Attached files

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EX-10.12 - EXHIBIT 10.12 - PBF Energy Inc.exhibit1012-revolvingcredi.htm
EX-32.2 - EXHIBIT 32.2 - PBF Energy Inc.q316exhibit322-energy.htm
EX-32.1 - EXHIBIT 32.1 - PBF Energy Inc.q316exhibit321-energy.htm
EX-31.2 - EXHIBIT 31.2 - PBF Energy Inc.q316exhibit312-energy.htm
EX-31.1 - EXHIBIT 31.1 - PBF Energy Inc.q316exhibit311-energy.htm
EX-10.13 - EXHIBIT 10.13 - PBF Energy Inc.exhibit1013-revolvingcredi.htm
EX-10.11 - EXHIBIT 10.11 - PBF Energy Inc.exhibit1011-ablxpbfwestern.htm
EX-10.10 - EXHIBIT 10.10 - PBF Energy Inc.exhibit1010-ablxtorrancere.htm
EX-10.9 - EXHIBIT 10.9 - PBF Energy Inc.exhibit109-railfacilityame.htm
EX-10.1 - EXHIBIT 10.1 - PBF Energy Inc.exhibit101-formofrestricte.htm
EX-4.2 - EXHIBIT 4.2 - PBF Energy Inc.exhibit42-firstsupplindent.htm
EX-4.1 - EXHIBIT 4.1 - PBF Energy Inc.exhibit41-thirdsupplindent.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, 2016
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 2, 2016, PBF Energy Inc. had outstanding 98,142,783 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, 2016
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 95.2% of the outstanding economic interests in PBF LLC as of September 30, 2016. 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. As of September 30, 2016, PBF LLC also holds a 44.2% 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 ("PSLRA"), of expected future developments that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our strategies, objectives, expectations, intentions, resources and expectations regarding future industry trends are forward-looking statements made under the safe harbor of the PSLRA except to the extent such statements relate to the operations of a partnership or limited liability company. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our expectations, which we refer to as “cautionary statements,” are disclosed under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q and the Annual Report on Form 10-K for the year ended December 31, 2015 of PBF Energy Inc., which we refer to as our 2015 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 A&R 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 PBF Energy's tax receivable agreement and other arrangements relating to our organizational structure are subject to change due to various factors, including, among other factors, the timing of exchanges of PBF LLC Series A Units for shares of our Class A common

3



stock as contemplated by the tax receivable agreement, the price of our Class A common stock at the time of such exchanges, the extent to which such exchanges are taxable, and the amount and timing of our income;
our expectations and timing with respect to our acquisition activity and whether such acquisitions are accretive or dilutive to shareholders;
our expectations with respect to our capital improvement and turnaround projects;
the status of an air permit to transfer crude through the Delaware City refinery's dock;
the impact of disruptions to crude or feedstock supply to any of our refineries, including disruptions due to
problems at PBFX or with third party logistics infrastructure or operations, including pipeline, marine and rail transportation;
the possibility that we might reduce or not make further dividend payments;
the inability of our subsidiaries to freely pay dividends or make distributions to us;
the impact of current and future laws, rulings and governmental regulations, including the implementation of rules and regulations regarding transportation of crude oil by rail;
the effectiveness of our crude oil sourcing strategies, including our crude by rail strategy and related commitments;
adverse impacts related to recent legislation by the federal government lifting the restrictions on exporting U.S. crude oil;
adverse impacts from changes in our regulatory environment, such as the effects of compliance with the California Global Warming Solutions Act (also referred to as "AB32"), or actions taken by environmental interest groups;
market risks related to the volatility in the price of Renewable Identification Numbers (“RINs”) required to comply with the Renewable Fuel Standards and greenhouse gas ("GHG") emission credits required to comply with various GHG emission programs, such as AB32;
our ability to complete the successful integration of the completed acquisitions of Chalmette Refining, L.L.C and related logistic assets (collectively, the “Chalmette Acquisition”) and the Torrance refinery and related logistics assets (collectively, the “Torrance Acquisition”) into our business and to realize the benefits from such acquisitions;
liabilities arising from the Chalmette Acquisition and/or Torrance Acquisition that are unforeseen or exceed our expectations;
risk associated with the operation of PBFX as a separate, publicly-traded entity;
potential tax consequences related to our investment in PBFX; and
any decisions we continue to make with respect to our energy-related logistical assets that may be transferred to PBFX.
We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q may not in fact occur. Accordingly, investors should not place undue reliance on those statements.
Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, including the securities laws of the United States, we do not intend to update or revise any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing.

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,
2016
 
December 31,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
625,402

 
$
944,320

Accounts receivable
653,638

 
454,759

Inventories
1,845,595

 
1,174,272

Deferred tax asset
180,381

 
371,186

Marketable securities - current
59,991

 

Prepaid expense and other current assets
182,008

 
77,474

Total current assets
3,547,015

 
3,022,011

Property, plant and equipment, net
3,252,234

 
2,356,638

Deferred tax assets
217,194

 
201,504

Marketable securities

 
234,258

Deferred charges and other assets, net
449,271

 
290,713

Total assets
$
7,465,714

 
$
6,105,124

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
369,731

 
$
315,653

Accrued expenses
1,528,174

 
1,119,189

Payable pursuant to tax receivable agreement
50,771

 
56,621

Deferred tax liabilities
26,432

 

Deferred revenue
12,961

 
4,043

Current portion of long-term debt
59,664

 

Total current liabilities
2,047,733

 
1,495,506

Delaware Economic Development Authority loan
4,000

 
4,000

Long-term debt
2,305,961

 
1,836,355

Payable pursuant to tax receivable agreement
613,654

 
604,797

Other long-term liabilities
215,006

 
68,609

Total liabilities
5,186,354

 
4,009,267

Commitments and contingencies (Note 10)

 

Equity:
 
 
 
Class A common stock, $0.001 par value, 1,000,000,000 shares authorized, 97,825,148 shares outstanding at September 30, 2016, 97,781,933 shares outstanding at December 31, 2015
93

 
93

Class B common stock, $0.001 par value, 1,000,000 shares authorized, 28 shares outstanding at September 30, 2016, 28 shares outstanding at December 31, 2015

 

Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares outstanding, at September 30, 2016 and December 31, 2015

 

Treasury stock, at cost, 6,083,098 shares outstanding at September 30, 2016 and 6,056,719 shares outstanding at December 31, 2015
(150,804
)
 
(150,804
)
Additional paid in capital
1,967,441

 
1,904,751

Retained earnings/(Accumulated deficit)
(54,713
)
 
(83,454
)
Accumulated other comprehensive loss
(21,896
)
 
(23,289
)
Total PBF Energy Inc. equity
1,740,121

 
1,647,297

Noncontrolling interest
539,239

 
448,560

Total equity
2,279,360

 
2,095,857

Total liabilities and equity
$
7,465,714

 
$
6,105,124


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,
 
2016
 
2015
 
2016
 
2015
Revenues
$
4,513,204

 
$
3,217,640

 
$
11,171,856

 
$
9,763,440


 
 
 
 
 
 
 
Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding depreciation
3,862,580

 
2,822,444

 
9,524,119

 
8,319,404

Operating expenses, excluding depreciation
412,699

 
203,860

 
989,296

 
635,948

General and administrative expenses
44,020

 
51,078

 
124,975

 
126,347

Loss (gain) on sale of assets
8,159

 
(142
)
 
