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PBF Energy Inc. - Quarter Report: 2013 June (Form 10-Q)



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark one)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2013
Or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-35764
Commission File Number: 333-186007
Commission File Number: 333-186007-07
 
PBF ENERGY INC.
PBF HOLDING COMPANY LLC
PBF FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
 
DELAWARE
DELAWARE
DELAWARE
 
45-3763855 
27-2198168 
45-2685067

(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
One Sylvan Way, Second Floor
Parsippany, New Jersey
 
07054
(Address of principal executive offices)
 
(Zip Code)
(973) 455-7500
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
 
PBF Energy Inc.
x  Yes    ¨  No
PBF Holding Company LLC
x  Yes    ¨  No
PBF Finance Corporation
x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
PBF Energy Inc.
x  Yes    o  No
PBF Holding Company LLC
x  Yes    o  No
PBF Finance Corporation
x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated
filer
 
Accelerated filer
 
Non-accelerated filer
(Do not check if a
smaller reporting
company)
 
Smaller reporting
company
PBF Energy Inc.
¨
 
¨
 
x
 
¨
PBF Holding Company LLC
¨
 
¨
 
x
 
¨
PBF Finance Corporation
o
 
o
 
x
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
PBF Energy Inc.
¨  Yes    x  No
PBF Holding Company LLC
¨  Yes    x  No
PBF Finance Corporation
o  Yes    x  No
As of August 5, 2013, PBF Energy Inc. had outstanding 39,581,613 shares of Class A common stock and 41 shares of Class B common stock. PBF Energy Inc. is the sole managing member of, and owner of an equity interest of approximately 41.0% of the outstanding economic interest in, PBF Energy Company LLC. PBF Energy Company LLC held 100% of the membership interests in PBF Holding Company LLC as of August 5, 2013. PBF Holding Company LLC has no common stock outstanding. As of August 5, 2013, PBF Finance Corporation had 100 shares of common stock outstanding, all of which were held by PBF Holding Company LLC.

PBF Finance Corporation meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
 
 




PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
ITEM 3.
 
 
ITEM 4.
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
ITEM 6.

Explanatory Note
This combined Form 10-Q is filed by PBF Energy Inc. (“PBF Energy”), PBF Holding Company LLC (“PBF Holding”) and PBF Finance Corporation ("PBF Finance"). Each Registrant hereto is filing on its own behalf all of the information contained in this report that relates to such Registrant. Each Registrant hereto is not filing any information that does not relate to such Registrant, and therefore makes no representation as to any such information. PBF Energy is the sole managing member of, and owner of an equity interest representing approximately 41.0% of the outstanding economic interests in, PBF Energy Company LLC ("PBF LLC"). PBF Holding is a wholly-owned subsidiary of PBF LLC and PBF Finance is a wholly-owned subsidiary of PBF Holding. PBF Holding is the parent company for PBF LLC's operating subsidiaries.
PBF Holding is an indirect subsidiary of PBF Energy, representing 100% of PBF Energy’s consolidated revenue for the three and six months ended June 30, 2013 and constituting 100% of PBF Energy’s revenue generating assets as of June 30, 2013.
Unless the context indicates otherwise, the terms “we,” “us,” and “our” refer to both PBF Energy and PBF Holding and subsidiaries. Discussions or areas of this report that either apply only to PBF Energy or PBF Holding are clearly noted in such sections.

2



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements”, as defined in the Private Securities Litigation Reform Act of 1995, of expected future developments that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our expectations, which we refer to as “cautionary statements,” are disclosed under “Item 1A. Risk Factors” and elsewhere in the Annual Reports on Form 10-K for the year ended December 31, 2012 of PBF Energy Inc., PBF Holding Company LLC and PBF Finance Corporation, which we refer to as our 2012 Annual Reports on Form 10-K, and our other filings with the Securities and Exchange Commission. All forward-looking information in this Quarterly Report on Form 10-Q and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include:
supply, demand, prices and other market conditions for our products;
 the effects of competition in our markets;
changes in currency exchange rates, interest rates and capital costs;
 adverse developments in our relationship with both our key employees and unionized employees;
our ability to operate our businesses efficiently, manage capital expenditures and costs (including general and administrative expenses) tightly and generate earnings and cash flow;
our substantial indebtedness described in our 2012 Annual Reports on Form 10-K and this Quarterly Report on Form 10-Q;
restrictive covenants in our indebtedness that may adversely affect our operational flexibility;
payments to the holders of PBF LLC Series A Units and PBF LLC Series B Units under our tax receivable agreement for certain tax benefits we may claim, and our assumptions regarding payments arising under the tax receivable agreement and other arrangements relating to our organizational structure;
our expectations with respect to our acquisition activity;
our expectations with respect to our capital improvement projects including the development and expansion of our Delaware City crude unloading facilities and status of an air permit to transfer crude to Paulsboro;
the possibility that we might reduce or not make further dividend payments;
adverse impacts from changes in our regulatory environment or actions taken by environmental interest groups;
the costs of being a public company, including Sarbanes-Oxley Act compliance;
any decisions we make with respect to our energy-related logistical assets that could qualify for an MLP structure, including future opportunities that we may determine present greater potential value to stockholders than the planned MLP initial public offering, as described elsewhere in this Quarterly Report on Form 10-Q under "Recent Developments"
the timing and structure of the planned MLP may change;
unanticipated developments may delay or negatively impact the planned MLP;

3



receipt of regulatory approvals and compliance with contractual obligations required in connection with the planned MLP;
the impact of the planned MLP on our relationships with our employees, customers and vendors and our credit rating and cost of funds; and
the possibility that the interests of our financial sponsors (funds affiliated with The Blackstone Group L.P. and First Reserve Management, L.P.) will conflict with ours.
We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q may not in fact occur. Accordingly, investors should not place undue reliance on those statements.
Our forward-looking statements also include estimates of the total amount of payments, including annual payments, under our tax receivable agreement. These estimates are based on assumptions that are subject to change due to various factors, including, among other factors, the timing of exchanges of PBF LLC Series A Units for shares of our Class A common stock as contemplated by the tax receivable agreement, the price of our Class A common stock at the time of such exchanges, the extent to which such exchanges are taxable, and the amount and timing of our income. See the following risks set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012: “We will be required to pay the holders of PBF LLC Series A Units for certain tax benefits we may claim arising in connection with our initial public offering and future exchanges of PBF LLC Series A Units for shares of our Class A Common Stock and related transactions, and the amounts we may pay could be significant.” and “In certain cases, payments by us under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement. These provisions may deter a change in control of our Company.”
Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or as of the date as of which they are made. Except as required by applicable law, including the securities laws of the United States, we do not intend to update or revise any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing.

4


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
PBF ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(COMBINED AND CONSOLIDATED WITH PBF ENERGY COMPANY LLC AND SUBSIDIARIES)
(unaudited, in thousands, except share and per share data)
 
June 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
69,230

 
$
285,884

Accounts receivable
591,352

 
503,796

Inventories
1,537,573

 
1,497,119

Deferred tax asset
4,682

 
7,717

Prepaid expense and other current assets
46,136

 
13,388

Total current assets
2,248,973

 
2,307,904

 
 
 
 
Property, plant, and equipment, net
1,685,104

 
1,635,587

Deferred tax assets
204,589

 
112,862

Deferred charges and other assets, net
187,237

 
197,349

Total assets
$
4,325,903

 
$
4,253,702

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
227,567

 
$
360,057

Accrued expenses
1,029,364

 
1,031,467

Payable to related parties pursuant to tax receivable agreement
1,007

 
1,007

Deferred revenue
183,949

 
210,543

Total current liabilities
1,441,887

 
1,603,074

 
 
 
 
Delaware Economic Development Authority loan
16,000

 
20,000

Long-term debt
799,963

 
709,980

Payable to related parties pursuant to tax receivable agreement
290,017

 
159,004

Other long-term liabilities
36,127

 
38,099

Total liabilities
2,583,994

 
2,530,157

 
 
 
 
Commitments and contingencies (Note 10)

 

 
 
 
 
Equity:
 
 
 
Class A common stock, $0.001 par value, 1,000,000,000 shares authorized, 39,563,835 shares outstanding at June 30, 2013, 23,571,221 shares outstanding, at December 31, 2012
40

 
24

Class B common stock, $0.001 par value, 1,000,000 shares authorized, 41 shares outstanding, at June 30, 2013 and December 31, 2012

 

Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares outstanding, at June 30, 2013 and December 31, 2012

 

Additional paid in capital
658,355

 
417,835

Retained earnings
16,021

 
1,956

Accumulated other comprehensive loss
(3,576
)
 
(61
)
Total PBF Energy Inc. equity
670,840

 
419,754

Noncontrolling interest
1,071,069

 
1,303,791

Total equity
1,741,909

 
1,723,545

Total liabilities and equity
$
4,325,903

 
$
4,253,702

 
 
 
 

See notes to condensed consolidated financial statements.
5



PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(COMBINED AND CONSOLIDATED WITH PBF ENERGY COMPANY LLC AND SUBSIDIARIES)
(unaudited, in thousands, except share and per share data)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
Revenues
$
4,678,293

 
$
5,077,015

 
$
9,476,141

 
$
9,793,121

 
 
 
 
 
 
 
 
Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
4,295,979

 
4,279,046

 
8,731,081

 
8,939,239

Operating expenses, excluding depreciation
202,583

 
170,702

 
408,599

 
358,845

General and administrative expenses
19,141

 
25,286

 
49,235

 
39,100

Loss (gain) on sale of assets

 
53

 

 
(2,450
)
Depreciation and amortization expense
27,563

 
22,422

 
54,093

 
42,963

 
4,545,266

 
4,497,509

 
9,243,008

 
9,377,697

 
 
 
 
 
 
 
 
Income from operations
133,027

 
579,506

 
233,133

 
415,424

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Change in fair value of contingent consideration

 
(692
)
 

 
(1,384
)
Change in fair value of catalyst lease
6,820

 
5,371

 
5,481

 
(978
)
Interest expense, net
(21,708
)
 
(28,443
)
 
(43,319
)
 
(59,851
)
Income before income taxes
118,139

 
555,742

 
195,295

 
353,211

Income tax expense
(10,969
)
 

 
(18,413
)
 

Net income
107,170

 
$
555,742

 
176,882

 
$
353,211

Less: net income attributable to noncontrolling interest
90,344

 

 
148,649

 
 
Net income attributable to PBF Energy Inc.
$
16,826

 
 
 
$
28,233

 
 
 
 
 
 
 
 
 
 
Weighted-average shares of Class A common stock outstanding
 
 
 
 
 
 
 
Basic
26,944,055

 
 
 
25,276,137

 
 
Diluted
27,706,696

 
 
 
26,110,976

 
 
Net income available to Class A common stock per share:
 
 
 
 
 
 
 
Basic
$
0.62

 
 
 
$
1.12

 
 
Diluted
$
0.61

 
 
 
$
1.08

 
 
 
 
 
 
 
 
 
 
Dividend per common share
$
0.30

 
 
 
$
0.60

 
 
 
 
 
 
 
 
 
 





See notes to condensed consolidated financial statements.
6



PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(COMBINED AND CONSOLIDATED WITH PBF ENERGY COMPANY LLC AND SUBSIDIARIES)
(unaudited, in thousands)



 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
107,170

 
$
555,742

 
$
176,882

 
$
353,211

Other comprehensive income:
 
 
 
 

 

Unrealized (loss) gain on available for sale securities
(6
)
 
3

 
(6
)
 

Amortization of defined benefit plans unrecognized net loss
324

 

 
216

 
17

Total other comprehensive income
318

 
3

 
210

 
17

Comprehensive income
107,488

 
$
555,745

 
177,092

 
$
353,228

Less: Comprehensive income attributable to noncontrolling interest
90,581

 

 
148,804

 
 
Comprehensive income attributable to PBF Energy Inc.
$
16,907

 

 
$
28,288

 
 

See notes to condensed consolidated financial statements.
7



PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(COMBINED AND CONSOLIDATED WITH PBF ENERGY COMPANY LLC AND SUBSIDIARIES)
(unaudited, in thousands)
 
Six months ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
176,882

 
$
353,211

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Depreciation and amortization
57,353

 
45,480

Stock-based compensation
1,977

 
1,047

Change in fair value of catalyst lease obligation
(5,481
)
 
978

Change in fair value of contingent consideration

 
1,384

Deferred income taxes
16,669

 

Non-cash change inventory repurchase obligations
(17,377
)
 
(12,611
)
Write-off of unamortized deferred financing fees

 
4,391

Pension and other post retirement benefits costs
8,472

 
6,335

Gain on disposition of property, plant and equipment

 
(2,450
)
 
 
 
 
Changes in current assets and current liabilities:
 
 
 
Accounts receivable
(87,556
)
 
(131,996
)
Inventories
(183,038
)
 
(65,754
)
Other current assets
(32,748
)
 
41,198

Accounts payable
(132,490
)
 
5,882

Accrued expenses
193,267

 
(79,321
)
Deferred revenue
(26,594
)
 
(22,311
)
Other assets and liabilities
(9,537
)
 
(28,089
)
Net cash (used in) provided by operations
(40,201
)
 
117,374

 
 
 
 
Cash flow from investing activities:
 
 
 
Expenditures for property, plant and equipment
(105,084
)
 
(64,123
)
Expenditures for deferred turnarounds cost
(4,551
)
 
(22,609
)
Expenditures for other assets
(3,089
)
 
(6,503
)
Proceeds from sale of assets

 
3,381

Net cash used in investing activities
(112,724
)
 
(89,854
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from members' capital contributions to PBF Energy Company LLC (former controlling interest)

 
250

Distribution to PBF Energy Company LLC members
(121,945
)
 
(12,860
)
Dividend payments
(14,168
)
 

Proceeds from 8.25% senior secured notes

 
665,806

Proceeds from long-term debt

 
430,000

Proceeds from catalyst lease

 
9,452

Proceeds from revolver borrowings
160,000

 

Repayments of revolver borrowings
(65,000
)
 

Repayments of long-term debt

 
(1,041,718
)
Payment of contingent consideration related to acquisition of Toledo refinery
(21,357
)
 
(103,642
)
Deferred financing costs and other
(1,259
)
 
(16,246
)
Net cash used in financing activities
(63,729
)
 
(68,958
)
 
 
 
 
Net decrease in cash and cash equivalents
(216,654
)
 
(41,438
)
Cash and equivalents, beginning of period
285,884

 
50,166

Cash and equivalents, end of period
$
69,230

 
$
8,728

 
 
 
 
Supplemental cash flow disclosures
 
 
 
Non-cash activities:
 
 
 
         Conversion of Delaware Economic Development Authority loan to grant
$
4,000

 
$

         Accrued construction in progress
3,300

 
1,939

         Non-cash impact of inventory supply and offtake agreements on inventory and accrued expenses
142,584

 
61,449


See notes to condensed consolidated financial statements.
8



PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)

 
June 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
69,230

 
$
254,291

Accounts receivable
591,352

 
503,796

Due from related party

 
14,721

Inventories
1,537,573

 
1,497,119

Prepaid expense and other current assets
46,136

 
13,388

Total current assets
2,244,291

 
2,283,315

 
 
 
 
Property, plant and equipment, net
1,685,104

 
1,635,587

Deferred charges and other assets, net
187,237

 
197,349

Total assets
$
4,116,632

 
$
4,116,251

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
227,567

 
$
360,057

Accrued expenses
1,028,187

 
1,025,918

Deferred revenue
183,949

 
210,543

Total current liabilities
1,439,703

 
1,596,518

 
 
 
 
Delaware Economic Development Authority loan
16,000

 
20,000

Long-term debt
799,963

 
709,980

Intercompany notes payable
31,632

 

Other long-term liabilities
37,297

 
38,099

Total liabilities
2,324,595

 
2,364,597

 
 
 
 
Commitments and contingencies (Note 10)

 

 
 
 
 
Equity:
 
 
 
Member's equity
930,808

 
930,098

Retained earnings
869,960

 
830,497

Accumulated other comprehensive loss
(8,731
)
 
(8,941
)
Total equity
1,792,037

 
1,751,654

Total liabilities and equity
$
4,116,632

 
$
4,116,251


See notes to condensed consolidated financial statements.
9



PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
Revenues
$
4,678,293

 
$
5,077,015

 
$
9,476,141

 
$
9,793,121

 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
4,295,979

 
4,279,046

 
8,731,081

 
8,939,239

Operating expenses, excluding depreciation
202,583

 
170,702

 
408,599

 
358,845

General and administrative expenses
19,141

 
25,286

 
49,235

 
39,100

Loss (gain) on sale of assets

 
53

 

 
(2,450
)
Depreciation and amortization expense
27,563

 
22,422

 
54,093

 
42,963

 
4,545,266

 
4,497,509

 
9,243,008

 
9,377,697

 
 
 
 
 
 
 
 
Income from operations
133,027

 
579,506

 
233,133

 
415,424

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Change in fair value of contingent consideration

 
(692
)
 

 
(1,384
)
Change in fair value of catalyst lease
6,820

 
5,371

 
5,481

 
(978
)
Interest expense, net
(21,738
)
 
(28,443
)
 
(43,349
)
 
(59,851
)
Net income
$
118,109

 
$
555,742

 
$
195,265

 
$
353,211

 
 
