Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark one)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2018
Or
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¨ | 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: 333-206728-02
PBF ENERGY INC.
PBF ENERGY COMPANY LLC
(Exact name of registrant as specified in its charter)
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DELAWARE | | 45-3763855 |
DELAWARE | | 61-1622166 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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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. Yes [x] No [ ]
PBF Energy Company LLC Yes [ ] No [x]
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. Yes [x] No [ ]
PBF Energy Company LLC Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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PBF Energy Inc. | Large accelerated filer þ | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting company o | | Emerging growth company o |
PBF Energy Company LLC | Large accelerated filer o | | Accelerated filer o | | Non-accelerated filer þ | | Smaller reporting company o | | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
PBF Energy Inc. o
PBF Energy Company LLC 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 [ ] No [x]
PBF Energy Company LLC Yes [ ] No [x]
As of April 30, 2018, PBF Energy Inc. had outstanding 112,229,546 shares of Class A common stock and 22 shares of Class B common stock. PBF Energy Inc. is the sole managing member of, and owner of an equity interest representing approximately 97.2% of the outstanding economic interest in, PBF Energy Company LLC. There is no trading in the membership interest of PBF Energy Company LLC and therefore an aggregate market value based on such is not determinable. PBF Energy Company LLC has no common stock outstanding.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS | |
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| | ITEM 1. | | |
| | PBF Energy Inc. | |
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| | PBF Energy Company LLC | |
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| | ITEM 2. | | |
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This combined Quarterly Report on Form 10-Q is filed by PBF Energy Inc. (“PBF Energy”) and PBF Energy Company LLC (“PBF LLC”). 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 a holding company whose primary asset is an equity interest in PBF LLC. PBF Energy is the sole managing member of, and owner of an equity interest representing approximately 97.2% of the outstanding economic interests in PBF LLC as of March 31, 2018. PBF Energy operates and controls all of the business and affairs and consolidates the financial results of PBF LLC and its subsidiaries. PBF LLC is a holding company for the companies that directly and indirectly own and operate our business. PBF Holding Company LLC (“PBF Holding”) is a wholly-owned subsidiary of PBF LLC and PBF Finance Corporation (“PBF Finance”) is a wholly-owned subsidiary of PBF Holding. As of March 31, 2018, PBF LLC also holds a 44.1% limited partner interest, a non-economic general partner interest and all of the incentive distribution rights in PBF Logistics LP (“PBFX” or the “Partnership”), a publicly traded master limited partnership. PBF Energy, through its ownership of PBF LLC, consolidates the financial results of PBFX and its subsidiaries and records a noncontrolling interest in its consolidated financial statements representing the economic interests of PBFX’s unit holders other than PBF LLC. Collectively, PBF Energy and its consolidated subsidiaries, including PBF LLC, PBF Holding, and PBFX are referred to hereinafter as the “Company” unless the context otherwise requires. Discussions or areas of this report that either apply only to PBF Energy or PBF LLC are clearly noted in such sections. Unless the context indicates otherwise, the terms “we,” “us,” and “our” refer to both PBF Energy and PBF LLC and its consolidated subsidiaries.
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 (“PSLRA”), 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 strategies, objectives, intentions, resources and expectations regarding future industry trends are forward-looking statements made under the safe harbor provisions of the PSLRA except to the extent such statements relate to the operations of a partnership or limited liability company. 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 “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q, the Annual Report on Form 10-K for the year ended December 31, 2017 of PBF Energy, which we refer to as our 2017 Annual Report on Form 10-K, the PBF LLC financial statements for the year ended December 31, 2017 filed with PBF Logistics LP’s Registration Statement on Form S-4 filed on March 13, 2018 by PBFX Logistics LP, and in our other filings with the SEC. 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, including volatility in commodity prices;
• 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) and generate earnings and cash flow;
•our indebtedness;
•our supply and inventory intermediation arrangements expose us to counterparty credit and performance risk;
•termination of our Inventory Intermediation Agreements with J. Aron, which could have a material adverse effect on our liquidity, as we would be required to finance our intermediate and refined products inventory covered by the agreements. Additionally, we are obligated to repurchase from J. Aron certain intermediates and finished products located at the Paulsboro and Delaware City refineries’ storage tanks upon termination of these agreements;
•restrictive covenants in our indebtedness that may adversely affect our operational flexibility;
•payments by PBF Energy to the current and former holders of PBF LLC Series A Units and PBF LLC Series B Units under our Tax Receivable Agreement (as defined in “Note 9 - Commitments and Contingencies” of our Notes to Condensed Consolidated Financial Statements) for certain tax benefits we may claim;
•our assumptions regarding payments arising under PBF Energy’s Tax Receivable Agreement and other arrangements relating to our organizational structure 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;
•our expectations and timing with respect to our acquisition activity and whether such acquisitions are accretive or dilutive to shareholders;
•our expectations with respect to our capital improvement and turnaround projects;
•the status of an air permit to transfer crude through the Delaware City refinery’s dock;
•the impact of disruptions to crude or feedstock supply to any of our refineries, including disruptions due to problems at PBFX or with third party logistics infrastructure or operations, including pipeline, marine and rail transportation;
•the possibility that we might reduce or not make further dividend payments;
•the inability of our subsidiaries to freely pay dividends or make distributions to us;
•the impact of current and future laws, rulings and governmental regulations, including the implementation of rules and regulations regarding transportation of crude oil by rail;
•the impact of the newly enacted federal income tax legislation on our business;
•the effectiveness of our crude oil sourcing strategies, including our crude by rail strategy and related commitments;
•adverse impacts from changes in our regulatory environment, such as the effects of compliance with the California Global Warming Solutions Act (also referred to as “AB32”), or from actions taken by environmental interest groups;
•market risks related to the volatility in the price of Renewable Identification Numbers (“RINs”) required to comply with the Renewable Fuel Standards and greenhouse gas (“GHG”) emission credits required to comply with various GHG emission programs, such as AB32;
•our ability to successfully integrate recently completed acquisitions into our business and realize the benefits from such acquisitions;
•liabilities arising from recent acquisitions that are unforeseen or exceed our expectations;
•risk associated with the operation of PBFX as a separate, publicly-traded entity;
•potential tax consequences related to our investment in PBFX; and
•any decisions we continue to make with respect to our energy-related logistical assets that may be transferred to PBFX.
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 speak only as of the date of this Quarterly Report on Form 10-Q. 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.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
PBF ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share data) |
| | | | | | | |
| March 31, 2018 | | December 31, 2017 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents (PBFX: $22,009 and $19,664, respectively) | $ | 362,963 |
| | $ | 573,021 |
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Accounts receivable | 831,055 |
| | 952,552 |
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Inventories | 2,579,744 |
| | 2,213,797 |
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Prepaid and other current assets | 87,973 |
| | 63,589 |
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Total current assets | 3,861,735 |
| | 3,802,959 |
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Property, plant and equipment, net (PBFX: $670,261 and $673,823, respectively) | 3,493,021 |
| | 3,479,213 |
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Deferred tax assets | 47,265 |
| | 53,638 |
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Deferred charges and other assets, net | 880,342 |
| | 782,183 |
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Total assets | $ | 8,282,363 |
| | $ | 8,117,993 |
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LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 666,806 |
| | $ | 578,551 |
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Accrued expenses | 1,889,080 |
| | 1,814,854 |
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Deferred revenue | 6,362 |
| | 8,933 |
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Note payable | 4,410 |
| | 5,621 |
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Current debt | 11,032 |
| | 10,987 |
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Total current liabilities | 2,577,690 |
| | 2,418,946 |
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Long-term debt (PBFX: $539,456 and $548,793, respectively) | 2,165,604 |
| | 2,175,042 |
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Payable to related parties pursuant to Tax Receivable Agreement | 366,547 |
| | 362,142 |
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Deferred tax liabilities | 32,459 |
| | 33,155 |
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Other long-term liabilities | 224,238 |
| | 225,759 |
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Total liabilities | 5,366,538 |
| | 5,215,044 |
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Commitments and contingencies (Note 9) |
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Equity: | | | |
PBF Energy Inc. equity | | | |
Class A common stock, $0.001 par value, 1,000,000,000 shares authorized, 111,118,981 shares outstanding at March 31, 2018, 110,565,531 shares outstanding at December 31, 2017 | 95 |
| | 95 |
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Class B common stock, $0.001 par value, 1,000,000 shares authorized, 22 shares outstanding at March 31, 2018, 25 shares outstanding at December 31, 2017 | — |
| | — |
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Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares outstanding at March 31, 2018 and December 31, 2017 | — |
| | — |
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Treasury stock, at cost, 6,165,033 shares outstanding at March 31, 2018 and 6,132,884 shares outstanding at December 31, 2017 | (153,602 | ) | | (152,585 | ) |
Additional paid in capital | 2,294,692 |
| | 2,277,739 |
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Retained earnings | 233,830 |
| | 236,786 |
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Accumulated other comprehensive loss | (25,134 | ) | | (25,381 | ) |
Total PBF Energy Inc. equity | 2,349,881 |
| | 2,336,654 |
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Noncontrolling interest | 565,944 |
| | 566,295 |
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Total equity | 2,915,825 |
| | 2,902,949 |
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Total liabilities and equity | $ | 8,282,363 |
| | $ | 8,117,993 |
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See notes to condensed consolidated financial statements.