11,381

 
(1,133
)
Depreciation and amortization expense
56,036

 
48,133

 
163,029

 
144,401

 
4,383,494

 
3,125,373

 
10,812,800

 
9,224,967

 
 
 
 
 
 
 
 
Income from operations
129,710

 
92,267

 
359,056

 
538,473

 
 
 
 
 
 
 
 
Other (expenses) income:
 
 
 
 
 
 
 
Change in tax receivable agreement liability
(3,143
)
 
(2,215
)
 
(3,143
)
 
(2,215
)
Change in fair value of catalyst leases
77

 
4,994

 
(4,556
)
 
8,982

Interest expense, net
(38,527
)
 
(28,026
)
 
(111,994
)
 
(77,094
)
Income before income taxes
88,117

 
67,020

 
239,363

 
468,146

Income tax expense
31,673

 
11,525

 
85,607

 
151,072

Net income
56,444

 
55,495

 
153,756

 
317,074

Less: net income attributable to noncontrolling interests
14,333

 
12,696

 
37,503

 
51,144

Net income attributable to PBF Energy Inc.
$
42,111

 
$
42,799

 
$
116,253

 
$
265,930

 
 
 
 
 
 
 
 
Weighted-average shares of Class A common stock outstanding
 
 
 
 
 
 
 
Basic
97,825,357

 
85,845,583

 
97,823,708

 
85,401,028

Diluted
103,135,799

 
91,496,283

 
103,210,917

 
91,557,371

Net income available to Class A common stock per share:
 
 
 
 
 
 
 
Basic
$
0.43

 
$
0.50

 
$
1.19

 
$
3.11

Diluted
$
0.43

 
$
0.49

 
$
1.19

 
$
3.06

 
 
 
 
 
 
 
 
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,
 
2016
 
2015
 
2016
 
2015
Net income
$
56,444

 
$
55,495

 
$
153,756

 
$
317,074

Other comprehensive income:
 
 
 
 

 

Unrealized gain (loss) on available for sale securities
(76
)
 
119

 
329

 
115

Net gain on pension and other postretirement benefits
502

 
400

 
1,134

 
1,200

Total other comprehensive income
426

 
519

 
1,463

 
1,315

Comprehensive income
56,870

 
56,014

 
155,219

 
318,389

Less: comprehensive income attributable to noncontrolling interests
14,354

 
12,726

 
37,574

 
51,217

Comprehensive income attributable to PBF Energy Inc.
$
42,516

 
$
43,288

 
$
117,645

 
$
267,172


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,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
153,756

 
$
317,074

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Depreciation and amortization
170,911

 
151,509

Stock-based compensation
16,331

 
8,757

Change in fair value of catalyst lease obligations
4,556

 
(8,982
)
Deferred income taxes
194,431

 
27,338

Change in tax receivable agreement liability
3,143

 
2,215

Non-cash change in inventory repurchase obligations
29,317

 
53,370

Pension and other post retirement benefit costs
25,894

 
19,340

Loss (gain) on disposition of property, plant and equipment
11,381

 
(1,133
)
Change in non-cash lower of cost or market adjustment
(320,833
)
 
81,147

 
 
 
 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(198,879
)
 
155,645

Inventories
54,052

 
(110,830
)
Prepaid expense and other current assets
(99,127
)
 
1,610

Accounts payable
51,390

 
(122,496
)
Accrued expenses
309,194

 
(305,044
)
Deferred revenue
8,918

 
2,947

Payable to related parties pursuant to tax receivable agreement

 
(10,168
)
Other assets and liabilities
(26,223
)
 
(21,900
)
Net cash provided by operations
388,212

 
240,399

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisition of Torrance refinery and related logistics assets
(971,932
)
 

Expenditures for property, plant and equipment
(194,625
)
 
(288,909
)
Expenditures for deferred turnaround costs
(138,936
)
 
(39,725
)
Expenditures for other assets
(27,735
)
 
(7,275
)
Expenditure for PBFX Plains Asset Purchase
(98,373
)
 

Chalmette Acquisition working capital settlement
(2,659
)
 

Purchase of marketable securities
(1,779,997
)
 
(1,609,286
)
Maturities of marketable securities
1,954,274

 
1,609,983

Proceeds from sale of assets
13,030

 
168,270

Net cash used in investing activities
$
(1,246,953
)
 
$
(166,942
)


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,
 
2016
 
2015
Cash flows from financing activities:
 
 
 
Proceeds from issuance of PBFX common units, net of underwriters' discount and commissions
$
138,255

 
$

Distributions to PBF Energy Company LLC members
(4,460
)
 
(15,252
)
Distributions to PBFX unit holders
(22,563
)
 
(17,082
)
Dividend payments
(88,043
)
 
(77,287
)
Proceeds from PBFX Senior Notes

 
350,000

Proceeds from PBFX revolver borrowings
174,700

 
24,500

Repayments of PBFX revolver borrowings
(30,000
)
 
(275,100
)
Repayments of PBFX Term Loan borrowings
(174,536
)
 
(700
)
Proceeds from Rail Facility revolver borrowings

 
102,075

Repayments of Rail Facility revolver borrowings
(11,457
)
 
(71,938
)
Proceeds from revolver borrowings
550,000

 

Proceeds from catalyst lease
7,927

 

Purchases of treasury stock

 
(8,073
)
Deferred financing costs and other

 
(9,644
)
Net cash provided by financing activities
539,823

 
1,499

 
 
 
 
Net (decrease) increase in cash and cash equivalents
(318,918
)
 
74,956

Cash and cash equivalents, beginning of period
944,320

 
397,873

Cash and cash equivalents, end of period
$
625,402

 
$
472,829

 
 
 
 
Supplemental cash flow disclosures
 
 
 
Non-cash activities:
 
 
 
Accrued construction in progress and unpaid fixed assets
$
16,813

 
$
4,670



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, Toledo Refining Company LLC, Chalmette Refining, L.L.C. (“Chalmette Refining”) and PBF Western Region LLC (“PBF Western Region”) are PBF LLC’s principal operating subsidiaries and are all wholly-owned subsidiaries of PBF Holding. PBF Western Region owns Torrance Refining Company LLC and Torrance Logistics Company LLC, which collectively own the operating assets of the Torrance refinery and related logistics assets. In addition, PBF LLC, through Chalmette Refining, holds a 100% interest in MOEM Pipeline LLC and an 80% interest in and consolidates Collins Pipeline Company and T&M Terminal Company.
As of September 30, 2016, PBF LLC also holds a 44.2% 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. PBF Energy did not receive any proceeds from the February 2015 secondary offering.
As of September 30, 2016, the Company owns 97,825,148 PBF LLC Series C Units and the Company's current and former executive officers and directors and certain employees and others beneficially own 4,971,116 PBF LLC Series A Units. As of September 30, 2016, the holders of the Company's issued and outstanding shares of Class A common stock have 95.2% of the voting power in the Company and the members of PBF LLC other than PBF Energy through their holdings of Class B common stock have the remaining 4.8% of the voting power in the Company.
Substantially all of the Company’s operations are in the United States. The Company operates in two reportable business segments: Refining and Logistics. The Company’s oil refineries are all engaged in the refining of crude oil and other feedstocks into petroleum products, and are aggregated into the Refining segment. PBFX is a publicly traded master limited partnership that was formed to operate logistical assets such as crude oil and refined petroleum products terminals, pipelines, and storage facilities. PBFX's operations are aggregated into the Logistics segment. Prior to the PBFX Plains Asset Purchase on April 29, 2016 (refer to "Note 3 - Acquisitions"), PBFX did not generate