 
 
 
 
 
 

See notes to condensed consolidated financial statements.
10



PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
118,109

 
$
555,742

 
$
195,265

 
$
353,211

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gain (loss) on available for
 
 
 
 
 
 
 
     sale securities
(6
)
 
3

 
(6
)
 

Amortization of defined benefit plans
      unrecognized net loss
324

 

 
216

 
17

Total other comprehensive income
318

 
3

 
210

 
17

Comprehensive income
$
118,427

 
$
555,745

 
$
195,475

 
$
353,228

 
 
 
 
 
 
 
 



See notes to condensed consolidated financial statements.
11


PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six months ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
195,265

 
$
353,211

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Depreciation and amortization
57,353

 
45,480

Stock-based compensation
1,977

 
1,047

Change in fair value of catalyst lease obligation
(5,481
)
 
978

Change in fair value of contingent consideration

 
1,384

Non-cash change in inventory repurchase obligations
(17,377
)
 
(12,611
)
Write-off of unamortized deferred financing fees

 
4,391

Pension and other post retirement benefit costs
8,472

 
6,335

Gain on disposition of property, plant and equipment

 
(2,450
)
 
 
 
 
Changes in current assets and current liabilities:
 
 
 
Accounts receivable
(87,556
)
 
(131,996
)
Due to/from related party
14,721

 

Inventories
(183,038
)
 
(65,754
)
Other current assets
(32,748
)
 
41,198

Accounts payable
(132,490
)
 
5,882

Accrued expenses
195,311

 
(79,321
)
Deferred revenue
(26,594
)
 
(22,311
)
Other assets and liabilities
(8,366
)
 
(28,089
)
Net cash (used in) provided by operations
(20,551
)
 
117,374

 
 
 
 
Cash flows from investing activities:
 
 
 
Expenditures for property, plant and equipment
(105,084
)
 
(64,123
)
Expenditures for deferred turnarounds costs
(4,551
)
 
(22,609
)
Expenditures for other assets
(3,089
)
 
(6,503
)
Proceeds from sale of assets

 
3,381

Net cash used in investing activities
(112,724
)
 
(89,854
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from revolver borrowings
160,000

 

Proceeds from intercompany notes payable
31,632

 

Proceeds from member's capital contributions

 
250

Proceeds from 8.25% senior secured notes

 
665,806

Proceeds from long-term debt

 
430,000

Proceeds from catalyst lease

 
9,452

Distributions to members
(155,802
)
 
(12,860
)
Repayments of revolver borrowings
(65,000
)
 

Repayments of long-term debt

 
(1,041,718
)
Payment of contingent consideration related to acquisition of Toledo refinery
(21,357
)
 
(103,642
)
Deferred financing costs and other
(1,259
)
 
(16,246
)
Net cash used in financing activities
(51,786
)
 
(68,958
)
 
 
 
 
Net decrease in cash and cash equivalents
(185,061
)
 
(41,438
)
Cash and equivalents, beginning of period
254,291

 
50,166

Cash and equivalents, end of period
$
69,230

 
$
8,728

 
 
 
 
Supplemental cash flow disclosures
 
 
 
Non-cash activities:
 
 
 
         Conversion of Delaware Economic Development Authority loan to grant
$
4,000

 
$

         Accrued construction in progress
3,300

 
1,939

         Non-cash impact of inventory supply and offtake agreements on inventory and accrued expenses
142,584

 
61,449


See notes to condensed consolidated financial statements.
12

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

 
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
PBF Energy Inc. ("PBF Energy") was formed as a Delaware corporation on November 7, 2011 for the purpose of facilitating an initial public offering ("IPO") of its common equity and to become the sole managing member of PBF Energy Company LLC ("PBF LLC"), a Delaware limited liability company. Prior to completion of its IPO, PBF Energy had not engaged in any business or other activities except in connection with its formation and the IPO. On December 12, 2012, PBF Energy completed an IPO of 23,567,686 shares of its Class A common stock at a public offering price of $26.00 per share. The IPO subsequently closed on December 18, 2012. PBF Energy used the net proceeds of the offering to acquire approximately 24.4% of the membership interests in PBF LLC and to cover offering expenses. As a result of the IPO and related reorganization transactions, PBF Energy became the sole managing member of PBF LLC with a controlling interest in PBF LLC and its subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its subsidiaries and records a noncontrolling interest in its consolidated financial statements representing the economic interests of PBF LLC's members other than PBF Energy. The financial statements and results of operations for periods prior to the completion of PBF Energy’s IPO and the related reorganization transactions are those of PBF LLC. Effective with the completion of the PBF Energy IPO and related reorganization transactions, PBF LLC became a minority-owned, controlled and consolidated subsidiary of PBF Energy.

On June 12, 2013, PBF Energy completed a public offering of 15,950,000 shares of Class A common stock at a price of $27.00 per share, less underwriting discounts and commissions, in a secondary public offering (the "Secondary Offering"). All of the shares were sold by funds affiliated with The Blackstone Group L.P., or Blackstone, and First Reserve Management, L.P., or First Reserve. In connection with the Secondary Offering, Blackstone and First Reserve exchanged 15,950,000 Series A Units of PBF LLC for an equivalent number of shares of Class A common stock of PBF Energy, resulting in a divestiture of approximately 16.6% of Blackstone and First Reserve's holdings in PBF LLC. PBF Energy did not receive any proceeds from the Secondary Offering. PBF Energy incurred approximately $1,388 of expenses, included in general and administrative expenses, in connection with the Secondary Offering during the three and six months ended June 30, 2013 for which they were reimbursed by PBF LLC in accordance with the PBF LLC amended and restated limited liability company agreement.

PBF LLC, together with its consolidated subsidiaries, owns and operates oil refineries and related facilities in North America. PBF Holding Company LLC ("PBF Holding") is a wholly-owned subsidiary of PBF LLC. PBF Finance Corporation ("PBF Finance") is a wholly-owned subsidiary of PBF Holding. PBF Holding and PBF Finance issued 8.25% Senior Secured Notes ("senior secured notes") in 2012, which were subsequently registered under the Securities Act of 1933, as amended. Delaware City Refining Company LLC, Delaware Pipeline Company LLC, PBF Power Marketing LLC, Paulsboro Refining Company LLC, Paulsboro Natural Gas Pipeline Company LLC and Toledo Refining Company LLC are PBF LLC’s principal operating subsidiaries and are all wholly-owned subsidiaries of PBF Holding. Collectively, PBF Energy and subsidiaries, including PBF Holding, are referred to hereinafter as the "Company".

Substantially all of the Company’s operations are in the United States. The Company’s three oil refineries are all engaged in the refining of crude oil and other feedstocks into petroleum products, and have been aggregated to form one reportable segment. To generate earnings and cash flows from operations, the Company is primarily dependent upon processing crude oil and selling refined petroleum products at margins sufficient to cover fixed and variable costs and other expenses. Crude oil and refined petroleum products are commodities and factors largely out of the Company’s control can cause prices to vary over time. The potential margin volatility can have a material effect on the Company’s financial position, earnings and cash flow.    

Basis of Presentation
The unaudited condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, considered necessary for a fair presentation of the financial position and the results of operations and cash flows of the Company for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim condensed consolidated financial statements

13

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

should be read in conjunction with the financial statements included in the Annual Reports on Form 10-K for the year ended December 31, 2012 of PBF Energy Inc., PBF Holding Company LLC and PBF Finance Corporation. The results of operations for the three and six months ended June 30, 2013 are not indicative of the results to be expected for the full year.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2013, the Company adopted changes issued by the Financial Accounting Standards Board ("FASB") to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose gross and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity's financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. As of June 30, 2013, the impact of offsetting assets and liabilities was not material to the Company and additional disclosure is not included in this Form 10-Q.

On January 1, 2013, the Company adopted changes issued by the FASB to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income. For the three and six months ended June 30, 2013, the impact of reclassification out of accumulated other comprehensive income was not material to the Company and additional disclosure is not included in this Form 10-Q.

3. NONCONTROLLING INTEREST OF PBF ENERGY
As a result of the PBF Energy IPO and the related reorganization transactions on December 18, 2012, PBF Energy became the sole managing member of, and had a controlling interest in, PBF LLC which represented 24.4% of the outstanding units. As the sole managing member of PBF LLC, PBF Energy operates and controls all of the business and affairs of PBF LLC and its subsidiaries. In connection with the Secondary Offering, Blackstone and First Reserve exchanged 15,950,000 Series A Units of PBF LLC for an equivalent number of shares of Class A common stock of PBF Energy, which increased PBF Energy's interest in PBF LLC to 41.0%.

PBF Energy consolidates the financial results of PBF LLC and its subsidiaries, and records a noncontrolling interest for the economic interest in PBF Energy held by the members of PBF LLC other than PBF Energy. Noncontrolling interest on the consolidated statements of operations represents the portion of net income or loss attributable to the economic interest in PBF Energy held by the members of PBF LLC other than PBF Energy. Noncontrolling interest on the consolidated balance sheets represents the portion of net assets of PBF Energy attributable to the members of PBF LLC other than PBF Energy. The noncontrolling interest ownership percentage as of June 30, 2013, June 12, 2013 (the completion date of the Secondary Offering) and December 31, 2012 is calculated as follows:
 
 
Holders of
PBF LLC Series
A Units
 
Outstanding Shares
of PBF Energy
Class A
Common
Stock
 
Total *
December 31, 2012
72,972,131

 
23,571,221

 
96,543,352

 
75.6
%
 
24.4
%
 
100
%
June 12, 2013
57,027,225

 
39,563,835

 
96,591,060

 
59.0
%
 
41.0
%
 
100
%
June 30, 2013
57,027,225

 
39,563,835

 
96,591,060

 
59.0
%
 
41.0
%
 
100
%

14

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

——————————
*
Assumes all of the holders of PBF LLC Series A Units exchange their PBF LLC Series A Units for shares of PBF Energy’s Class A common stock on a one-for-one basis.
The following table summarizes the changes in equity for the controlling and noncontrolling interests of PBF Energy for the six months ended June 30, 2013:
 
 
PBF Energy Inc. Equity
 
Noncontrolling
Interest
 
Total Equity
Balance at January 1, 2013
$
419,754

 
$
1,303,791

 
$
1,723,545

Net income
28,233

 
148,649

 
176,882

Dividend and distributions
(14,168
)
 
(121,945
)
 
(136,113
)
Record deferred tax asset and liabilities and tax receivable agreement associated with Secondary Offering
(24,377
)
 

 
(24,377
)
Record allocation of non controlling interest upon completion of Secondary Offering
260,243

 
(260,243
)
 

Stock-based compensation
1,053

 
924

 
1,977

Exercise of PBF LLC options, net

 
(215
)
 
(215
)
Other comprehensive income
86

 
124

 
210

Exchange of PBF LLC Series A Units for Class A common stock
16

 
(16
)
 

Balance at June 30, 2013
$
670,840

 
$
1,071,069

 
$
1,741,909


4. INVENTORIES
Inventories consisted of the following:

June 30, 2013
 
Titled Inventory
 
Inventory Supply and Offtake Arrangements
 
Total
Crude oil and feedstocks
$
579,102

 
$
113,785

 
$
692,887

Refined products and blendstocks
386,316

 
424,331

 
810,647

Warehouse stock and other
34,039

 

 
34,039

 
$
999,457

 
$
538,116

 
$
1,537,573

 
December 31, 2012
 
Titled Inventory
 
Inventory Supply and Offtake Arrangements
 
Total
Crude oil and feedstocks
$
384,441

 
$
257,947

 
$
642,388

Refined products and blendstocks
405,545

 
417,865

 
823,410

Warehouse stock and other
31,321

 

 
31,321

 
$
821,307

 
$
675,812

 
$
1,497,119



Inventory under inventory supply and offtake arrangements includes crude oil stored at the Company’s Paulsboro and Delaware City refineries' storage facilities that the Company will purchase as it is consumed in connection with the

15

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

crude supply agreements; feedstocks and blendstocks sold to counterparties that the Company will repurchase for further blending into finished products; lube products sold to a counterparty that the Company will repurchase; and light finished products sold to a counterparty in connection with the offtake agreement and stored in the Paulsboro and Delaware City refineries' storage facilities pending shipment by the counterparty.

At June 30, 2013 and December 31, 2012, the replacement value of inventories exceeded the LIFO carrying value by approximately $4,551 and $79,859, respectively.

5. DEFERRED CHARGES AND OTHER ASSETS, NET
Deferred charges and other assets, net consisted of the following:
 
 
June 30,
2013
 
December 31, 2012
Deferred turnaround costs, net
$
71,785

 
$
78,128

Catalyst
63,957

 
66,377

Deferred financing costs, net
29,318

 
30,987

Restricted cash
12,116

 
12,114

Linefill
8,735

 
8,042

Intangible assets, net
869

 
1,085

Other
457

 
616

 
$
187,237

 
$
197,349


 
6. ACCRUED EXPENSES
PBF Energy
Accrued expenses consisted of the following:

 
June 30,
2013
 
December 31, 2012
Inventory-related accruals
$
521,507

 
$
287,929

Inventory supply and offtake arrangements
376,633

 
536,594

Excise and sales tax payable
26,896

 
40,776

Accrued transportation costs
25,830

 
20,338

Accrued interest
22,930

 
22,764

Accrued utilities
17,803

 
19,060

Customer deposits
10,078

 
26,541

Accrued salaries and benefits
5,996

 
15,212

Accrued construction in progress
3,300

 
16,481

Income taxes payable
1,177

 
1,275

Fair value of contingent consideration for refinery acquisition

 
21,358

Other
17,214

 
23,139

 
$
1,029,364

 
$
1,031,467

 

16

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

 PBF Holding
Accrued expenses consisted of the following:

 
June 30,
2013
 
December 31,
2012
Inventory-related accruals
$
521,507

 
$
287,929

Inventory supply and offtake arrangements
376,633

 
536,594

Excise and sales tax payable
26,896

 
36,414

Accrued transportation costs
25,830

 
20,338

Accrued interest
22,930

 
22,764

Accrued utilities
17,803

 
19,060

Customer deposits
10,078

 
26,541

Accrued salaries and benefits
5,996

 
15,212

Accrued construction in progress
3,300

 
16,481

Fair value of contingent consideration for refinery acquisition

 
21,358

Other
17,214

 
23,227

 
$
1,028,187

 
$
1,025,918


The Company had the obligation to repurchase certain intermediates and lube products under its products offtake agreements with Morgan Stanley Capital Group Inc. (“MSCG”) that are held in the Company’s refinery storage tanks as of June 30, 2013 and December 31, 2012. A liability included in Inventory supply and offtake arrangements is recorded at market price for the volumes held in storage consistent with the terms of the offtake agreements with any change in the market price being recorded in costs of sales.  The liability represents the amount the Company expects to pay to repurchase the volumes held in storage. The Company recorded a non-cash benefit of $4,344 and $20,248 related to this liability in the three and six months ended June 30, 2013, respectively. The Company recorded a non-cash benefit of $9,281 and $12,940 related to this liability in the three and six months ended June 30, 2012, respectively.

7. DELAWARE ECONOMIC DEVELOPMENT AUTHORITY LOAN
In June 2010, in connection with the Delaware City acquisition, the Delaware Economic Development Authority (the “Authority”) granted the Company a $20,000 loan to assist with operating costs and the cost of restarting the refinery. The loan is represented by a zero interest rate note and the entire unpaid principal amount is payable in full on March 1, 2017, unless the loan is converted to a grant. The Company recorded the loan as a long-term liability pending approval from the Authority that it has met the requirements to convert the remaining loan balance to a grant.

The loan converts to a grant in tranches of up to $4,000 annually over a five-year period, starting at the one-year anniversary of the “certified restart date” as defined in the agreement and certified by the Authority. In order for the loan to be converted to a grant, the Company is required to utilize at least 600 man hours of labor in connection with the reconstruction and restarting of the Delaware City refinery, expend at least $125,000 in qualified capital expenditures, commence refinery operations, and maintain certain employment levels, all as defined in the agreement. In February 2013, the Company received confirmation from the Authority that the Company had satisfied the conditions necessary for the first $4,000 tranche of the loan to be converted to a grant. As a result of the grant conversion, property, plant and equipment, net was reduced by $4,000 as the proceeds from the loan were used for capital projects. As of June 30, 2013, the Company believes it has satisfied the conditions for the second tranche of the loan to convert to a grant pending confirmation by the Authority.

8. INCOME TAXES
PBF Energy
For periods following PBF Energy’s IPO, PBF Energy is required to file federal and applicable state corporate income tax returns and recognizes income taxes on its pre-tax income, which to-date has consisted solely of its share (approximately 24.4% prior to the Secondary Offering and approximately 41.0% subsequent to the Secondary Offering)

17

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

of PBF LLC’s pre-tax income. PBF LLC is organized as a limited liability company which is treated as a "flow-through" entity for income tax purposes and therefore is not subject to income taxes. As a result, the PBF Energy condensed consolidated financial statements do not reflect a benefit or provision for income taxes for PBF LLC for periods prior to the IPO or any benefit or provision for income taxes on the pre-tax income or loss attributable to the noncontrolling interest in PBF LLC.

