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EX-32.2 - EXHIBIT 32.2 - PBF Energy Inc.q315exhibit322-energy.htm
EX-32.1 - EXHIBIT 32.1 - PBF Energy Inc.q315exhibit321-energy.htm
EX-31.2 - EXHIBIT 31.2 - PBF Energy Inc.q315exhibit312-energy.htm
EX-31.1 - EXHIBIT 31.1 - PBF Energy Inc.q315exhibit311-energy.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark one)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2015
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-35764
 
PBF ENERGY INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
45-3763855 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
One Sylvan Way, Second Floor
Parsippany, New Jersey
 
07054
(Address of principal executive offices)
 
(Zip Code)
(973) 455-7500
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.  Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
As of November 3, 2015, PBF Energy Inc. had outstanding 97,616,350 shares of Class A common stock and 28 shares of Class B common stock.
 




PBF ENERGY INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015
TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
ITEM 3.
 
 
ITEM 4.
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
ITEM 1A.
 
 
ITEM 2.
 
 
ITEM 6.

This Quarterly Report on Form 10-Q is filed by PBF Energy Inc. (“PBF Energy”) which is a holding company whose primary asset is an equity interest in PBF Energy Company LLC ("PBF LLC"). PBF Energy is the sole managing member of, and owner of an equity interest representing approximately 94.4% of the outstanding economic interests in, PBF LLC as of September 30, 2015. 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 the 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. PBF LLC also holds a 53.7% 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.


2



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain “forward-looking statements”, as defined in the Private Securities Litigation Reform Act of 1995, of expected future developments that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our expectations, which we refer to as “cautionary statements,” are disclosed under "Item 1A. Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q and the Annual Report on Form 10-K for the year ended December 31, 2014 of PBF Energy Inc., which we refer to as our 2014 Annual Report on Form 10-K, 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 substantial indebtedness;
our supply and inventory intermediation arrangements expose us to counterparty credit and performance risk;
termination of our Inventory Intermediation Agreements with J. Aron 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 to the current and former holders of PBF LLC Series A Units and PBF LLC Series B Units under our tax receivable agreement for certain tax benefits we may claim;
our assumptions regarding payments arising under the 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;

3



our expectations and timing with respect to our acquisition activity and whether such acquisitions are accretive or dilutive to shareholders;
our expectations and timing 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;
adverse impacts related to any change by the federal government in the restrictions on exporting U.S. crude oil including relaxing limitations on the export of certain types of crude oil or condensates or the lifting of the restrictions entirely;
market risks related to the volatility in the price of Renewable Identification Numbers ("RINs") required to comply with the Renewable Fuel Standards;
adverse impacts from changes in our regulatory environment or actions taken by environmental interest groups;
our ability to consummate the pending acquisition of the ownership interests of the Torrance refinery and related logistics assets (collectively, the "Torrance Acquisition"), the timing for the closing of such acquisition and our plans for financing such acquisition;
our ability to complete the successful integration of the completed acquisition of Chalmette Refining, L.L.C and related logistic assets (collectively, the "Chalmette Acquisition") and the pending Torrance Acquisition into our business and to realize the benefits from such acquisitions;
unforeseen liabilities associated with the Chalmette Acquisition and/or Torrance Acquisition;
the costs of being a public company, including Sarbanes-Oxley Act compliance;
risk associated with the operation of PBFX as a separate, publicly-traded entity;
potential tax consequences related to our investment in PBFX; and
receipt of regulatory approvals and compliance with contractual obligations required in connection with 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, and we do not intend to update or revise any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing.

4


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
PBF ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share data)
 
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
472,829

 
$
397,873

Accounts receivable
395,624

 
551,269

Inventories
1,101,182

 
1,102,261

Deferred tax asset
262,542

 
222,368

Prepaid expense and other current assets
71,398

 
72,900

Total current assets
2,303,575

 
2,346,671

 
 
 
 
Property, plant and equipment, net
1,960,149

 
1,936,839

Deferred tax assets
297,783

 
345,179

Marketable securities
234,249

 
234,930

Deferred charges and other assets, net
311,420

 
332,669

Total assets
$
5,107,176

 
$
5,196,288

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
212,772

 
$
335,268

Accrued expenses
819,730

 
1,130,792

Payable to related parties pursuant to tax receivable agreement
57,784

 
75,535

Deferred revenue
4,174

 
1,227

Total current liabilities
1,094,460

 
1,542,822

 
 
 
 
Delaware Economic Development Authority loan
8,000

 
8,000

Long-term debt
1,373,122

 
1,252,349

Payable to related parties pursuant to tax receivable agreement
677,592

 
637,192

Other long-term liabilities
63,032

 
62,609

Total liabilities
3,216,206

 
3,502,972

 
 
 
 
Commitments and contingencies (Note 10)

 

 
 
 
 
Equity:
 
 
 
Class A common stock, $0.001 par value, 1,000,000,000 shares authorized, 85,893,850 shares outstanding at September 30, 2015, 81,981,119 shares outstanding at December 31, 2014
92

 
88

Class B common stock, $0.001 par value, 1,000,000 shares authorized, 28 shares outstanding at September 30, 2015, 39 shares outstanding at December 31, 2014

 

Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares outstanding, at September 30, 2015 and December 31, 2014

 

Treasury stock, at cost
(150,804
)
 
(142,731
)
Additional paid in capital
1,558,237

 
1,508,425

Retained earnings/(Accumulated deficit)
65,372

 
(123,271
)
Accumulated other comprehensive loss
(24,052
)
 
(24,298
)
Total PBF Energy Inc. equity
1,448,845

 
1,218,213

Noncontrolling interest
442,125

 
475,103

Total equity
1,890,970

 
1,693,316

Total liabilities and equity
$
5,107,176

 
$
5,196,288


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)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
3,217,640

 
$
5,260,003

 
$
9,763,440

 
$
15,308,155


 
 
 
 
 
 
 
Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
2,822,444

 
4,670,908

 
8,319,404

 
13,754,048

Operating expenses, excluding depreciation
203,860

 
202,625

 
635,948

 
682,246

General and administrative expenses
53,293

 
34,339

 
128,562

 
103,976

(Gain) loss on sale of assets
(142
)
 
18

 
(1,133
)
 
(162
)
Depreciation and amortization expense
48,133

 
68,010

 
144,401

 
135,887

 
3,127,588

 
4,975,900

 
9,227,182

 
14,675,995

 
 
 
 
 
 
 
 
Income from operations
90,052

 
284,103

 
536,258

 
632,160

 
 
 
 
 
 
 
 
Other income (expenses):
 
 
 
 
 
 
 
Change in fair value of catalyst leases
4,994

 
5,543

 
8,982

 
1,204

Interest expense, net
(28,026
)
 
(24,374
)
 
(77,094
)
 
(75,831
)
Income before income taxes
67,020

 
265,272

 
468,146

 
557,533

Income tax expense
11,525

 
95,260

 
151,072

 
158,413

Net income
55,495

 
170,012

 
317,074

 
399,120

Less: net income attributable to noncontrolling interests
12,696

 
29,042

 
51,144

 
159,746

Net income attributable to PBF Energy Inc.
$
42,799

 
$
140,970

 
$
265,930

 
$
239,374

 
 