5
PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
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| | Three Months Ended March 31, |
| | 2018 | | 2017 |
Revenues | | $ | 5,802,776 |
| | $ | 4,754,473 |
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Cost and expenses: | | | | |
Cost of products and other | | 5,132,102 |
| | 4,196,767 |
|
Operating expenses (excluding depreciation and amortization expense as reflected below) | | 426,135 |
| | 451,266 |
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Depreciation and amortization expense | | 83,273 |
| | 59,170 |
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Cost of sales | | 5,641,510 |
| | 4,707,203 |
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General and administrative expenses (excluding depreciation and amortization expense as reflected below) | | 62,813 |
| | 43,830 |
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Depreciation and amortization expense | | 2,714 |
| | 1,762 |
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Loss on sale of assets | | 79 |
| | 883 |
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Total cost and expenses | | 5,707,116 |
| | 4,753,678 |
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Income from operations | | 95,660 |
| | 795 |
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Other income (expense): | | | | |
Change in fair value of catalyst leases | | 13 |
| | (2,588 | ) |
Interest expense, net | | (43,198 | ) | | (37,183 | ) |
Other non-service components of net periodic benefit cost | | 278 |
| | (101 | ) |
Income (loss) before income taxes | | 52,753 |
| | (39,077 | ) |
Income tax expense (benefit) | | 10,942 |
| | (19,047 | ) |
Net income (loss) | | 41,811 |
| | (20,030 | ) |
Less: net income attributable to noncontrolling interests | | 11,445 |
| | 11,047 |
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Net income (loss) attributable to PBF Energy Inc. stockholders | | $ | 30,366 |
| | $ | (31,077 | ) |
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Weighted-average shares of Class A common stock outstanding | | | | |
Basic | | 110,820,379 |
| | 108,760,374 |
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Diluted | | 115,193,491 |
| | 108,760,374 |
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Net income (loss) available to Class A common stock per share: | | | | |
Basic | | $ | 0.27 |
| | $ | (0.29 | ) |
Diluted | | $ | 0.27 |
| | $ | (0.29 | ) |
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Dividends per common share | | $ | 0.30 |
| | $ | 0.30 |
|
See notes to condensed consolidated financial statements.
6
PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
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| | Three Months Ended March 31, |
| | 2018 | | 2017 |
Net income (loss) | | $ | 41,811 |
| | $ | (20,030 | ) |
Other comprehensive income: | |
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Unrealized gain on available for sale securities | | — |
| | 27 |
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Net gain on pension and other post-retirement benefits | | 254 |
| | 287 |
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Total other comprehensive income | | 254 |
| | 314 |
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Comprehensive income (loss) | | 42,065 |
| | (19,716 | ) |
Less: comprehensive income attributable to noncontrolling interests | | 11,452 |
| | 11,057 |
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Comprehensive income (loss) attributable to PBF Energy Inc. stockholders | | $ | 30,613 |
| | $ | (30,773 | ) |
See notes to condensed consolidated financial statements.
7
PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands) |
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 41,811 |
| | $ | (20,030 | ) |
Adjustments to reconcile net income (loss) to net cash used in operations: | | | |
Depreciation and amortization | 87,993 |
| | 63,527 |
|
Stock-based compensation | 5,072 |
| | 6,025 |
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Change in fair value of catalyst leases | (13 | ) | | 2,588 |
|
Deferred income taxes | 10,859 |
| | (19,520 | ) |
Non-cash change in inventory repurchase obligations | 8,825 |
| | (23,124 | ) |
Non-cash lower of cost or market inventory adjustment | (87,653 | ) | | 16,039 |
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Pension and other post-retirement benefit costs | 11,845 |
| | 10,560 |
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Loss on sale of assets | 79 |
| | 883 |
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| | | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 121,497 |
| | 9,962 |
|
Inventories | (278,294 | ) | | (238,437 | ) |
Prepaid and other current assets | (24,384 | ) | | 54,247 |
|
Accounts payable | 31,907 |
| | (187,042 | ) |
Accrued expenses | (8,278 | ) | | 193,874 |
|
Deferred revenue | (2,571 | ) | | (9,343 | ) |
Other assets and liabilities | (4,128 | ) | | (25,573 | ) |
Net cash used in operations | (85,433 | ) | | (165,364 | ) |
| | | |
Cash flows from investing activities: | | | |
Expenditures for property, plant and equipment | (24,936 | ) | | (109,726 | ) |
Expenditures for deferred turnaround costs | (58,800 | ) | | (64,371 | ) |
Expenditures for other assets | (9,544 | ) | | (14,847 | ) |
Purchase of marketable securities | — |
| | (75,036 | ) |
Maturities of marketable securities | — |
| | 75,006 |
|
Net cash used in investing activities | $ | (93,280 | ) | | $ | (188,974 | ) |
See notes to condensed consolidated financial statements.
8
PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited, in thousands) |
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Cash flows from financing activities: | | | |
Distributions to PBF Energy Company LLC members other than PBF Energy | $ | (972 | ) | | $ | (1,152 | ) |
Distributions to PBFX public unit holders | (11,369 | ) | | (10,487 | ) |
Dividend payments | (33,226 | ) | | (32,900 | ) |
Repayments of PBFX revolver borrowings | (9,700 | ) | | — |
|
Repayments of PBFX Term Loan borrowings | — |
| | (39,664 | ) |
Repayments of PBF Rail Term Loan | (1,686 | ) | | (1,642 | ) |
Proceeds from revolver borrowings | — |
| | 200,000 |
|
Repayments of revolver borrowings | — |
| | (200,000 | ) |
Repayment of note payable | (1,211 | ) | | — |
|
Proceeds from insurance premium financing | 27,836 |
| | — |
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Purchase of treasury stock | (1,017 | ) | | — |
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Net cash used in financing activities | (31,345 | ) | | (85,845 | ) |
| | | |
Net decrease in cash and cash equivalents | (210,058 | ) | | (440,183 | ) |
Cash and cash equivalents, beginning of period | 573,021 |
| | 746,274 |
|
Cash and cash equivalents, end of period | $ | 362,963 |
| | $ | 306,091 |
|
| | | |
Supplemental cash flow disclosures | | | |
Non-cash activities: | | | |
Accrued and unpaid capital expenditures | $ | 129,416 |
| | $ | 55,470 |
|
See notes to condensed consolidated financial statements.
9
PBF ENERGY COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except unit and per unit data)
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| | | | | | | |
| March 31, 2018 | | December 31, 2017 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents (PBFX: $22,009 and $19,664, respectively) | $ | 361,513 |
| | $ | 562,036 |
|
Accounts receivable | 831,055 |
| | 952,552 |
|
Inventories | 2,579,744 |
| | 2,213,797 |
|
Prepaid and other current assets | 87,973 |
| | 51,799 |
|
Total current assets | 3,860,285 |
| | 3,780,184 |
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| | | |
Property, plant and equipment, net (PBFX: $670,261 and $673,823, respectively) | 3,493,021 |
| | 3,479,213 |
|
Deferred charges and other assets, net | 875,638 |
| | 779,588 |
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Total assets | $ | 8,228,944 |
| | $ | 8,038,985 |
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| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 666,806 |
| | $ | 578,551 |
|
Accrued expenses | 1,902,161 |
| | 1,824,394 |
|
Deferred revenue | 6,362 |
| | 8,933 |
|
Note payable | 4,410 |
| | 5,621 |
|
Current debt | 11,032 |
| | 10,987 |
|
Total current liabilities | 2,590,771 |
| | 2,428,486 |
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| | | |
Long-term debt (PBFX: $539,456 and $548,793, respectively) | 2,165,604 |
| | 2,175,042 |
|
Affiliate note payable | 310,201 |
| | 292,844 |
|
Deferred tax liabilities | 32,459 |
| | 33,155 |
|
Other long-term liabilities | 224,265 |
| | 225,845 |
|
Total liabilities | 5,323,300 |
| | 5,155,372 |
|
| | | |
Commitments and contingencies (Note 9) | | | |
| | | |
Series B Units, 1,000,000 issued and outstanding, no par or stated value
| 5,110 |
| | 5,110 |
|
PBF Energy Company LLC equity: | | | |
Series A Units, 3,240,062 and 3,767,464 issued and outstanding, as of March 31, 2018 and December 31, 2017, no par or stated value
| 35,953 |
| | 40,058 |
|
Series C Units, 111,140,212 and 110,586,762 issued and outstanding, as of March 31, 2018 and December 31, 2017, no par or stated value
| 1,664,359 |
| | 1,654,999 |
|
Treasury stock, at cost | (153,602 | ) | | (152,585 | ) |
Retained earnings | 925,088 |
| | 906,875 |
|
Accumulated other comprehensive loss | (26,682 | ) | | (26,936 | ) |
Total PBF Energy Company LLC equity | 2,445,116 |
| | 2,422,411 |
|
Noncontrolling interest | 455,418 |
| | 456,092 |
|
Total equity | 2,900,534 |
| | 2,878,503 |
|
Total liabilities, Series B units and equity | $ | 8,228,944 |
| | $ | 8,038,985 |
|
PBF ENERGY COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2018 | | 2017 |
Revenues | | $ | 5,802,776 |
| | $ | 4,754,473 |
|
| | | | |
Cost and expenses: | | | | |
Cost of products and other | | 5,132,102 |
| | 4,196,767 |
|
Operating expenses (excluding depreciation and amortization expense as reflected below) | | 426,135 |
| | 451,266 |
|
Depreciation and amortization expense | | 83,273 |
| | 59,170 |
|
Cost of sales | | 5,641,510 |
| | 4,707,203 |
|
General and administrative expenses (excluding depreciation and amortization expense as reflected below) | | 62,561 |
| | 43,794 |
|
Depreciation and amortization expense | | 2,714 |
| | 1,762 |
|
Loss on sale of assets | | 79 |
| | 883 |
|
Total cost and expenses | | 5,706,864 |
| | 4,753,642 |
|
| | | | |
Income from operations | | 95,912 |
| | 831 |
|
| | | | |
Other income (expense): | | | | |
Change in fair value of catalyst leases | | 13 |
| | (2,588 | ) |
Interest expense, net | | (45,161 | ) | | (39,561 | ) |
Other non-service components of net periodic benefit cost | | 278 |
| | (101 | ) |
Income (loss) before income taxes | | 51,042 |
| | (41,419 | ) |
Income tax (benefit) expense | | (701 | ) | | 434 |
|
Net income (loss) | | 51,743 |
| | (41,853 | ) |
Less: net income attributable to noncontrolling interests | | 10,157 |
| | 12,903 |
|
Net income (loss) attributable to PBF Energy Company LLC | | $ | 41,586 |
| | $ | (54,756 | ) |
See notes to condensed consolidated financial statements.