10

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

third party revenue and intersegment revenues from affiliates are eliminated in consolidation. Prior to the PBFX initial public offering in May 2014, PBFX's assets, other than those acquired in connection with the PBFX Plains Asset Purchase and the TVPC Contribution Agreement (refer to "Note 2 - PBF Logistics LP"), were operated within the refining operations of the Company's Delaware City and Toledo refineries. The assets, did not generate third party revenue nor, apart from Delaware Pipeline Company LLC, any intra-entity revenue and were not considered to be a separate reportable segment. To generate earnings and cash flows from operations, the Company is primarily dependent upon processing crude oil and selling refined petroleum products at margins sufficient to cover fixed and variable costs and other expenses. Crude oil and refined petroleum products are commodities; and factors largely out of the Company’s control can cause prices to vary over time. The potential margin volatility can have a material effect on the Company’s financial position, earnings and cash flow.
Basis of Presentation
The unaudited condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, considered necessary for a fair presentation of the financial position and the results of operations and cash flows of the Company for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2015 of PBF Energy. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year.
Recently Adopted Accounting Guidance
Effective January 1, 2016, the Company adopted Accounting Standard Update ("ASU") No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis" ("ASU 2015-02"), which changed existing consolidation requirements associated with the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities, including limited partnerships and variable interest entities. The Company’s adoption of this guidance did not impact our consolidated financial statements.
Effective January 1, 2016, the Company adopted 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. The adoption of this guidance did not materially affect any of the Company's financial statements or related disclosures.
Recent Accounting Pronouncements
In August 2015, the Financial Accounting Standards Board ("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 No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”) for all entities by one year. Additional ASUs have been issued in 2016 that provide certain implementation guidance related to ASU 2014-09 (collectively, the Company refers to ASU 2014-09 and these additional ASUs as the "Updated Revenue Recognition Guidance"). The Updated Revenue Recognition Guidance 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

11

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

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 is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Under ASU 2015-17, this guidance becomes effective for annual periods beginning after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016 and interim periods within those years with early adoption permitted as of the beginning of an annual or interim period after the issuance of the ASU. The Company expects that the impact of adopting this new standard will be to reclassify all of its current deferred tax assets and deferred tax liabilities to a net noncurrent asset or liability on its balance sheet.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which amends how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method and how they present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. ASU 2016-01 also changes certain disclosure requirements and other aspects of current GAAP but does not change the guidance for classifying and measuring investments in debt securities and loans. Under ASU 2016-01, this guidance becomes effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in certain circumstances. The Company does not currently have any investments accounted for under the equity method but will apply this new standard should it acquire any such investments.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), to increase the transparency and comparability about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and requires a modified retrospective approach to adoption. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments No. 2016-06 March 2016 a consensus of the FASB Emerging Issues Task Force” (“ASU 2016-06”), to increase consistency in practice in applying guidance on determining if an embedded derivative is clearly and closely related to the economic characteristics of the host contract, specifically for assessing whether call (put) options that can accelerate the repayment of principal on a debt instrument meet the clearly and closely related criterion. The guidance in ASU 2016-06 applies to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. ASU 2016-06 is effective for interim and annual periods beginning after December 15, 2016, and requires a modified retrospective approach to adoption. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) which is intended to simplify certain aspects of the accounting for share-based payments to employees. The guidance in ASU 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled rather than recording excess tax benefits or deficiencies in additional paid-in capital. The guidance in ASU 2016-09 also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 also contains additional guidance for nonpublic entities that do not apply to the Company. ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016, and requires a modified retrospective

12

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

approach to adoption. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) which requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019, and requires a modified retrospective approach to adoption. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which reduces the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory" ("ASU 2016-16"), which reduces the existing diversity in practice in how income tax consequences of an intra-entity transfer of an asset other than inventory should be recognized. The amendments in ASU 2016-16 require an entity to recognize such income tax consequences when the intra-entity transfer occurs rather than waiting until such time as the asset has been sold to an outside party. The amendments do not contain any new disclosure requirements but point out that certain existing income tax disclosures might be applicable in the period an intra-entity transfer of an asset other than inventory occurs. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual reporting period for which interim or annual statements have not been issued. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-17, "Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control" ("ASU 2016-2017"), which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments in this ASU do not change the characteristics of a primary beneficiary in current GAAP. The amendments in this ASU require that reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. ASU 2016-2017 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. 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. On April 5, 2016, PBFX completed a public offering of an aggregate of 2,875,000 common units, including 375,000 common units that were sold pursuant to the full exercise by the underwriter of its option to purchase additional common units, for net proceeds of $51,575, after deducting underwriting discounts and commissions and other offering expenses (the “April 2016 PBFX Equity Offering”). In addition, on August 17, 2016, PBFX completed a public offering of an aggregate of 4,000,000 common units, including the underwriter's option to purchase an additional 600,000 common units, of which 375,000 units were subsequently purchased on September 14, 2016, for total net proceeds of $86,680, after deducting underwriting discounts and commissions and other offering expenses (the “August 2016 PBFX Equity Offering” and, together with the April 2016 PBFX Offering, the "2016 PBFX Offerings").

13

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

On April 29, 2016, PBFX purchased four refined product terminals located in the greater Philadelphia region (the “East Coast Terminals”) from an affiliate of Plains All American Pipeline, L.P. for total cash consideration of $100,000 (the “PBFX Plains Asset Purchase”), less a preliminary estimate for working capital, which is subject to final purchase price valuation and working capital adjustment. This acquisition expands PBFX's storage and terminaling footprint and introduces third-party customers to its revenue base. The acquisition was financed through a combination of cash on hand and borrowings from the PBFX senior secured revolving credit facility (the “PBFX Revolving Credit Facility”).
On August 31, 2016, PBFX entered into a contribution agreement (the "TVPC Contribution Agreement") between PBFX and PBF LLC. Pursuant to the TVPC Contribution Agreement, PBFX acquired from PBF LLC 50% of the issued and outstanding limited liability company interests of Torrance Valley Pipeline Company LLC (“TVPC”), whose assets consist of the San Joaquin Valley Pipeline system (which was acquired as a part of the Torrance Acquisition), including the M55, M1 and M70 pipeline systems including pipeline stations with storage capacity and truck unloading capability (collectively, the “Torrance Valley Pipeline”). The total consideration paid to PBF LLC was $175,000, which was funded by PBFX with $20,000 of cash on hand, $76,200 in proceeds from the sale of marketable securities, and $78,800 in net proceeds from the PBFX August 2016 Equity Offering. PBFX borrowed an additional $76,200 under the PBFX Revolving Credit Facility, which was used to repay $76,200 of the PBFX Term Loan (as defined below) in order to release $76,200 in marketable securities that had collateralized the PBFX Term Loan.
As of September 30, 2016, PBF LLC holds a 44.2% 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 55.8% limited partner interest held by public common unit holders. PBF LLC also indirectly owns a non-economic 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, storage and transferring of crude oil, refined products and intermediates from sources located throughout the United States and Canada for PBF Energy in support of certain of its refineries, as well as for third party customers. As of September 30, 2016, a substantial majority of PBFX’s revenue is derived from long-term, fee-based commercial agreements with PBF Holding, which include minimum volume commitments, for receiving, handling, storing and transferring crude oil and refined products. In addition, subsequent to the Plains Asset Purchase, PBFX has begun to generate third-party revenue related to the East Coast Terminals. PBF Energy also has agreements with PBFX that establish fees for certain general and administrative services and operational and maintenance services provided by PBF Holding to PBFX. These transactions, other than those with third parties, are eliminated by PBF Energy 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 three of PBF Energy’s refineries. In a series of drop-down transactions subsequent to the PBFX Offering, PBF Holding distributed certain additional assets to PBF LLC which, in turn, transferred such assets to PBFX consisting of the Delaware City heavy crude unloading rack, which is also capable of unloading light crude oil (the "DCR West Rack"), a tank farm and related facilities located at PBF Energy's Toledo refinery, including a propane storage and loading facility (the "Toledo Storage Facility"), and a products pipeline, truck rack and related facilities located at our Delaware City refinery (collectively the "Delaware City Products Pipeline and Truck Rack"). On April 29, 2016, PBFX made its initial third-party asset purchase acquiring the East Coast Terminals. Additionally, on August 31, 2016, PBFX acquired a controlling 50% interest in the TVPC from PBF LLC pursuant to the TVPC Contribution Agreement.