 
 
 
 
 
 
Weighted-average shares of Class A common stock outstanding
 
 
 
 
 
 
 
Basic
85,845,583

 
87,656,611

 
85,401,028

 
71,544,080

Diluted
91,496,283

 
97,344,515

 
91,557,371

 
72,071,903

Net income available to Class A common stock per share:
 
 
 
 
 
 
 
Basic
$
0.50

 
$
1.61

 
$
3.11

 
$
3.35

Diluted
$
0.49

 
$
1.60

 
$
3.06

 
$
3.32

 
 
 
 
 
 
 
 
Dividends per common share
$
0.30

 
$
0.30

 
$
0.90

 
$
0.90

 
 
 
 
 
 
 
 




See notes to condensed consolidated financial statements.
6



PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
55,495

 
$
170,012

 
$
317,074

 
$
399,120

Other comprehensive income:
 
 
 
 

 

Unrealized gain (loss) on available for sale securities
119

 
(160
)
 
115

 
(75
)
Net gain on pension and other postretirement benefits
400

 
242

 
1,200

 
691

Total other comprehensive income
519

 
82

 
1,315

 
616

Comprehensive income
56,014

 
170,094

 
318,389

 
399,736

Less: comprehensive income attributable to noncontrolling interests
12,726

 
29,053

 
51,217

 
159,809

Comprehensive income attributable to PBF Energy Inc.
$
43,288

 
$
141,041

 
$
267,172

 
$
239,927


See notes to condensed consolidated financial statements.
7



PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended 
 September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
317,074

 
$
399,120

Adjustments to reconcile net income to net cash provided by (used in) operations:
 
 
 
Depreciation and amortization
151,509

 
141,547

Stock-based compensation
8,757

 
5,377

Change in fair value of catalyst lease obligations
(8,982
)
 
(1,204
)
Deferred income taxes
27,338

 
70,718

Change in tax receivable agreement liability
2,215

 
(2,990
)
Non-cash change in inventory repurchase obligations
53,370

 
(31,602
)
Pension and other post retirement benefit costs
19,340

 
16,462

Gain on disposition of property, plant and equipment
(1,133
)
 
(162
)
Change in non-cash lower of cost or market adjustment
81,147

 

 
 
 
 
Changes in current assets and current liabilities:
 
 
 
Accounts receivable
155,645

 
(101,752
)
Inventories
(110,830
)
 
(378,538
)
Prepaid expenses and other current assets
1,610

 
25,104

Accounts payable
(122,496
)
 
(76,008
)
Accrued expenses
(305,044
)
 
308,523

Deferred revenue
2,947

 
(6,017
)
Payable to related parties pursuant to tax receivable agreement
(10,168
)
 

Other assets and liabilities
(21,900
)
 
(15,617
)
Net cash provided by operations
240,399

 
352,961

 
 
 
 
Cash flow from investing activities:
 
 
 
Expenditures for property, plant and equipment
(288,909
)
 
(258,875
)
Expenditures for deferred turnaround costs
(39,725
)
 
(58,423
)
Expenditures for other assets
(7,275
)
 
(13,446
)
Purchase of marketable securities
(1,609,286
)
 
(1,188,906
)
Maturities of marketable securities
1,609,983

 
923,996

Proceeds from sale of assets
168,270

 
74,343

Net cash used in investing activities
(166,942
)
 
(521,311
)


See notes to condensed consolidated financial statements.
8



PBF ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited, in thousands)
 
Nine Months Ended 
 September 30,
 
2015
 
2014
Cash flows from financing activities:
 
 
 
Proceeds from issuance of PBFX common units, net of underwriters' discount and commissions
$

 
$
340,957

Offering costs for issuance of PBFX common units

 
(5,000
)
Distributions to PBF Energy Company LLC members
(15,252
)
 
(80,400
)
Distributions to PBFX unit holders
(17,082
)
 
(2,573
)
Dividend payments
(77,287
)
 
(63,629
)
Proceeds from PBFX Senior Notes
350,000

 

Proceeds from PBFX revolver borrowings
24,500

 
140,100

Repayments of PBFX revolver borrowings
(275,100
)
 

Proceeds from PBFX Term Loan borrowings

 
300,000

Repayments of PBFX Term Loan borrowings
(700
)
 
(35,100
)
Proceeds from Rail Facility revolver borrowings
102,075

 
35,925

Repayments of Rail Facility revolver borrowings
(71,938
)
 

Proceeds from revolver borrowings

 
395,000

Repayments of revolver borrowings

 
(410,000
)
Purchases of treasury stock
(8,073
)
 
(32,593
)
Deferred financing costs and other
(9,644
)
 
(13,914
)
Net cash provided by financing activities
1,499

 
568,773

 
 
 
 
Net increase in cash and cash equivalents
74,956

 
400,423

Cash and equivalents, beginning of period
397,873

 
76,970

Cash and equivalents, end of period
$
472,829

 
$
477,393

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

 
$
4,000

         Accrued construction in progress and unpaid fixed assets
$
4,670

 
$
65,193



See notes to condensed consolidated financial statements.
9

PBF ENERGY INC.
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 in 2011 and completed an initial public offering in December 2012. PBF Energy 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 Finance Corporation ("PBF Finance") is a wholly-owned subsidiary of PBF Holding. Delaware City Refining Company LLC ("Delaware City Refining" or "DCR"), PBF Power Marketing LLC, PBF Energy Limited, Paulsboro Refining Company LLC, Paulsboro Natural Gas Pipeline Company LLC and Toledo Refining Company LLC are PBF LLC’s principal operating subsidiaries and are all wholly-owned subsidiaries of PBF Holding. As of September 30, 2015, PBF LLC also holds a 53.7% limited partner interest and all of the incentive distribution rights in PBF Logistics LP ("PBFX"), a publicly traded master limited partnership (refer to Note 2 "PBF Logistics LP" of our Notes to Condensed Consolidated Financial Statements). 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, and PBFX are referred to hereinafter as the "Company" unless the context otherwise requires.
On February 6, 2015, the Company completed a public offering of 3,804,653 shares of Class A common stock in a secondary offering (the "February 2015 secondary offering"). All of the shares in the February 2015 secondary offering were sold by funds affiliated with Blackstone Group L.P., or Blackstone, and First Reserve Management, L.P., or First Reserve. In connection with the February 2015 secondary offering, Blackstone and First Reserve exchanged all of their remaining PBF LLC Series A Units for an equivalent number of shares of Class A common stock of PBF Energy, and as a result, Blackstone and First Reserve no longer hold any PBF LLC Series A Units or shares of PBF Energy Class A Common stock. The holders of PBF LLC Series B Units, which include certain executive officers of PBF Energy and others, received a portion of the proceeds of the sale of the PBF Energy Class A common stock by Blackstone and First Reserve in accordance with the amended and restated limited liability company agreement of PBF LLC. PBF Energy did not receive any proceeds from the February 2015 secondary offering. As of September 30, 2015, the Company owns 85,893,850 PBF LLC Series C Units and the Company's executive officers and directors and certain employees and others beneficially own 5,111,358 PBF LLC Series A Units. As of September 30, 2015, the holders of the Company's issued and outstanding shares of Class A common stock have 94.4% 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 5.6% 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 three 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.    