The income tax provision in the PBF Energy condensed consolidated financial statements of operations consists of the following:
 
 
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
Current tax expense
 
$
1,744

 
$
1,744

Deferred tax expense
 
9,225

 
16,669

Total tax expense
 
$
10,969

 
$
18,413


PBF Energy’s effective tax rate for the three and six months ended June 30, 2013 was 39.5%.

PBF Energy has determined there are no material uncertain tax positions as of June 30, 2013.

PBF Holding
PBF Holding is a limited liability company treated as a "flow-through" entity for income tax purposes. Accordingly there is no benefit or provision for federal or state income tax in the accompanying PBF Holding financial statements.

9. INTERCOMPANY NOTES PAYABLE
As of June 30, 2013, PBF Holding entered into notes payable with PBF Energy and PBF LLC for an aggregate principal amount of $31,632. The notes have an interest rate of 2.5% and a five year term but may be prepaid in whole or in part at any time, at the option of the PBF Holding, without penalty or premium.

10. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company’s refineries are subject to extensive and frequently changing federal, state and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise relate to the protection of the environment, waste management and the characteristics and the compositions of fuels. Compliance with existing and anticipated laws and regulations can increase the overall cost of operating the refineries, including remediation, operating costs and capital costs to construct, maintain and upgrade equipment and facilities.

In connection with the Paulsboro refinery acquisition, the Company assumed certain environmental remediation obligations. The environmental liability of $11,070 recorded as of June 30, 2013 ($9,669 as of December 31, 2012) represents the present value of expected future costs discounted at a rate of 8%. The current portion of the environmental liability is recorded in accrued expenses and the non-current portion is recorded in other long-term liabilities. A trust fund related to this liability in the amount of $12,116 and $12,114, acquired in the Paulsboro acquisition, is recorded as restricted cash in deferred charges and other assets, net as of June 30, 2013 and December 31, 2012, respectively.

In connection with the acquisition of the Delaware City assets, Valero Energy Corporation ("Valero") remains responsible for certain pre-acquisition environmental obligations up to $20,000 and the predecessor to Valero in ownership of the refinery retains other historical obligations.

In connection with the acquisition of the Delaware City assets and the Paulsboro refinery, the Company and Valero purchased ten year, $75,000 environmental insurance policies to insure against unknown environmental liabilities at each site. In connection with the Toledo refinery acquisition, Sunoco, Inc. (R&M) ("Sunoco") remains responsible for environmental remediation for conditions that existed on the closing date for twenty years from March 1, 2011.


18

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

In 2010, New York State adopted a Low-Sulfur Heating Oil mandate that, beginning July 1, 2012, requires all heating oil sold in New York State to contain no more than 15 PPM sulfur. Other states have laws with various implementation dates that also require lower levels of sulfur in heating oils. Not all of the heating oil we currently produce meets these specifications. The mandate and other requirements do not currently have a material impact on the Company's financial position or results of operations.

In addition, on June 1, 2012, the Environmental Protection Agency ("EPA") issued final amendments to the New Source Performance Standards (“NSPS”) for petroleum refineries, including standards for emissions of nitrogen oxides from process heaters and work practice standards and monitoring requirements for flares. The Company is evaluating the impact of the regulation and amended standards on its refinery operations. The Company cannot currently estimate the cost that may be incurred, if any, to comply by July 1, 2015 with the amended NSPS.

The Company is aware that the EPA has drafted the proposed Tier 3 Motor Vehicle Emission and Fuel Standards. The draft Standards are in the formal public comment period at this time. The Company is evaluating the potential impact of these proposed Standards.

On June 14, 2013, two administrative appeals were filed by the Sierra Club and Delaware Audubon regarding an air permit Delaware City Refining Company LLC ("Delaware City Refining") obtained to allow loading of crude oil onto barges. The appeals allege that both the loading of crude oil onto barges and the operation of the Delaware City Refining double-loop rail terminal violate Delaware's Coastal Zone Act. The first appeal is Number 2013-1 before the State Coastal Zone Industrial Control Board, and the second appeal is before the Environmental Appeals Board and appeals Secretary's Order No. 2013-A-0020. A hearing on the first appeal, Number 2013-1, occurred on July 16, 2013, and the board ruled in favor of Delaware City Refining dismissing the appeals for lack of standing. Issuance of a final written decision is pending and the parties may then appeal to Superior Court. No hearing date has yet been set on the second appeal.

The Company is also currently subject to certain other existing environmental claims and proceedings. The Company believes that there is only a remote possibility that future costs related to any of these other known contingent liability exposures would have a material impact on its financial position or results of operations.

PBF LLC Limited Liability Company Agreement
The holders of limited liability company interests in PBF LLC, including PBF Energy, generally have to include for purposes of calculating their U.S. federal, state and local income taxes their share of any taxable income of PBF LLC. Taxable income of PBF LLC generally is allocated to the holders of PBF LLC units (including PBF Energy) pro rata in accordance with their respective share of the net profits and net losses of PBF LLC. In general, PBF LLC is required to make periodic tax distributions to the members of PBF LLC, including PBF Energy, pro rata in accordance with their respective percentage interests for such period (as determined under the amended and restated limited liability company agreement of PBF LLC), subject to available cash and applicable law and contractual restrictions (including pursuant to our debt instruments) and based on certain assumptions. Generally, these tax distributions will be an amount equal to our estimate of the taxable income of PBF LLC for the year multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses). If, with respect to any given calendar year, the aggregate periodic tax distributions were less than the actual taxable income of PBF LLC multiplied by the assumed tax rate, PBF LLC will make a “true up” tax distribution, no later than March 15 of the following year, equal to such difference, subject to the available cash and borrowings of PBF LLC.
Tax Receivable Agreement
PBF Energy entered into a tax receivable agreement with the PBF LLC Series A and PBF LLC Series B Unit holders (the “Tax Receivable Agreement”) that provides for the payment by PBF Energy to such persons of an amount equal to 85% of the amount of the benefits, if any, that PBF Energy is deemed to realize as a result of (i) increases in tax basis, as described below, and (ii) certain other tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement. For purposes of the Tax Receivable Agreement, the benefit deemed realized by PBF Energy will be computed by comparing the actual income tax liability of PBF Energy (calculated with certain assumptions) to the amount of such taxes that PBF Energy would have been required to pay had there been no increase to the tax basis of the assets of PBF LLC as a result of purchases or exchanges

19

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

of PBF LLC Series A Units for shares of PBF Energy's Class A common stock and had PBF Energy not entered into the Tax Receivable Agreement. The term of the Tax Receivable Agreement will continue until all such tax benefits have been utilized or expired unless: (i) PBF Energy exercises its right to terminate the Tax Receivable Agreement, (ii) PBF Energy breaches any of its material obligations under the Tax Receivable Agreement or (iii) certain changes of control occur, in which case all obligations under the Tax Receivable Agreement will generally be accelerated and due as calculated under certain assumptions.

The payment obligations under the Tax Receivable Agreement are obligations of PBF Energy and not of PBF LLC or PBF Holding. In general, PBF Energy expects to obtain funding for these payments by causing PBF Holding to distribute cash to PBF LLC, which will then distribute this cash, generally as tax distributions, on a pro-rata basis to its owners. Such owners include PBF Energy, which holds a 41.0% interest as of June 30, 2013.

11. DIVIDENDS AND DISTRIBUTIONS
With respect to dividends and distributions paid during the six months ended June 30, 2013, PBF Holding paid $155,802 in distributions to PBF LLC. PBF LLC used $57,952 of this amount ($0.30 per unit) to make two separate non-tax distributions to its members, of which $14,168 was distributed to PBF Energy and the balance was distributed to its other members on March 15, 2013 and June 7, 2013. PBF Energy used this $14,168 to pay two separate equivalent cash dividends of $0.30 per share of Class A common stock on March 15, 2013 and June 7, 2013. PBF LLC used the remaining $97,850 from PBF Holding's distribution to make tax distributions to its members during the six months ended June 30, 2013, with $19,689 distributed to PBF Energy, of which $567 was paid by PBF LLC directly to the applicable taxing authorities on behalf of PBF Energy.

12. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost related to the Company’s defined benefit plans consisted of the following:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
Pension Benefits
2013
 
2012
 
2013
 
2012
Components of net period benefit cost:
 
 
 
 
 
 
 
Service cost
$
3,699

 
$
3,548

 
$
7,397

 
$
5,718

Interest cost
248

 
215

 
496

 
251

Expected return on plan assets
(138
)
 
(152
)
 
(276
)
 
(162
)
Amortization of prior service costs
3

 
2

 
5

 
5

Amortization of loss
105

 
1

 
210

 
15

Net periodic benefit cost
$
3,917

 
$
3,614

 
$
7,832

 
$
5,827



 
Three Months Ended June 30,
 
Six Months Ended June 30,
Post Retirement Medical Plan
2013
 
2012
 
2013
 
2012
Components of net period benefit cost:
 
 
 
 
 
 
 
Service cost
$
181

 
$
135

 
$
363

 
$
270

Interest cost
84

 
95

 
167

 
190

Net periodic benefit cost
$
265

 
$
230

 
$
530

 
$
460




20

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

13. FAIR VALUE MEASUREMENTS
The tables below present information about the Company's financial assets and liabilities measured and recorded at fair value on a recurring basis and indicate the fair value hierarchy of the inputs utilized to determine the fair values as of June 30, 2013 and December 31, 2012.

 
As of June 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
5,855

 
$

 
$

 
$
5,855

Derivatives included with inventory supply arrangement obligations

 
2,724

 

 
2,724

Liabilities:
 
 
 
 
 
 
 
Commodity contracts
6,191

 
125

 

 
6,316

Catalyst lease obligations

 
37,961

 

 
37,961


 
As of December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
175,786

 
$

 
$

 
$
175,786

Commodity contracts
3,303

 

 

 
3,303

Derivatives included with inventory supply arrangement obligations

 
5,595

 

 
5,595

Liabilities:
 
 
 
 
 
 
 
Catalyst lease obligations

 
43,442

 

 
43,442

Commodity contracts

 
1,872

 

 
1,872

Contingent consideration for refinery acquisition

 

 
21,358

 
21,358


The valuation methods used to measure financial instruments at fair value are as follows:
Money market funds categorized in Level 1 of the fair value hierarchy are measured at fair value based on quoted market prices and included within cash and cash equivalents.
The commodity contracts categorized in Level 1 of the fair value hierarchy are measured at fair value based on quoted prices in an active market. The commodity contracts categorized in Level 2 of the fair value hierarchy are measured at fair value using a market approach based upon future commodity prices for similar instruments quoted in active markets.
The derivatives included with inventory supply arrangement obligations and the catalyst lease obligations are categorized in Level 2 of the fair value hierarchy and are measured at fair value using a market approach based upon commodity prices for similar instruments quoted in active markets.
The contingent consideration for refinery acquisition obligation at December 31, 2012 is categorized in Level 3 of the fair value hierarchy and is estimated using a discounted cash flow model based on management's estimate of the future cash flows of the Toledo refinery; a risk free rate of return of 0.16%; credit rate spread of 4.38%; and a discount rate of 4.54%. During the three and six months ended June 30, 2013, there was no change in fair value, as the obligation was known and was paid in full on April 30, 2013.

The table below summarizes the changes in fair value measurements categorized in Level 3 of the fair value hierarchy:

21

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Balance at beginning of period
$
21,358

 
$
122,924

 
$
21,358

 
$
122,232

Purchases

 

 

 

Settlements
(21,358
)
 
(103,643
)
 
(21,358
)
 
(103,643
)
Unrealized loss included in earnings

 
692

 

 
1,384

Transfers into Level 3

 

 

 

Transfers out of Level 3

 

 

 

Balance at end of period
$

 
$
19,973

 
$

 
$
19,973


There were no transfers between levels during the three and six months ended June 30, 2013 and 2012, respectively.
Fair value of debt
The table below summarizes the fair value and carrying value as of June 30, 2013 and December 31, 2012.

 
June 30, 2013
 
December 31, 2012
 
Carrying
value
 
Fair
 value
 
Carrying
 value
 
Fair
value
Senior secured notes (a)
$
667,002

 
$
688,219

 
$
666,538

 
$
700,963

Revolver (b)
95,000

 
95,000

 

 

Catalyst leases (c)
37,961

 
37,961

 
43,442

 
43,442

Long-term debt
$
799,963

 
$
821,180

 
$
709,980

 
$
744,405


(a) The estimated fair value, categorized as a Level 2 measurement, was calculated based on the present value of future expected payments utilizing implied current market interest rates based on quoted prices of the senior secured notes.
(b) The estimated fair value approximates carrying value, categorized as a Level 2 measurement, as these borrowings bear interest based upon short-term floating market interest rates.
(c) Catalyst leases are valued using a market approach based upon commodity prices for similar instruments quoted in active markets and are categorized as a Level 2 measurement. The Company has elected the fair value option for accounting for its catalyst lease repurchase obligations as the Company's liability is directly impacted by the change in fair value of the underlying catalyst.



22

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

14. DERIVATIVES
The Company uses derivative instruments to mitigate certain exposures to commodity price risk. The Company’s crude supply agreements contain purchase obligations for certain volumes of crude oil and other feedstocks. The Company was also party to an agreement that contained purchase obligations for certain volumes of stored intermediates inventory during the six months ended June 30, 2012, which was terminated during the first quarter of 2012. The purchase obligations related to crude oil and feedstocks are derivative instruments that have been designated as fair value hedges in order to hedge the commodity price volatility of certain refinery inventory. The fair value of these purchase obligation derivatives is based on market prices of crude oil and intermediates in the future. The level of activity for these derivatives is based on the level of operating inventories.

As of June 30, 2013, there were 1,158,048 barrels of crude oil and feedstocks (2,529,447 barrels at December 31, 2012) outstanding under these derivative instruments designated as fair value hedges and no barrels (no barrels at December 31, 2012) outstanding under these derivative instruments not designated as hedges. These volumes represent the notional value of the contract.

The Company also enters into economic hedges primarily consisting of commodity derivative contracts that are not designated as hedges and are used to manage price volatility in certain crude oil and feedstock inventories as well as crude oil, feedstock, and refined product sales or purchases. The objective in entering into economic hedges is consistent with the objectives discussed above for fair value hedges. As of June 30, 2013, there were 12,114,000 barrels of crude oil and 713,000 barrels of refined products (9,234,000 and 1,310,000, respectively, as of December 31, 2012), outstanding under short and long term commodity derivative contracts not designated as hedges representing the notional value of the contracts.

The following tables provide information about the fair values of these derivative instruments as of June 30, 2013 and December 31, 2012 and the line items in the consolidated balance sheet in which the fair values are reflected.

Description

Balance Sheet Location
Fair Value
Asset/(Liability)
Derivatives designated as hedging instruments:
 
 
June 30, 2013:
 
 
Derivatives included with inventory supply arrangement obligations
Accrued expenses
$
2,724

December 31, 2012:
 
 
Derivatives included with inventory supply arrangement obligations
Accrued expenses
$
5,595

 
 
 
Derivatives not designated as hedging instruments:
 
 
June 30, 2013:
 
 
Commodity contracts
Accrued expenses
$
(6,316
)
December 31, 2012:
 
 
Commodity contracts
Accounts receivable
$
1,431


The Company’s policy is to net the fair value of the derivatives included with inventory supply arrangement obligations against the liability related to inventory supply arrangements with the same counterparty as the legal right of offset exists.

23

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)


The following tables provide information about the gain or loss recognized in income on these derivative instruments and the line items in the consolidated financial statements in which such gains and losses are reflected.

Description
Location of Gain or (Loss) Recognized in
 Income on Derivatives
Gain or (Loss)
Recognized in
Income on Derivatives
Derivatives designated as hedging instruments:
 
 
For the three months ended June 30, 2013:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
4,880

For the three months ended June 30, 2012:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
(16,336
)
For the six months ended June 30, 2013:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
(2,871
)
For the six months ended June 30, 2012:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
(327
)
 
 
 
Derivatives not designated as hedging instruments:
 
 
For the three months ended June 30, 2013:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$

Commodity contracts
Cost of sales
$
(4,728
)
For the three months ended June 30, 2012:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$

Commodity contracts
Cost of sales
$
689

For the six months ended June 30, 2013:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$

Commodity contracts
Cost of sales
$
13,949

For the six months ended June 30, 2012:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
(8
)
Commodity contracts
Cost of sales
$
27,607

 
 
 
Hedged items designated in fair value hedges:
 
 
For the three months ended June 30, 2013:
 
 
Crude oil and feedstock inventory
Cost of sales
$
6,393

For the three months ended June 30, 2012:
 
 
Crude oil and feedstock inventory
Cost of sales
$
12,412

For the six months ended June 30, 2013:
 
 
Crude oil and feedstock inventory
Cost of sales
$
3,505

For the six months ended June 30, 2012:
 
 
Crude oil and feedstock inventory
Cost of sales
$
(394
)

Ineffectiveness related to the Company's fair value hedges resulted in a gain of $11,273 and $634 for the three and six months ended June 30, 2013 and loss of $3,351 and gain of $525 for the three and six months ended June 30, 2012, respectively, recorded in cost of sales. Gains and losses due to ineffectiveness were excluded from the assessment of hedge effectiveness.