11
PBF ENERGY COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2018 | | 2017 |
Net income (loss) | | $ | 51,743 |
| | $ | (41,853 | ) |
Other comprehensive income: | | | | |
Unrealized gain on available for sale securities | | — |
| | 27 |
|
Net gain on pension and other post-retirement benefits | | 254 |
| | 287 |
|
Total other comprehensive income | | 254 |
| | 314 |
|
Comprehensive income (loss) | | 51,997 |
| | (41,539 | ) |
Less: comprehensive income attributable to noncontrolling interests | | 10,157 |
| | 12,903 |
|
Comprehensive income (loss) attributable to PBF Energy Company LLC | | $ | 41,840 |
| | $ | (54,442 | ) |
See notes to condensed consolidated financial statements.
12
PBF ENERGY COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 51,743 |
| | $ | (41,853 | ) |
Adjustments to reconcile net income (loss) to net cash used in operations: | | | |
Depreciation and amortization | 87,993 |
| | 63,527 |
|
Stock-based compensation | 5,072 |
| | 6,025 |
|
Change in fair value of catalyst leases | (13 | ) | | 2,588 |
|
Deferred income taxes | (696 | ) | | (38 | ) |
Non-cash change in inventory repurchase obligations | 8,825 |
| | (23,124 | ) |
Non-cash lower of cost or market inventory adjustment | (87,653 | ) | | 16,039 |
|
Pension and other post-retirement benefit costs | 11,845 |
| | 10,560 |
|
Loss on sale of assets | 79 |
| | 883 |
|
| | | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 121,497 |
| | 9,962 |
|
Inventories | (278,294 | ) | | (238,437 | ) |
Prepaid and other current assets | (36,174 | ) | | (28,690 | ) |
Accounts payable | 31,907 |
| | (187,042 | ) |
Accrued expenses | (13,549 | ) | | 190,796 |
|
Deferred revenue | (2,571 | ) | | (9,343 | ) |
Other assets and liabilities | (4,187 | ) | | (25,511 | ) |
Net cash used in operations | (104,176 | ) | | (253,658 | ) |
| | | |
Cash flows from investing activities: | | | |
Expenditures for property, plant and equipment | (24,936 | ) | | (109,726 | ) |
Expenditures for deferred turnaround costs | (58,800 | ) | | (64,371 | ) |
Expenditures for other assets | (9,544 | ) | | (14,847 | ) |
Purchase of marketable securities | — |
| | (75,036 | ) |
Maturities of marketable securities | — |
| | 75,006 |
|
Net cash used in investing activities | $ | (93,280 | ) | | $ | (188,974 | ) |
See notes to condensed consolidated financial statements.
13
PBF ENERGY COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited, in thousands)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Cash flows from financing activities: | | | |
Distributions to PBF Energy Company LLC members | $ | (34,198 | ) | | $ | (34,052 | ) |
Distributions to PBFX public unit holders | (11,369 | ) | | (10,487 | ) |
Repayments of PBFX revolver borrowings | (9,700 | ) | | — |
|
Repayments of PBFX Term Loan borrowings | — |
| | (39,664 | ) |
Repayments of PBF Rail Term Loan | (1,686 | ) | | (1,642 | ) |
Proceeds from revolver borrowings | — |
| | 200,000 |
|
Repayments of revolver borrowings | — |
| | (200,000 | ) |
Repayment of note payable | (1,211 | ) | | — |
|
Proceeds from affiliate loan with PBF Energy Inc. | 28,278 |
| | 72,000 |
|
Proceeds from insurance premium financing | 27,836 |
| | — |
|
Repurchase of treasury stock | (1,017 | ) | | — |
|
Net cash used in financing activities | (3,067 | ) | | (13,845 | ) |
| | | |
Net decrease in cash and cash equivalents | (200,523 | ) | | (456,477 | ) |
Cash and cash equivalents, beginning of period | 562,036 |
| | 734,962 |
|
Cash and cash equivalents, end of period | $ | 361,513 |
| | $ | 278,485 |
|
| | | |
Supplemental cash flow disclosures | | | |
Non-cash activities: | | | |
Accrued and unpaid capital expenditures | $ | 129,416 |
| | $ | 55,470 |
|
See notes to condensed consolidated financial statements.
14
PBF ENERGY INC. AND PBF ENERGY 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 and is the sole managing member of PBF Energy Company LLC (“PBF LLC”), a Delaware limited liability company, 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.
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 Investments LLC (“PBF Investments”), Toledo Refining Company LLC (“Toledo Refining” or “TRC”), Paulsboro Refining Company LLC (“Paulsboro Refining” or “PRC”), Delaware City Refining Company LLC (“Delaware City Refining” or “DCR”), Chalmette Refining, L.L.C. (“Chalmette Refining”), PBF Western Region LLC (“PBF Western Region”), Torrance Refining Company LLC (“Torrance Refining”) and Torrance Logistics Company LLC are PBF LLC’s principal operating subsidiaries and are all wholly-owned subsidiaries of PBF Holding. Collectively, PBF Energy and its consolidated subsidiaries, including PBF LLC and PBF Holding, are referred to hereinafter as the “Company” unless the context otherwise requires. Discussions or areas of the Notes to Condensed Consolidated Financial Statements that either apply only to PBF Energy or PBF LLC are clearly noted in such footnotes.
As of March 31, 2018, PBF LLC also holds a 44.1% limited partner interest and all of the incentive distribution rights in PBF Logistics LP (“PBFX”), a publicly traded master limited partnership (refer to “Note 3 - PBF Logistics LP”). PBF Logistics GP LLC (“PBF GP”) owns the noneconomic general partner interest and serves as the general partner of PBFX and is wholly-owned by PBF LLC. PBF Energy, through its ownership of PBF LLC, consolidates the financial results of PBFX and its subsidiaries and records a noncontrolling interest in its consolidated financial statements representing the economic interests of PBFX’s unit holders other than PBF LLC. Collectively, PBF Energy and its consolidated subsidiaries, including PBF LLC, PBF Holding, PBF GP and PBFX are referred to hereinafter as the “Company” unless the context otherwise requires.
As of March 31, 2018, the Company owns 111,140,212 PBF LLC Series C Units and the Company’s current and former executive officers and directors and certain employees and others beneficially own 3,240,062 PBF LLC Series A Units. As of March 31, 2018, the holders of the Company’s issued and outstanding shares of Class A common stock have 97.2% of the voting power in the Company and the members of PBF LLC other than PBF Energy through their holdings of Class B common stock have the remaining 2.8% of the voting power in the Company.
Substantially all of the Company’s operations are in the United States. The Company operates in two reportable business segments: Refining and Logistics. The Company’s oil refineries are all engaged in the refining of crude oil and other feedstocks into petroleum products, and are aggregated into the Refining segment. PBFX is a publicly traded master limited partnership that was formed to operate logistical assets such as crude oil and refined petroleum products terminals, pipelines, and storage facilities. PBFX’s operations are aggregated into the Logistics 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.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
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 accounting principles generally accepted in the United States of America (“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 should be read in conjunction with the PBF Energy financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017 and the PBF LLC financial statements for the year ended December 31, 2017 included in the Registration Statement on Form S-4 filed on March 13, 2018 by PBF Logistics LP. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year.
Change in Presentation
In 2017, the Company determined that it would revise the presentation of certain line items on its consolidated statements of operations to enhance its disclosure under the requirements of Rule 5-03 of Regulation S-X. The revised presentation is comprised of the inclusion of a subtotal within costs and expenses referred to as “Cost of sales” and the reclassification of total depreciation and amortization expense between such amounts attributable to cost of sales and other operating costs and expenses. The amount of depreciation and amortization expense that is presented separately within the “Cost of Sales” subtotal represents depreciation and amortization of refining and logistics assets that are integral to the refinery production process.