10

PBF ENERGY INC.
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 U.S. generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2014 of PBF Energy. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements
In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"), which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability rather than as an asset. The standard is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date of ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”) for all entities by one year. The guidance in ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. Under ASU 2015-14, this guidance becomes effective for interim and annual periods beginning after December 15, 2017 and permits the use of either the retrospective or cumulative effect transition method. Under ASU 2015-14, early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company continues to evaluate the impact of this new standard on its consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"), which requires (i) that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, (ii) that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, (iii)that an entity present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Under ASU 2015-16, this guidance becomes effective for annual periods beginning after December 15, 2016 and interim periods within annual periods beginning after December 15, 2017 with prospective application with early adoption permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.


2. PBF LOGISTICS LP
On May 14, 2014, PBFX completed its initial public offering (the “PBFX Offering”) of 15,812,500 common units. As of September 30, 2015, PBF LLC holds a 53.7% limited partner interest in PBFX (consisting of 2,572,944 common units and 15,886,553 subordinated units) and all of PBFX's incentive distribution rights, with the remaining 46.3% limited partner interest held by public common unit holders. PBF LLC also owns indirectly a non-economic

11

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

general partner interest in PBFX through its wholly-owned subsidiary, PBF GP, the general partner of PBFX. During the subordination period (as set forth in the partnership agreement of PBFX) holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. If PBFX does not pay distributions on the subordinated units, the subordinated units will not accrue arrearages for those unpaid distributions. Each subordinated unit will convert into one common unit at the end of the subordination period.
PBFX engages in the receiving, handling and transferring of crude oil and the receipt, storage and delivery of crude oil, refined products and intermediates. All of PBFX’s revenue is derived from long-term, fee-based commercial agreements with PBF Holding, which include minimum volume commitments, for receiving, handling and transferring crude oil and refined products and storing crude oil and refined products. 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 are eliminated by PBF Energy in consolidation.
PBFX’s initial assets consisted of a light crude oil rail unloading terminal at the Delaware City refinery that also services the Paulsboro refinery (which is referred to as the “Delaware City Rail Terminal”), and a crude oil truck unloading terminal at the Toledo refinery (which is referred to as the “Toledo Truck Terminal”) that are integral components of the crude oil delivery operations at all three of PBF Energy’s refineries. On September 30, 2014, PBF LLC contributed to PBFX all of the equity interests of Delaware City Terminaling Company II LLC, which assets consist solely of the Delaware City heavy crude unloading rack (the "DCR West Rack"), for total consideration of $150,000. On December 11, 2014, PBF LLC contributed to PBFX all of the issued and outstanding limited liability company interests of Toledo Terminaling Company LLC, whose assets consist of a tank farm and related facilities located at our Toledo refinery, including a propane storage and loading facility (the "Toledo Storage Facility"), for total consideration of $150,000. On May 14, 2015 PBF LLC contributed to PBFX all of the issued and outstanding limited liability company interests of Delaware Pipeline Company LLC ("DPC") and Delaware City Logistics Company LLC ("DCLC"), whose assets consist of a products pipeline, truck rack and related facilities located at our Delaware City refinery (collectively the "Delaware City Products Pipeline and Truck Rack"), for total consideration of $143,000.
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.

3. NONCONTROLLING INTEREST OF PBF ENERGY AND PBFX
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 December 31, 2014, PBF Energy’s equity interest in PBF LLC represented approximately 89.9% of the outstanding interests. In connection with the February 2015 secondary offering, Blackstone and First Reserve exchanged a total of 3,804,653 Series A Units of PBF LLC for an equivalent number of shares of Class A common stock of PBF Energy. As of September 30, 2015, PBF Energy held approximately 94.4% of the economic interests in PBF LLC.
PBF Energy consolidates the financial results of PBF LLC and its subsidiaries, and records a noncontrolling interest for the economic interest in PBF Energy held by the members of PBF LLC other than PBF Energy. Noncontrolling interest on the consolidated statements of operations 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 consolidated balance sheets includes the portion of net assets of PBF Energy attributable to the members of PBF LLC other than PBF Energy.

12

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

The noncontrolling interest ownership percentage of PBF LLC as of September 30, 2015, the completion date of the February 2015 secondary offering, and December 31, 2014 is calculated as follows:
 
Held by members of PBF LLC other than PBF Energy
 
Held by PBF Energy
 
Total *
December 31, 2014
9,170,696

 
81,981,119

 
91,151,815

 
10.1
%
 
89.9
%
 
100.0
%
February 6, 2015
5,366,043

 
85,768,077

 
91,134,120

 
5.9
%
 
94.1
%
 
100.0
%
September 30, 2015
5,111,358

 
85,893,850

 
91,005,208

 
5.6
%
 
94.4
%
 
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 53.7% limited partner interest in PBFX and owns all of PBFX’s incentive distribution rights, with the remaining 46.3% limited partner interest owned by public common unit holders as of September 30, 2015. 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 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 consolidated balance sheets includes the portion of net assets of PBFX attributable to the public common unit holders of PBFX.
The noncontrolling interest ownership percentage of PBFX as of September 30, 2015 and December 31, 2014, is calculated as follows:

Units of PBFX Held by the Public

Units of PBFX Held by PBF LLC (Including Subordinated Units)

Total
December 31, 2014
15,812,500

 
17,171,077

 
32,983,577


47.9
%
 
52.1
%
 
100.0
%
September 30, 2015
15,893,313

 
18,459,497

 
34,352,810

 
46.3
%
 
53.7
%
 
100.0
%

13

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

The following table summarizes the changes in equity for the controlling and noncontrolling interests of PBF Energy for the nine months ended September 30, 2015 and 2014:
 
 
PBF Energy Inc. Equity
 
Noncontrolling
Interest in PBF LLC

Noncontrolling
Interest in PBFX
 
Total Equity
Balance at January 1, 2015
$
1,218,213

 
$
138,734

 
$
336,369

 
$
1,693,316

Comprehensive income
267,172

 
24,609

 
26,608

 
318,389

Dividends and distributions
(77,287
)
 
(15,252
)
 
(17,082
)
 
(109,621
)
Record deferred tax asset and liabilities and tax receivable agreement associated with secondary offerings and PBFX's acquisitions from PBF LLC
(10,378
)
 

 

 
(10,378
)
Record allocation of noncontrolling interest upon completion of secondary offerings
39,976

 
(39,976
)
 

 

Issuance of additional PBFX common units
11,390

 

 
(11,390
)
 

Stock-based compensation
6,139

 
190

 
2,428

 
8,757

Exercise of PBF LLC options and warrants, net
1,693

 
(3,113
)
 

 
(1,420
)
Purchase of treasury stock
(8,073
)
 

 

 
(8,073
)
Balance at September 30, 2015
$
1,448,845

 
$
105,192

 
$
336,933

 
$
1,890,970


 
PBF Energy Inc. Equity
 
Noncontrolling
Interest in PBF LLC
 
Noncontrolling
Interest in PBFX
 
Total Equity
Balance at January 1, 2014
$
654,130

 
$
1,061,126

 
$

 
$
1,715,256

Comprehensive income
239,927

 
152,481

 
7,328

 
399,736

Dividends and distributions
(63,629
)
 