24

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

15. NET INCOME PER SHARE OF PBF ENERGY
For the period subsequent to the IPO, the following table sets forth the computation of basic and diluted net income per Class A common share attributable to PBF Energy:

Basic Earnings Per Share:
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
Numerator for basic net income per Class A common share-net income attributable to PBF Energy
$
16,826

 
$
28,233

Denominator for basic net income per Class A common share-weighted average shares
26,944,055

 
25,276,137

Basic net income attributable to PBF Energy per Class A common share
$
0.62

 
$
1.12

 
 
 
 
Diluted Earnings Per Share:
 
 
 
Numerator for diluted net income per Class A common share-net income attributable to PBF Energy (1)
$
16,826

 
$
28,233

 
 
 
 
Denominator (1):
 
 
 
Denominator for basic net income per Class A common share-weighted average shares
26,944,055

 
25,276,137

Effect of dilutive securities:
 
 
 
Common stock equivalents (2)
762,641

 
834,839

Denominator for diluted net income per common share-adjusted weighted average shares
27,706,696

 
26,110,976

Diluted net income attributable to PBF Energy per Class A common share
$
0.61

 
$
1.08

 
——————————
(1)
During the three and six months ended June 30, 2013, the potential conversion of 69,647,005 and 71,314,923 of PBF LLC Series A Units, respectively, were excluded from the denominator in computing diluted net income per share because including them would have had an antidilutive effect. As the PBF LLC Series A Units were not included, the numerator used in the calculation of diluted net income per share was equal to the numerator used in the calculation of basic net income per share and does not include the net income and income tax attributable to the net income associated with the potential conversion of the PBF LLC Series A Units.
(2)
Represents an adjustment to weighted-average diluted shares outstanding to assume the full exchange of common stock equivalents, including options and warrants for PBF LLC Series A Units and options for shares of PBF Energy Class A common stock. Common stock equivalents excludes the effects of options to purchase 731,250 shares of PBF Energy Class A common stock because they are anti-dilutive.

16. SUBSEQUENT EVENTS
Termination of Product Offtake Agreements
As of July 1, 2013, the Company terminated the product offtake agreements with MSCG for Paulsboro Refining Company LLC ("Paulsboro Refining ") and Delaware City Refining. The Company entered into two separate inventory intermediation agreements (“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 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

25

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

tanks at the refineries. Furthermore, J. Aron agrees to sell 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 Intermediation Agreements and will retain these storage rights for the term of the agreements. Inventory held outside the refineries may be owned by PBF Holding or by J. Aron under the Intermediation Agreements. The Company will market and sell the Products independently to third parties.
Dividend Declared
On July 30, 2013, the Company's Board of Directors declared a dividend of $0.30 per share on outstanding Class A common stock. The dividend is payable on August 21, 2013 to Class A common stockholders of record at the close of business on August 12, 2013.
Related Party
On July 1, 2013, the Company renewed a consulting service agreement with Fuel Strategies International, Inc., the principal of which is the brother of the Executive Chairman of the Board of Directors of the Company, to provide consulting services relating to petroleum coke and commercial operations. Compensation for the services performed will be $40 per month and may include incentive payments at the Company's sole discretion. The consulting service agreement expires on June 1, 2014, subject to certain early termination rights.





26

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
PBF Services Company, Delaware City Refining Company LLC, Delaware Pipeline Company LLC, PBF Power Marketing LLC, Paulsboro Refining Company LLC, Paulsboro Natural Gas Pipeline Company LLC, Toledo Refining Company LLC and PBF Investments LLC are 100% owned subsidiaries of PBF Holding and serve as guarantors of the obligations under the senior secured notes. These guarantees are full and unconditional and joint and several. For purposes of the following footnote, PBF Holding is referred to as “Issuer.” The indenture dated February 9, 2012, among PBF Holding, PBF Finance, the guarantors party thereto and Wilmington Trust, National Association, governs subsidiaries designated as “Guarantor Subsidiaries.” PBF Logistics LP, PBF Rail Logistics Company LLC and Delaware City Terminaling Company LLC are consolidated subsidiaries of the Company that are not guarantors of the senior secured notes.

The senior secured notes were co-issued by PBF Finance. For purposes of the following footnote, PBF Finance is referred to as “Co-Issuer.” The Co-Issuer has no independent assets or operations.

The following supplemental combining and consolidating financial information reflects the Issuer’s separate accounts, the combined accounts of the Guarantor Subsidiaries, the combining and consolidating adjustments and eliminations and the Issuer’s consolidated accounts for the dates and periods indicated. For purposes of the following combining and consolidating information, the Issuer’s Investments in its subsidiaries and the Guarantor Subsidiaries’ investments in its subsidiaries are accounted for under the equity method of accounting.

27

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

 
June 30, 2013
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
47,183

 
$
22,047

 
$

 
$

 
$
69,230

Accounts receivable
316,504

 
274,848

 

 

 
591,352

Inventories
867,850

 
669,723

 

 

 
1,537,573

Prepaid expense and other current assets
31,026

 
15,110

 

 

 
46,136

Due from related parties
9,901,707

 
12,753,447

 

 
(22,655,154
)
 

Total current assets
11,164,270

 
13,735,175

 

 
(22,655,154
)
 
2,244,291

 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
39,757

 
1,645,347

 

 

 
1,685,104

Investment in subsidiaries
2,122,924

 

 

 
(2,122,924
)
 

Deferred charges and other assets, net
29,680

 
157,557

 

 

 
187,237

Total assets
$
13,356,631

 
$
15,538,079

 
$

 
$
(24,778,078
)
 
$
4,116,632

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
184,639

 
$
42,928

 
$

 
$

 
$
227,567

Accrued expenses
601,323

 
426,864

 

 

 
1,028,187

Deferred revenue

 
183,949

 

 

 
183,949

Due to related parties
9,979,868

 
12,675,286

 

 
(22,655,154
)
 

Total current liabilities
10,765,830

 
13,329,027

 

 
(22,655,154
)
 
1,439,703

 
 
 
 
 
 
 
 
 
 
Delaware Economic Development Authority loan

 
16,000

 

 

 
16,000

Long-term debt
762,002

 
37,961

 

 

 
799,963

Intercompany notes payable
31,632

 

 

 

 
31,632

Other long-term liabilities
5,130

 
32,167

 

 

 
37,297

Total liabilities
11,564,594

 
13,415,155

 

 
(22,655,154
)
 
2,324,595

 
 
 
 
 
 
 
 
 
 
Commitments and contingencies

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Member's equity
930,808

 
664,789

 

 
(664,789
)
 
930,808

Retained earnings (accumulated deficit)
869,960

 
1,459,703

 

 
(1,459,703
)
 
869,960

Accumulated other comprehensive loss
(8,731
)
 
(1,568
)
 

 
1,568

 
(8,731
)
Total equity
1,792,037

 
2,122,924

 

 
(2,122,924
)
 
1,792,037

Total liabilities and equity
$
13,356,631

 
$
15,538,079

 
$

 
$
(24,778,078
)
 
$
4,116,632


28

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

 
December 31, 2012
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
241,926

 
$
12,365

 
$

 
$

 
$
254,291

Accounts receivable
306,999

 
196,797

 

 

 
503,796

Inventories
664,225

 
832,894

 

 

 
1,497,119

Prepaid expense and other current assets
8,835

 
4,553

 

 

 
13,388

Due from related parties
6,770,893

 
8,105,364

 

 
(14,861,536
)
 
14,721

Total current assets
7,992,878

 
9,151,973

 

 
(14,861,536
)
 
2,283,315

 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
28,200

 
1,607,387

 

 

 
1,635,587

Investment in subsidiaries
945,622

 

 

 
(945,622
)
 

Deferred charges and other assets, net
31,081

 
166,268

 

 

 
197,349

Total assets
$
8,997,781

 
$
10,925,628

 
$

 
$
(15,807,158
)
 
$
4,116,251

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
197,624

 
$
162,433

 
$

 
$

 
$
360,057

Accrued expenses
363,536

 
662,382

 

 

 
1,025,918

Deferred revenue

 
210,543

 

 

 
210,543

Due to related parties
6,016,505

 
8,845,031

 

 
(14,861,536
)
 

Total current liabilities
6,577,665

 
9,880,389

 

 
(14,861,536
)
 
1,596,518

 
 
 
 
 
 
 
 
 
 
Delaware Economic Development Authority loan

 
20,000

 

 

 
20,000

Long-term debt
666,538

 
43,442

 

 

 
709,980

Other long-term liabilities
1,924

 
36,175

 

 

 
38,099

Total liabilities
7,246,127

 
9,980,006

 

 
(14,861,536
)
 
2,364,597

 
 
 
 
 
 
 
 
 
 
Commitments and contingencies

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Member's equity
930,098

 
664,108

 

 
(664,108
)
 
930,098

Retained earnings
830,497

 
283,076

 

 
(283,076
)
 
830,497

Accumulated other comprehensive loss
(8,941
)
 
(1,562
)
 

 
1,562

 
(8,941
)
Total equity
1,751,654

 
945,622

 

 
(945,622
)
 
1,751,654

Total liabilities and equity
$
8,997,781

 
$
10,925,628

 
$

 
$
(15,807,158
)
 
$
4,116,251


29

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended June 30, 2013
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
Revenues
$
3,507,984

 
$
2,802,291

 
$

 
$
(1,631,982
)
 
$
4,678,293

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
4,046,249

 
1,881,712

 

 
(1,631,982
)
 
4,295,979

Operating expenses, excluding depreciation
(142
)
 
202,725

 

 

 
202,583

General and administrative expenses
15,595

 
3,546

 

 

 
19,141

Depreciation and amortization expense
3,317

 
24,246

 

 

 
27,563

 
4,065,019

 
2,112,229

 

 
(1,631,982
)
 
4,545,266

 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
(557,035
)
 
690,062

 

 

 
133,027

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
695,768

 

 

 
(695,768
)
 

Change in fair value of catalyst lease

 
6,820

 

 

 
6,820

Interest expense, net
(20,624
)
 
(1,114
)
 

 

 
(21,738
)
Net income
$
118,109

 
$
695,768

 
$

 
$
(695,768
)
 
$
118,109

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
118,427

 
$
695,768

 
$

 
$
(695,768
)
 
$
118,427



30

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended June 30, 2012
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
Revenues
$
2,124,901

 
$
3,112,506

 
$

 
$
(160,392
)
 
$
5,077,015

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
2,774,980

 
1,664,458

 

 
(160,392
)
 
4,279,046

Operating expenses, excluding depreciation

 
170,702

 

 

 
170,702

General and administrative expenses
22,600

 
2,686

 

 

 
25,286

Loss on sale of asset

 
53

 

 

 
53

Depreciation and amortization expense
1,389

 
21,033

 

 

 
22,422

 
2,798,969

 
1,858,932

 

 
(160,392
)
 
4,497,509

 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
(674,068
)
 
1,253,574

 

 

 
579,506

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings (loss) of subsidiaries
1,252,145

 

 

 
(1,252,145
)
 

Change in fair value of catalyst lease

 
5,371

 

 

 
5,371

Change in fair value of contingent consideration

 
(692
)
 

 

 
(692
)
Interest expense, net
(22,335
)
 
(6,108
)
 

 

 
(28,443
)
Net income
$
555,742

 
$
1,252,145

 
$

 
$
(1,252,145
)
 
$
555,742

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
555,745

 
$
1,252,148

 
$

 
$
(1,252,148
)
 
$
555,745


31

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
 
Six Months Ended June 30, 2013
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
Revenues
$
6,561,777

 
$
6,315,781

 
$

 
$
(3,401,417
)
 
$
9,476,141

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
7,453,784

 
4,678,714

 

 
(3,401,417
)
 
8,731,081

Operating expenses, excluding depreciation
(141
)
 
408,740

 

 

 
408,599

General and administrative expenses
42,040

 
7,195

 

 

 
49,235

Depreciation and amortization expense
6,138

 
47,955

 

 

 
54,093

 
7,501,821

 
5,142,604

 

 
(3,401,417
)
 
9,243,008

 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
(940,044
)
 
1,173,177

 

 

 
233,133

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings (loss) of subsidiaries
1,176,634

 

 

 
(1,176,634
)
 

Change in fair value of catalyst lease

 
5,481

 

 

 
5,481

Interest expense, net
(41,325
)
 
(2,024
)
 

 

 
(43,349
)
Net income
$
195,265

 
$
1,176,634

 
$

 
$
(1,176,634
)
 
$
195,265

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
195,475

 
$
1,176,634

 
$

 
$
(1,176,634
)
 
$
195,475



32

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
 
Six Months Ended June 30, 2012
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
Revenues
$
2,845,520

 
$
7,455,629

 
$

 
$
(508,028
)
 
$
9,793,121

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
3,581,841

 
5,865,426

 

 
(508,028
)
 
8,939,239

Operating expenses, excluding depreciation

 
358,845

 

 

 
358,845

General and administrative expenses
34,556

 
4,544

 

 

 
39,100

Gain on sale of asset

 
(2,450
)
 

 

 
(2,450
)
Depreciation and amortization expense
2,939

 
40,024

 

 

 
42,963

 
3,619,336

 
6,266,389

 

 
(508,028
)
 
9,377,697

 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
(773,816
)
 
1,189,240

 

 

 
415,424

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings (loss) of subsidiaries
1,170,639

 

 

 
(1,170,639
)
 

Change in fair value of catalyst lease

 
(978
)
 

 

 
(978
)
Change in fair value of contingent consideration

 
(1,384
)
 

 

 
(1,384
)
Interest expense, net
(43,612
)
 
(16,239
)
 

 

 
(59,851
)
Net income
$
353,211

 
$
1,170,639

 
$

 
$
(1,170,639
)
 
$
353,211

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
353,228

 
$
1,170,639

 
$

 
$
(1,170,639
)
 
$
353,228



33

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW (UNAUDITED)
 
Six Months Ended June 30, 2013
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
195,265

 
$
1,176,634

 
$

 
$
(1,176,634
)
 
$
195,265

Adjustments to reconcile net income to net
 
 
 
 
 
 
 
 
 
cash from operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
9,339

 
48,014

 

 

 
57,353

Stock based compensation

 
1,977

 

 

 
1,977

Change in fair value of catalyst lease obligation

 
(5,481
)
 

 

 
(5,481
)
Non-cash change in inventory repurchase obligations

 
(17,377
)
 

 

 
(17,377
)
Pension and other post retirement benefit costs

 
8,472

 

 

 
8,472

Equity in earnings of subsidiaries
(1,176,634
)
 

 

 
1,176,634

 

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Accounts receivable
(9,505
)
 
(78,051
)
 

 

 
(87,556
)
Inventories
(203,625
)
 
20,587

 

 

 
(183,038
)
Other current assets
(22,191
)
 
(10,557
)
 

 

 
(32,748
)
Accounts payable
(12,985
)
 
(119,505
)
 

 

 
(132,490
)
Accrued expenses
237,384

 
(42,073
)
 

 

 
195,311

Deferred revenue

 
(26,594
)
 

 

 
(26,594
)
Amounts due to/from related parties
832,549

 
(817,828
)
 

 

 
14,721

Other assets and liabilities
4,114

 
(12,480
)
 

 

 
(8,366
)
Net cash (used in) provided by operating activities
(146,289
)
 
125,738

 

 

 
(20,551
)
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Expenditures for property, plant and equipment
(18,240
)
 
(86,844
)
 

 

 
(105,084
)
Expenditures for refinery turnarounds costs

 
(4,551
)
 

 

 
(4,551
)
Expenditures for other assets

 
(3,089
)
 

 

 
(3,089
)
Net cash provided by (used in) investing activities
(18,240
)
 
(94,484
)
 

 

 
(112,724
)
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from revolver borrowings
160,000

 

 

 

 
160,000

Proceeds from intercompany notes payable
31,632

 

 

 

 
31,632

Distribution to members
(155,802
)
 

 

 

 
(155,802
)
Repayments of revolver borrowings
(65,000
)
 

 

 

 
(65,000
)
Payment of contingent consideration related to acquisition of Toledo refinery

 
(21,357
)
 

 

 
(21,357
)
Deferred financing costs and other
(1,044
)
 
(215
)
 

 

 
(1,259
)
Net cash used in financing activities
(30,214
)
 
(21,572
)
 

 

 
(51,786
)
 
 
 
 
 
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(194,743
)
 
9,682

 

 

 
(185,061
)
Cash and equivalents, beginning of period
241,926

 
12,365

 

 

 
254,291

Cash and equivalents, end of period
$
47,183

 
$
22,047

 
$

 
$

 
$
69,230


34

PBF ENERGY INC. AND
PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF HOLDING
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW (UNAUDITED)
 
Six Months Ended June 30, 2012
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidated Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
353,211

 
$
1,170,639

 
$

 
$
(1,170,639
)
 
$
353,211

Adjustments to reconcile net income to net
 
 
 
 
 
 
 
 
 
cash from operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
5,456

 
40,024

 

 

 
45,480

Stock based compensation

 
1,047

 

 

 
1,047

Change in fair value of catalyst lease obligation

 
978

 

 

 
978

Change in fair value of contingent consideration

 
1,384

 

 

 
1,384

Non-cash change in inventory repurchase obligations

 
(12,611
)
 

 

 
(12,611
)
Write off of unamortized deferred financing fees
4,391

 

 

 