14

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

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. ACQUISITIONS
Chalmette Acquisition
On November 1, 2015, the Company acquired from ExxonMobil, Mobil Pipe Line Company and PDV Chalmette, L.L.C., 100% of the ownership interests of Chalmette Refining, which owns the Chalmette refinery and related logistics assets (collectively, the "Chalmette Acquisition"). The Chalmette refinery, located outside of New Orleans, Louisiana, is a dual-train coking refinery and is capable of processing both light and heavy crude oil. Subsequent to the closing of the Chalmette Acquisition, Chalmette Refining is a wholly-owned subsidiary of PBF Holding. Chalmette Refining is strategically positioned on the Gulf Coast with logistics connectivity that offers flexible raw material sourcing and product distribution opportunities, including the potential to export products and provides geographic diversification into PADD 3.
Chalmette Refining owns 100% of the MOEM Pipeline, providing access to the Empire Terminal, as well as the CAM Connection Pipeline, providing access to the Louisiana Offshore Oil Port facility through a third party pipeline. Chalmette Refining also owns 80% of each of the Collins Pipeline Company and T&M Terminal Company, both located in Collins, Mississippi, which provide a clean products outlet for the refinery to the Plantation and Colonial Pipelines. Also included in the acquisition are a marine terminal capable of importing waterborne feedstocks and loading or unloading finished products; a clean products truck rack which provides access to local markets; and a crude and product storage facility.
The aggregate purchase price for the Chalmette Acquisition was $322,000 in cash, plus inventory and final working capital of $245,963. As described below, the valuation of the working capital was finalized in the first quarter of 2016. The transaction was financed through a combination of cash on hand and borrowings under PBF Holding's asset based revolving credit agreement (the “Revolving Loan”).
The Company accounted for the Chalmette Acquisition as a business combination under GAAP whereby we recognize assets acquired and liabilities assumed in an acquisition at their estimated fair values as of the date of acquisition. Any excess consideration transferred over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. The final purchase price and fair value allocation were completed as of March 31, 2016. During the measurement period, which ended in March 2016, adjustments were made to the Company's preliminary fair value estimates related primarily to inventories and accounts payable.
The total purchase consideration and the fair values of the assets and liabilities at the acquisition date were as follows:
 
Purchase Price
Net cash
$
587,005

Cash acquired
(19,042
)
Total consideration
$
567,963


15

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 final amounts recognized for assets acquired and liabilities assumed as of the acquisition date.
 
Fair Value Allocation
Accounts receivable
$
1,126

Inventories
271,434

Prepaid expenses and other current assets
913

Property, plant and equipment
356,961

Deferred charges and other assets
8,312

Accounts payable
(4,870
)
Accrued expenses
(28,371
)
Deferred tax liability
(25,721
)
Noncontrolling interests
(11,821
)
Fair value of net assets acquired
$
567,963

In addition, in connection with the acquisition of Chalmette Refining, the Company acquired Collins Pipeline Company and T&M Terminal Company, which are both C-corporations for tax purposes. As a result, the Company recognized a deferred tax liability of $25,721 attributable to the book and tax basis difference in the C-corporation assets, which had a corresponding impact on noncontrolling interests of $5,144.
The Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2016 include the results of operations of the Chalmette refinery whereas the same periods in 2015 do not include the results of operations of the Chalmette refinery. On an unaudited pro forma basis, the revenues and net income of the Company assuming the acquisition had occurred on January 1, 2014, are shown below. The unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition occurred on January 1, 2014, nor is the financial information indicative of the results of future operations. The unaudited pro forma financial information includes the depreciation and amortization expense related to the acquisition and interest expense associated with the financing of the Chalmette Acquisition.
(Unaudited)
Nine Months Ended September 30, 2015
Pro forma revenues
$
13,151,698

Pro forma net income attributable to PBF Energy Inc.
$
400,898

Pro forma net income available to Class A common stock per share:
 
Basic
$
4.14

Diluted
$
4.07

The unaudited amount of revenues and net income above have been calculated after conforming Chalmette Refining's accounting policies to those of the Company and certain one-time adjustments.
PBFX Plains Asset Purchase
On April 29, 2016, PBFX's wholly-owed subsidiary, PBF Logistics Products Terminals LLC, completed the purchase of the East Coast Terminals, including product storage tanks, pipeline connections to the Colonial Pipeline Company, Buckeye Partners, Sunoco Logistics Partners and other proprietary pipeline systems, truck loading lanes and marine facilities capable of handling barges and ships. This acquisition expands PBFX's storage and terminaling footprint and introduces third-party customers to its revenue base.
The aggregate purchase price for the PBFX Plains Asset Purchase was $100,000, less a preliminary estimate for working capital adjustments, which is subject to final purchase price valuation and working capital adjustments.

16

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

The consideration for the transaction was funded by PBFX with $98,336 in proceeds from the sale of marketable securities. PBFX borrowed an additional $98,500 under the PBFX Revolving Credit Facility, which was used to repay $98,336 of the PBFX Term Loan (as defined below) in order to release $98,336 in marketable securities that had collateralized the PBFX Term Loan. Subsequent to the closing of the Plains Asset Purchase, the Partnership recorded an adjustment to the preliminary estimate for working capital of $37 as an increase to Prepaid expenses and other current assets.
PBFX accounted for the PBFX Plains Asset Purchase as a business combination under GAAP whereby PBFX recognizes assets acquired and liabilities assumed in an acquisition at their estimated fair values as of the date of acquisition. Any excess consideration transferred over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. The final purchase price and its allocation are dependent on final reconciliations of working capital and other items subject to agreement by both parties.
The total purchase consideration and the estimated fair values of the assets and liabilities at the acquisition date were as follows:
 
Purchase Price
Gross purchase price
$
100,000

Preliminary estimate for working capital adjustments
(1,627
)
Total consideration
$
98,373

The following table summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date:
 
Fair Value Allocation
Prepaid expenses and other current assets
4,221

Property, plant and equipment
99,342

Accounts payable and accrued expenses
(3,174
)
Other long-term liabilities
(2,016
)
Estimated fair value of net assets acquired
$
98,373


The Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2016 include the results of operations of the East Coast Terminals whereas the same periods in 2015 do not include the results of operations of the East Coast Terminals. For the period from its acquisition on April 29, 2016 to September 30, 2016, the East Coast Terminals contributed third party revenues of $7,285 and net income of $1,603. On an unaudited pro forma basis, the revenues and net income of the Company assuming the PBFX Asset Purchase had occurred on January 1, 2015, are shown below. The unaudited pro forma information does not purport to present what the Company’s actual results would have been had the PBFX Plains Asset Purchase occurred on January 1, 2015, nor is the financial information indicative of the results of future operations. The unaudited pro forma financial information includes the depreciation and amortization expense related to the acquisition and interest expense associated with the PBFX Plains Asset Purchase financing.