(80,400
)
 
(2,573
)
 
(146,602
)
Record deferred tax asset and liabilities and tax receivable agreement associated with secondary offerings
(102,533
)
 

 

 
(102,533
)
Record allocation of noncontrolling interest upon completion of secondary offerings
936,237

 
(936,237
)
 

 

Issuance of additional PBFX common units
4,249

 

 
(4,249
)
 

Stock-based compensation
4,292

 
432

 
653

 
5,377

Record noncontrolling interest upon completion of the PBFX Offering

 

 
335,957

 
335,957

Exercise of PBF LLC options and warrants, net

 
(59
)
 

 
(59
)
Purchase of treasury stock
(32,593
)
 

 

 
(32,593
)
Balance at September 30, 2014
$
1,640,080

 
$
197,343

 
$
337,116

 
$
2,174,539



14

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

4. INVENTORIES
Inventories consisted of the following:
September 30, 2015
 
Titled Inventory
 
Inventory Supply and Intermediation Arrangements
 
Total
Crude oil and feedstocks
$
954,744

 
$
21,288

 
$
976,032

Refined products and blendstocks
545,279

 
310,238

 
855,517

Warehouse stock and other
40,890

 

 
40,890

 
$
1,540,913

 
$
331,526

 
$
1,872,439

Lower of cost or market reserve
(662,638
)
 
(108,619
)
 
(771,257
)
Total inventories
$
878,275

 
$
222,907

 
$
1,101,182

 
December 31, 2014
 
Titled Inventory
 
Inventory Supply and Intermediation Arrangements
 
Total
Crude oil and feedstocks
$
918,756

 
$
61,122

 
$
979,878

Refined products and blendstocks
520,308

 
255,459

 
775,767

Warehouse stock and other
36,726

 

 
36,726

 
$
1,475,790

 
$
316,581

 
$
1,792,371

Lower of cost or market reserve
(609,774
)
 
(80,336
)
 
(690,110
)
Total inventories
$
866,016

 
$
236,245

 
$
1,102,261


Inventory under inventory supply and intermediation arrangements includes certain crude oil stored at the Company’s Delaware City refinery's storage facilities that the Company will purchase as it is consumed in connection with its crude supply agreement; and intermediates and light finished products sold to counterparties in connection with the intermediation agreements and stored in the Paulsboro and Delaware City refineries' storage facilities.
Due to the lower crude oil and refined product pricing environment at the end of 2014 and into the third quarter of 2015, the Company recorded adjustments to value its inventories to the lower of cost or market. During the three months ended September 30, 2015, the Company recorded an adjustment to value its inventories to the lower of cost or market which decreased operating income and net income by $208,313 and $124,571, respectively, reflecting the net change in the lower of cost or market inventory reserve from $562,944 at June 30, 2015 to $771,257 at September 30, 2015. During the nine months ended September 30, 2015, the Company recorded an adjustment to value its inventories to the lower of cost or market which decreased operating income and net income by $81,147 and $48,526, respectively, reflecting the net change in the lower of cost or market inventory reserve from $690,110 at December 31, 2014 to $771,257 at September 30, 2015.


15

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

5. DEFERRED CHARGES AND OTHER ASSETS, NET
Deferred charges and other assets, net consisted of the following:
 
September 30,
2015
 
December 31,
2014
Deferred turnaround costs, net
$
183,618

 
$
204,987

Catalyst, net
71,516

 
77,322

Deferred financing costs, net
34,495

 
32,280

Linefill
10,230

 
10,230

Restricted cash
1,500

 
1,521

Intangible assets, net
231

 
357

Other
9,830

 
5,972

Total deferred charges and other assets, net
$
311,420

 
$
332,669

 
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
 
September 30,
2015
 
December 31,
2014
Inventory-related accruals
$
407,678

 
$
588,297

Inventory supply and intermediation arrangements
212,930

 
253,549

Accrued transportation costs
49,548

 
59,959

Accrued salaries and benefits
37,766

 
56,117

Accrued income taxes payable
29,487

 

Excise and sales tax payable
20,430

 
40,444

Accrued interest
15,875

 
23,014

Accrued utilities
9,633

 
22,337

Customer deposits
8,910

 
24,659

Accrued construction in progress
4,634

 
31,452

Other
22,839

 
30,964

Total accrued expenses
$
819,730

 
$
1,130,792

 
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 & Company, a subsidiary of The Goldman Sachs Group, Inc. ("J. Aron"). A liability is recognized for the Inventory supply and intermediation arrangements 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 sales.
The Company has the obligation to purchase and sell feedstocks under a supply agreement with Statoil Marketing and Trading (US) Inc. ("Statoil") for its Delaware City refinery (the “Crude Supply Agreement”).  Statoil purchases the refinery's production of certain feedstocks or purchases feedstocks from third parties on the refineries' behalf. Legal title to the feedstocks is held by Statoil and the feedstocks are held in the refinery's storage tanks until they are needed for further use in the refining process. At that time, the products are drawn out of the storage tanks and purchased by the refinery. These purchases and sales are settled monthly at the daily market prices related to those products. These transactions are considered to be made in contemplation of each other and, accordingly, do not

16

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

result in the recognition of a sale when title passes from the refinery to Statoil. Inventory remains at cost and the net cash receipts result in a liability.
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 expenses and other current assets when the amount of RINs earned and purchased is greater than the RINs liability.

7. CREDIT FACILITIES
On April 29, 2015, PBF Rail Logistics LLC ("PBF Rail"), an indirect wholly-owned subsidiary of PBF Holding, entered into the First Amendment to Loan Agreement (as amended, the “Rail Facility”) among Credit Agricole Corporate + Investment Bank as Administrative Agent, Deutsche Bank Trust Company Americas as Collateral Agent, DVB Bank SE as Syndication Agent, ING Bank, a branch of ING-DiBa AG as Documentation Agent and certain other Continuing Lenders, as defined in the agreement. The primary purpose of the Rail Facility is to fund the acquisition by PBF Rail of coiled and insulated crude tank cars and non-coiled and non-insulated general purpose crude tank cars. The amendments to the Rail Facility include the extension of the maturity to April 29, 2017, the reduction of the total commitment from $250,000 to $150,000, and the reduction of the commitment fee on the unused portion of the Rail Facility.
On May 12, 2015, PBFX entered into an indenture among the Partnership, PBF Logistics Finance Corporation, a Delaware corporation and wholly-owned subsidiary of the Partnership ("PBF Logistics Finance," and together with the Partnership, the "Issuers"), the Guarantors named therein (certain subsidiaries of PBFX) and Deutsche Bank Trust Company Americas, as Trustee, under which the Issuers issued $350,000 in aggregate principal amount of 6.875% Senior Notes due 2023 (the "PBFX Senior Notes"). PBF LLC has provided a limited guarantee of collection of the principal amount of the PBFX Senior Notes, but is not otherwise subject to the covenants of the indenture. Of the $350,000 aggregate PBFX Senior Notes, $19,910 were purchased by certain of PBF Energy’s officers and directors and their affiliates and family members pursuant to a separate private placement transaction. After deducting offering expenses, PBFX received net proceeds of approximately $343,000 from the PBFX Senior Notes offering.