The historical comparative information has been revised to conform to the current presentation. This revised presentation does not have an effect on the Company’s historical consolidated income from operations or net income, nor does it have any impact on its consolidated balance sheets, statements of comprehensive income or statements of cash flows. Presented below is a summary of the effects of this revised presentation on the Company’s historical statements of operations for the three months ended March 31, 2017 (in thousands):
|
| | | | | | | | | | |
PBF Energy | Three Months Ended March 31, 2017 |
| As Previously Reported | | Adjustments | | As Reclassified |
Cost and expenses: | | | | | |
Cost of products and other | $ | 4,196,767 |
| | — |
| | $ | 4,196,767 |
|
Operating expenses (excluding depreciation and amortization expense as reflected below) | 451,266 |
| | — |
| | 451,266 |
|
Depreciation and amortization expense | — |
| | 59,170 |
| | 59,170 |
|
Cost of sales | | | | | 4,707,203 |
|
General and administrative expenses (excluding depreciation and amortization expense as reflected below) | 43,830 |
| | — |
| | 43,830 |
|
Depreciation and amortization expense | 60,932 |
| | (59,170) |
| | 1,762 |
|
Loss on sale of assets | 883 |
| | — |
| | 883 |
|
Total cost and expenses | $ | 4,753,678 |
| | | | $ | 4,753,678 |
|
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
Recently Adopted Accounting Guidance
In May 2014, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” (“ASC 606”). ASC 606 supersedes the revenue recognition requirements in Accounting Standards Codification 605 “Revenue Recognition” (“ASC 605”), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective transition method. See “Note 2 - Revenues” for further details.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which provides guidance to improve the reporting of net periodic benefit cost in the income statement and on the components eligible for capitalization in assets. Under the new guidance, employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. Additionally, under this guidance, employers will present the other non-service components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. The guidance includes a practical expedient allowing entities to estimate amounts for comparative periods using the information previously disclosed in their pension and other postretirement benefit plan note to the financial statements. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company adopted ASU 2017-07 effective January 1, 2018 and applied the new guidance retrospectively in the Condensed Consolidated Statement of Operations. For the three months ended March 31, 2018 and March 31, 2017, the Company recorded income of $278 and expense of $101, respectively, within Other income (expense) for the non-service cost components of net periodic benefit cost that were historically recorded within Operating expenses.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides guidance to increase clarity and reduce both diversity in practice and cost and complexity when applying the existing accounting guidance on changes to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 require an entity to account for the effects of a modification unless all the following are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The guidance in ASU 2017-09 should be applied prospectively. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company’s adoption of this guidance did not materially impact its condensed consolidated financial statements.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), to increase the transparency and comparability about leases among entities. Additional ASUs have been issued subsequent to ASU 2016-02 to provide additional clarification and implementation guidance for leases related to ASU 2016-02 including ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”) (collectively, the Company refers to ASU 2016-02 and these additional ASUs as the “Updated Lease Guidance”) The Updated Lease Guidance requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and requires a modified retrospective approach to adoption. ASU 2018-01 provides a practical expedient whereby land easements (also
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
known as “rights of way”) that are not accounted for as leases under existing GAAP would not need to be evaluated under ASU 2016-02; however the Updated Lease Guidance would apply prospectively to all new or modified land easements after the effective date of ASU 2016-02. In January 2018, the FASB issued a proposed ASU that would provide an additional transition method for the Updated Lease Guidance for lessees and a practical expedient for lessors. As proposed, this additional transition method would allow lessees to initially apply the requirements of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The proposed practical expedient would allow lessors to not separate non-lease components from the related lease components in certain situations. Assuming the proposed ASU is approved after the comment period, the proposed ASU would have the same effective date as ASU 2016-02. While early adoption is permitted, the Company will not early adopt this Updated Lease Guidance. The Company has established a working group to study and lead implementation of the Updated Lease Guidance. This working group has instituted a task plan designed to meet the implementation deadline for ASU 2016-02. The Company has also evaluated and purchased a lease software system and has begun implementation of the selected system. The working group continues to evaluate the impact of the Updated Lease Guidance on its consolidated financial statements and related disclosures and the impact on its business processes and controls. At this time, the Company has identified that the most significant impacts of the Updated Lease Guidance will be to bring nearly all leases on its balance sheet with “right of use assets” and “lease obligation liabilities” as well as accelerating recognition of the interest expense component of financing leases. While the assessment of the impacts arising from this standard is progressing, the Company has not fully determined the impacts on its business processes, controls or financial statement disclosures at this time.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The amendments in ASU 2017-12 more closely align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The amendments in ASU 2017-12 address specific limitations in current GAAP by expanding hedge accounting for both nonfinancial and financial risk components and by refining the measurement of hedge results to better reflect an entity’s hedging strategies. Thus, the amendments in ASU 2017-12 will enable an entity to better portray the economic results of hedging activities for certain fair value and cash flow hedges and will avoid mismatches in earnings by allowing for greater precision when measuring changes in fair value of the hedged item for certain fair value hedges. Additionally, by aligning the timing of recognition of hedge results with the earnings effect of the hedged item for cash flow and net investment hedges, and by including the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is presented, the results of an entity’s hedging program and the cost of executing that program will be more visible to users of financial statements. The guidance in ASU 2017-12 concerning amendments to cash flow and net investment hedge relationships that exist on the date of adoption should be applied using a modified retrospective approach (i.e., with a cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date). The guidance in ASU 2017-12 also provides transition relief to make it easier for entities to apply certain amendments to existing hedges (including fair value hedges) where the hedge documentation needs to be modified. The presentation and disclosure requirements of ASU 2017-12 should be applied prospectively. The amendments in this ASU are effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
2. REVENUES
Adoption of Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”
Prior to January 1, 2018, the Company recognized revenue from customers when all of the following criteria were met: (i) persuasive evidence of an exchange arrangement existed, (ii) delivery had occurred or services had been rendered, (iii) the buyer’s price was fixed or determinable and (iv) collectability was reasonably assured. Amounts billed in advance of the period in which the service was rendered or product delivered were recorded as deferred revenue.
Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. As a result, the Company has changed its accounting policy for the recognition of revenue from contracts with customers as detailed below.
The Company adopted ASC 606 using the modified retrospective method, which has been applied for the three months ended March 31, 2018. The Company has applied ASC 606 only to those contracts that were not complete
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
as of January 1, 2018. As such, the financial information for prior periods has not been adjusted and continues to be reported under ASC 605. The Company did not record a cumulative effect adjustment upon initially applying ASC 606 as there was not a significant impact upon adoption; however, the details of significant qualitative and quantitative disclosure changes upon implementing ASC 606 are discussed below.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
As noted in “Note 14 - Segment Information”, the Company’s business consists of the Refining Segment and Logistics Segment. The following table provides information relating to the Company’s revenues for each product or group of similar products or services by segment for the periods presented:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Refining Segment: | | | |
Gasoline and distillates | $ | 4,994,320 |
| | $ | 4,088,811 |
|
Feedstocks and other | 238,709 |
| | 224,410 |
|
Asphalt and blackoils | 308,861 |
| | 185,128 |
|
Chemicals | 176,108 |
| | 184,423 |
|
Lubricants | 81,603 |
| | 67,425 |
|
Total | 5,799,601 |
| | 4,750,197 |
|
Logistics Segment: | | | |
Logistics | 64,039 |
| | 60,477 |
|
Total revenue prior to eliminations | 5,863,640 |
| | 4,810,674 |
|
Eliminations of intercompany revenue | (60,864 | ) | | (56,201 | ) |
Total Revenues | $ | 5,802,776 |
| | $ | 4,754,473 |
|
The majority of the Company’s revenues are generated from the sale of refined petroleum products reported in the Refining segment. These revenues are largely based on the current spot (market) prices of the products sold, which represent consideration specifically allocable to the products being sold on a given day, and the Company recognizes those revenues upon delivery and transfer of title to the products to our customers. The time at which delivery and transfer of title occurs is the point when the Company’s control of the products is transferred to the Company’s customers and when their performance obligation to their customers is fulfilled. Delivery and transfer in title are specifically agreed to between the Company and customers within the contracts. The Refining segment also has contracts which contain fixed pricing, tiered pricing, minimum volume features with makeup periods, or other factors that have not materially been affected by ASC 606.
Logistics segment revenue is generated by charging fees for crude oil and refined products terminaling, storing and pipeline services based on the greater of contractual minimum volume commitments, as applicable, or the delivery of actual volumes transferred based on contractual rates applied to throughput volumes. A majority of the Company’s logistics revenues are generated between intercompany transactions and are eliminated on consolidation.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
Nonmonetary transactions
The Company enters into nonmonetary exchanges between entities in the same line of business that are made to facilitate sales to customers other than the parties in the exchange. These types of transactions are common for the Company, and may include exchange agreements with other downstream oil and gas entities, such as crude oil swaps for refining use or refined products swaps for sales to wholesalers or retailers.
In addition, the Company often engages in buy/sell arrangements, which involve purchases and sales of inventory with the same counterparty that may be entered into in contemplation of one another and treated as a single exchange transaction. The Company accounts for these transaction on a net basis under FASB ASC Topic 845, “Nonmonetary Transactions”. These transactions accounted for $35,871 of our revenue for the three months ended March 31, 2018.
Deferred Revenues
The Company records deferred revenues when cash payments are received or are due in advance of our performance, including amounts which are refundable. Deferred revenue was $6,362 and $8,933 as of March 31, 2018 and December 31, 2017, respectively. The decrease in the deferred revenue balance for the three months ended March 31, 2018 is primarily driven by the timing and extent of cash payments received or due in advance of satisfying the Company’s performance obligations for the comparative periods.
Our payment terms vary by the type and location of our customer and the products offered. The period between invoicing and when payment is due is not significant (i.e. generally within two months). For certain products or services and customer types, we require payment before the products or services are delivered to the customer.
Significant Judgment and Practical Expedients
For performance obligations related to sales of products, the Company has determined that customers are able to direct the use of, and obtain substantially all of the benefits from, the products at the point in time that the products are delivered. The Company has determined that the transfer of control upon delivery to the customer’s requested destination accurately depicts the transfer of goods. Upon the delivery of the products and transfer of control, the Company generally has the present right to payment and the customers bear the risks and rewards of ownership of the products. We have elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
3. PBF LOGISTICS LP
PBFX is a fee-based, growth-oriented, publicly traded Delaware master limited partnership formed by PBF Energy to own or lease, operate, develop and acquire crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets. PBFX engages in the receiving, handling, storage and transferring of crude oil, refined products, natural gas and intermediates from sources located throughout the United States and Canada for PBF Energy in support of its refineries, as well as for third party customers. As of March 31, 2018, a substantial majority of PBFX’s revenue is derived from long-term, fee-based commercial agreements with PBF Holding, which include minimum volume commitments for receiving, handling, storing and transferring crude oil, refined products and natural gas. PBF Energy also has agreements with PBFX that establish fees for certain general and administrative services and operational and maintenance services provided by PBF Holding to PBFX. These transactions, other than those with third parties, are eliminated by PBF Energy and PBF LLC in consolidation.
PBFX, a variable interest entity, is consolidated by PBF Energy through its ownership of PBF LLC. PBF LLC, through its ownership of PBF GP, has the sole ability to direct the activities of PBFX that most significantly impact its economic performance. PBF LLC is considered to be the primary beneficiary of PBFX for accounting purposes.
As of March 31, 2018, PBF LLC holds a 44.1% limited partner interest in PBFX consisting of 18,459,497 common units, with the remaining 55.9% limited partner interest held by public unit holders. PBF LLC also owns all of the
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
incentive distribution rights (“IDRs”) and indirectly owns a non-economic general partner interest in PBFX through its wholly-owned subsidiary, PBF GP, the general partner of PBFX. The IDRs entitle PBF LLC to receive increasing percentages, up to a maximum of 50.0%, of the cash PBFX distributes from operating surplus in excess of $0.345 per unit per quarter.
4. EQUITY
Noncontrolling Interest in PBF LLC
PBF Energy is 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. As of March 31, 2018 and December 31, 2017, PBF Energy’s equity interest in PBF LLC represented approximately 97.2% and 96.7%, respectively, of the outstanding interests.
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 condensed consolidated statements of operations includes 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 condensed 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 percentages in PBF LLC as of March 31, 2018 and December 31, 2017 are calculated as follows:
|
| | | | | | | | |
| Holders of PBF LLC Series A Units | | Outstanding Shares of PBF Energy Class A Common Stock | | Total * |
December 31, 2017 | 3,767,464 |
| | 110,565,531 |
| | 114,332,995 |
|
| 3.3 | % | | 96.7 | % | | 100.0 | % |
March 31, 2018 | 3,240,062 |
| | 111,118,981 |
| | 114,359,043 |
|
| 2.8 | % | | 97.2 | % | | 100.0 | % |
——————————
| |
* | 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. |
Noncontrolling Interest in PBFX
PBF LLC holds a 44.1% limited partner interest in PBFX and owns all of PBFX’s IDRs, with the remaining 55.9% limited partner interest owned by public common unit holders as of March 31, 2018. PBF LLC is also the sole member of PBF GP, the general partner of PBFX.