17

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

(Unaudited)
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
Pro forma revenues
$
11,178,650

 
$
9,776,690

Pro forma net income attributable to PBF Energy Inc.
$
120,054

 
$
263,546

Pro forma net income available to Class A common stock per share:
 
 
 
Basic
$
1.23

 
$
2.72

Diluted
$
1.23

 
$
2.69

The unaudited amount of revenues and net income above have been calculated after conforming the East Coast Terminals' accounting policies to those of the Company and certain one-time adjustments.
Torrance Acquisition
On July 1, 2016, the Company acquired from ExxonMobil Oil Corporation and it's subsidiary, Mobil Pacific Pipe Line Company, the Torrance refinery and related logistics assets (collectively, the "Torrance Acquisition"). The Torrance refinery, located in Torrance, California, is a high-conversion, delayed-coking refinery. The facility is strategically positioned in Southern California with advantaged logistics connectivity that offers flexible raw material sourcing and product distribution opportunities primarily in the California, Las Vegas and Phoenix area markets. The Torrance Acquisition provides the Company with a broader more diversified asset base and increases the number of operating refineries from four to five and the Company's combined crude oil throughput capacity. The acquisition also provides the Company with a presence in the attractive PADD 5 market.
In addition to refining assets, the transaction includes a number of high-quality logistics assets including a sophisticated network of crude and products pipelines, product distribution terminals and refinery crude and product storage facilities. The most significant of the logistics assets is a crude gathering and transportation system which delivers San Joaquin Valley crude oil directly from the field to the refinery. Additionally, included in the transaction are several pipelines which provide access to sources of crude oil including the Ports of Long Beach and Los Angeles, as well as clean product outlets with a direct pipeline supplying jet fuel to the Los Angeles airport.
The aggregate purchase price for the Torrance Acquisition was $521,350 in cash including post-close purchase price adjustments, plus working capital of $450,582. In addition, the Company assumed certain pre-existing environmental and regulatory emission credit obligations in connection with the Torrance Acquisition. The transaction was financed through a combination of cash on hand including proceeds from our October 2015 Equity Offering, and borrowings under our Revolving Loan.
The Company accounted for the Torrance Acquisition as a business combination under GAAP whereby we recognize assets acquired and liabilities assumed in an acquisition at their estimated fair values as of the date of acquisition. The purchase price and fair value allocation may be subject to adjustment pending completion of the final purchase valuation which was in process as of September 30, 2016.
The total purchase consideration and the fair values of the assets and liabilities at the acquisition date, which may be subject to adjustment as noted above, were as follows:
 
Purchase Price
Gross purchase price
$
537,500

Working capital
450,582

Post close purchase price adjustments
(16,150
)
Total consideration
$
971,932


18

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 preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date.
 
Fair Value Allocation
Inventories
$
404,542

Prepaid expenses and other current assets
1,186

Property, plant and equipment
701,617

Deferred charges and other assets, net
68,053

Accounts payable
(2,688
)
Accrued expenses
(62,311
)
Other long-term liabilities
(138,467
)
Fair value of net assets acquired
$
971,932

The Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2016 include the results of operations of the Torrance refinery and related logistics assets subsequent to the Torrance Acquisition whereas the same periods in 2015 do not include the results of operations of such assets. On an unaudited pro forma basis, the revenues and net income of the Company assuming the Torrance Acquisition had occurred on January 1, 2015, are shown below. The unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition occurred on January 1, 2015, nor is the financial information indicative of the results of future operations. The unaudited pro forma financial information includes the depreciation and amortization expense attributable to the Torrance Acquisition and interest expense associated with the related financing.
The unaudited amount of revenues and net income above have been calculated after conforming accounting policies of the Torrance refinery and related logistics assets to those of the Company and certain one-time adjustments.
(Unaudited)
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
Pro forma revenues
$
12,250,867

 
$
12,195,070

Pro forma net (loss) income attributable to PBF Energy Inc.
$
(3,704
)
 
$
120,063

Pro forma net income available to Class A common stock per share:
 
 
 
Basic
$
(0.04
)
 
$
1.24

Diluted
$
(0.04
)
 
$
1.22

Acquisition Expenses
The Company incurred acquisition related costs consisting primarily of consulting and legal expenses related to the Chalmette Acquisition, the Torrance Acquisition, the PBFX Plains Asset Purchase and other pending and non-consummated acquisitions of $5,222 and $17,510 in the three and nine months ended September 30, 2016, respectively. In the three and nine months ended September 30, 2015, the Company incurred acquisition related costs of $1,555 and $2,234, respectively. These costs are included in the condensed consolidated statements of operations in General and administrative expenses.

19

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

4. NONCONTROLLING INTERESTS
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, 2015 and September 30, 2016, PBF Energy’s equity interest in PBF LLC represented approximately 95.1% and 95.2%, respectively, of the outstanding interests.
PBF Energy consolidates the financial results of PBF LLC and its subsidiaries, and records a noncontrolling interest for the economic interest in PBF Energy held by the members of PBF LLC other than PBF Energy. Noncontrolling interest on the 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.
The noncontrolling interest ownership percentage of PBF LLC as of September 30, 2016 and December 31, 2015 is calculated as follows:
 
Holders of PBF LLC Series A Units
 
Outstanding Shares of PBF Energy Class A Common Stock
 
Total *
December 31, 2015
4,985,358

 
97,781,933

 
102,767,291

 
4.9
%
 
95.1
%
 
100.0
%
September 30, 2016
4,971,116

 
97,825,148

 
102,796,264

 
4.8
%
 
95.2
%
 
100.0
%
——————————
*
Assumes all of the holders of PBF LLC Series A Units exchange their PBF LLC Series A Units for shares of PBF Energy’s Class A common stock on a one-for-one basis.

Noncontrolling Interest in PBFX
PBF LLC holds a 44.2% limited partner interest in PBFX and owns all of PBFX’s incentive distribution rights, with the remaining 55.8% limited partner interest owned by public common unit holders as of September 30, 2016. 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 condensed consolidated balance sheets includes the portion of net assets of PBFX attributable to the public common unit holders of PBFX. PBFX consolidates 100% of the net assets and net income or loss attributable to TVPC acquired pursuant to the TVPC Contribution Agreement and reflects the 50% equity interest in TVPC that it did not acquire as noncontrolling interests. This portion of the TVPC noncontrolling interest at PBFX eliminates in consolidation at the PBF Energy level and is not reflected in the table below.