8. MARKETABLE SECURITIES
The U.S Treasury securities purchased by the Company with the proceeds from the PBFX Offering are used as collateral to secure a three-year, $300,000 term loan facility entered into by PBFX (the "PBFX Term Loan"). PBFX anticipates holding the securities for an indefinite amount of time (the securities will be rolled over as they mature). As necessary and at the discretion of PBFX, these securities are expected to be liquidated and the proceeds used to fund future capital expenditures. While PBFX does not routinely sell marketable securities prior to their scheduled maturity dates, some of PBFX's investments may be held and restricted for the purpose of funding future capital expenditures and acquisitions, so these investments are classified as available-for-sale marketable securities as they may occasionally be sold prior to their scheduled maturity dates due to the unexpected timing of cash needs. The carrying value of these marketable securities approximates fair value and are measured using Level 1 inputs. The maturities of the marketable securities range from one to three months and are classified on the balance sheet in non-current assets.
As of September 30, 2015 and December 31, 2014, the Company held $234,249 and $234,930, respectively, in marketable securities. The gross unrecognized holding gains and losses as of September 30, 2015 and December 31, 2014 were not material. The net realized gains or losses from the sale of marketable securities were immaterial for the three and nine months ended September 30, 2015 and 2014.


17

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

9. 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 solely of its share of PBF LLC’s pre-tax income (approximately 89.9% prior to the February 2015 secondary offering and approximately 94.4% subsequent to the February 2015 secondary offering as of September 30, 2015). 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. As a result, PBF Energy's condensed consolidated financial statements do not reflect any benefit or provision for income taxes on the pre-tax income or loss attributable to the noncontrolling interests in PBF LLC or PBFX.

The income tax provision in the PBF Energy condensed consolidated financial statements of operations consisted of the following:
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2015
 
2014
 
2015
 
2014
Current tax expense
 
$
58,193

 
$
59,632

 
$
123,734

 
$
87,695

Deferred tax expense
 
(46,668
)
 
35,628

 
27,338

 
70,718

Total tax expense
 
$
11,525

 
$
95,260

 
$
151,072

 
$
158,413


Income tax expense is based on income before taxes attributable to PBF Energy and excludes income before taxes attributable to noncontrolling interests as such interests are not subject to income taxes. The difference between the Company’s income tax expense and the income tax provision computed by applying the United States statutory rate and the difference between the Company’s effective income tax rate and the United States statutory rate are reconciled below:
 
 
 
Three Months Ended 
 September 30, 2015
 
Three Months Ended 
 September 30, 2014
Provision at Federal statutory rate
 
$
19,011

 
35.0
 %
 
$
82,793

 
35.0
 %
Increase (decrease) attributable to flow-through of certain tax adjustments:
 
 
 
 

 
 
 
 

State income taxes (net federal income tax)
 
2,830

 
5.2
 %
 
12,103

 
5.2
 %
Non deductible/nontaxable items
 
536

 
1.0
 %
 
2,019

 
0.8
 %
Adjustment for manufacturer's benefit
 
(1,169
)
 
(2.2
)%
 

 
 %
Rate differential from foreign jurisdictions
 
(9,971
)
 
(18.4
)%
 

 
 %
Other
 
288

 
0.6
 %
 
(1,655
)
 
(0.7
)%
Total
 
$
11,525

 
21.2
 %
 
$
95,260

 
40.3
 %

18

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

 
 
Nine Months Ended 
 September 30, 2015
 
Nine Months Ended 
 September 30, 2014
Provision at Federal statutory rate
 
$
145,949

 
35.0
 %
 
$
139,233

 
35.0
 %
Increase (decrease) attributable to flow-through of certain tax adjustments:
 
 
 
 

 
 
 
 

State income taxes (net federal income tax)
 
21,726

 
5.2
 %
 
20,505

 
5.2
 %
Non deductible/nontaxable items
 
1,402

 
0.3
 %
 
2,321

 
0.5
 %
Adjustment for manufacturer's benefit
 
(3,984
)
 
(0.9
)%
 

 
 %
Rate differential from foreign jurisdictions
 
(13,797
)
 
(3.3
)%
 

 
 %
Other
 
(224
)
 
(0.1
)%
 
(3,646
)
 
(0.9
)%
Total
 
$
151,072

 
36.2
 %
 
$
158,413

 
39.8
 %
The Company's effective income tax rate for the three and nine months ended September 30, 2015, including the impact of income attributable to noncontrolling interests of $12,696 and $51,144, respectively, was 17.2% and 32.3%, respectively.The Company's effective income tax rate for the three and nine months ended September 30, 2014, including the impact of income attributable to noncontrolling interests of $29,042 and $159,746, respectively, was 35.9% and 28.4%, respectively.

PBF Energy has determined there are no material uncertain tax positions as of September 30, 2015. PBF Energy does not have any unrecognized tax benefits.

10. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company’s refineries are subject to extensive and frequently changing federal, state and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise relate to the protection of the environment, waste management and the characteristics and the compositions of fuels. Compliance with existing and anticipated laws and regulations can increase the overall cost of operating the refineries, including remediation, operating costs and capital costs to construct, maintain and upgrade equipment and facilities.
In connection with the Paulsboro refinery acquisition, the Company assumed certain environmental remediation obligations. The environmental liability of $10,714 recorded as of September 30, 2015 ($10,476 as of December 31, 2014) represents the present value of expected future costs discounted at a rate of 8%. The current portion of the environmental liability is recorded in accrued expenses and the non-current portion is recorded in other long-term liabilities. As of September 30, 2015 and December 31, 2014, 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) ("Sunoco") 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 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, six Northeastern states require heating oil with 15 PPM or less sulfur. By July 1, 2016, two more

