PBF Energy 2013 Annual Report Download - page 122

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- 26
Pension and Other Post-Retirement Benefits
The Company recognizes an asset for the overfunded status or a liability for the underfunded status of its pension
and post-retirement benefit plans. The funded status is recorded within other long-term liabilities. Changes in the
plans’ funded status are recognized in other comprehensive income in the period the change occurs.
Fair Value Measurement
A fair value hierarchy (Level 1, Level 2, or Level 3) is used to categorize fair value amounts based on the quality
of inputs used to measure fair value. Accordingly, fair values derived from Level 1 inputs utilize quoted prices in
active markets for identical assets or liabilities. Fair values derived from Level 2 inputs are based on quoted prices
for similar assets and liabilities in active markets, and inputs other than quoted prices that are either directly or
indirectly observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and
include situations where there is little, if any, market activity for the asset or liability.
The Company uses appropriate valuation techniques based on the available inputs to measure the fair values of its
applicable assets and liabilities. When available, the Company measures fair value using Level 1 inputs because
they generally provide the most reliable evidence of fair value. In some valuations, the inputs may fall into different
levels in the hierarchy. In these cases, the asset or liability level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurements.
Financial Instruments
The estimated fair value of financial instruments has been determined based on the Company’s assessment of
available market information and appropriate valuation methodologies. The Company’s non-derivative financial
instruments that are included in current assets and current liabilities are recorded at cost in the consolidated balance
sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-
term nature. Derivative instruments are recorded at fair value in the consolidated balance sheets.
The Company’s commodity contracts are measured and recorded at fair value using Level 1 inputs based on quoted
prices in an active market or Level 2 inputs based on quoted market prices for similar instruments. The Company’s
catalyst lease obligation and derivatives related to the Company’s crude oil and feedstocks and refined product
purchase obligations are measured and recorded at fair value using Level 2 inputs on a recurring basis, based on
observable market prices.
Derivative Instruments
The Company is exposed to market risk, primarily related to changes in commodity prices for the crude oil and
feedstocks used in the refining process as well as the prices of the refined products sold. 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.
All derivative instruments, not designated as normal purchases or sales, are recorded in the 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 currently in earnings. Contracts qualifying for the normal purchase and sales exemption are accounted
for upon settlement. Cash flows related to derivative instruments that are not designated or do not qualify for hedge
accounting treatment are included in operating activities.
The Company designates certain derivative instruments as fair value hedges of a particular risk associated with a
recognized asset or liability. At the inception of the hedge designation, the Company documents the relationship
between the hedging instrument and the hedged item, as well as its risk management objective and strategy for
undertaking various hedge transactions. Derivative gains and losses related to these fair value hedges, including
hedge ineffectiveness, are recorded in cost of sales along with the change in fair value of the hedged asset or liability