20

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 PBFX as of December 31, 2015 and September 30, 2016, is calculated as follows:

Units of PBFX Held by the Public

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

Total
December 31, 2015
15,924,676

 
18,459,497

 
34,384,173


46.3
%
 
53.7
%
 
100.0
%
September 30, 2016
23,270,397

 
18,459,497

 
41,729,894

 
55.8
%
 
44.2
%
 
100.0
%
Noncontrolling Interest in Subsidiaries of PBF Holding
Subsequent to the Chalmette Acquisition, PBF Holding recorded noncontrolling interests in two subsidiaries of Chalmette Refining. PBF Holding, through Chalmette Refining, owns an 80% ownership interest in both Collins Pipeline Company and T&M Terminal Company. The Company recorded a noncontrolling interest in the earnings of these subsidiaries of $45 and $438 for the three and nine months ended September 30, 2016, respectively.
Changes in Noncontrolling Interests
The following tables summarize the changes in equity for the controlling and noncontrolling interests of PBF Energy for the nine months ended September 30, 2016 and 2015: 
 
PBF Energy Inc. Equity
 
Noncontrolling
Interest in PBF LLC

Noncontrolling
Interest in PBFX
 
Total Equity
Balance at January 1, 2016
$
1,647,297

 
$
108,243

 
$
340,317

 
$
2,095,857

Comprehensive income
117,645

 
10,824

 
26,750

 
155,219

Dividends and distributions
(88,043
)
 
(4,460
)
 
(23,234
)
 
(115,737
)
Issuance of additional PBFX common units
54,944

 

 
83,311

 
138,255

Stock-based compensation
12,658

 

 
3,673

 
16,331

Exercise of PBF LLC options and warrants, net
1,058

 
(232
)
 

 
826

Other
(5,438
)
 
(4,973
)
 
(980
)
 
(11,391
)
Balance at September 30, 2016
$
1,740,121

 
$
109,402

 
$
429,837

 
$
2,279,360



21

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

 
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
(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


5. INVENTORIES
Inventories consisted of the following:
September 30, 2016
 
Titled Inventory
 
Inventory Supply and Intermediation Arrangements
 
Total
Crude oil and feedstocks
$
1,218,399

 
$

 
$
1,218,399

Refined products and blendstocks
976,556

 
359,297

 
1,335,853

Warehouse stock and other
87,846

 

 
87,846

 
$
2,282,801

 
$
359,297

 
$
2,642,098

Lower of cost or market reserve
(677,448
)
 
(119,055
)
 
(796,503
)
Total inventories
$
1,605,353

 
$
240,242

 
$
1,845,595

 
December 31, 2015
 
Titled Inventory
 
Inventory Supply and Intermediation Arrangements
 
Total
Crude oil and feedstocks
$
1,137,605

 
$

 
$
1,137,605

Refined products and blendstocks
687,389

 
411,357

 
1,098,746

Warehouse stock and other
55,257

 

 
55,257

 
$
1,880,251

 
$
411,357

 
$
2,291,608

Lower of cost or market reserve
(966,564
)
 
(150,772
)
 
(1,117,336
)
Total inventories
$
913,687

 
$
260,585

 
$
1,174,272


Inventory under inventory supply and intermediation arrangements included certain crude oil stored at the Company’s Delaware City refinery's storage facilities that the Company was obligated to purchase as it was

22

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

consumed in connection with its Crude Supply Agreement that expired on December 31, 2015; and light finished products sold to counterparties in connection with the A&R Intermediation Agreements and stored in the Paulsboro and Delaware City refineries' storage facilities.
Due to the lower crude oil and refined product pricing environment beginning at the end of 2014 and continuing throughout 2015 and 2016, the Company recorded adjustments to value its inventories to the lower of cost or market. During the three months ended September 30, 2016, the Company recorded an adjustment to value its inventories to the lower of cost or market which increased operating income and net income by $103,990 and $62,810, respectively, reflecting the net change in the lower of cost or market inventory reserve from $900,493 at June 30, 2016 to $796,503 at September 30, 2016. During the nine months ended September 30, 2016, the Company recorded an adjustment to value its inventories to the lower of cost or market which increased operating income and net income by $320,833 and $193,783, respectively, reflecting the net change in the lower of cost or market inventory reserve from $1,117,336 at December 31, 2015 to $796,503 at September 30, 2016.
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.

6. DEFERRED CHARGES AND OTHER ASSETS, NET
Deferred charges and other assets, net consisted of the following:
 
September 30,
2016
 
December 31,
2015
Deferred turnaround costs, net
$
253,823

 
$
177,236

Catalyst, net
106,311

 
77,725

Linefill
19,485

 
13,504

Restricted cash
1,500

 
1,500

Environmental credits
37,811

 

Intangible assets, net
598

 
219

Other
29,743

 
20,529

Total deferred charges and other assets, net
$
449,271

 
$
290,713

 

23

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

7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
 
September 30,
2016
 
December 31,
2015
Inventory-related accruals
$
845,772

 
$
548,800

Inventory supply and intermediation arrangements
245,983

 
252,380

Renewable energy credit and emissions obligations
106,366

 
19,472

Accrued transportation costs
96,479

 
91,546

Excise and sales tax payable
70,871

 
34,129

Accrued utilities
39,390

 
25,192

Accrued interest
29,555

 
24,806

Accrued construction in progress
14,941

 
7,400

Accrued salaries and benefits
14,434

 
61,011

Customer deposits
12,871

 
20,395

Environmental liabilities
9,525

 

Other
41,987

 
34,058

Total accrued expenses
$
1,528,174

 
$
1,119,189

 
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 A&R Intermediation Agreements with J. Aron & Company, a subsidiary of The Goldman Sachs Group, Inc. (“J. Aron”). As of September 30, 2016 and December 31, 2015, 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 A&R Inventory Intermediation Agreements, with any change in the market price being recorded in cost of sales.
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.
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 current assets as of September 30, 2016. As described in "Note 3 - Acquisitions", PBFX sold $98,336 of

24

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

marketable securities to fund the consideration for the PBFX Plains Asset Purchase during the three months ended June 30, 2016. As described in "Note 2 - PBF Logistics LP", PBFX sold $76,200 of marketable securities to partially fund the consideration used to acquire the 50% interest in TVPC pursuant to the TVPC Contribution Agreement during the three months ended September 30, 2016.
As of September 30, 2016 and December 31, 2015, the Company held $59,991 and $234,258, respectively, in marketable securities. As of September 30, 2016, the marketable securities were classified as current whereas at December 31, 2015, they were classified as non-current. The classification of the marketable securities on the balance sheet is consistent with the PBFX Term Loan they collateralize. The gross unrecognized holding gains and losses as of September 30, 2016 and December 31, 2015 were not material. The net realized gains or losses from the sale of marketable securities were not material for the three and nine months ended September 30, 2016 and 2015.

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 95.1% as of December 31, 2015 and approximately 95.2% as of September 30, 2016). PBF LLC is organized as a limited liability company and PBFX is a master limited partnership, both of which are treated as “flow-through” entities for federal income tax purposes and therefore are not subject to income taxes apart from the income tax attributable to two subsidiaries of Chalmette Refining that are treated as C-Corporations for income tax purposes. 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 apart from the income tax of $348 and $1,513 for the three and nine months ended September 30, 2016 attributable to those two C-Corporation subsidiaries of Chalmette Refining.