19

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

states are expected to adopt this requirement and by July 1, 2018 most of the remaining Northeastern states (except for Pennsylvania and New Hampshire) will require heating oil with 15 PPM or less sulfur. 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 Clean Air Act. This final rule establishes more stringent vehicle emission standards and further reduces the sulfur content of gasoline starting in January of 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 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.
The EPA was required to release the final annual standards for the Reformulated Fuels Standard ("RFS") for 2014 no later than Nov 29, 2013 and for 2015 no later than Nov 29, 2014. The EPA did not meet these requirements but did release proposed standards for 2014. The EPA did not finalize this proposal in 2014. However, in May 2015, the EPA re-proposed annual standards for RFS 2 for 2014, and proposed new standards for 2015 and 2016 and biomass-based diesel volumes for 2017. The EPA is proposing volume requirements in the annual standards which, while below the volumes originally set by Congress, would increase renewable fuel use in the U.S. above historical levels and provide for steady growth over time. The EPA is also proposing to increase the required volume of biomass-based diesel in 2015, 2016, and 2017 while maintaining the opportunity for growth in other advanced biofuels. The EPA has solicited comments on the proposed annual standards and held public hearings on June 25, 2015. Final action on this proposal is expected by November 30, 2015. If they are issued, the final standards may have a material impact on the Company's cost of compliance with RFS 2.
On September 12, 2012, the EPA issued final amendments to the New Source Performance Standards ("NSPS") for petroleum refineries, including standards for emissions of nitrogen oxides from process heaters and work practice standards and monitoring requirements for flares.  The Company has evaluated the impact of the regulation and amended standards on its refinery operations and currently does not expect the cost to comply to be material.
In addition, 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.
The Delaware City Rail Terminal and DCR West Rack are collocated with the Delaware City refinery, and are located in Delaware's coastal zone where certain activities are regulated under the Delaware Coastal Zone act. On June 14, 2013, two administrative appeals were filed by the Sierra Club and Delaware Audubon (collectively the "Appellants") regarding an air permit Delaware City Refining obtained to allow loading of crude oil onto barges. The appeals allege that both the loading of crude oil onto barges and the operation of the Delaware City Rail Terminal violate Delaware’s Coastal Zone Act. The first appeal is Number 2013-1 before the State Coastal Zone Industrial Control Board (the “CZ Board”), and the second appeal is before the Environmental Appeals Board (the "EAB") and appeals Secretary’s Order No. 2013-A-0020. The CZ Board held a hearing on the first appeal on July 16, 2013, and ruled in favor of Delaware City Refining and the State of Delaware and dismissed the Appellants’ appeal for lack of standing. The Appellants appealed that decision to the Delaware Superior Court, New Castle County, Case No. N13A-09-001 ALR, and Delaware City Refining and the State of Delaware filed cross-appeals. A hearing on the second appeal before the EAB, case no. 2013-06, was held on January 13, 2014, and the EAB ruled in favor of Delaware City Refining and the State and dismissed the appeal for lack of jurisdiction. The Appellants also filed a Notice of Appeal with the Superior Court appealing the EAB’s decision. On March 31, 2015 the Superior Court affirmed the decisions by both the CZ Board and the EAB stating they both lacked

20

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

jurisdiction to rule on the Appellants' appeal. The Appellants appealed to the Delaware Supreme Court, and, on November 5, 2015, the Supreme Court affirmed the Superior Court decision.
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 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 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.

21

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

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 94.4% interest in PBF LLC as of September 30, 2015 (89.9% as of December 31, 2014). PBF LLC 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 September 30, 2015, the Company has recognized a liability for the tax receivable agreement of $735,376 ($712,727 as of December 31, 2014) reflecting the estimate of the undiscounted amounts that the Company expects to pay under the agreement.

11. DIVIDENDS AND DISTRIBUTIONS
With respect to dividends and distributions paid during the nine months ended September 30, 2015, PBF LLC made aggregate non-tax quarterly distributions of $0.90 per unit to its members, of which $77,287 was distributed prorata to PBF Energy and the balance was distributed to its other members. PBF Energy used this $77,287 to pay quarterly cash dividends of $0.30 per share of Class A common stock on March 10, 2015, May 27, 2015 and August 10, 2015. In addition, during the nine months ended September 30, 2015, PBF LLC made aggregate tax distributions to its members of $186,112, of which $175,551 were made to PBF Energy.

With respect to distributions paid during the nine months ended September 30, 2015, PBFX paid a distribution on outstanding common and subordinated units of $0.33 per unit on March 4, 2015, $0.35 per unit on May 29, 2015 and $0.37 per unit on August 31, 2015 for a total distribution of $35,772, of which $18,690 was distributed to PBF LLC and the balance was distributed to its public unit holders.


12. TREASURY STOCK

On August 19, 2014, the Company's Board of Directors authorized the repurchase of up to $200,000 of the Company's Class A common stock (the "Repurchase Program"). On October 29, 2014, the Company's Board of Directors approved an additional $100,000 increase to the existing Repurchase Program. As of September 30, 2015, the Company has purchased approximately 6.05 million shares of the Company's Class A common stock through open market transactions under the Repurchase Program, for a total of $150,804. During the three and nine months ended September 30, 2015, the Company repurchased 142,487 and 284,771 shares, respectively, for $4,073 and $8,073, respectively. During both, the three and nine months ended September 30, 2014, the Company repurchased 1,354,943 shares for $32,593.

The following table summarizes the Company's Class A common stock repurchase activity under the Repurchase Program:

Number of shares purchased (1)
 
Cost of purchased shares
Shares purchased as of December 31, 2014
5,765,946

 
$
142,731

Shares purchased during the nine months ended September 30, 2015
284,771

 
8,073

Shares purchased as of September 30, 2015
6,050,717

 
$
150,804

__________
 
 
 
(1) - The shares purchased include only those shares that have settled as of the period end date.
These repurchases may be made from time to time through various methods, including open market transactions, block trades, accelerated share repurchases, privately negotiated transactions or otherwise, certain of which may be effected through Rule 10b5-1 and Rule 10b-18 plans. The timing and number of shares repurchased will depend on a variety of factors, including price, capital availability, legal requirements and economic and market conditions.

22

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

The Company is not obligated to purchase any shares under the Repurchase Program, and repurchases may be suspended or discontinued at any time without prior notice.

As of September 30, 2015, the Company has the ability to purchase an additional $149,196 in common stock under the approved Repurchase Program.

13. 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 
 September 30,
 
Nine Months Ended 
 September 30,
Pension Benefits
 
2015
 
2014
 
2015

2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
Service cost
 
$
5,790

 
$
5,134

 
$
17,369

 
$
14,276

Interest cost
 
710

 
616

 
2,126

 
1,787

Expected return on plan assets
 
(830
)
 
(546
)
 
(2,489
)
 
(1,609
)
Amortization of prior service costs
 
13

 
13

 
39

 
26

Amortization of loss
 
311

 
277

 
933

 
757

Net periodic benefit cost
 
$
5,994

 
$
5,494

 
$
17,978

 
$
15,237


 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Post Retirement Medical Plan
 
2015
 
2014
 
2015
 
2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
Service cost
 
$
243

 
$
269

 
$
731

 
$
747

Interest cost
 
134

 
125

 
403

 
353

Amortization of prior service costs
 
76

 
52

 
228

 
107

Amortization of loss (gain)
 

 

 

 
(4
)
Net periodic benefit cost
 
$
453

 
$
446

 
$
1,362

 
$
1,203


14. 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 September 30, 2015 and December 31, 2014.
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.