 
4,391

Gain on sale of assets

 
(2,450
)
 

 

 
(2,450
)
Pension and other post retirement benefit costs
17

 
6,318

 

 

 
6,335

Equity in earnings of subsidiaries
(1,170,639
)
 

 

 
1,170,639

 

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Accounts receivable
(392,653
)
 
260,657

 

 

 
(131,996
)
Inventories
(533,530
)
 
467,776

 

 

 
(65,754
)
Other current assets
(5,778
)
 
46,976

 

 

 
41,198

Accounts payable
21,201

 
(5,570
)
 

 
(9,749
)
 
5,882

Accrued expenses
57,022

 
(136,343
)
 

 

 
(79,321
)
Deferred revenue

 
(22,311
)
 

 

 
(22,311
)
Amounts due to/from related parties
1,317,885

 
(1,317,885
)
 

 

 

Other assets and liabilities
(651
)
 
(27,438
)
 

 

 
(28,089
)
Net cash (used in) provided by operating activities
(344,068
)
 
471,191

 

 
(9,749
)
 
117,374

 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Expenditures for property, plant and equipment
(9,904
)
 
(54,219
)
 

 

 
(64,123
)
Expenditures for refinery turnarounds costs

 
(22,609
)
 

 

 
(22,609
)
Expenditures for other assets

 
(6,503
)
 

 

 
(6,503
)
Proceeds from sale of assets

 
3,381

 

 

 
3,381

Net cash used in investing activities
(9,904
)
 
(79,950
)
 

 

 
(89,854
)
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from member contributions
250

 

 

 

 
250

Proceeds from senior secured notes
665,806

 

 

 

 
665,806

Proceeds from long-term debt
430,000

 

 

 

 
430,000

Proceeds from catalyst lease

 
9,452

 

 

 
9,452

Distributions to members
(12,860
)
 

 

 

 
(12,860
)
Repayments of long-term debt
(698,750
)
 
(342,968
)
 

 

 
(1,041,718
)
Payment of contingent consideration related to acquisition of Toledo refinery

 
(103,642
)
 

 

 
(103,642
)
Deferred financing costs and other
(16,246
)
 

 

 

 
(16,246
)
Net cash provided by (used in) financing activities
368,200

 
(437,158
)
 

 

 
(68,958
)
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
14,228

 
(45,917
)
 

 
(9,749
)
 
(41,438
)
Cash and equivalents, beginning of period
3,124

 
47,042

 

 

 
50,166

Cash and equivalents, end of period
$
17,352

 
$
1,125

 
$

 
$
(9,749
)
 
$
8,728


35


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements of PBF Energy Inc. and PBF Holding Company LLC included in the Annual Reports on Form 10-K for the year ended December 31, 2012 and the unaudited financial statements and related notes included in this report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Cautionary Note Regarding Forward-Looking Statements.”
 
Explanatory Note
PBF Energy is the sole managing member of PBF LLC. PBF Energy owned an equity interest representing approximately 24.4% of the outstanding economic interests in PBF LLC prior to the Secondary Offering completed on June 12, 2013, and its economic interests increased to approximately 41.0% as a result of the Secondary Offering. PBF Holding is a wholly-owned subsidiary of PBF LLC and PBF Finance is a wholly-owned subsidiary of PBF Holding. PBF Holding is the parent company for PBF LLC's operating subsidiaries.
PBF Holding is an indirect subsidiary of PBF Energy, representing 100% of PBF Energy’s consolidated revenue for the three and six months ended June 30, 2013 and June 30, 2012, respectively. PBF Holding also constitutes 100% of PBF Energy’s revenue generating assets as of June 30, 2013 and December 31, 2012.

Unless the context indicates otherwise, the terms “we,” “us,” and “our” refer to both PBF Energy and PBF Holding and subsidiaries, as the financial information is materially consistent. Discussions or areas of this report that either apply only to PBF Energy or PBF Holding are clearly noted in such sections.

Overview
We are one of the largest independent petroleum refiners and suppliers of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products in the United States. We sell our products throughout the Northeast and Midwest of the United States, as well as in other regions of the United States and Canada, and are able to ship products to other international destinations. We were formed in 2008 to pursue acquisitions of crude oil refineries and downstream assets in North America. We currently own and operate three domestic oil refineries and related assets, which we acquired in 2010 and 2011. Our refineries have a combined processing capacity, known as throughput, of approximately 540,000 bpd, and a weighted-average Nelson Complexity Index of 11.3.

Our three refineries are located in Toledo, Ohio, Delaware City, Delaware and Paulsboro, New Jersey. Our Mid-Continent refinery at Toledo processes light, sweet crude, has a throughput capacity of 170,000 bpd and a Nelson Complexity Index of 9.2. The majority of Toledo’s WTI-based crude is delivered via pipelines that originate in both Canada and the United States. Since our acquisition of Toledo in 2011, we have added additional truck and rail crude unloading capabilities that provide feedstock sourcing flexibility for the refinery and enables Toledo to run a more cost-advantaged crude slate. Our East Coast refineries at Delaware City and Paulsboro have a combined refining capacity of 370,000 bpd and Nelson Complexity Indices of 11.3 and 13.2, respectively. These high-conversion refineries process primarily medium and heavy, sour crudes and have historically received the bulk of their feedstock via ships and barges on the Delaware River. In May 2012, we commenced crude shipments via rail into a newly developed crude rail unloading facility at our Delaware City refinery. During 2012, we expanded and upgraded the existing on-site railroad infrastructure, including the expansion of the crude rail unloading facilities that was completed in February 2013 and is capable of discharging approximately 110,000 bpd, consisting of 40,000 bpd of heavy crude oil and 70,000 bpd of light crude oil. However, due to greater operating efficiency, discharge capacity for light crude oil at our dual-loop track has increased from 70,000 bpd to approximately 100,000 bpd. In conjunction with the development of our rail crude unloading facilities at Delaware City, we constructed a railcar storage yard with capacity for 330 railcars that is integral to railcar staging and storage and helps facilitate daily rail traffic at the refinery. Also in February 2013, our board of directors approved a third rail crude offloading project to add an additional 40,000 bpd of heavy crude rail unloading capability at the refinery, which is expected to cost approximately $62 million and to be completed in 2014. Completion of this third rail project will increase our discharge capacity of heavy crude oil from 40,000 bpd to 80,000 bpd and bring the total rail crude unloading capability up to 180,000 bpd. As a result of our crude rail unloading facility

36


expansion, the delivery of coiled and insulated railcars, the development of crude rail loading infrastructure in Canada and the use of unit trains, we expect to be capable of taking delivery of approximately 80,000 bpd of Canadian heavy crude oil at the Delaware City refinery by the end of 2014.
    
We entered into agreements to lease or purchase a total of 5,900 railcars, including 4,600 coiled and insulated rails cars, which are capable of transporting Canadian heavy crude oils, and 1,300 general purpose cars, which we intend to use to transport lighter crude oils. In addition to the construction of our rail unloading facilities at Delaware City and the execution of our railcar procurement strategy, we also created dedicated crude-by-rail acquisition and rail logistics teams. These teams, staffed by PBF employees in our corporate headquarters, at the Delaware City refinery and in our field office in Calgary, Alberta, are responsible for crude procurement, logistics via rail and monitoring crude-by-rail offloading. In April 2013, we opened a field office in Oklahoma City to augment these activities.

Crude delivered to our Delaware City refinery is processed at Delaware City or we can load up to 45,000 bpd to be transferred to our Paulsboro refinery. The Delaware City rail unloading facility allows our East Coast refineries to source Western Texas Intermediate ("WTI") based crudes from Western Canada and the Mid-Continent, which we believe may provide significant cost advantages versus traditional Brent-based international crudes trading on the Brent-WTI differential.

Recent Developments
Throughout 2013 we have seen an escalation in the cost of renewable fuel credits, known as RINs, required for compliance with the Renewable Fuels Standard. We incurred approximately $74.1 million in RINs costs during the six months ended June 30, 2013 as compared to $23.4 million during the six months ended June 30, 2012, an increase of $50.7 million due primarily to the price increase for ethanol-linked RINs during 2013. Our RINs purchase obligation is dependent on our actual shipment of on-road transportation fuels domestically and the amount of blending achieved.
We own a number of energy-related logistical assets that qualify for a MLP structure. We recently formed a subsidiary, PBF Logistics LP, for the anticipated purpose of holding such MLP qualifying assets. On August 1, 2013, we announced that PBF Logistics LP has confidentially submitted a draft registration statement to the Securities and Exchange Commission for a possible initial public offering, as an MLP, of its common units representing limited partnership interests. If we determine to proceed with the proposed public offering, we expect to contribute certain logistics assets to PBF Logistics LP immediately prior to the closing of the offering. Substantially all of PBF Logistics LP's contemplated initial assets are currently integral to our operations.
At the date of this report, the registration statement has not been declared effective by the SEC. The completion of the offering by PBF Logistics LP is subject to numerous conditions, including market conditions, and we provide no assurance that it will be successfully completed. The securities expected to be offered under the registration statement may not be sold, nor may offers to buy be accepted, prior to the time that the registration statement becomes effective. The information contained in this Form 10-Q with respect to such potential offering shall not constitute an offer to sell, or a solicitation of an offer to buy, the securities.


37


Results of Operations

The following tables reflect our financial and operating highlights for the three and six months ended June 30, 2013 and 2012 (amounts in thousands, except per share data) except for income tax expense, interest expenses, net income attributable to noncontrolling interest and earnings per share, each of which apply only to the financial results of PBF Energy.
     

Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
4,678,293

 
$
5,077,015

 
$
9,476,141

 
$
9,793,121

Cost of sales, excluding depreciation
4,295,979

 
4,279,046

 
8,731,081

 
8,939,239

Gross refining margin (1)
382,314

 
797,969

 
745,060

 
853,882

Operating expenses, excluding depreciation
202,583

 
170,702

 
408,599

 
358,845

General and administrative expenses
19,141

 
25,286

 
49,235

 
39,100

Loss (gain) on sale of assets

 
53

 

 
(2,450
)
Depreciation and amortization expense
27,563

 
22,422

 
54,093

 
42,963

 
249,287

 
218,463

 
511,927

 
438,458

Income from operations
133,027

 
579,506

 
233,133

 
415,424

Change in fair value of catalyst leases
6,820

 
5,371

 
5,481

 
(978
)
Change in fair value of contingent consideration

 
(692
)
 

 
(1,384
)
Interest expense, net
(21,708
)
 
(28,443
)
 
(43,319
)
 
(59,851
)
Income before income taxes
118,139

 
555,742

 
195,295

 
353,211

Income tax expense
(10,969
)
 

 
(18,413
)
 

Net income
107,170

 
$
555,742

 
176,882

 
$
353,211

Less: net income attributable to noncontrolling
interest
90,344

 
 
 
148,649

 
 
Net income attributable to PBF Energy Inc.
$
16,826

 
 
 
$
28,233

 
 
 
 
 
 
 
 
 
 
Gross margin
$
155,484

 
$
606,234

 
$
288,506

 
$
455,013

 
 
 
 
 
 
 
 
Net income available to Class A common stock per share:
 
 
 
 
 
 
 
Basic
$
0.62

 
 
 
$
1.12

 
 
Diluted
$
0.61

 
 
 
$
1.08

 
 



(1)
See Non-GAAP Financial Measures below.



38


Operating Highlights
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
Key Operating Information 
 
 
 
 
 
 
 
Production (barrels per day ("bpd") in thousands)
464.0

 
475.2

 
450.9

 
451.4

Crude oil and feedstocks throughput (bpd in thousands)
464.6

 
479.1

 
453.1

 
451.3

Total crude oil and feedstocks throughput (millions of barrels)
42.3

 
43.6

 
82.0

 
82.1

Gross refining margin per barrel of throughput (1)
$
9.04

 
$
18.30

 
$
9.08

 
$
10.40

Operating expense, excluding depreciation, per barrel of throughput
$
4.79

 
$
3.92

 
$
4.98

 
$
4.37

 
 
 
 
 
 
 
 
Crude and feedstocks (% of total throughput) (2):
 
 
 
 
 
 
 
Heavy crude
16
%
 
17
%
 
15
%
 
18
%
Medium crude
39
%
 
42
%
 
44
%
 
46
%
Light crude
38
%
 
32
%
 
33
%
 
28
%
Other feedstocks and blends
7
%
 
9
%
 
8
%
 
8
%
 
 
 
 
 
 
 
 
Yield (% of total throughput):
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
45
%
 
48
%
 
46
%
 
47
%
Distillates and distillate blendstocks
37
%
 
34
%
 
37
%
 
35
%
Lubes
2
%
 
2
%
 
2
%
 
2
%
Chemicals
3
%
 
3
%
 
3
%
 
3
%
Other
13
%
 
13
%
 
12
%
 
13
%
 
 
 
 
 
 
 
 



(1)
See Non-GAAP Financial Measures below.
(2)
We define heavy crude oil as crude oil with an American Petroleum Institute (API) gravity less than 24 degrees.    We define medium crude oil as crude oil with an API gravity between 24 and 35 degrees. We define light crude oil as crude oil with an API gravity higher than 35 degrees.

39


The table below summarizes certain market indicators relating to our operating results as reported by Platts.
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
(dollars per barrel, except as noted)
 
 
 
 
 
 
 
Dated Brent Crude
$
102.43

 
$
108.29

 
$
107.50

 
$
113.61

West Texas Intermediate (WTI) crude oil
$
94.07

 
$
93.30

 
$
94.17

 
$
98.16

Crack Spreads
 
 
 
 
 
 
 
Dated Brent (NYH) 2-1-1
$
14.67

 
$
15.32

 
$
13.60

 
$
12.78

WTI (Chicago) 4-3-1
$
29.26

 
$
28.17

 
$
27.72

 
$
23.89

Crude Oil Differentials
 
 
 
 
 
 
 
Dated Brent (foreign) less WTI
$
8.36

 
$
14.99

 
$
13.33

 
$
15.45

Dated Brent less Maya (heavy, sour)
$
4.59

 
$
9.16

 
$
7.30

 
$
9.55

Dated Brent less WTS (sour)
$
8.42

 
$
20.28

 
$
16.42

 
$
19.93

Dated Brent less ASCI (sour)
$
3.14

 
$
4.41

 
$
3.55

 
$
4.07

WTI less WCS (heavy, sour)
$
16.63

 
$
19.87

 
$
21.54

 
$
23.16

WTI less Bakken (light, sweet)
$
2.06

 
$
6.54

 
$
1.98

 
$
9.49

WTI less Syncrude (light, sweet)
$
(4.33
)
 
$
1.68

 
$
(3.84
)
 
$
4.49

Natural gas (dollars per MMBTU)
$
4.02

 
$
2.35

 
$
3.76

 
$
2.43

Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012
Overview— Net income was $107.2 million for the three months ended June 30, 2013 compared to $555.7 million for the three months ended June 30, 2012. Net income attributable to PBF Energy was $16.8 million, or $0.61 per diluted share, for the three months ended June 30, 2013 ($0.73 per share on a fully exchanged, fully diluted basis based on adjusted pro forma net income as described below in Non-GAAP Financial Measures). The net income attributable to PBF Energy represents PBF Energy’s equity interest in PBF LLC’s pre-tax income, less applicable income taxes, of approximately 24.4% prior to the Secondary Offering and 41.0% subsequent to the Secondary Offering. Net income for PBF Holding, which does not include income tax expense, was $118.1 million for the three months ended June 30, 2013 compared to $555.7 million for the three months ended June 30, 2012.

Our results for the three months ended June 30, 2013 were unfavorably impacted by lower crack spreads in the East Coast, the tightening of crude differentials, higher operating expenses due to increased energy costs, the continued higher costs of compliance with the Renewable Fuels Standard and lower throughput primarily due to reduced run rates at Toledo.

Revenues— Revenues totaled $4.7 billion for the three months ended June 30, 2013 compared to $5.1 billion for the three months ended June 30, 2012, a decrease of $0.4 billion, or 7.8%. For the three months ended June 30, 2013, the total throughput rates in the East Coast and Mid-Continent refineries averaged approximately 317,300 bpd and 147,300 bpd, respectively. For the three months ended June 30, 2012, the total throughput rates at our East Coast and Mid-Continent refineries averaged approximately 318,100 bpd, and 161,000 bpd, respectively. Throughput rates in our East Coast refineries in 2013 compared to 2012 were relatively flat. The decrease in throughput rates in our Mid-Continent refinery in 2013 compared to 2012 was primarily driven by refinery maintenance which limited crude run rates during the period. For the three months ended June 30, 2013, the total barrels sold at our East Coast and Mid-Continent refineries averaged approximately 308,200 bpd and 148,700 bpd, respectively. For the three months ended June 30, 2012, the total barrels sold at our East Coast and Mid-Continent refineries averaged approximately 312,500 bpd and 161,000 bpd, respectively. Total barrels sold at our Mid-Continent refinery are typically higher than throughput rates, reflecting sales and purchases of refined products outside the refinery.
 