PBF Energy, through its ownership of PBF LLC, consolidates the financial results of PBFX, and records a noncontrolling interest for the economic interest in PBFX held by the public common unit holders. Noncontrolling interest on the condensed consolidated statements of operations includes the portion of net income or loss attributable to the economic interest in PBFX held by the public common unit holders of PBFX other than PBF Energy (through its ownership in PBF LLC). Noncontrolling interest on the condensed consolidated balance sheets includes the portion of net assets of PBFX attributable to the public common unit holders of PBFX.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
The noncontrolling interest ownership percentages in PBFX as of March 31, 2018 and December 31, 2017, are calculated as follows:
|
| | | | | | | | |
| Units of PBFX Held by the Public |
| Units of PBFX Held by PBF LLC |
| Total |
December 31, 2017 | 23,441,211 |
| | 18,459,497 |
| | 41,900,708 |
|
| 55.9 | % | | 44.1 | % | | 100.0 | % |
March 31, 2018 | 23,441,211 |
| | 18,459,497 |
| | 41,900,708 |
|
| 55.9 | % | | 44.1 | % | | 100.0 | % |
Noncontrolling Interest in PBF Holding
In connection with the Chalmette Acquisition, PBF Holding recorded noncontrolling interests in two subsidiaries of Chalmette Refining. PBF Holding, through Chalmette Refining, owns an 80% ownership interest in both Collins Pipeline Company and T&M Terminal Company. For the three months ended March 31, 2018 and 2017 the Company recorded a noncontrolling interest in the earnings of these subsidiaries of $(68) and $113, respectively.
Changes in Equity and Noncontrolling Interests
The following tables summarize the changes in equity for the controlling and noncontrolling interests of PBF Energy for the three months ended March 31, 2018 and 2017, respectively:
|
| | | | | | | | | | | | | | | | | | | |
| PBF Energy Inc. Equity | | Noncontrolling Interest in PBF LLC |
| Noncontrolling Interest in PBF Holding | | Noncontrolling Interest in PBFX | | Total Equity |
Balance at January 1, 2018 | $ | 2,336,654 |
| | $ | 110,203 |
| | $ | 10,808 |
| | $ | 445,284 |
| | $ | 2,902,949 |
|
Comprehensive income (loss) | 30,613 |
| | 1,295 |
| | (68 | ) | | 10,225 |
| | 42,065 |
|
Dividends and distributions | (33,322 | ) | | (972 | ) | | — |
| | (11,665 | ) | | (45,959 | ) |
Effects of exchanges of PBF LLC Series A Units on deferred tax assets and liabilities and Tax Receivable Agreement obligation | 777 |
| | — |
| | — |
| | — |
| | 777 |
|
Equity-based compensation awards | 4,238 |
| | — |
| | — |
| | 834 |
| | 5,072 |
|
Other | 10,921 |
| | — |
| | — |
| | — |
| | 10,921 |
|
Balance at March 31, 2018 | $ | 2,349,881 |
| | $ | 110,526 |
| | $ | 10,740 |
| | $ | 444,678 |
| | $ | 2,915,825 |
|
|
| | | | | | | | | | | | | | | | | | | |
| PBF Energy Inc. Equity | | Noncontrolling Interest in PBF LLC | | Noncontrolling Interest in PBF Holding | | Noncontrolling Interest in PBFX | | Total Equity |
Balance at January 1, 2017 | $ | 2,025,044 |
| | $ | 98,671 |
| | $ | 12,513 |
| | $ | 434,456 |
| | $ | 2,570,684 |
|
Comprehensive (loss) income | (30,773 | ) | | (1,846 | ) | | 113 |
| | 12,790 |
| | (19,716 | ) |
Dividends and distributions | (32,900 | ) | | (1,152 | ) | | — |
| | (10,714 | ) | | (44,766 | ) |
Equity-based compensation awards | 5,345 |
| | — |
| | — |
| | 680 |
| | 6,025 |
|
Other | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) |
Balance at March 31, 2017 | $ | 1,966,716 |
| | $ | 95,673 |
| | $ | 12,626 |
| | $ | 437,208 |
| | $ | 2,512,223 |
|
The following tables summarize the changes in equity for the controlling and noncontrolling interests of PBF LLC for the three months ended March 31, 2018 and 2017, respectively:
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
|
| | | | | | | | | | | | | | | |
| PBF Energy Company LLC Equity | | Noncontrolling Interest in PBF Holding | | Noncontrolling Interest in PBFX | | Total Equity |
Balance at January 1, 2018 | $ | 2,422,411 |
| | $ | 10,808 |
| | $ | 445,284 |
| | $ | 2,878,503 |
|
Comprehensive income (loss) | 41,840 |
| | (68 | ) | | 10,225 |
| | 51,997 |
|
Dividends and distributions | (34,294 | ) | | — |
| | (11,665 | ) | | (45,959 | ) |
Equity-based compensation awards | 4,238 |
| | — |
| | 834 |
| | 5,072 |
|
Other | 10,921 |
| | — |
| | — |
| | 10,921 |
|
Balance at March 31, 2018 | $ | 2,445,116 |
| | $ | 10,740 |
| | $ | 444,678 |
| | $ | 2,900,534 |
|
|
| | | | | | | | | | | | | | | |
| PBF Energy Company LLC Equity | | Noncontrolling Interest in PBF Holding | | Noncontrolling Interest in PBFX | | Total Equity |
Balance at January 1, 2017 | $ | 2,040,851 |
| | $ | 12,513 |
| | $ | 434,456 |
| | $ | 2,487,820 |
|
Comprehensive income | (54,442 | ) | | 113 |
| | 12,790 |
| | (41,539 | ) |
Dividends and distributions | (34,052 | ) | | — |
| | (10,714 | ) | | (44,766 | ) |
Equity-based compensation awards | 5,345 |
| | — |
| | 680 |
| | 6,025 |
|
Other | (3 | ) | | — |
| | (4 | ) | | (7 | ) |
Balance at March 31, 2017 | $ | 1,957,699 |
| | $ | 12,626 |
| | $ | 437,208 |
| | $ | 2,407,533 |
|
Share Activity
The following table presents the changes in PBF Energy Class A common stock and treasury stock outstanding:
|
| | | | | | | | | | | |
| Three Months Ended March 31, 2018 | | Year Ended December 31, 2017 |
| Class A Common Stock | | Treasury Stock | | Class A Common Stock | | Treasury Stock |
Balance at beginning of period | 110,565,531 |
| | 6,132,884 |
| | 109,204,047 |
| | 6,087,963 |
|
Treasury stock purchases (1) | (32,149 | ) | | 32,149 |
| | — |
| | 44,921 |
|
Stock based compensation | 1,054 |
| | — |
| | 702,404 |
| | — |
|
Exercise of options and warrants | 45,257 |
| | — |
| | 462,500 |
| | — |
|
Exchange of PBF LLC Series A units for shares of Class A common stock | 539,288 |
| | — |
| | 196,580 |
| | — |
|
Balance at end of period | 111,118,981 |
| | 6,165,033 |
| | 110,565,531 |
| | 6,132,884 |
|
_____
(1) Includes shares repurchased from participants in connection with the vesting of equity awards granted under the Company’s stock compensation plans to cover employee income tax liabilities.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
The following table presents the changes in PBF LLC Series C Units and Series A Units outstanding:
|
| | | | | | | | | | | |
| Three Months Ended March 31, 2018 | | Year Ended December 31, 2017 |
| Series A Units | | Series C Units | | Series A Units | | Series C Units |
Balance at beginning of period | 3,767,464 |
| | 110,586,762 |
| | 3,920,902 |
| | 109,204,047 |
|
Exercise of Series A warrants and options | 11,886 |
| | 45,257 |
| | 64,373 |
| | 462,500 |
|
Exchange of Series A units for PBF Energy Class A common stock | (539,288 | ) | | 539,288 |
| | (196,580 | ) | | 217,811 |
|
Grant of restricted shares | — |
| | 1,054 |
| | — |
| | 702,404 |
|
Surrender of units for tax withholding | — |
| | (32,149 | ) | | — |
| | — |
|
Redemption of Series A units by PBF Energy | — |
| | — |
| | (21,231 | ) | | — |
|
Balance at end of period | 3,240,062 |
| | 111,140,212 |
| | 3,767,464 |
|
| 110,586,762 |
|
5. INVENTORIES
Inventories consisted of the following:
|
| | | | | | | | | | | |
March 31, 2018 |
| Titled Inventory | | Inventory Intermediation Agreements | | Total |
Crude oil and feedstocks | $ | 1,271,675 |
| | $ | — |
| | $ | 1,271,675 |
|
Refined products and blendstocks | 1,069,309 |
| | 350,953 |
| | 1,420,262 |
|
Warehouse stock and other | 100,610 |
| | — |
| | 100,610 |
|
| $ | 2,441,594 |
| | $ | 350,953 |
| | $ | 2,792,547 |
|
Lower of cost or market adjustment | (149,406 | ) | | (63,397 | ) | | (212,803 | ) |
Total inventories | $ | 2,292,188 |
| | $ | 287,556 |
| | $ | 2,579,744 |
|
|
| | | | | | | | | | | |
December 31, 2017 |
| Titled Inventory | | Inventory Intermediation Agreements | | Total |
Crude oil and feedstocks | $ | 1,073,093 |
| | $ | — |
| | $ | 1,073,093 |
|
Refined products and blendstocks | 1,030,817 |
| | 311,477 |
| | 1,342,294 |
|
Warehouse stock and other | 98,866 |
| | — |
| | 98,866 |
|
| $ | 2,202,776 |
| | $ | 311,477 |
| | $ | 2,514,253 |
|
Lower of cost or market adjustment | (232,652 | ) | | (67,804 | ) | | (300,456 | ) |
Total inventories | $ | 1,970,124 |
| | $ | 243,673 |
| | $ | 2,213,797 |
|
Inventory under inventory intermediation agreements included certain light finished products sold to counterparties and stored in the Paulsboro and Delaware City refineries’ storage facilities in connection with the amended and restated inventory intermediation agreements (as amended, the “Inventory Intermediation Agreements”) with J. Aron & Company, a subsidiary of The Goldman Sachs Group, Inc. (“J. Aron”).