23

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

 
As of September 30, 2015
 
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
$
342,414

 
$

 
$

 
$
342,414

 
N/A

 
$
342,414

Marketable securities
234,249

 

 

 
234,249

 
N/A

 
234,249

Non-qualified pension plan assets
9,441

 

 

 
9,441

 
N/A

 
9,441

Commodity contracts
148,907

 
10,710

 
838

 
160,455

 
(137,670
)
 
22,785

Derivatives included with intermediation agreement obligations

 
44,684

 

 
44,684

 

 
44,684

Derivatives included with inventory supply arrangement obligations

 
1,031

 

 
1,031

 

 
1,031

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
134,702

 
1,945

 
1,023

 
137,670

 
(137,670
)
 

Catalyst lease obligations

 
27,577

 

 
27,577

 

 
27,577

 
As of December 31, 2014
 
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
$
5,575

 
$

 
$

 
$
5,575

 
N/A

 
$
5,575

Marketable securities
234,930

 

 

 
234,930

 
N/A

 
234,930

Non-qualified pension plan assets
5,494

 

 

 
5,494

 
N/A

 
5,494

Commodity contracts
415,023

 
12,093

 
1,715

 
428,831

 
(397,676
)
 
31,155

Derivatives included with inventory intermediation agreement obligations

 
94,834

 

 
94,834

 

 
94,834

Derivatives included with inventory supply arrangement obligations

 
4,251

 

 
4,251

 

 
4,251

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
390,144

 
7,338

 
194

 
397,676

 
(397,676
)
 

Catalyst lease obligations

 
36,559

 

 
36,559

 

 
36,559


24

PBF ENERGY INC.
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.
Marketable securities, consisting primarily of US Treasury securities, categorized in Level 1 of the fair value hierarchy are measured at fair value based on quoted market prices.
Non-qualified pension plan assets categorized in Level 1 of the fair value hierarchy are measured at fair value using a market approach based on published net asset values of mutual funds and included within Deferred charges and other assets, net.
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 supply arrangement obligations, 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.

The table below summarizes the changes in fair value measurements categorized in Level 3 of the fair value hierarchy:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2015
 
2014
 
2015
 
2014
Balance at beginning of period
 
$
1,905

 
$
2,689

 
$
1,521

 
$
(23,365
)
Purchases
 

 

 

 

Settlements
 
(1,238
)
 
(9,020
)
 
(12,549
)
 
(5,353
)
Unrealized gain included in earnings
 
(852
)
 
19,377

 
10,843

 
41,764

Transfers into Level 3
 

 

 

 

Transfers out of Level 3
 

 

 

 

Balance at end of period
 
$
(185
)
 
$
13,046

 
$
(185
)
 
$
13,046


There were no transfers between levels during the three and nine months ended September 30, 2015 and 2014, respectively.

25

PBF ENERGY INC.
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 September 30, 2015 and December 31, 2014.
 
September 30, 2015
 
December 31, 2014
 
Carrying
value
 
Fair
 value
 
Carrying
 value
 
Fair
value
Senior Secured Notes (a)
$
669,354

 
$
680,548

 
$
668,520

 
$
675,580

PBFX Senior Notes (a)
350,000

 
328,976

 

 

PBFX Term Loan (b)
234,200

 
234,200

 
234,900

 
234,900

Rail Facility (b)
67,491

 
67,491

 
37,270

 
37,270

PBFX Revolving Credit Facility (b)
24,500

 
24,500

 
275,100

 
275,100

Revolving Loan (b)

 

 

 

Catalyst leases (c)
27,577

 
27,577

 
36,559

 
36,559

 
1,373,122

 
1,363,292

 
1,252,349

 
1,259,409

Less - Current maturities

 

 

 

Long-term debt
$
1,373,122

 
$
1,363,292

 
$
1,252,349

 
$
1,259,409


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

15. DERIVATIVES
The Company uses derivative instruments to mitigate certain exposures to commodity price risk. The Company’s crude supply agreement contains purchase obligations for certain volumes of crude oil and other feedstocks. In addition, the Company entered into Inventory Intermediation Agreements commencing in July 2013 that contain purchase obligations for certain volumes of intermediates and refined products. The purchase obligations related to crude oil, feedstocks, intermediates and refined products under these agreements are derivative instruments that have been designated as fair value hedges in order to hedge the commodity price volatility of certain refinery inventory. The fair value of these purchase obligation derivatives is based on market prices of the underlying crude oil and refined products. The level of activity for these derivatives is based on the level of operating inventories.

As of September 30, 2015, there were 238,306 barrels of crude oil and feedstocks (662,579 barrels at December 31, 2014) outstanding under these derivative instruments designated as fair value hedges and no barrels (no barrels at December 31, 2014) outstanding under these derivative instruments not designated as hedges. As of September 30, 2015, there were 3,130,766 barrels of intermediates and refined products (3,106,325 barrels at December 31, 2014) outstanding under these derivative instruments designated as fair value hedges and no barrels (no barrels at December 31, 2014) outstanding under these derivative instruments not designated as hedges. These volumes represent the notional value of the contract.


26

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

The Company also enters into economic hedges primarily consisting of commodity derivative contracts that are not designated as hedges and are used to manage price volatility in certain crude oil and feedstock inventories as well as crude oil, feedstock, and refined product sales or purchases. The objective in entering into economic hedges is consistent with the objectives discussed above for fair value hedges. As of September 30, 2015, there were 45,651,000 barrels of crude oil and 2,277,000 barrels of refined products (47,339,000 and 1,970,871, respectively, as of December 31, 2014), outstanding under short and long term commodity derivative contracts not designated as hedges representing the notional value of the contracts.

The following tables provide information about the fair values of these derivative instruments as of September 30, 2015 and December 31, 2014 and the line items in the consolidated balance sheet in which the fair values are reflected.
Description

Balance Sheet Location
Fair Value
Asset/(Liability)
Derivatives designated as hedging instruments:
 
 
September 30, 2015:
 
 
Derivatives included with inventory supply arrangement obligations
Accrued expenses
$
1,031

Derivatives included with the intermediation agreement obligations
Accrued expenses
$
44,684

December 31, 2014
 
 
Derivatives included with inventory supply arrangement obligations
Accrued expenses
$
4,251

Derivatives included with the intermediation agreement obligations
Accrued expenses
$
94,834

 
 
 
Derivatives not designated as hedging instruments:
 
 
September 30, 2015:
 
 
Commodity contracts
Accounts receivable
$
22,785

December 31, 2014
 
 
Commodity contracts
Accounts receivable
$
31,155


27

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

The following tables provide information about the gain or loss recognized in income on these derivative instruments and the line items in the consolidated financial statements in which such gains and losses are reflected.
Description
Location of Gain or (Loss) Recognized in
 Income on Derivatives
Gain or (Loss)
Recognized in
Income on Derivatives
Derivatives designated as hedging instruments:
 
 
For the three months ended September 30, 2015:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
1,409

Derivatives included with the intermediation agreement obligations
Cost of sales
$
34,424

For the three months ended September 30, 2014:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
2,729

Derivatives included with the intermediation agreement obligations
Cost of sales
$
20,900

For the nine months ended September 30, 2015:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
(3,220
)
Derivatives included with the intermediation agreement obligations
Cost of sales
$
(50,150
)
For the nine months ended September 30, 2014:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
1,660

Derivatives included with the intermediation agreement obligations
Cost of sales
$
29,942

 
 
 
Derivatives not designated as hedging instruments:
 
 
For the three months ended September 30, 2015:
 
 
Commodity contracts
Cost of sales
$
31,017

For the three months ended September 30, 2014:
 
 
Commodity contracts
Cost of sales
$
70,624

For the nine months ended September 30, 2015:
 
 
Commodity contracts
Cost of sales
$
(14,080
)
For the nine months ended September 30, 2014:
 
 
Commodity contracts
Cost of sales
$
101,902

 
 
 
Hedged items designated in fair value hedges:
 
 
For the three months ended September 30, 2015:
 
 
Crude oil and feedstock inventory
Cost of sales
$
(1,409
)
Intermediate and refined product inventory
Cost of sales
$
(34,424
)
For the three months ended September 30, 2014:
 
 
Crude oil and feedstock inventory
Cost of sales
$
(2,729
)
Intermediate and refined product inventory
Cost of sales
$
(20,900
)
For the nine months ended September 30, 2015:
 
 
Crude oil and feedstock inventory
Cost of sales
$
3,220

Intermediate and refined product inventory
Cost of sales
$
50,150

For the nine months ended September 30, 2014:
 
 
Crude oil and feedstock inventory
Cost of sales
$
(1,660
)
Intermediate and refined product inventory
Cost of sales
$
(29,942
)

The Company had no ineffectiveness related to the Company's fair value hedges for the three and nine months ended September 30, 2015 and 2014.