Gross Margin— Gross refining margin (as described below in Non-GAAP Financial Measures) totaled $382.3 million, or $9.04 per barrel of throughput, for the three months ended June 30, 2013 compared to $798.0 million, or $18.30 per barrel of throughput during the three months ended June 30, 2012, a decrease of $415.7 million. Gross margin, including refinery operating expenses and depreciation, totaled $155.5 million, or $3.68 per barrel of throughput, for the three months ended June 30, 2013 compared to $606.2 million, or $13.90 per barrel of throughput, for the three months ended June 30, 2012, a decrease of $450.7 million. The decrease in gross refining margin was primarily

40


due to lower crack spreads in the East Coast and the result of unfavorable crude differentials, the continued higher costs of compliance with the Renewable Fuels Standard and the production of low-value products such as sulfur, petroleum coke and fuel oils at our East Coast refineries that price at a substantial discount to light products. The decrease in gross margin was also attributable to an increase in operating expenses due to increased energy costs.

Average industry refining margins in the U.S. Mid-Continent were generally stronger during the three months ended June 30, 2013 as compared to the same period in 2012. The WTI (Chicago) 4-3-1 industry crack spread was approximately $29.26 per barrel or 3.9% higher in the three months ended June 30, 2013 as compared to the same period in 2012. However, the price of WTI versus Dated Brent and other crudes narrowed during the quarter negatively impacting our results.

The Dated Brent (NYH) 2-1-1 industry crack spread was approximately $14.67 per barrel, or 4.2%, lower in the three months ended June 30, 2013 as compared to the same period in 2012. Moreover, the WTI/Dated Brent differential was $6.63 lower in the three months ended June 30, 2013 as compared to the same period in 2012 and the Dated Brent/Maya differential was approximately $4.57 per barrel lower in the three months ended June 30, 2013 as compared to the same period in 2012. A decrease in the WTI/Dated Brent crude differential unfavorably impacts our East Coast refineries which have increased shipments of WTI based crudes from the Bakken and Western Canada. A reduction in the Dated Brent/Maya crude differential, our proxy for the light/heavy crude differential, has a negative impact on our East Coast refineries, which can process a large slate of medium and heavy, sour crude oil that is priced at a discount to light, sweet crude oil.
 
Operating Expenses— Operating expenses totaled $202.6 million, or $4.79 per barrel of throughput, for the three months ended June 30, 2013 compared to $170.7 million, or $3.92 per barrel of throughput, for the three months ended June 30, 2012, an increase of $31.9 million, or 18.7%. The increase in operating expenses is mainly attributable to an increase of approximately $20.8 million in energy and utilities costs, primarily driven by higher natural gas prices, as well as an increase of approximately $6.6 million in maintenance costs. Our operating expenses principally consist of salaries and employee benefits, maintenance, energy and catalyst and chemicals costs at our refineries.

General and Administrative Expenses— General and administrative expenses totaled $19.1 million for the three months ended June 30, 2013 compared to $25.3 million for the three months ended June 30, 2012, a decrease of $6.2 million or 24.5%. The decrease in general and administrative expenses primarily relates to lower employee compensation expense. Our general and administrative expenses are comprised of the personnel, facilities and other infrastructure costs necessary to support our refineries.

Loss on Sale of Assets— Loss on sale of assets for the three months ended June 30, 2012 was $0.1 million related to sales of certain equipment at Paulsboro and Delaware City.

Depreciation and Amortization Expense— Depreciation and amortization expense totaled $27.6 million for the three months ended June 30, 2013 compared to $22.4 million for the three months ended June 30, 2012, an increase of $5.2 million. The increase was principally due to capital projects including the expansion of the crude rail unloading facility completed in the first quarter of 2013 as well as new system implementations at the corporate level during 2012.

Change in Fair Value of Catalyst Leases— Change in the fair value of catalyst leases represented a gain of $6.8 million for the three months ended June 30, 2013 compared to a gain of $5.4 million for the three months ended June 30, 2012. This gain or loss relates to the change in value of the precious metals underlying the sale and leaseback of our refineries’ precious metals catalyst, which we are obligated to repurchase at fair market value on the lease termination dates.

Change in Fair Value of Contingent Consideration— In 2013, there was no change in the fair value of contingent consideration related to the Toledo refinery acquisition and the liability was paid in full in April 2013.

Interest Expense, net— Interest expense totaled $21.7 million for the three months ended June 30, 2013 compared to $28.4 million for the three months ended June 30, 2012, a decrease of $6.7 million. Interest expense includes interest on long-term debt, costs related to the sale and leaseback of our precious metals catalyst, interest expense incurred in connection with our crude and feedstock supply agreements with Statoil and MSCG, letter of credit fees associated with the purchase of certain crude oils, and the amortization of deferred financing fees. The decrease in interest expense primarily relates to lower interest costs associated with our ABL Revolving Credit Facility ("credit facilities") and Statoil agreements partially offset by higher letter of credit fees.

Income Tax Expense— As PBF LLC is a limited liability company treated as a "flow-through" entity for income tax purposes, the members of PBF LLC are required to include their proportionate share of PBF LLC’s taxable income or loss on their respective tax returns. Accordingly, PBF Energy’s consolidated financial statements do not include a benefit or

41


provision for income taxes for periods prior to the closing of our initial public offering on December 18, 2012. However, we generally made distributions to our members, per the terms of the PBF LLC limited liability agreement, related to such taxes. Effective with the completion of the initial public offering of PBF Energy, we recognize an income tax expense or benefit in our consolidated financial statements based on PBF Energy's allocable share of PBF LLC’s pre-tax income (loss), which was approximately 24.4% prior to the Secondary Offering and 41.0% subsequent to the Secondary Offering. We do not recognize any income tax expense or benefit related to the noncontrolling interest of the other members in PBF LLC (although, as described elsewhere, we must make tax distributions to all members of PBF LLC under the terms of its amended and restated limited liability company agreement). PBF Energy's effective tax rate for the three months ended June 30, 2013 was 39.5%.

PBF Holding, as a limited liability company treated as a "flow-through" entity for income tax purposes, did not recognize a benefit or provision for income tax expense for the three months ended June 30, 2013 and 2012.

Noncontrolling Interest— As a result of our initial public offering and the related reorganization transactions, PBF Energy became the sole managing member of, and has a controlling interest in, PBF LLC. As the sole managing member of PBF LLC, PBF Energy operates and controls all of the business and affairs of PBF LLC and its subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its subsidiaries, and records a noncontrolling interest for the economic interest in PBF LLC held by members other than PBF Energy. Noncontrolling interest on the consolidated statement of operations represents the portion of earnings or loss attributable to the economic interest in PBF LLC held by members other than PBF Energy. Noncontrolling interest on the balance sheet represents the portion of net assets of PBF Energy attributable to the members of PBF LLC other than PBF Energy, based on the relative equity interest held by such members. The noncontrolling interest ownership percentage as of June 30, 2013 and December 31, 2012 was approximately 59.0% and 75.6%, respectively. The carrying amount of the noncontrolling interest on our consolidated balance sheet attributable to the noncontrolling interest is not equal to the noncontrolling interest ownership percentage due to the effect of income taxes and related agreements that pertain solely to PBF Energy.

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012
Overview— Net income for PBF Energy was $176.9 million for the six months ended June 30, 2013 compared to $353.2 million for the six months ended June 30, 2012. Net income attributable to PBF Energy was $28.2 million, or $1.08 per diluted share ($1.21 per share on a fully exchanged, fully diluted basis based on adjusted pro forma net income as described below in Non-GAAP Financial Measures), for the six months ended June 30, 2013. The net income attributable to PBF Energy represents PBF Energy’s equity interest in PBF LLC’s pre-tax income, less applicable income taxes, of approximately 24.4% prior to the Secondary Offering and 41.0% subsequent to the Secondary Offering. Net income for PBF Holding, which does not include income tax expense, was $195.3 million for the six months ended June 30, 2013 compared to $353.2 million for the six months ended June 30, 2012.

Our throughput rates during the six months ended June 30, 2013 and 2012, was impacted by unplanned and planned downtime at our Toledo refinery. On January 31, 2013 there was a brief fire within the fluid catalytic cracking complex at the Toledo refinery that resulted in that unit being temporarily shutdown. The refinery resumed running at planned rates on February 18, 2013. In the first quarter of 2012, the Toledo refinery was impacted by a thirty day turnaround of its hydrocracker, reformer and UDEX units which commenced on March 9, 2012. Our results for the six months ended June 30, 2013 were favorably impacted by improved crack spreads offset by narrowing of crude oil differentials, higher operating expenses due to increased energy costs, repair and restart costs related to the Toledo fire, as well as higher costs of compliance with the Renewable Fuels Standard.

Revenues— Revenues totaled $9.5 billion for the six months ended June 30, 2013 compared to $9.8 billion for the six months ended June 30, 2012, a decrease of $0.3 billion, or 3.2%. For the six months ended June 30, 2013, the total throughput rates in the East Coast and Mid-Continent refineries averaged approximately 318,100 bpd and 135,000 bpd, respectively. For the six months ended June 30, 2012, the total throughput rates at our East Coast and Mid-Continent refineries averaged approximately 306,800 bpd, and 144,500 bpd, respectively. The increase in throughput rates in our East Coast refineries in 2013 compared to 2012 was primarily driven by refinery optimization efforts. The decrease in throughput rates in our Mid-Continent refinery in 2013 compared to 2012 was primarily due to the refinery's 18 day unplanned down time in the first quarter of 2013, attributable to the fire at the Toledo refinery as described above. For the six months ended June 30, 2013, the total barrels sold at our East Coast and Mid-Continent refineries averaged approximately 309,900 bpd and 148,300 bpd, respectively. For the six months ended June 30, 2012, the total barrels sold at our East Coast and Mid-Continent refineries averaged approximately 302,200 bpd and 154,100 bpd, respectively. Total barrels sold at our Mid-Continent refinery are typically higher than throughput rates, reflecting sales and purchases of refined products outside the refinery.

42



Gross Margin— Gross refining margin (as defined below in Non-GAAP Financial Measures) totaled $745.1 million, or $9.08 per barrel of throughput, for the six months ended June 30, 2013 compared to $853.9 million, or $10.40 per barrel of throughput during the six months ended June 30, 2012, a decrease of $108.8 million. Gross margin, including refinery operating expenses and depreciation, totaled $288.5 million, or $3.52 per barrel of throughput, for the six months ended June 30, 2013 compared to $455.0 million, or $5.54 per barrel of throughput, for the six months ended June 30, 2012, a decrease of $166.5 million. The decrease in gross refining margin was primarily due to reduced throughput rates, unfavorable movement in crude differentials, higher costs of compliance with the Renewable Fuels Standard, and increased energy costs and repair and restart costs related to the fire at Toledo.

Average industry refining margins in the U.S. Mid-Continent were generally stronger during the six months ended June 30, 2013 as compared to the same period in 2012. The WTI (Chicago) 4-3-1 industry crack spread was approximately $27.72 per barrel or 16.0% higher in the six months ended June 30, 2013 as compared to the same period in 2012. However, the price of WTI versus Syncrude and Bakken increased in 2013, which negatively impacted our overall cost of crude.

The Dated Brent (NYH) 2-1-1 industry crack spread was approximately $13.60 per barrel, or 6.4%, higher in the six months ended June 30, 2013 as compared to the same period in 2012. However, the WTI/Dated Brent differential was $2.12 lower in the six months ended June 30, 2013 as compared to the same period in 2012 and the Dated Brent/Maya differential was approximately $2.25 per barrel lower in the six months ended June 30, 2013 as compared to the same period in 2012. A decrease in the WTI/Dated Brent crude differential unfavorably impacts our East Coast refineries which have increased shipments of WTI based crudes from the Bakken and Western Canada. A reduction in the Dated Brent/Maya crude differential, our proxy for the light/heavy crude differential, has a negative impact on our East Coast refineries, which can process a large slate of medium and heavy, sour crude oil that is priced at a discount to light, sweet crude oil.

Operating Expenses— Operating expenses totaled $408.6 million, or $4.98 per barrel of throughput, for the six months ended June 30, 2013 compared to $358.8 million, or $4.37 per barrel of throughput, for the six months ended June 30, 2012, an increase of $49.8 million, or 13.9%. The increase in operating expenses is mainly attributable to an increase of approximately $34.1 million in energy and utilities costs, primarily driven by higher natural gas prices, approximately $7.5 million in repair and restart costs related to the Toledo fire, described above, and $6.1 million in increased personnel cost associated with higher headcount. Our operating expenses principally consist of salaries and employee benefits, maintenance, energy and catalyst and chemicals costs at our refineries.

General and Administrative Expenses— General and administrative expenses totaled $49.2 million for the six months ended June 30, 2013 compared to $39.1 million for the six months ended June 30, 2012, an increase of $10.1 million or 25.9%. The increase in general and administrative expenses primarily relates to higher employee compensation expense of approximately $3.4 million as a result of higher headcount and $4.6 million in costs associated with being a public company. Our general and administrative expenses are comprised of the personnel, facilities and other infrastructure costs necessary to support our refineries.

Gain on Sale of Assets— Gain on sale of assets for the six months ended June 30, 2012 was $2.5 million related to sales of certain equipment at Paulsboro and Delaware City.

Depreciation and Amortization Expense— Depreciation and amortization expense totaled $54.1 million for the six months ended June 30, 2013 compared to $43.0 million for the six months ended June 30, 2012, an increase of $11.1 million. The increase was principally due to capital projects including the expansion of the crude rail unloading facility completed in the first quarter of 2013 as well as new system implementations at the corporate level during 2012.

Change in Fair Value of Catalyst Leases— Change in the fair value of catalyst leases represented a gain of $5.5 million for the six months ended June 30, 2013 compared to a loss of $1.0 million for the six months ended June 30, 2012. This gain or loss relates to the change in value of the precious metals underlying the sale and leaseback of our refineries’ precious metals catalyst, which we are obligated to repurchase at fair market value on the lease termination dates.

Change in Fair Value of Contingent Consideration— In 2013, there was no change in the fair value of contingent consideration related to the Toledo refinery acquisition and the liability was paid in full in April 2013.

Interest Expense, net— Interest expense totaled $43.3 million for the six months ended June 30, 2013 compared to $59.9 million for the six months ended June 30, 2012, a decrease of $16.6 million. Interest expense includes interest on long-term debt, costs related to the sale and leaseback of our precious metals catalyst, interest expense incurred in connection with our crude and feedstock supply agreements with Statoil and MSCG, letter of credit fees associated with the purchase

43


of certain crude oils, and the amortization of deferred financing fees. The decrease in interest expense primarily relates to lower interest costs associated with our credit facilities and Statoil agreement and the $4.4 million write-off of deferred financing costs in the first quarter of 2012 on debt that was repaid from the proceeds of our 2012 senior secured notes offering.

Income Tax Expense— As PBF LLC is a limited liability company treated as a "flow-through" entity for income tax purposes, the members of PBF LLC are required to include their proportionate share of PBF LLC’s taxable income or loss on their respective tax returns. Accordingly, PBF Energy’s consolidated financial statements do not include a benefit or provision for income taxes for periods prior to the closing of our initial public offering on December 18, 2012. However, we generally made distributions to our members, per the terms of the PBF LLC limited liability agreement, related to such taxes. Effective with the completion of the initial public offering of PBF Energy, we recognize an income tax expense or benefit in our consolidated financial statements based on PBF Energy's allocable share of PBF LLC’s pre-tax income (loss), which was approximately 24.4% prior to the Secondary Offering and 41.0% subsequent to the Secondary Offering. We do not recognize any income tax expense or benefit related to the noncontrolling interest of the other members in PBF LLC (although, as described elsewhere, we must make tax distributions to all members of PBF LLC under the terms of its amended and restated limited liability company agreement). PBF Energy's effective tax rate for the six months ended June 30, 2013 was 39.5%.

PBF Holding, as a limited liability company treated as a "flow-through" entity for income tax purposes, did not recognize a benefit or provision for income tax expense for the six months ended June 30, 2013 and 2012.

Noncontrolling Interest— As a result of our initial public offering and the related reorganization transactions, PBF Energy became the sole managing member of, and has a controlling interest in, PBF LLC. As the sole managing member of PBF LLC, PBF Energy operates and controls all of the business and affairs of PBF LLC and its subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its subsidiaries, and records a noncontrolling interest for the economic interest in PBF LLC held by members other than PBF Energy. Noncontrolling interest on the consolidated statement of operations represents the portion of earnings or loss attributable to the economic interest in PBF LLC held by members other than PBF Energy. Noncontrolling interest on the balance sheet represents the portion of net assets of PBF Energy attributable to the members of PBF LLC other than PBF Energy, based on the relative equity interest held by such members. The noncontrolling interest ownership percentage as of June 30, 2013 and December 31, 2012 was approximately 59.0% and 75.6%, respectively. The carrying amount of the noncontrolling interest on our consolidated balance sheet attributable to the noncontrolling interest is not equal to the noncontrolling interest ownership percentage due to the effect of income taxes and related agreements that pertain solely to PBF Energy.

Non-GAAP Financial Measures
Management uses certain financial measures to evaluate our operating performance that are calculated and presented on the basis of methodologies other than in accordance with U.S. GAAP. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies.