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,
 
 
2016
 
2015
 
2016
 
2015
Current tax expense (benefit)
 
$
(69,406
)
 
$
58,193

 
$
(108,824
)
 
$
123,734

Deferred tax expense (benefit)
 
101,079

 
(46,668
)
 
194,431

 
27,338

Total tax expense
 
$
31,673

 
$
11,525

 
$
85,607

 
$
151,072


Income tax expense (benefit) 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 (benefit) 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:

25

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

 
 
Three months ended September 30, 2016
 
Three months ended September 30, 2015
Provision at Federal statutory rate
 
$
25,718

 
35.0
 %
 
$
19,011

 
35.0
 %
Increase (decrease) attributable to flow-through of certain tax adjustments:
 
 
 
 
 
 
 
 
State income taxes (net federal income tax)
 
3,403

 
4.6
 %
 
2,830

 
5.2
 %
Non deductible/nontaxable items
 
(68
)
 
(0.1
)%
 
536

 
1.0
 %
Adjustment for manufacturer's benefit
 
5,808

 
7.9
 %
 
(1,169
)
 
(2.2
)%
Rate differential from foreign jurisdictions
 
(970
)
 
(1.3
)%
 
(9,971
)
 
(18.4
)%
Provision to return adjustment
 
(1,306
)
 
(1.8
)%
 

 
 %
Other
 
(912
)
 
(1.2
)%
 
288

 
0.6
 %
Total
 
$
31,673

 
43.1
 %
 
$
11,525

 
21.2
 %

 
 
Nine Months Ended 
 September 30, 2016
 
Nine Months Ended 
 September 30, 2015
Provision at Federal statutory rate
 
$
70,488

 
35.0
 %
 
$
145,949

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

 
 
 
 

State income taxes (net federal income tax)
 
9,325

 
4.6
 %
 
21,726

 
5.2
 %
Non deductible/nontaxable items
 
119

 
0.1
 %
 
1,402

 
0.3
 %
Adjustment for manufacturer's benefit
 
5,808

 
2.9
 %
 
(3,984
)
 
(0.9
)%
Rate differential from foreign jurisdictions
 
2,160

 
1.1
 %
 
(13,797
)
 
(3.3
)%
Provision to return adjustment
 
(1,306
)
 
(0.7
)%
 

 
 %
Other
 
(987
)
 
(0.5
)%
 
(224
)
 
(0.1
)%
Total
 
$
85,607

 
42.5
 %
 
$
151,072

 
36.2
 %
The Company's effective income tax rate for the three and nine months ended September 30, 2016, including the impact of income attributable to noncontrolling interests of $14,333 and $37,503, respectively, was 35.9% and 35.8%, respectively. 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 manufacturer’s benefit adjustment is primarily due to a change in inventory deductions realized on the Company's recently filed 2015 income tax returns which reduced the expected manufacturer’s benefit compared to the prior-year financial statements. Also, included in the provision to return adjustments are benefits related to the basis "step-ups" and tax receivable agreement liability changes, and a detriment for an increase of deferred tax liabilities as a result of ownership changes in 2015.

PBF Energy has determined there are no material uncertain tax positions as of September 30, 2016. 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

26

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

of operating the refineries, including remediation, operating costs and capital costs to construct, maintain and upgrade equipment and facilities.
In connection with the Paulsboro refinery acquisition, the Company assumed certain environmental remediation obligations. The environmental liability of $11,198 recorded as of September 30, 2016 ($10,367 as of December 31, 2015) represents the present value of expected future costs discounted at a rate of 8.0%. The current portion of the environmental liability is recorded in Accrued expenses and the non-current portion is recorded in Other long-term liabilities. As of September 30, 2016 and December 31, 2015, 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 connection with the acquisition of the Chalmette refinery, the Company obtained $3,936 in financial assurance (in the form of a surety bond) to cover estimated potential site remediation costs associated with an agreed to Administrative Order of Consent with the EPA. The estimated cost assumes remedial activities will continue for a minimum of 30 years. Further, in connection with the acquisition of the Chalmette refinery, the Company purchased a ten year, $100,000 environmental insurance policy to insure against unknown environmental liabilities at the refinery.
In connection with the PBFX Plains Asset Purchase, PBFX is responsible for the environmental remediation costs for conditions that existed on the closing date up to a maximum of $250 per year for 10 years, with Plains All American Pipeline, L.P. remaining responsible for any and all additional costs above such amounts during such period. The environmental liability of $2,284 recorded as of September 30, 2016 represents the present value of expected future costs discounted at a rate of 1.83%. At September 30, 2016 the undiscounted liability is $2,500 and PBFX expects to make aggregate payments for this liability of $1,250 over the next five years. The current portion of the environmental liability is recorded in accounts payable and accrued liabilities and the non-current portion is recorded in other long-term liabilities.
In connection with the acquisition of the Torrance refinery and related logistics assets, the Company assumed certain pre-existing environmental liabilities totaling $146,300 as of September 30, 2016, related to certain environmental remediation obligations to address existing soil and groundwater contamination and monitoring activities, which reflects the current estimated cost of the remediation obligations. The Company expects to make aggregate payments for this liability of $31,402 over the next five years. The current portion of the environmental liability is recorded in Accrued expenses and the non-current portion is recorded in Other long-term liabilities. In addition, in connection with the acquisition of the Torrance refinery and related logistics assets, the Company purchased a ten year, $100,000 environmental insurance policy to insure against unknown environmental liabilities. Furthermore, in connection with the acquisition, the Company assumed responsibility for certain specified environmental matters that occurred prior to the Company’s ownership of the refinery. Specifically, the Company assumed responsibility for (i) a Notice of Violation issued on March 12, 2015 by the Southern California Air Quality Management District (“SCAQMD”) relating to self-reported Title V deviations for the Torrance Refinery for compliance year 2012, (ii) a Notice of Violation issued on March 10, 2016 for self-reported Title V deviations for the Torrance Refinery for compliance year 2013, (iii) a Notice of Violation issued on March 10, 2016 for self-reported Title V deviations for the Torrance Refinery for compliance year 2014 and (iv) a Notice of Violation issued on March 10, 2016 for self-reported Title V deviations for the Torrance Refinery for compliance year 2015. No settlement or penalty demand have been received to date with respect to these Notices. It is possible that SCAQMD will assess penalties in these matters in excess of $100 but any such amount is not expected to be material to the Company, individually or in the aggregate.

27

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

In 2010, New York State adopted a Low-Sulfur Heating Oil mandate that, beginning July 1, 2012, requires all heating oil sold in New York State to contain no more than 15 parts per million (“PPM”) sulfur. Since July 1, 2012, other states in the Northeast market began requiring heating oil sold in their state to contain no more than 15 PPM sulfur. Currently, all of the Northeastern states and Washington DC have adopted sulfur controls on heating oil. Most of the Northeastern states will now require heating oil with 15 PPM or less sulfur by July 1, 2018 (except for Pennsylvania and Maryland - 500 ppm sulfur required). All of the heating oil the Company currently produces meets these specifications. The mandate and other requirements do not currently have a material impact on the Company's financial position, results of operations or cash flows.
The EPA issued the final Tier 3 Gasoline standards on March 3, 2014 under the 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. The EPA published the final 2014-2016 Renewable standards late in 2015. The EPA essentially set the standards for 2014 and 2015 at the estimated actual renewable fuel used in each year given they were for the most part regulating activities that had already occurred. In setting the 2016 standards the EPA recognized the E10 blend wall and used the general waiver authority to set the 2016 renewable fuel requirement lower than the original requirements stated in the Energy Independence Security Act (“EISA”). These new standards are being challenged by both renewable fuel producers and obligated parties in legal actions. The courts are attempting to consolidate some of these challenges. It appears unlikely the courts will be able resolve these issues before EPA releases the final 2017 standards late in 2016 assuming they stay on schedule. The EPA did propose the 2017 standards in May of 2016 and raised the requirements above the 2016 standards. Estimated 2016 production for the two categories are less than half of what will be needed to satisfy the proposed requirements in 2017. It is not clear that renewable fuel producers will be able to produce the volumes of these fuels required for blending in 2017. There are alternative options that could be used to satisfy these demands but using them will draw down available supply of excess RINs sometimes referred to as the “RIN bank” and will tighten the RIN market potentially raising RIN prices further. Industry organizations have pointed out the issues with the proposal to the EPA in commenting on the proposed standards. The EPA is continuing to receive comments on the new proposal and is targeting to release the final rule by the end of November 2016 as required. The Company is currently evaluating the final standards and they may have a material impact on the Company's cost of compliance with RFS 2.
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.
In addition, on December 1, 2015 the EPA finalized revisions to an existing air regulation concerning Maximum Achievable Control Technologies (“MACT”) for Petroleum Refineries. The regulation requires additional continuous monitoring systems for eligible process safety valves relieving to atmosphere, minimum flare gas heat (Btu) content, and delayed coke drum vent controls to be installed by January 30, 2019. In addition, a program for ambient fence line monitoring for benzene will need to be implemented by January 30, 2018. The Company is currently evaluating the final standards to evaluate the impact of this regulation, and at this time does not anticipate it will have a material impact on the Company's financial position, results of operations or cash flows.