During the three months ended March 31, 2018, the Company recorded an adjustment to value its inventories to the lower of cost or market which increased operating income and net income by $87,653 and $64,504, respectively,
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
reflecting the net change in the lower of cost or market inventory reserve from $300,456 at December 31, 2017 to $212,803 at March 31, 2018.
During the three months ended March 31, 2017, the Company recorded an adjustment to value its inventories to the lower of cost or market which decreased operating income and net income by $16,039 and $9,726, respectively, reflecting the net change in the lower of cost or market inventory reserve from $595,988 at December 31, 2016 to $612,027 at March 31, 2017.
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
|
| | | | | | | |
PBF Energy
| March 31, 2018 | | December 31, 2017 |
Inventory-related accruals | $ | 1,014,632 |
| | $ | 1,151,810 |
|
Inventory intermediation agreements | 273,583 |
| | 244,287 |
|
Accrued transportation costs | 158,785 |
| | 64,400 |
|
Excise and sales tax payable | 126,872 |
| | 118,515 |
|
Accrued capital expenditures | 73,028 |
| | 18,765 |
|
Renewable energy credit and emissions obligations | 48,015 |
| | 26,231 |
|
Accrued interest | 43,924 |
| | 14,080 |
|
Customer deposits | 31,576 |
| | 16,133 |
|
Accrued utilities | 30,921 |
| | 42,189 |
|
Accrued refinery maintenance and support costs | 23,284 |
| | 35,674 |
|
Accrued salaries and benefits | 13,577 |
| | 58,589 |
|
Environmental liabilities | 7,464 |
| | 8,289 |
|
Other | 43,419 |
| | 15,892 |
|
Total accrued expenses | $ | 1,889,080 |
| | $ | 1,814,854 |
|
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
|
| | | | | | | |
PBF LLC
| March 31, 2018 | | December 31, 2017 |
Inventory-related accruals | $ | 1,014,632 |
| | $ | 1,151,810 |
|
Inventory intermediation agreements | 273,583 |
| | 244,287 |
|
Accrued transportation costs | 158,785 |
| | 64,400 |
|
Excise and sales tax payable | 126,872 |
| | 118,515 |
|
Accrued capital expenditures | 73,028 |
| | 18,765 |
|
Accrued interest | 55,188 |
| | 23,419 |
|
Renewable energy credit and emissions obligations | 48,015 |
| | 26,231 |
|
Customer deposits | 31,576 |
| | 16,133 |
|
Accrued utilities | 30,921 |
| | 42,189 |
|
Accrued refinery maintenance and support costs | 23,284 |
| | 35,674 |
|
Accrued salaries and benefits | 13,577 |
| | 58,589 |
|
Environmental liabilities | 7,464 |
| | 8,289 |
|
Other | 45,236 |
| | 16,093 |
|
Total accrued expenses | $ | 1,902,161 |
| | $ | 1,824,394 |
|
The Company has the obligation to repurchase certain intermediates and finished products that are held in the Company’s refinery storage tanks at the Delaware City and Paulsboro refineries in accordance with the Inventory Intermediation Agreements with J. Aron. As of March 31, 2018 and December 31, 2017, a liability is recognized for the Inventory Intermediation Agreements and is recorded at market price for the J. Aron owned inventory held in the Company’s storage tanks under the Inventory Intermediation Agreements, with any change in the market price being recorded in Cost of products and other.
The Company is subject to obligations to purchase Renewable Identification Numbers (“RINs”) required to comply with the Renewable Fuels Standard. The Company’s overall RINs obligation is based on a percentage of domestic shipments of on-road fuels as established by the Environmental Protection Agency (“EPA”). To the degree the Company is unable to blend the required amount of biofuels to satisfy its RINs obligation, RINs must be purchased on the open market to avoid penalties and fines. The Company records its RINs obligation on a net basis in Accrued expenses when its RINs liability is greater than the amount of RINs earned and purchased in a given period and in Prepaid and other current assets when the amount of RINs earned and purchased is greater than the RINs liability. In addition, the Company is subject to obligations to comply with federal and state legislative and regulatory measures, including regulations in the state of California pursuant to Assembly Bill 32 (“AB32”), to address environmental compliance and greenhouse gas and other emissions. These requirements include incremental costs to operate and maintain our facilities as well as to implement and manage new emission controls and programs. Renewable energy credit and emissions obligations fluctuate with the volume of applicable product sales and timing of credit purchases.
7. AFFILIATE NOTE PAYABLE - PBF LLC
As of March 31, 2018 and December 31, 2017, PBF LLC had an outstanding note payable with PBF Energy for an aggregate principal amount of $310,201 and $292,844, respectively. The notes have an interest rate of 2.5% and a 5-year term but may be prepaid in whole or in part at any time, at the option of the payor without penalty or premium.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
8. INCOME TAXES
PBF Energy files federal and applicable state corporate income tax returns and recognizes income taxes on its pre-tax income, which to-date has consisted primarily of its share of PBF LLC’s pre-tax income (approximately 97.2% as of March 31, 2018 and approximately 96.7% as of December 31, 2017). PBF LLC is organized as a limited liability company and PBFX is a master limited partnership, both of which are treated as “flow-through” entities for federal income tax purposes and therefore are not subject to income taxes apart from the income tax attributable to the two subsidiaries acquired in connection with the acquisition of Chalmette Refining and PBF Holding’s wholly-owned Canadian subsidiary, PBF Ltd, that are treated as C-Corporations for income tax purposes.
The income tax expense (benefit) in the PBF Energy condensed consolidated financial statements of operations consists of the following:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Current income tax expense | $ | 83 |
| | $ | 473 |
|
Deferred income tax expense (benefit) | 10,859 |
| | (19,520 | ) |
Total income tax expense (benefit) | $ | 10,942 |
| | $ | (19,047 | ) |
Income tax expense (benefit) is based on income (loss) before taxes attributable to PBF Energy and excludes income before taxes attributable to noncontrolling interests as such interests are generally not subject to income taxes except as noted above. The difference between PBF Energy’s effective income tax rate and the United States statutory rate is reconciled below:
|
| | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Provision at Federal statutory rate | 21.0 | % | | 35.0 | % |
Increase (decrease) attributable to flow-through of certain tax adjustments: | | | |
|
State income taxes (net of federal income tax) | 5.5 | % | | 4.4 | % |
Nondeductible/nontaxable items | 0.2 | % | | 0.2 | % |
Rate differential from foreign jurisdictions | — | % | | 0.1 | % |
Foreign tax rate change | — | % | | (1.7 | )% |
Other | (0.2 | )% | | — | % |
Effective tax rate | 26.5 | % | | 38.0 | % |
PBF Energy’s effective income tax rate for the three months ended March 31, 2018, including the impact of income attributable to noncontrolling interests of $11,445 was 20.7%. PBF Energy’s effective income tax rate for the three months ended March 31, 2017, including the impact of income attributable to noncontrolling interests of $11,047 was 48.7%.
The decrease in effective tax rate when comparing the three month period ended March 31, 2018 to the three month period ended March 31, 2017 is primarily driven by the Tax Cuts and Jobs Act (“TCJA”), which was effective as of January 1, 2018. The TCJA significantly revised the U.S. tax code by, among other things, lowering the corporate income tax rate from 35.0% to 21.0%. In connection with the enactment of the TCJA, the Company recorded a net tax expense of $20,153 in the year ending December 31, 2017. It is the Company’s expectation that the other legislative areas within TCJA, such as the Transition Tax and the Global Low-Taxed Intangible Income, will not have a material impact on the provision for income taxes.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
The income tax expense (benefit) in the PBF LLC condensed consolidated financial statements of operations consists of the following:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Current income tax (benefit) expense | $ | (5 | ) | | $ | 472 |
|
Deferred income tax benefit | (696 | ) | | (38 | ) |
Total income tax (benefit) expense | $ | (701 | ) | | $ | 434 |
|
The Company has determined there are no material uncertain tax positions as of March 31, 2018. The Company does not have any unrecognized tax benefits.
9. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company’s refineries, pipelines and related operations 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 Paulsboro environmental liability of $11,719 recorded as of March 31, 2018 ($10,282 as of December 31, 2017) represents the present value of expected future costs discounted at a rate of 8.0%. The current portion of the environmental liability is recorded in Accrued expenses and the non-current portion is recorded in Other long-term liabilities. As of March 31, 2018 and December 31, 2017, this liability is self-guaranteed by the Company.
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) remains responsible for environmental remediation for conditions that existed on the closing date for twenty years from March 1, 2011, subject to certain limitations.
In connection with the acquisition of the Chalmette refinery, the Company obtained $3,936 in financial assurance (in the form of a surety bond) to cover estimated potential site remediation costs associated with an agreed to Administrative Order of Consent with the EPA. The estimated cost assumes remedial activities will continue for a minimum of thirty years. Further, in connection with the acquisition of the Chalmette refinery, the Company purchased a ten year, $100,000 environmental insurance policy to insure against unknown environmental liabilities at the refinery. At the time the Company acquired Chalmette refinery it was subject to a Consolidated Compliance Order and Notice of Potential Penalty (the “Order”) issued by the Louisiana Department of Environmental Quality (“LDEQ”) covering deviations from 2009 and 2010. Chalmette Refining and LDEQ subsequently entered into a dispute resolution agreement to negotiate the resolution of deviations inside and outside the periods covered by the Order. Although a settlement agreement has not been finalized, the administrative penalty is anticipated to be
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
approximately $741, including beneficial environmental projects. To the extent the administrative penalty exceeds such amount, it is not expected to be material to the Company.