Adjusted Pro Forma Net Income
PBF Energy utilizes results presented on an Adjusted Pro Forma basis that reflects an assumed exchange of all PBF LLC Series A Units for shares of Class A common stock of PBF Energy. We believe that these Adjusted Pro Forma measures, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare PBF Energy results across different periods and to facilitate an understanding of our operating results. The differences between Adjusted Pro Forma and U.S. GAAP results are as follows:
1.
Assumed Exchange of all PBF LLC Series A Units for shares of PBF Energy Class A common stock. As a result of the assumed exchange of all PBF LLC Series A Units, the noncontrolling interest related to these units is converted to controlling interest. Management believes that it is useful to provide the per-share effect associated with the assumed exchange of all PBF LLC Series A Units.
2.
Income Taxes. Prior to the IPO we were organized as a limited liability company treated as a “flow-through” entity for income tax purposes, and even after our IPO, not all of our earnings are subject to corporate-level income taxes. Adjustments have been made to the Adjusted Pro Forma tax provisions and earnings to assume that we had adopted our post-IPO corporate tax structure for all periods presented and are taxed as a C corporation in the U.S. at the prevailing corporate rates. These assumptions are consistent with the assumption in clause 1 above that all PBF LLC Series A Units are exchanged for shares of PBF Energy Class A common stock, as the assumed exchange would change the amount of our earnings that is subject to corporate income tax.

44


The following table reconciles our Adjusted Pro Forma results with our results presented in accordance with U.S. GAAP for the three and six months ended June 30, 2013 and 2012:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income attributable to PBF Energy Inc.
$
16,826

 
$

 
$
28,233

 
$

Add: Net income attributable to the noncontrolling interest(1)
90,344

 
555,742

 
148,649

 
353,211

Less: Income tax expense(2)
(35,686
)
 
(219,518
)
 
(58,716
)
 
(139,518
)
Adjusted pro forma net income
$
71,484

 
$
336,224

 
$
118,166

 
$
213,693

 
 
 
 
 
 
 
 
Diluted weighted-average shares outstanding of PBF Energy Inc. (3)
27,706,696

 

 
26,110,976

 

Conversion of PBF LLC Series A Units (4)
69,647,005

 
97,353,701

 
71,314,923

 
97,425,899

Pro forma shares outstanding—diluted (5)
97,353,701

 
97,353,701

 
97,425,899

 
97,425,899

Adjusted pro forma net income per fully exchanged, fully diluted shares outstanding
$
0.73

 
$
3.45

 
$
1.21

 
$
2.19


——————————

(1)
 
Represents the elimination of the noncontrolling interest associated with the ownership by the members of PBF LLC other than PBF Energy as if such members had fully exchanged their PBF LLC Series A Units for shares of PBF Energy's Class A common stock.
(2)
 
Represents an adjustment to reflect PBF Energy's current effective corporate tax rate of approximately 39.5% applied to all periods presented. The adjustment assumes the full exchange of existing PBF LLC Series A Units as described in (1) above.
(3)
 
Represents weighted-average diluted shares outstanding assuming the conversion of all common stock equivalents, including options and warrants for units of PBF LLC Series A Units and options for shares of PBF Energy Class A common stock as calculated under the treasury stock method for the three and six month period ended June 30, 2013. Common stock equivalents exclude the effects of options to purchase 731,250 shares of PBF Energy's Class A common stock because they are anti-dilutive.
(4)
 
Represents an adjustment to weighted-average diluted shares to assume the full exchange of existing PBF LLC Series A Units as described in (1) above.
(5)
 
Diluted pro forma shares outstanding for historical periods prior to our IPO reflect the same number of diluted shares outstanding as the applicable current periods in order to present such pre-IPO periods on a comparable basis.

Gross Refining Margin
Gross refining margin is defined as gross margin excluding depreciation and operating expense related to the refineries. We believe gross refining margin is an important measure of operating performance and provides useful information to investors because it is a better metric comparison for the industry refining margin benchmarks, as the refining margin benchmarks do not include a charge for depreciation expense. In order to assess our operating performance, we compare our gross refining margin (revenue less cost of sales) to industry refining margin benchmarks and crude oil prices as defined in the table below.

45



Gross refining margin should not be considered an alternative to gross margin, operating income, net cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Gross refining margin presented by other companies may not be comparable to our presentation, since each company may define this term differently. The following table presents a reconciliation of gross refining margin to the most directly comparable GAAP financial measure, gross margin, on a historical basis, as applicable, for each of the periods indicated:
 
 
Three Months Ended June 30,
 
2013
 
2012
 
$
 
per barrel of throughput
 
$
 
per barrel of throughput
Reconciliation of gross margin to gross refining margin:
 
 
 
 
 
 
 
Gross margin
$
155,484

 
$3.68
 
$
606,234

 
$13.90
Add:
 
 
 
 
 
 
 
Refinery operating expense
202,583

 
$4.79
 
170,702

 
$3.92
Refinery depreciation expense
24,247

 
$0.57
 
21,033

 
$0.48
Gross refining margin
$
382,314

 
$9.04
 
$
797,969

 
$18.30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
2013
 
2012
 
$
 
per barrel of throughput
 
$
 
per barrel of throughput
Reconciliation of gross margin to gross refining margin:
 
 
 
 
 
 
 
Gross margin
$
288,506

 
$3.52
 
$
455,013

 
$5.54
Add:
 
 
 
 
 
 
 
Refinery operating expense
408,599

 
$4.98
 
358,845

 
$4.37
Refinery depreciation expense
47,955

 
$0.58
 
40,024

 
$0.49
Gross refining margin
$
745,060

 
$9.08
 
$
853,882

 
$10.40
 
 
 
 
 
 
 
 
EBITDA and Adjusted EBITDA
Our management uses EBITDA (earnings before interest, income taxes, depreciation and amortization) and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations, and in communications with our board of directors, creditors, analysts and investors concerning our financial performance. Our senior secured notes, revolving credit facility and other contractual obligations also include similar measures as a basis for certain covenants under those agreements which may differ from the Adjusted EBITDA definition described below.

EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP and our computation of EBITDA and Adjusted EBITDA may vary from others in our industry. In addition, Adjusted EBITDA contains some, but not all, adjustments that are taken into account in the calculation of the components of various covenants in the agreements governing the senior secured notes and the ABL Revolving Credit Facility. EBITDA and Adjusted EBITDA should not be considered as alternatives to operating income or net income (loss) as measures of operating performance. In addition, EBITDA and Adjusted EBITDA are not presented as, and should not be considered, an alternative to cash flows from operations as a measure of liquidity. Adjusted EBITDA is defined as EBITDA before equity-based compensation expense, gains (losses) from certain derivative activities and contingent consideration and the non-cash change in the deferral of gross profit related to the sale of certain finished products. Other companies, including other companies in our industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Adjusted EBITDA also has limitations as

46


an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include that Adjusted EBITDA:
does not reflect depreciation expense or our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
does not reflect changes in, or cash requirements for, our working capital needs;
does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
does not reflect realized and unrealized gains and losses from hedging activities, which may have a substantial impact on our cash flow;
does not reflect certain other non-cash income and expenses; and
excludes income taxes that may represent a reduction in available cash.

The following tables reconcile net income as reflected in our results of operations to EBITDA and Adjusted EBITDA for the periods presented:
 
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
 
 
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income to EBITDA:
 
 
 
 
 
 
 
Net income (1)
107,170

 
555,742

 
176,882

 
353,211

Add:Depreciation and amortization expense
27,563

 
22,422

 
54,093

 
42,963

Add: Interest expense, net
21,708

 
28,443

 
43,319

 
59,851

Add: Income tax expense (1)
10,969

 

 
18,413

 

EBITDA
$
167,410

 
$
606,607

 
$
292,707

 
$
456,025

 
 
 
 
 
 
 
 
 
 
Reconciliation of EBITDA to Adjusted EBITDA:
 
 
 
 
 
 
 
EBITDA
$
167,410

 
$
606,607

 
$
292,707

 
$
456,025

Stock based compensation
957

 
540

 
1,977

 
1,047

Non-cash change in fair value of catalyst
lease obligations
(6,820
)
 
(5,371
)
 
(5,481
)
 
978

Non-cash change in fair value of contingent
consideration

 
692

 

 
1,384

Non-cash change in fair value of inventory
repurchase obligations
(2,831
)
 
(5,289
)
 
(13,873
)
 
(12,209
)
Non-cash deferral of gross profit on
finished product sales
(20,496
)
 
2,330

 
(28,030
)
 
(3,441
)
Adjusted EBITDA
$
138,220

 
$
599,509

 
$
247,300

 
$
443,784

 
——————————
(1) Net income for PBF Holding for the three and six months ended June 30, 2013 was $118,109 and $195,265 respectively, which excludes $10,969 and $18,413, respectively, of income tax expense of PBF Energy and includes $30 and $30, respectively, of interest expense related to the intercompany notes payable between PBF Holding and PBF Energy.

Liquidity and Capital Resources
Overview
Our primary sources of liquidity are our cash flows from operations and borrowing availability under our credit facilities, as more fully described below. We believe that our cash flows from operations and available capital resources will be sufficient to meet our capital expenditure, working capital, dividend payments and debt service requirements, as well as PBF Energy's obligations under the tax receivable agreement, for the next twelve months. However, our ability to generate sufficient cash flow from operations depends, in part, on oil market pricing and general economic,

47


political and other factors beyond our control. We are in compliance with all of the covenants, including financial covenants, for all of our debt agreements.
Cash Flow Analysis
Cash Flows from Operating Activities
Net cash used by operating activities was $40.2 million for the six months ended June 30, 2013 compared to net cash provided by operating activities of $117.4 million for the six months ended June 30, 2012. Our operating cash flows for the six months ended June 30, 2013 included our net income of $176.9 million, plus net non-cash charges relating to depreciation and amortization of $57.4 million, deferred income taxes of $16.7 million, pension and other post retirement benefits of $8.5 million and stock-based compensation of $2.0 million, partially offset by the change in the fair value of our inventory repurchase obligations of $17.4 million and changes in the fair value of our catalyst lease of $5.5 million. In addition, net changes in working capital used $278.8 million in cash driven by increases in hydrocarbon sales volumes and related purchases and their associated impact on inventory, accounts receivable, and inventory-related liabilities. Our operating cash flows for the six months ended June 30, 2012 included our net income of $353.2 million, plus net non-cash charges relating to depreciation and amortization of $45.5 million, pension and other post retirement benefits of $6.3 million, write off of unamortized deferred financing fees of $4.4 million, change in the fair value of the Toledo contingent consideration of $1.4 million, changes in the fair value of our catalyst lease obligations of $1.0 million and stock-based compensation of $1.0 million, partially offset by change in the fair value of our inventory repurchase obligations of $12.6 million, gain on sale of assets of $2.5 million and net cash used in working capital of $280.3 million.

Cash Flows from Investing Activities
Net cash used in investing activities was $112.7 million for the six months ended June 30, 2013 compared to net cash used in investing activities of $89.9 million for the six months ended June 30, 2012. The net cash flows used in investing activities for the six months ended June 30, 2013 was comprised of capital expenditures totaling $105.1 million, expenditures for turnarounds of $4.5 million and expenditures for other assets of $3.1 million. Net cash used in investing activities for the six months ended June 30, 2012 consisted primarily of the capital expenditures totaling $64.1 million, expenditures for a turnarounds of $22.6 million and expenditures for other assets of $6.5 million, slightly offset by $3.3 million in proceeds from the sale of assets.

Cash Flows from Financing Activities
Net cash used in financing activities was $63.7 million for the six months ended June 30, 2013 compared to $69.0 million for the six months ended June 30, 2012. For the six months ended June 30, 2013, net cash used in financing activities consisted primarily of distributions and dividends of $136.1 million, payments of contingent consideration related to the Toledo acquisition of $21.3 million and $1.3 million for deferred financing costs offset by $95.0 million of net proceeds from revolver borrowings. For the six months ended June 30, 2012, net cash from financing activities consisted primarily of repayments of long term debt of $1,041.7 million, payments of contingent consideration related to the Toledo acquisition of $103.6 million, deferred financing costs of $16.2 million and distributions to members of $12.9 million, offset by net proceeds from the senior secured notes offering of $665.8 million, proceeds from long-term debt of $430.0 million and proceeds of $9.6 million from the Paulsboro catalyst lease and member capital contributions.

The cash flow activity of PBF Holding is materially consistent with that discussed above , other than the PBF Holding change in due to/due from related party of $14.7 million included in cash flows from operating activities, as well as proceeds from intercompany notes payable of $31.6 million and distributions of $19.7 million related to tax distributions paid to, or on behalf of, PBF Energy included in cash flows from financing activities.
Working Capital
Working capital for PBF Energy at June 30, 2013 was $807.1 million, consisting of $2,249.0 million in total current assets and $1,441.9 million in total current liabilities. Working capital at December 31, 2012 was $704.8 million, consisting of $2,307.9 million in total current assets and $1,603.1 million in total current liabilities.

Working capital for PBF Holding at June 30, 2013 was $804.6 million, consisting of $2,244.3 million in total current assets and $1,439.7 million in total current liabilities. Working capital at December 31, 2012 was $686.8 million, consisting of $2,283.3 million in total current assets and $1,596.5 million in total current liabilities.

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Our working capital for financial reporting purposes is significantly impacted by the way we account for our crude and feedstock and product offtake agreements. As of July 1, 2013, the Company terminated the product offtake agreements with MSCG for the Paulsboro and Delaware City refineries. The Company entered into two separate inventory Intermediation Agreements with J. Aron on June 26, 2013 which commenced upon the termination of the product offtake agreements with MSCG. Pursuant to the Intermediation Agreements, J. Aron purchases and holds title to all of the intermediate and finished products produced by the Delaware City and Paulsboro refineries and delivered into the Company's tanks at the refineries. Inventory held outside the refineries may be owned by PBF Holding or by J. Aron under the Intermediation Agreements. Furthermore, J. Aron agrees to sell the intermediate and finished products back to the Company as they are discharged out of the refineries' tanks. The Company will market and sell the finished products independently to third parties. We do not believe the termination of the MSCG product offtake agreements and commencement of the Intermediation Agreements will have a material impact on our working capital and liquidity.

Liquidity
As of June 30, 2013, our total liquidity, which is the sum of our cash and cash equivalents plus the amount of availability under the ABL Revolving Credit Facility, totaled approximately $652.8 million.

Capital Spending
Capital spending was $112.7 million for the six months ended June 30, 2013, which primarily included safety related enhancements and facility improvements at the refinery and the continued expansion of the rail unloading facility at our Delaware City refinery. We currently expect to spend an aggregate of approximately $250 to $275 million in capital expenditures during 2013 for facility improvements, refinery maintenance and turnaround and further expansion of the rail unloading facility at our Delaware City refinery.
We recently announced that we are pursuing capital project opportunities designed to increase the profitability of our Toledo refinery. These projects are expected to improve crude sourcing and flexibility, further diversify our product sales into higher margin chemicals and improve the ULSD and total liquid yield from the Toledo refinery. We spent approximately $24.2 million through June 30, 2013 related to these capital projects and estimate aggregate total capital expenditures of approximately $85 million through the end of 2014.

Off-Balance Sheet Arrangements and Contractual Obligations and Commitments
We have no off-balance sheet arrangements as of June 30, 2013, other than outstanding letters of credit in the amount of approximately $186.2 million.

During the six months ended June 30, 2013, we entered into additional railcar leases with terms of up to 12 years. We expect to make lease payments of $147.1 million over the term of these additional agreements.

Tax Receivable Agreement Obligations
We expect that the payments that we may make under the tax receivable agreement will be substantial. As of June 30, 2013, we have recognized a liability for the tax receivable agreement of $291.0 million reflecting our estimate of the undiscounted amounts that we expect to pay under the agreement due to exchanges of PBF LLC Series A Units for shares of PBF Energy's Class A common stock that occurred prior to that date, and to range over the next five years from approximately $1.0 million to $31.7 million per year and decline thereafter. In addition, under certain circumstances, our obligations under the tax receivable agreement may be accelerated and determined based on certain assumptions set forth therein. Assuming that the market value of a share of our Class A common stock equals $25.90 per share of Class A common stock (the closing price on June 28, 2013) and that LIBOR were to be 1.85%, we estimate as of June 30, 2013 that the aggregate amount of these accelerated payments would have been approximately $646.0 million if triggered immediately on such date. These payment obligations are obligations of PBF Energy and not of PBF LLC or any of its subsidiaries, although because PBF Energy is a holding company with no operations of its own, its ability to make payments under the tax receivable agreement is dependent on our subsidiaries' ability to make distributions for the benefit of PBF LLC's members, including PBF Energy.


49


Future payments under the tax receivable agreement by us in respect of subsequent exchanges would be in addition to these amounts and are expected to be substantial. The foregoing numbers are merely estimates-the actual payments could differ materially-and assume no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding tax receivable agreement payments.

Dividend and Distribution Policy
With respect to dividends and distributions paid during the six months ended June 30, 2013, PBF Holding paid $155.8 million in distributions to PBF LLC. PBF LLC used $58.0 million of this amount ($0.30 per unit) to make non-tax distributions to its members, of which $14.2 million was distributed to PBF Energy and the balance was distributed to PBF LLC's other members. PBF Energy used this $14.2 million to pay two separate equivalent cash dividends of $0.30 per share of Class A common stock on June 7, 2013 and March 15, 2013. PBF LLC used the remaining $97.8 million from PBF Holding's distribution to make tax distributions to its members, with $19.7 million distributed to PBF Energy, of which $567 was paid by PBF LLC directly to the applicable taxing authorities on behalf of PBF Energy.
    
