PBF Energy 2013 Annual Report Download - page 118

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
F- 22
the net cash receipts resulted in a liability that was 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 represented the amount the Company
expected to pay to repurchase the volumes held in storage.
While MSCG had legal title, it had the right to encumber and/or sell these products and any such sales by MSCG
resulted in sales being recognized by the refineries when products were shipped out of the storage facility. As the
exclusive vendor of intermediate products to the refineries, MSCG had the obligation to provide the intermediate
products to the refineries as they were needed. Accordingly, sales by MSCG to others were limited and only made
with the Company or its subsidiaries’ approval.
As of July 1, 2013, the Company terminated the Offtake Agreements for the Company’s Paulsboro and Delaware
City refineries. The Company entered into two separate inventory intermediation agreements (“Inventory
Intermediation Agreements”) with J. Aron & Company ("J. Aron") on June 26, 2013 which commenced upon the
termination of the product offtake agreements with MSCG.
Pursuant to the Inventory Intermediation Agreements, J. Aron purchases and holds title to all of the intermediate
and finished products (the "Products") produced by the Delaware City and Paulsboro refineries and delivered into
the Company's tanks at the refineries. All purchase and sale transactions under the Inventory Intermediation
Agreements are consummated at a benchmark market price adjusted for a specified product type differential. The
sale and purchase transactions under the Inventory Intermediation Agreements are considered to be made in
contemplation of each other and, accordingly, do not result in the recognition of a sale when title passes to J. Aron.
The Products inventory remains on the Company's balance sheet at cost and the net cash receipts result in a liability
that is recorded at market price for the volume of Products inventory held in the Company's refineries’ storage
tanks with any change in the market price recorded in costs of sales.
Furthermore, J. Aron sells the Products back to the Company as the Products are discharged out of the refineries'
tanks. J. Aron has the right to store the Products purchased in the Company's tanks under the Inventory
Intermediation Agreements and will retain these storage rights for the term of the agreements. Inventory held
outside the refineries may be owned by the Company or by J. Aron under the Inventory Intermediation Agreements.
The Company markets and sells the Products independently to third parties.
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 refinery. 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. The Company terminated its supply agreement with Statoil for
its Paulsboro refinery in March 2013.
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, 2013 and 2012.
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.