On December 28, 2016, DNREC issued a Coastal Zone Act permit (the “Ethanol Permit”) to DCR allowing the utilization of existing tanks and existing marine loading equipment at their existing facilities to enable denatured ethanol to be loaded from storage tanks to marine vessels and shipped to offsite facilities. On January 13, 2017, the issuance of the Ethanol Permit was appealed by two environmental groups. On February 27, 2017, the Coastal Zone Industrial Board (the “Coastal Zone Board”) held a public hearing and dismissed the appeal, determining that the appellants did not have standing. The appellants filed an appeal of the Coastal Zone Board’s decision with the Delaware Superior Court (the “Superior Court”) on March 30, 2017. On January 19, 2018, the Superior Court rendered an Opinion regarding the decision of the Coastal Zone Board to dismiss the appeal of the Ethanol Permit for the ethanol project. The Judge determined that the record created by the Coastal Zone Board was insufficient for the Superior Court to make a decision, and therefore remanded the case back to the Coastal Zone Board to address the deficiency in the record. Specifically, the Superior Court directed the Coastal Zone Board to address any evidence concerning whether the appellants’ claimed injuries would be affected by the increased quantity of ethanol shipments. During the hearing before the Coastal Zone Board on standing, one of the appellants’ witnesses made a reference to the flammability of ethanol, without any indication of the significance of flammability/ explosivity to specific concerns. Moreover, the appellants did not introduce at hearing any evidence of the relative flammability of ethanol as compared to other materials shipped to and from the refinery. However, the sole dissenting opinion from the Coastal Zone Board focused on the flammability/explosivity issue, alleging that the appellants’ testimony raised the issue as a distinct basis for potential harms. Once the Board responds to the remand, it will go back to the Superior Court to complete its analysis and issue a decision.
In connection with the acquisition of the Torrance refinery and related logistics assets, the Company assumed certain pre-existing environmental liabilities totaling $136,194 as of March 31, 2018 ($136,487 as of December 31, 2017), related to certain environmental remediation obligations to address existing soil and groundwater contamination and monitoring activities and other clean-up activities, which reflects the current estimated cost of the remediation obligations. The current portion of the environmental liability is recorded in Accrued expenses and the non-current portion is recorded in Other long-term liabilities. In addition, in connection with the acquisition of the Torrance refinery and related logistics assets, the Company purchased a ten year, $100,000 environmental insurance policy to insure against unknown environmental liabilities. Furthermore, in connection with the acquisition, the Company assumed responsibility for certain specified environmental matters that occurred prior to the Company’s ownership of the refinery and the logistics assets, including specified incidents and/or notices of violations (“NOVs”) issued by regulatory agencies in various years before the Company’s ownership, including the Southern California Air Quality Management District (“SCAQMD”) and the Division of Occupational Safety and Health of the State of California (“Cal/OSHA”).
Subsequent to the acquisition, further NOVs were issued by the SCAQMD, Cal/OSHA, the City of Torrance and the City of Torrance Fire Department related to alleged operational violations, emission discharges and/or flaring incidents at the refinery and the logistics assets both before and after the Company’s acquisition. EPA and the California Department of Toxic Substances Control (“DTSC”) conducted inspections following the acquisition related to Torrance operations and issued preliminary findings concerning potential operational violations. On March 1, 2018, the Company received a notice of intent to sue from Environmental Integrity Project, on behalf of Environment California, under the Resource Conservation and Recovery Act with respect to the alleged violations from EPA’s and DTSC’s inspections. On March 2, 2018, DTSC issued an order to correct alleged violations relating to the accumulation of oil bearing materials. Torrance and DTSC are in discussions to resolve the alleged violations in the order. In the context of these discussions DTSC has indicated potential penalties of approximately $200. Other than the potential DTSC penalty, no other settlement or penalty demands have been received to date with respect to any of the other NOVs, preliminary findings, or order that are in excess of $100. As the ultimate outcomes are uncertain, the Company cannot currently estimate the final amount or timing of their resolution but any such amount is not expected to have a material impact on the Company’s financial position, results of operations or cash flows, individually or in the aggregate.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
In connection with the PBFX Plains Asset Purchase, PBFX is responsible for the environmental remediation costs for conditions that existed on the closing date up to a maximum of $250 per year for ten years, with Plains All American Pipeline, L.P. remaining responsible for any and all additional costs above such amounts during such period. The environmental liability of $1,846 recorded as of March 31, 2018 ($1,923 as of December 31, 2017) represents the present value of expected future costs discounted at a rate of 1.83%. The current portion of the environmental liability is recorded in Accrued expenses and the non-current portion is recorded in Other long-term liabilities.
Applicable Federal and State Regulatory Requirements
The Company’s operations and many of the products it manufactures are subject to certain specific requirements of the Clean Air Act (the “CAA”) and related state and local regulations. The CAA contains provisions that require capital expenditures for the installation of certain air pollution control devices at the Company’s refineries. Subsequent rule making authorized by the CAA or similar laws or new agency interpretations of existing rules, may necessitate additional expenditures in future years.
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 parts per million (“PPM”) sulfur. Since July 1, 2012, other states in the Northeast market began requiring heating oil sold in their state to contain no more than 15 PPM sulfur. Currently, all of the Northeastern states and Washington DC have adopted sulfur controls on heating oil. Most of the Northeastern states will now require heating oil with 15 PPM or less sulfur by July 1, 2018 (except for Pennsylvania and Maryland - where less than 500 PPM sulfur is required). All of the heating oil the Company currently produces meets these specifications. The mandate and other requirements do not currently have a material impact on the Company’s financial position, results of operations or cash flows.
The EPA issued the final Tier 3 Gasoline standards on March 3, 2014 under the CAA. This final rule establishes more stringent vehicle emission standards and further reduces the sulfur content of gasoline starting in January 2017. The new standard is set at 10 PPM sulfur in gasoline on an annual average basis starting January 1, 2017, with a credit trading program to provide compliance flexibility. The EPA responded to industry comments on the proposed rule and maintained the per gallon sulfur cap on gasoline at the existing 80 PPM cap. The refineries are complying with these new requirements as planned, either directly or using flexibility provided by sulfur credits generated or purchased in advance as an economic optimization. The standards set by the new rule are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
In November 2017, the EPA issued final 2018 RFS standards that will slightly increase renewable volume standards from final 2017 levels. It is not clear that renewable fuel producers will be able to produce the volumes of these fuels required for blending in accordance with the 2018 standards. Despite decreasing 7% in comparison to 2017, the final 2018 cellulosic standard is still set at approximately 125% of the 2016 standard. It is likely that cellulosic RIN production will be lower than needed forcing obligated parties, such as us, to purchase cellulosic “waiver credits” to comply in 2018 (the waiver credit option by regulation is only available for the cellulosic standard). The advanced and total RIN requirements were kept relatively flat in comparison to 2017, but remain 19% and 7% higher than final 2016 levels. Production of advanced RINs has been below what is needed for compliance in 2017 and obligated parties, such as us, will likely continue to rely on the nesting feature of the biodiesel RIN to comply with the advanced standard in 2018. Consistent with 2017, compliance in 2018 will likely rely on obligated parties drawing down the supply of excess RINs collectively known as the “RIN bank” and could tighten the RIN market potentially raising RIN prices further. While a proposal to change the point of obligation under the RFS program to the “blender” of renewable fuels was denied by the EPA in November of 2017, we remain hopeful that the current presidential administration will initiate necessary changes to the RFS program in the future and provide relief to us and other downstream refiners that continue to feel the burden of increased costs to comply with RFS.
In addition, on December 1, 2015 the EPA finalized revisions to an existing air regulation concerning Maximum Achievable Control Technologies (“MACT”) for Petroleum Refineries. The regulation requires additional continuous monitoring systems for eligible process safety valves relieving to atmosphere, minimum flare gas heat (Btu) content, and delayed coke drum vent controls to be installed by January 30, 2019. In addition, a program for
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
ambient fence line monitoring for benzene was implemented prior to the deadline of January 30, 2018. The Company is in the process of implementing the requirements of this regulation. The regulation does not have a material impact on the Company’s financial position, results of operations or cash flows.
The EPA published a Final Rule to the Clean Water Act (“CWA”) Section 316(b) in August 2014 regarding cooling water intake structures, which includes requirements for petroleum refineries. The purpose of this rule is to prevent fish from being trapped against cooling water intake screens (impingement) and to prevent fish from being drawn through cooling water systems (entrainment). Facilities will be required to implement Best Technology Available (“BTA”) as soon as possible, but state agencies have the discretion to establish implementation time lines. The Company continues to evaluate the impact of this regulation, and at this time does not anticipate it having a material impact on the Company’s financial position, results of operations or cash flows.
As a result of the Torrance Acquisition, the Company is subject to greenhouse gas emission control regulations in the state of California pursuant to AB32. AB32 imposes a statewide cap on greenhouse gas emissions, including emissions from transportation fuels, with the aim of returning the state to 1990 emission levels by 2020. AB32 is implemented through two market mechanisms including the Low Carbon Fuel Standard (“LCFS”) and Cap and Trade, which was extended for an additional 10 years to 2030 in July 2017. The Company is responsible for the AB32 obligations related to the Torrance refinery beginning on July 1, 2016 and must purchase emission credits to comply with these obligations. Additionally, in September 2016, the state of California enacted Senate Bill 32 (“SB32”) which further reduces greenhouse gas emissions targets to 40 percent below 1990 levels by 2030.
However, subsequent to the acquisition, the Company is recovering the majority of these costs from its customers, and as such does not expect this obligation to materially impact the Company’s financial position, results of operations, or cash flows. To the degree there are unfavorable changes to AB32 or SB32 regulations or the Company is unable to recover such compliance costs from customers, these regulations could have a material adverse effect on our financial position, results of operations and cash flows.
The Company is subject to obligations to purchase RINs. On February 15, 2017, the Company received a notification that EPA records indicated that PBF Holding used potentially invalid RINs that were in fact verified under the EPA’s RIN Quality Assurance Program (“QAP”) by an independent auditor as QAP A RINs. Under the regulations, use of potentially invalid QAP A RINs provided the user with an affirmative defense from civil penalties provided certain conditions are met. The Company has asserted the affirmative defense and if accepted by the EPA will not be required to replace these RINs and will not be subject to civil penalties under the program. It is reasonably possible that the EPA will not accept the Company’s defense and may assess penalties in these matters but any such amount is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
As of January 1, 2011, the Company is required to comply with the EPA’s Control of Hazardous Air Pollutants From Mobile Sources, or MSAT2, regulations on gasoline that impose reductions in the benzene content of its produced gasoline. The Company purchases benzene credits to meet these requirements. The Company’s planned capital projects will reduce the amount of benzene credits that it needs to purchase. In addition, the renewable fuel standards mandate the blending of prescribed percentages of renewable fuels (e.g., ethanol and biofuels) into the Company’s produced gasoline and diesel. These new requirements, other requirements of the CAA and other presently existing or future environmental 25 regulations may cause the Company to make substantial capital expenditures as well as the purchase of credits at significant cost, to enable its refineries to produce products that meet applicable requirements.
