PBF Energy 2012 Annual Report Download - page 82

Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported revenues and expenses. Actual results could differ from those estimates.
Revenue and Deferred Revenue
We sell various refined products and recognize revenue related to the sale of products when there is
persuasive evidence of an agreement, the sales prices are fixed or determinable, collectability is reasonably
assured and when products are shipped or delivered in accordance with their respective agreements. Revenue for
services is recorded when the services have been provided.
Our Paulsboro and Delaware City refineries sell their light finished products, certain intermediates and lube
base oils to MSCG under products offtake agreements. On a daily basis, MSCG purchases and pays for the
refineries’ production of these products as they are produced, delivered to the refineries’ storage tanks and legal
title passes to MSCG. The inventory associated with these sales remains on our balance sheet and the revenue is
deferred until the products are shipped out of our storage facilities by MSCG, which typically occurs within an
average of six days. As a result, gross margin on these product sales is deferred until shipment occurs. In
December 2012, we gave notice that we will terminate the offtake arrangements with MSCG effective June 30,
2013, at which time we intend to market and independently sell the products currently purchased by MSCG.
Under the offtake agreements, our Paulsboro and Delaware City refineries also enter into purchase and sale
transactions of certain of their intermediates and lube base oils whereby MSCG purchases and pays for the
refineries’ production of certain intermediates and lube products as they are produced and legal title passes to
MSCG. The intermediate products are held in the refineries’ storage tanks until they are needed for further use in
the refining process. The refineries have the right to repurchase lube products and do so to supply other third
parties with that product. When the refineries need intermediates or when they repurchase lube products, the
products are drawn out of their storage tanks, title passes back to the refineries and MSCG is paid for 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 the counterparty. Inventory remains at
cost, valued on a LIFO basis and the net cash receipts result in a liability that is recorded at market price for the
volumes held in storage with any change in the market price being recorded in costs of sales. The liability
represents the amount we expect to pay to repurchase the volumes in storage. In December 2012, we gave notice
that we will terminate the offtake arrangements with MSCG effective June 30, 2013, at which time we intend to
purchase from MSCG the certain intermediate and lube products owned by them at that date.
Our Paulsboro and Delaware City refineries sell and purchase feedstocks under supply agreements primarily
with Statoil. 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 feedstocks
are drawn out of the storage tanks and purchased by us. These purchases and sales are settled monthly at the daily
market prices related to those feedstocks. These transactions are considered to be made in the contemplation of
each other and, accordingly, do not result in the recognition of a sale when title passes from the refineries to the
counterparty. Inventory remains at cost and the net cash receipts result in a liability. The Statoil crude supply
agreement with Paulsboro will terminate effective March 31, 2013, at which time we intend to purchase from
Statoil the feedstocks owned by them at that date.
Inventory
Inventories are carried at the lower of cost or market. The cost of crude oil, feedstocks, blendstocks and
refined products is determined under the LIFO method using the dollar value LIFO method with increments
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