PBF Energy 2012 Annual Report Download - page 84

Deferred Turnaround Costs
Refinery turnaround costs, which are incurred in connection with planned major maintenance activities at
our refineries are capitalized when incurred and amortized on a straight-line basis over the period of time
estimated until the next turnaround occurs (generally three to five years).
Derivative Instruments
We are exposed to market risk, primarily related to changes in commodity prices for the crude oil and
feedstocks we use in the refining process as well as the prices of the refined products we sell. The accounting
treatment for commodity contracts depends on the intended use of the particular contract and on whether or not
the contract meets the definition of a derivative. Non-derivative contracts are recorded at the time of delivery.
All derivative instruments that are not designated as normal purchase or sales are recorded in our balance
sheet as either assets or liabilities measured at their fair values. Changes in the fair value of derivative
instruments that either are not designated or do not qualify for hedge accounting treatment or normal purchase or
normal sale accounting are recognized in income. Contracts qualifying for the normal purchase and sales
exemption are accounted for upon settlement. Prior to June 30, 2011 we did not apply hedge accounting to any of
our derivative instruments. Effective July 1, 2011, we elected fair value hedge accounting for certain derivatives
associated with our inventory repurchase obligations.
Derivative accounting is complex and requires management judgment in the following respects:
identification of derivatives and embedded derivatives; determination of the fair value of derivatives;
identification of hedge relationships; assessment and measurement of hedge ineffectiveness; and election and
designation of the normal purchases and sales exception. All of these judgments, depending upon their timing
and effect, can have a significant impact on earnings.
Income Taxes and Tax Receivable Agreement
As PBF LLC is a limited liability company treated as a “flow-through” entity for income tax purposes, there
is no benefit or provision for federal or state income tax in the accompanying financial statements for periods
prior to the closing of our initial public offering on December 18, 2012. Effective with the completion of our
initial public offering, we recognize an income tax expense or benefit in our consolidated financial statements
based on our allocable share of PBF LLC’s pre-tax income (loss). We do not recognize any income tax expense
or benefit related to the noncontrolling interest in PBF LLC.
Effective upon the completion of our initial public offering, we provide for deferred income taxes for
temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities at
each balance sheet date, using enacted tax rates expected to be in effect when the related taxes are expected to be
paid or received. A deferred tax asset may be reduced by a valuation allowance when we, after assessing the
probability of future taxable income and evaluating alternative tax planning strategies, determine that it is more
likely than not that the future tax benefit may not be realized. If future taxable income differs from our estimates
or if expected tax planning strategies are not available as anticipated, adjustments to the valuation allowance may
be needed. Deferred tax assets and liabilities may be adjusted in the future for the effect of changes in tax laws or
rates on the date of enactment.
Pursuant to the tax receivable agreement we entered into at the time of our initial public offering, we are
required to pay PBF LLC Series A Unit holders, who exchange their units for PBF Energy stock or whose units
we purchase, approximately 85% of the cash savings in income taxes that we realize as a result of the increase in
the tax basis of our interest in PBF LLC, including tax benefits attributable to payments made under the tax
receivable agreement. We have recognized a liability for the tax receivable agreement reflecting our estimate of
the undiscounted amounts that we expect to pay under the agreement. Our estimate of the tax agreement liability
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