The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as “Superfund,” imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the current or former owner or operator of the disposal site or sites where the release occurred and companies that disposed of or arranged for the disposal of the hazardous substances. Under CERCLA, such persons may be subject to joint and several liability for investigation and the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
the costs of certain health studies. As discussed more fully above, certain of the Company’s sites are subject to these laws and the Company may be held liable for investigation and remediation costs or claims for natural resource damages. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. Analogous state laws impose similar responsibilities and liabilities on responsible parties. In the Company’s current normal operations, it has generated waste, some of which falls within the statutory definition of a “hazardous substance” and some of which may have been disposed of at sites that may require cleanup under Superfund.
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, results of operations or cash flows.
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, regardless of whether such holders receive cash distributions from PBF LLC. PBF Energy ultimately may not receive cash distributions from PBF LLC equal to its share of such taxable income or even equal to the actual tax due with respect to that income. For example, PBF LLC is required to include in taxable income PBF LLC’s allocable share of PBFX’s taxable income and gains (such share to be determined pursuant to the partnership agreement of PBFX), regardless of the amount of cash distributions received by PBF LLC from PBFX, and such taxable income and gains will flow-through to PBF Energy to the extent of its allocable share of the taxable income of PBF LLC. As a result, at certain times, the amount of cash otherwise ultimately available to PBF Energy on account of its indirect interest in PBFX may not be sufficient for PBF Energy to pay the amount of taxes it will owe on account of its indirect interests in PBFX.
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 are required to be in 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 is required to 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. PBF LLC generally obtains funding to pay its tax distributions by causing PBF Holding to distribute cash to PBF LLC and from distributions it receives from PBFX.
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 benefits 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 of PBF LLC Series A Units for shares of PBF Energy’s Class A common
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
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, PBF Holding or PBFX. In general, PBF Energy expects to obtain funding for these annual payments from PBF LLC, primarily through tax distributions, which PBF LLC makes on a pro-rata basis to its owners. Such owners include PBF Energy, which holds a 97.2% interest in PBF LLC as of March 31, 2018 (96.7% as of December 31, 2017). PBF LLC generally obtains funding to pay its tax distributions by causing PBF Holding to distribute cash to PBF LLC and from distributions it receives from PBFX.
As of March 31, 2018, PBF Energy has recognized a liability for the Tax Receivable Agreement of $366,547 ($362,142 as of December 31, 2017) reflecting the estimate of the undiscounted amounts that the Company expects to pay under the agreement.
10. DIVIDENDS AND DISTRIBUTIONS
With respect to dividends and distributions paid during the three months ended March 31, 2018, PBF LLC made aggregate non-tax quarterly distributions of $34,198, or $0.30 per unit to its members, of which $33,226 was distributed pro-rata to PBF Energy and the balance was distributed to its other members. PBF Energy used this $33,226 to pay quarterly cash dividends of $0.30 per share of Class A common stock on March 14, 2018.
With respect to distributions paid during the three months ended March 31, 2018, PBFX paid a distribution on outstanding common units of $0.485 per unit on March 14, 2018, of which $11,689 was distributed to PBF LLC and the balance was distributed to its public unit holders.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
11. 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 March 31, |
Pension Benefits | | 2018 |
| 2017 |
Components of net periodic benefit cost: | | | | |
Service cost | | $ | 11,836 |
| | $ | 10,143 |
|
Interest cost | | 1,447 |
| | 1,084 |
|
Expected return on plan assets | | (2,134 | ) | | (1,442 | ) |
Amortization of prior service cost | | 21 |
| | 13 |
|
Amortization of actuarial loss | | 71 |
| | 113 |
|
Net periodic benefit cost | | $ | 11,241 |
| | $ | 9,911 |
|
|
| | | | | | | | |
| | Three Months Ended March 31, |
Post-Retirement Medical Plan | | 2018 | | 2017 |
Components of net periodic benefit cost: | | | | |
Service cost | | $ | 287 |
| | $ | 316 |
|
Interest cost | | 155 |
| | 172 |
|
Amortization of prior service cost | | 162 |
| | 161 |
|
Net periodic benefit cost | | $ | 604 |
| | $ | 649 |
|
The Company adopted ASU 2017-07 as described in “Note 1 - Description of the Business and Basis of Presentation” effective January 1, 2018. The new guidance requires the bifurcation of net periodic benefit cost. The service cost component is presented within Income from operations, while the other components are reported separately outside of operations. This guidance was applied retrospectively in the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2018 and March 31, 2017, the Company reported income of $278 and expense of $101, respectively, related to the non-service cost components of net periodic benefit cost in Other income (expense).
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
12. 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 March 31, 2018 and December 31, 2017.
We have elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below. We have posted cash margin with various counterparties to support hedging and trading activities. The cash margin posted is required by counterparties as collateral deposits and cannot be offset against the fair value of open contracts except in the event of default. We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the balance sheet.
|
| | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2018 |
| Fair Value Hierarchy | | Total Gross Fair Value | | Effect of Counter-party Netting | | Net Carrying Value on Balance Sheet |
| Level 1 | | Level 2 | | Level 3 | | |
Assets: | | | | | | | | | | | |
Money market funds | $ | 1,897 |
| | $ | — |
| | $ | — |
| | $ | 1,897 |
| | N/A |
| | $ | 1,897 |
|
Commodity contracts | 13,096 |
| | 1,296 |
| | — |
| | 14,392 |
| | (14,392 | ) | | — |
|
Liabilities: | | | | | | | | | | | |
Commodity contracts | 40,561 |
| | 17,926 |
| | — |
| | 58,487 |
| | (14,392 | ) | | 44,095 |
|
Catalyst lease obligations | — |
| | 59,034 |
| | — |
| | 59,034 |
| | — |
| | 59,034 |
|
Derivatives included with inventory intermediation agreement obligations | — |
| | 16,546 |
| | — |
| | 16,546 |
| | — |
| | 16,546 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2017 |
| Fair Value Hierarchy | | Total Gross Fair Value | | Effect of Counter-party Netting | | Net Carrying Value on Balance Sheet |
| Level 1 | | Level 2 | | Level 3 | |
Assets: | | | | | | | | | | | |
Money market funds | $ | 4,730 |
| | $ | — |
| | $ | — |
| | $ | 4,730 |
| | N/A |
| | $ | 4,730 |
|
Commodity contracts | 10,031 |
| | 357 |
| | — |
| | 10,388 |
| | (10,388 | ) | | — |
|
Liabilities: | | | | | | | | | | | |
Commodity contracts | 51,673 |
| | 33,035 |
| | — |
| | 84,708 |
| | (10,388 | ) | | 74,320 |
|
Catalyst lease obligations | — |
| | 59,048 |
| | — |
| | 59,048 |
| | — |
| | 59,048 |
|
Derivatives included with inventory intermediation agreement obligations | — |
| | 7,721 |
| | — |
| | 7,721 |
| | — |
| | 7,721 |
|
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
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 commodity contracts categorized in Level 3 of the fair value hierarchy consist of commodity price swap contracts that relate to forecasted purchases of crude oil for which quoted forward market prices are not readily available due to market illiquidity. The forward prices used to value these swaps were derived using broker quotes, prices from other third party sources and other available market based data. |
| |
• | The derivatives included with inventory intermediation agreement 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. |
Non-qualified pension plan assets are measured at fair value using a market approach based on published net asset values of mutual funds as a practical expedient. As of March 31, 2018 and December 31, 2017, $9,468 and $9,593, respectively, were included within Deferred charges and other assets, net for these non-qualified pension plan assets.
The table below summarizes the changes in fair value measurements of commodity contracts categorized in Level 3 of the fair value hierarchy:
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2018 | | 2017 |
Balance at beginning of period | | $ | — |
| | $ | (84 | ) |
Purchases | | — |
| | — |
|
Settlements | | — |
| | 45 |
|
Unrealized gain included in earnings | | — |
| | 39 |
|
Transfers into Level 3 | | — |
| | — |
|
Transfers out of Level 3 | | — |
| | — |
|
Balance at end of period | | $ | — |
| | $ | — |
|
There were no transfers between levels during the three months ended March 31, 2018 or 2017.
PBF ENERGY INC. AND PBF ENERGY COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
Fair value of debt
The table below summarizes the fair value and carrying value of debt as of March 31, 2018 and December 31, 2017.
|
| | | | | | | | | | | | | | | |
| March 31, 2018 | | December 31, 2017 |
| Carrying value | | Fair value | | Carrying value | | Fair value |
2025 Senior Notes (a) | $ | 725,000 |
| | $ | 758,625 |
| | $ | 725,000 |
| | $ | 763,945 |
|
2023 Senior Notes (a) | 500,000 |
| | 522,431 |
| | 500,000 |
| | 522,101 |
|
PBFX 2023 Senior Notes (a) | 528,239 |
| | 534,177 |
| | 528,374 |
| | 544,118 |
|
PBF Rail Term Loan (b) | 26,679 |
| | 26,679 |
| | 28,366 |
| | 28,366 |
|
Catalyst leases (c) | 59,034 |
| | 59,034 |
| | 59,048 |
| | 59,048 |
|
PBFX Revolving Credit Facility (b) | 20,000 |
| | 20,000 |
| | 29,700 |
| | 29,700 |
|
Revolving Loan (b) | 350,000 |
| | 350,000 |
| | 350,000 |
| | 350,000 |
|
| 2,208,952 |
| | 2,270,946 |
| | 2,220,488 |
| | 2,297,278 |
|
Less - Current debt (c) | (11,032 | ) | | (11,032 | ) | | (10,987 | ) | | (10,987 | ) |
|