Parent the amount of its current federal income tax liability as determined under a
tax-sharing arrangement with the Parent; the accrual and payment of the current federal income tax liability was
recorded in net parent investment in the financial statements in the year incurred. The current state income tax
liability of the Business was reflected in income taxes payable.
Historically, the Business’ results of operations were included in the consolidated federal income tax return filed
by Valero and were included in state income tax returns of subsidiaries of Valero. The income tax provision
represented the current and deferred income taxes that would have resulted if the Business were a stand-alone
taxable entity filing its own income tax returns. Accordingly, the calculations of the current and deferred income
tax provision necessarily require certain assumptions, allocations, and estimates that management believed were
reasonable to reflect the tax reporting for the Business as a stand-alone taxpayer.
The Business elected to classify any interest expense and penalties related to the underpayment of income taxes
in income tax expense.
Segment Disclosures
The Business operated in only one segment, the refining segment of the oil and gas industry.
Financial Instruments
The Business’ financial instruments included cash, receivables, and payables. The estimated fair values of these
financial instruments approximated their carrying amounts.
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