On July 30, 2013, the Company's Board of Directors declared a dividend of $0.30 per share on outstanding Class A common stock. The dividend is payable on August 21, 2013 to Class A common stockholders of record at the close of business on August 12, 2013.

PBF Energy currently intends to pay a quarterly cash dividend of $0.30 per share of Class A common stock. The declaration, amount and payment of this and any other future dividends on shares of Class A common stock will be at the sole discretion of our board of directors, and we are not obligated under any applicable laws, our governing documents or any contractual agreements with our existing owners or otherwise to declare or pay any dividends or other distributions (other than the obligations of PBF LLC to make tax distributions to its members).

As of June 30, 2013, PBF Holding had cash and cash equivalents totaling $69.2 million, as well as approximately $652.8 million of unused borrowing availability, which includes our cash and cash equivalents, under our ABL Revolving Credit Facility to fund its operations, if necessary. Accordingly, as of June 30, 2013, there was sufficient cash and cash equivalents and borrowing capacity under our credit facilities available to PBF Holding to make distributions to PBF LLC, in order for PBF LLC to make pro rata distributions to its members, including PBF Energy, necessary to fund in excess of one year’s cash dividend payments by PBF Energy. PBF Holding would have been permitted under its debt agreements to make these distributions; however, its ability to continue to comply with its debt covenants is, to a significant degree, subject to its operating results, which are dependent on a number of factors outside of our control. We believe our and our subsidiaries' available cash and cash equivalents, other sources of liquidity to operate our business and operating performance provides us with a reasonable basis for our assessment that we can support our intended dividend and distribution policy.
    
Iran Sanctions Compliance Disclosure
Under the Iran Threat Reduction and Syrian Human Rights Act of 2012 ("ITRA"), which added Section 13(r) of the Exchange Act, we are required to include certain disclosures in our periodic reports if we or any of our “affiliates” knowingly engaged in certain specified activities during the period covered by the report. Because the SEC defines the term “affiliate” broadly, it may include any entity controlled by us as well as any person or entity that controls us or is under common control with us (“control” is also construed broadly by the SEC). Neither we nor any of our controlled affiliates or subsidiaries have knowingly engaged in any transaction or dealing reportable under Section 13(r) of the Exchange Act during the reporting period.

Funds affiliated with The Blackstone Group L.P. (“Blackstone”) are holders of approximately 26.8% of the outstanding voting interests of PBF Energy and have three representatives on PBF Energy's Board of Directors. Accordingly, Blackstone may be deemed an “affiliate” of PBF Energy, as that term is defined in Exchange Act Rule 12b-2.  We received notice from Blackstone that it has included the disclosures described below in its SEC filings pursuant to ITRA regarding two of its portfolio companies that may be deemed to be affiliates of Blackstone. Because of the broad definition of “affiliate” in Exchange Act Rule 12b-2, these portfolio companies of Blackstone, through Blackstone's ownership of PBF Energy, may also be deemed to be affiliates of ours.  We have not independently verified the disclosures described in the following paragraph.

50



Accordingly, we received notice from Blackstone through its Quarterly Report on Form 10-Q for the three and six months ended June 30, 2013 that during the reporting period, certain individual employees at two Hilton-branded hotels in the United Arab Emirates received routine wage payments as direct deposits to their personal accounts at Bank Melli, an entity identified on the Specially Designated Nationals and Blocked Persons List (“SDN List”) maintained by the Office of Foreign Assets Control in the U.S. Department of the Treasury. Both of these hotels are owned by a third party, staffed by employees of the third party owner and operated pursuant to a management agreement between the owner and a Hilton affiliate. In each case, these payments originated from the third-party owner's account to the personal accounts of the employees at their chosen bank. During the reporting period, both hotels discontinued making direct deposits to accounts at Bank Melli. No revenues or net profits are associated with these transactions.

During the reporting period, several individuals stayed at the DoubleTree Kuala Lumpur, Malaysia, pursuant to a rate agreement between the hotel and Mahan Air, an entity identified on the SDN List. The rate agreement was terminated as of May 2, 2013. This hotel is staffed by employees of the third-party owner and operated pursuant to a management agreement between the owner and a Hilton affiliate. Under the rate agreement, which was entered into in the name of the owner, the hotel reserved a number of rooms for Mahan Air crew members at the DoubleTree Kuala Lumpur several times each week. Revenue and net profit received by Hilton attributable to Mahan Air crew hotel stays during the reporting period was approximately $430.

We have also received notice from Blackstone that Travelport Limited ("Travelport"), as part of their global business in the travel industry, provides certain passenger travel related GDS and airline IT services to Iran Air and certain airline IT services to Iran Air Tours. All of these services are either exempt from applicable sanctions prohibitions pursuant to a statutory exemption in the International Emergency Economic Powers Act permitting transactions ordinarily incident to travel or, to the extent not otherwise exempt, specifically licensed by the U.S. Office of Foreign Assets Control (“OFAC”). Subject to any changes in the exempt/licensed status of such activities, Travelport intends to continue these business activities, which are directly related to and promote the arrangement of travel for individuals. Prior to and during the reporting period, Travelport also provided airline IT services to Syrian Arab Airlines. These services were generally understood to be permissible under the same statutory travel exemption. The services were terminated following the May 2013 action by OFAC to designate this airline as a Specially Designated Global Terrorist pursuant to the Global Terrorism Sanctions Regulations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, including changes in commodity prices and interest rates. Our primary commodity price risk is associated with the difference between the prices we sell our refined products and the prices we pay for crude oil and other feedstocks. We may use derivative instruments to manage the risks from changes in the prices of crude oil and refined products, interest rates, or to capture market opportunities.

Commodity Price Risk
In order to realize value from our processing capacity, we must achieve a positive spread between the cost of raw materials and the value of finished products (i.e., refinery gross product margin or crack spread). The physical commodities that comprise our raw materials and finished goods are typically bought and sold at a spot or index price that can be highly variable.

The prices of crude oil, refined products and other commodities are subject to fluctuations in response to changes in supply, demand, market uncertainty and a variety of additional factors that are beyond our control. The crude and feedstock supply agreements for our Paulsboro and Delaware City refineries allow us to take title to and price our crude oil at locations in close proximity to our refineries, as opposed to the crude oil origination point, reducing the time we are exposed to market fluctuations before the finished refined products are sold. The crude and feedstock supply agreement for our Paulsboro refinery expired on March 31, 2013, which increases our exposure to market fluctuations between the time we purchase crude oil and sell finished products in the future. Our offtake agreements with MSCG for our Paulsboro and Delaware City refineries allowed us to sell our light finished products and certain intermediates and lube base oils as they were produced. As of July 1, 2013, the Company terminated the product offtake agreements with MSCG for the Paulsboro and Delaware City refineries and entered into two separate inventory Intermediation Agreements with J. Aron. Pursuant to the Intermediation Agreements, J. Aron purchases and holds title to all of the intermediate and finished products produced by the Delaware City and Paulsboro refineries and delivered into the Company's tanks and agrees to sell such products back to the Company as they are discharged out of the refineries'

51


tanks. Inventory held outside the refineries may be owned by PBF Holding or by J. Aron under the Intermediation Agreements. The Company will market and sell the finished products independently to third parties. We do not believe the termination of the MSCG product offtake agreements and commencement of the Intermediation Agreements will significantly impact our exposure to commodity price risk.

We carry inventories of crude oil, intermediates and refined products (“hydrocarbon inventories”) on our balance sheet, the values of which are subject to fluctuations in market prices. Our hydrocarbon inventories totaled approximately 15.0 million barrels and 14.4 million barrels at June 30, 2013 and December 31, 2012, respectively. The average cost of our hydrocarbon inventories was approximately $100.37 and $101.89 per barrel on a LIFO basis at June 30, 2013 and December 31, 2012, respectively. If market prices decline to a level below the average cost, we may be required to write down the carrying value of our hydrocarbon inventories to market.

Our predominant variable operating cost is energy, which is comprised primarily of natural gas and electricity. We are therefore sensitive to movements in natural gas prices. Assuming normal operating conditions, we annually consume a total of approximately 37 million MMBTUs of natural gas amongst our three refineries. Accordingly, a $1.00 per MMBTU change in natural gas prices would increase or decrease our natural gas costs by approximately $37 million.

We periodically use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of crude oil, finished products and natural gas to fuel our refinery operations. We may also use non-trading derivative instruments to manage price risks associated with inventories above or below a baseline we set for our target levels of hydrocarbon inventories. We may engage in the purchase and sale of physical commodities, derivatives, options, over-the-counter products and various exchange-traded instruments. We mark-to-market our derivative instruments and recognize the changes in their fair value in our statements of operations.

Compliance Program Price Risk
We are exposed to market risks related to the volatility in the price of Renewable Identification Numbers ("RINs") required to comply with the Renewable Fuel Standard. Our overall RINs obligation is based on a percentage of our domestic shipments of on-road fuels as established by the EPA. To the degree we are unable to blend the required amount of biofuels to satisfy our RINs obligation, we must purchase RINs on the open market. To mitigate the impact of this risk on our results of operations and cash flows we may purchase RINs when the price of these instruments is deemed favorable.

Interest Rate Risk
During 2012, we amended the terms of our ABL Revolving Credit Facility to increase the size of our asset-based revolving credit facility from $500.0 million to $1.575 billion. Borrowings under our ABL Revolving Credit Facility bear interest at the Adjusted LIBOR Rate plus 1.75% to 2.50%, depending on our debt rating. If this facility were fully drawn, a one percent change in the interest rate would increase or decrease our interest expense by $15.8 million annually.

We also have interest rate exposure in connection with our Statoil and MSCG crude oil and offtake agreements under which we pay a time value of money charge based on LIBOR.

Credit Risk
We are subject to risk of losses resulting from nonpayment or nonperformance by our counterparties. We will continue to closely monitor the creditworthiness of customers to whom we grant credit and establish credit limits in accordance with our credit policy.



52



Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.
PBF Energy and PBF Holding maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information which is required to be disclosed is accumulated and communicated to management in a timely manner. Under the supervision and with the participation of our management, including PBF Energy's and PBF Holding's principal executive officer and the principal financial officer, we have evaluated the effectiveness of our system of disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of June 30, 2013. Based on that evaluation, PBF Energy's and PBF Holding's principal executive officer and the principal financial officer have concluded that PBF Energy's and PBF Holding's disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting
Management has not identified any changes in PBF Energy's or PBF Holding's internal control over financial reporting that occurred during the three months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, either entity's internal control over financial reporting.



53


PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 14, 2013, two administrative appeals were filed by the Sierra Club and Delaware Audubon regarding an air permit Delaware City Refining Company LLC ("Delaware City Refining") obtained to allow loading of crude oil onto barges. The appeals allege that both the loading of crude oil onto barges and the operation of the Delaware City Refining double-loop rail terminal violate Delaware's Coastal Zone Act. The first appeal is Number 2013-1 before the State Coastal Zone Industrial Control Board, and the second appeal is before the Environmental Appeals Board and appeals Secretary's Order No. 2013-A-0020. A hearing on the first appeal, Number 2013-1, occurred on July 16, 2013, and the board ruled in favor of Delaware City Refining dismissing the appeals for lack of standing. Issuance of a final written decision is pending and the parties may then appeal to Superior Court. No hearing date has yet been set on the second appeal.

On July 24, 2013, the Delaware Department of Natural Resources and Environmental Control (DNREC) issued to Delaware City Refining Company LLC a Notice of Administrative Penalty Assessment and Secretary's Order for alleged violations of the state statute, federal air quality regulations, and its air permit. The order calls for a cash penalty of $460,200 and an additional $69,030 as cost recovery reimbursement to DNREC for expenses associated with the department's investigation.  The penalties relate to incidents that occurred during the re-start of the refinery in 2011 and subsequent incidents following completion of the startup.  Delaware City Refining Company LLC has 30 days to request a public hearing regarding the matter.

Item 1A. Risk Factors
The following Risk Factor disclosure updates the risk factors as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 previously filed with the SEC.

We could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits and authorizations or otherwise comply with health, safety, environmental and other laws and regulations.
Our operations require numerous permits and authorizations under various laws and regulations. These authorizations and permits are subject to revocation, renewal or modification and can require operational changes to limit impacts or potential impacts on the environment and/or health and safety. A violation of authorization or permit conditions or other legal or regulatory requirements could result in substantial fines, criminal sanctions, permit revocations, injunctions, and/or facility shutdowns. In addition, major modifications of our operations could require modifications to our existing permits or upgrades to our existing pollution control equipment. Any or all of these matters could have a negative effect on our business, results of operations and cash flows.
We may incur significant liability under, or costs and capital expenditures to comply with, environmental and health and safety regulations, which are complex and change frequently.
Our operations are subject to federal, state and local laws regulating, among other things, the handling of petroleum and other regulated materials, the emission and discharge of materials into the environment, waste management, and remediation of discharges of petroleum and petroleum products, characteristics and composition of gasoline and distillates and other matters otherwise relating to the protection of the environment. Our operations are also subject to extensive laws and regulations relating to occupational health and safety.
We cannot predict what additional environmental, health and safety legislation or regulations may be adopted in the future, or how existing or future laws or regulations may be administered or interpreted with respect to our operations. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time.
Certain environmental laws impose strict, and in certain circumstances, joint and several, liability for costs of investigation and cleanup of such spills, discharges or releases on owners and operators of, as well as persons who arrange for treatment or disposal of regulated materials at, contaminated sites. Under these laws, we may incur liability or be required to pay penalties for past contamination, and third parties may assert claims against us for damages

54


allegedly arising out of any past or future contamination. The potential penalties and clean-up costs for past or future releases or spills, the failure of prior owners of our facilities to complete their clean-up obligations, the liability to third parties for damage to their property, or the need to address newly-discovered information or conditions that may require a response could be significant, and the payment of these amounts could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, our Delaware City refinery and our Delaware City Rail Terminal are located in Delaware's coastal zone where certain activities are regulated under the Delaware Coastal Zone Act and closely monitored by environmental interest groups. On June 14, 2013, two administrative appeals were filed by the Sierra Club and Delaware Audubon regarding an air permit Delaware City Refining Company LLC obtained to allow loading of crude oil onto barges. The appeals allege that both the loading of crude oil onto barges and the operation of the Delaware City Rail Terminal violate the Delaware Coastal Zone Act. At a hearing on the first appeal on July 16, 2013, the board ruled in favor of Delaware City Refining, upholding the permit and the rail operations. Issuance of a final written decision is pending and the parties may then appeal to Superior Court. No hearing date has yet been set on the second appeal. If the Appellants in one or both of these matters prevail, our volumes may decline, which would have an adverse material effect on our financial condition, results of operations, cash flows.


55


Item 6. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report and such Exhibit Index is incorporated herein by reference.

EXHIBIT INDEX
Exhibit
Number
 
Description
 
 
 
10.1†
 
Inventory Intermediation Agreement dated as of June 26, 2013 (as amended) between J. Aron & Company and PBF Holding Company LLC and Paulsboro Refining Company LLC.
 
 
 
10.2†
 
Inventory Intermediation Agreement dated as of June 26, 2013 (as amended) between J. Aron & Company and PBF Holding Company LLC and Delaware City Refining Company LLC.
 
 
 
31.1
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Energy Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Energy Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.3
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Holding Company LLC pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.4
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Holding Company LLC pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1*
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Energy Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2*
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Energy Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.3*
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Holding Company LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.4*
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Holding Company LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.

*
Furnished, not filed.
 
 
Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.

In accordance with Rule 402 of Regulation S-T, the XBRL information in Exhibit 101 to this Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.


56


Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
 
 
 
PBF Energy Inc.
 
 
 
 
 
Date
August 8, 2013
 
By:
/s/ Matthew C. Lucey
 
 
 
 
Matthew C. Lucey
Senior Vice President, Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
 
 
 
 
 
 
 
PBF Holding Company LLC
 
 
 
 
 
Date
August 8, 2013
 
By:
/s/ Matthew C. Lucey
 
 
 
 
Matthew C. Lucey
Senior Vice President, Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
 
 
 
 
 
 
 
PBF Finance Corporation
 
 
 
 
 
Date
August 8, 2013
 
By:
/s/ Matthew C. Lucey
 
 
 
 
Matthew C. Lucey
Senior Vice President, Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)

57


EXHIBIT INDEX

Exhibit
Number
 
Description
 
 
 
10.1†
 
Inventory Intermediation Agreement dated as of June 26, 2013 (as amended) between J. Aron & Company and PBF Holding Company LLC and Paulsboro Refining Company LLC.
 
 
 
10.2†
 
Inventory Intermediation Agreement dated as of June 26, 2013 (as amended) between J. Aron & Company and PBF Holding Company LLC and Delaware City Refining Company LLC.
 
 
 
31.1
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Energy Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Energy Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.3
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Holding Company LLC pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.4
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Holding Company LLC pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1*
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Energy Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2*
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Energy Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.3*
 
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Holding Company LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.4*
 
Certification of Matthew C. Lucey, Chief Financial Officer of PBF Holding Company LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.

*
Furnished, not filed.
 
 
Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.


In accordance with Rule 402 of Regulation S-T, the XBRL information in Exhibit 101 to this Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.


58