28

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

16. SEGMENT INFORMATION

The Company's operations are organized into two reportable segments, Refining and Logistics. Operations that are not included in the Refining and Logistics segments are included in Corporate. Intersegment transactions are eliminated in the consolidated financial statements and are included in Eliminations.

Refining
As of September 30, 2015, the Company 's Refining Segment includes the operations of its three refineries which are located in Toledo, Ohio, Delaware City, Delaware and Paulsboro, New Jersey. The refineries produce unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products in the United States. The Company purchases crude oil, other feedstocks and blending components from various third-party suppliers. The Company sells products throughout the Northeast and Midwest of the United States, as well as in other regions of the United States and Canada, and is able to ship products to other international destinations. As of September 30, 2015, the refineries have a combined processing capacity, known as throughput, of approximately 540,000 barrels per day ("bpd"), and a weighted-average Nelson Complexity Index of 11.3.

Logistics
The Company formed PBFX, a publicly traded master limited partnership, to own or lease, operate, develop and acquire crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets. PBFX's assets consist of (i) a rail terminal which has a double loop track and ancillary pumping and unloading equipment located at the Delaware City refinery with an unloading capacity of approximately 130,000 bpd; (ii) a truck terminal comprised of six lease automatic custody transfer units accepting crude oil deliveries by truck located at the Toledo refinery designed for total throughput capacity of up to approximately 22,500 bpd; (iii) a heavy crude rail unloading rack located at the Delaware City refinery with an unloading capacity of at least 40,000 bpd; (iv) a tank farm with aggregate storage capacity of approximately 3.9 million barrels, including a propane storage and loading facility with throughput capacity of 11,000 bpd at the Toledo Refinery; (v) a 23.4 mile 16-inch interstate petroleum products pipeline with capacity in excess of 125,000 bpd at the Delaware City refinery and; (vi) a 15-lane, 76,000 bpd capacity truck loading rack utilized to distribute gasoline, distillates and liquefied petroleum gas at the Delaware City refinery. PBFX provides various rail and truck terminaling services, pipeline transportation services and storage services to PBF Holding and/or its subsidiaries through long-term commercial agreements. PBFX currently does not generate third party revenue and as such intersegment related-party revenues are eliminated in consolidation. Prior to the PBFX Offering, PBFX's assets were operated within the refining operations of the Company's Delaware City and Toledo refineries. The assets did not generate third party revenue and were not considered to be a separate reportable segment.

The Company evaluates the performance of its segments based primarily on income from operations. Income from operations includes those revenues and expenses that are directly attributable to management of the respective segment. The Logistics segment's revenues include inter-segment transactions with the Company's Refining segment at prices the Company believes are substantially equivalent to the prices that could have been negotiated with unaffiliated parties with respect to similar services. Activities of the Company's business that are not included in the two operating segments are included in Corporate. Such activities consist primarily of corporate staff operations and other items that are not specific to the normal operations of the two operating segments. The Company does not allocate certain items of other income and expense, including income taxes, to the individual segments. The Refinery segment's operating subsidiaries and PBFX are primarily pass-through entities with respect to income taxes.

Disclosures regarding our reportable segments with reconciliations to consolidated totals for the three and nine months ended September 30, 2015 and September 30, 2014 are presented below. The Logistics segment's results include financial information of the predecessor of PBFX for periods prior to May 13, 2014, and the financial information of PBFX for the period beginning May 14, 2014, the completion date of the PBFX Offering. In connection with the contribution by PBF LLC of the DCR West Rack, the Toledo Storage Facility and the Delaware City Products Pipeline and Truck Rack, the accompanying segment information has been retrospectively adjusted

29

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

to include the historical results of the DCR West Rack, Toledo Storage Facility and the Delaware City Products Pipeline and Truck Rack for all periods presented prior to such contributions.

Prior to the PBFX Offering, the Company did not operate the PBFX assets independent of the Refining segment. Total assets of each segment consist of net property, plant and equipment, inventories, cash and cash equivalents, accounts receivables and other assets directly associated with the segment’s operations. Corporate assets consist primarily of deferred tax assets, property, plant and equipment and other assets not directly related to our refinery and logistic operations.

Three Months Ended September 30, 2015

Refining

Logistics

Corporate
 
Eliminations

Consolidated Total
Revenues
$
3,217,640


$
37,082


$

 
$
(37,082
)

$
3,217,640

Depreciation and amortization expense
44,366


1,649


2,118

 


48,133

Income (loss) from operations
114,925

 
27,463

 
(52,336
)
 

 
90,052

Interest expense, net
4,110

 
7,180

 
16,736

 

 
28,026

Capital expenditures
81,969

 
962

 
573

 

 
83,504

 
Three Months Ended September 30, 2014
 
Refining
 
Logistics
 
Corporate
 
Eliminations
 
Consolidated Total
Revenues
$
5,260,003

 
$
17,060

 
$

 
$
(17,060
)
 
$
5,260,003

Depreciation and amortization expense
63,532

 
1,177

 
3,301

 

 
68,010

Income (loss) from operations
316,244

 
5,942

 
(38,083
)
 

 
284,103

Interest expense, net
5,314

 
827

 
18,233

 

 
24,374

Capital expenditures
110,340

 
14,874

 
32,642

 

 
157,856

 
Nine Months Ended September 30, 2015
 
Refining
 
Logistics
 
Corporate
 
Eliminations
 
Consolidated Total
Revenues
$
9,763,440

 
$
104,796

 
$

 
$
(104,796
)
 
$
9,763,440

Depreciation and amortization expense
131,817

 
4,919

 
7,665

 

 
144,401

Income (loss) from operations
591,005

 
71,914

 
(126,661
)
 

 
536,258

Interest expense, net
13,387

 
14,065

 
49,642

 

 
77,094

Capital expenditures
332,544

 
1,182

 
2,183

 

 
335,909

 
Nine Months Ended September 30, 2014
 
Refining
 
Logistics
 
Corporate
 
 Eliminations
 
Consolidated Total
Revenues
$
15,308,155

 
$
29,409

 
$

 
$
(29,409
)
 
$
15,308,155

Depreciation and amortization expense
122,858

 
2,906

 
10,123

 

 
135,887

Income (loss) from operations
741,483