28

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

In connection with the closing of the Torrance Acquisition, the Company became subject to greenhouse gas emission control regulations in the state of California to comply with Assembly Bill 32 (“AB 32”). AB 32 created a statewide cap on greenhouse gas emissions, including emissions from transportation fuels, with the aim of returning the state to 1990 emission levels by 2020. AB32 is implemented through two market mechanisms including the Low Carbon Fuel Standard (“LCFS”) and Cap and Trade. The Company is responsible for the AB 32 obligations related to the Torrance refinery beginning on July 1, 2016 and must purchase emission credits to comply with these obligations. Additionally, in September 2016, the state of California enacted Senate Bill 32 (“SB 32”) which further reduces greenhouse gas emissions targets to 40 percent below 1990 levels by 2030.
However, subsequent to the acquisition, the Company is recovering the majority of these costs from its customers, and as such does not expect this obligation to materially impact the Company’s financial position, results of operations, or cash flows. To the degree there are unfavorable changes to AB 32 or SB 32 regulations or the Company is unable to recover such compliance costs from customers, these regulations could have a material adverse effect on our financial position, results of operations, and liquidity.
The Company is subject to obligations to purchase Renewable Identification Numbers (“RINs”) required to comply with the Renewable Fuels Standard. In late 2015, the Environmental Protection Agency (“EPA”) initiated enforcement proceedings against companies it believes produced invalid RINs. On October 13, 2016, the Company’s subsidiaries, PBF Holding Company LLC, Toledo Refining Company LLC and Delaware City Refining Company LLC were notified by the EPA that its records indicated that these entities used potentially invalid RINs.  The EPA directed each of the subsidiaries to resubmit reports to remove the potentially invalid RINs and to replace the invalid RINs with valid RINs with the same D Code.  The Company is in the process of identifying whether any of those RINs are invalid and assessing how the invalid RINs will be replaced, including seeking indemnification from the counterparty who supplied the potentially invalid RINS. While we do not know what actions the EPA will take, or penalties it will impose with respect to these identified RINs or any other RINs we have purchased that the EPA may identify as being invalid, at this time, we do not expect any such action or penalties would have a material effect on our financial condition, results of operations or cash flows.
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

29

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

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.
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 95.2% interest in PBF LLC as of September 30, 2016 (95.1% as of December 31, 2015). 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, 2016, the Company has recognized a liability for the tax receivable agreement of $664,425 ($661,418 as of December 31, 2015) 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, 2016, PBF LLC made aggregate non-tax quarterly distributions of $0.90 per unit to its members, of which $88,043 was distributed pro-rata to PBF Energy and the balance was distributed to its other members. PBF Energy used this $88,043 to pay quarterly cash dividends of $0.30 per share of Class A common stock on March 8, 2016, May 31, 2016 and August 23, 2016.

With respect to distributions paid during the nine months ended September 30, 2016, PBFX paid a distribution on outstanding common and subordinated units of $0.41 per unit on March 8, 2016, $0.42 per unit on May 31, 2016 and $0.43 per unit on August 23, 2016 for a total distribution of $48,043, of which $25,480 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. On September 26, 2016,

30

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

the Company's Board of Directors approved a two year extension to the Repurchase Program. As a result of the extension, the Repurchase Program will expire on September 30, 2018. No repurchases of the Company's Class A common stock were made during the nine months ended September 30, 2016. From the inception of the Repurchase Program through September 30, 2016, 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.
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. 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, 2016, the Company has the ability to purchase an additional $149,196 in common stock under the approved Repurchase Program.

13. EMPLOYEE BENEFIT PLANS
In August 2016 the Company amended the PBF Energy Pension Plan and the Post Retirement Medical Plan to, among other things, incorporate into the plan all employees who became employed at the Company's California locations on July 1, 2016, in connection with the Torrance Acquisition. The amendments to the plan were effective as of July 1, 2016. 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
 
2016
 
2015
 
2016

2015
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
Service cost
 
$
10,064

 
$
5,790

 
$
24,743

 
$
17,369

Interest cost
 
772

 
710

 
2,323

 
2,126

Expected return on plan assets
 
(1,234
)
 
(830
)
 
(3,447
)
 
(2,489
)
Amortization of prior service costs
 
13

 
13

 
39

 
39

Amortization of loss
 
328

 
311

 
716

 
933

Net periodic benefit cost
 
$
9,943

 
$
5,994

 
$
24,374

 
$
17,978

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Post Retirement Medical Plan
 
2016
 
2015
 
2016
 
2015
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
Service cost
 
$
304

 
$
243

 
$
743

 
$
731

Interest cost
 
131

 
134

 
398

 
403

Amortization of prior service costs
 
161

 
76

 
379

 
228

Amortization of loss (gain)
 

 

 

 

Net periodic benefit cost
 
$
596

 
$
453

 
$
1,520

 
$
1,362



31

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

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, 2016 and December 31, 2015.
We have elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below. We have posted cash margin with various counterparties to support hedging and trading activities. The cash margin posted is required by counterparties as collateral deposits and cannot be offset against the fair value of open contracts except in the event of default. We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the balance sheet.
 
As of September 30, 2016
 
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
$
307,508

 
$

 
$

 
$
307,508

 
N/A

 
$
307,508

Marketable securities
59,991

 

 

 
59,991

 
N/A

 
59,991

Commodity contracts
24,086

 
10,440

 
382

 
34,908

 
(30,065
)
 
4,843

Derivatives included with inventory intermediation agreement obligations

 
6,194

 

 
6,194

 

 
6,194

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
26,618

 
3,447

 

 
30,065

 
(30,065
)
 

Catalyst lease obligations

 
44,286

 

 
44,286

 

 
44,286

 
As of December 31, 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
$
631,280

 
$

 
$

 
$
631,280

 
N/A

 
$
631,280

Marketable securities
234,258

 

 

 
234,258

 
N/A

 
234,258

Commodity contracts
63,810

 
31,256

 
3,543

 
98,609

 
(52,482
)
 
46,127

Derivatives included with inventory intermediation agreement obligations

 
35,511

 

 
35,511

 

 
35,511

Derivatives included with inventory supply arrangement obligations

 

 

 

 

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
49,960

 
2,522

 

 
52,482

 
(52,482
)
 

Catalyst lease obligations

 
31,802

 

 
31,802

 

 
31,802


32

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.
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.

Non-qualified pension plan assets are measured at fair value using a market approach based on published net asset values of mutual funds as a practical expedient. As of September 30, 2016 and December 31, 2015, $9,773 and $9,325, respectively, were included within Deferred charges and other assets, net for these non-qualified pension plan assets.

The table below summarizes the changes in fair value measurements categorized in Level 3 of the fair value hierarchy:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Balance at beginning of period
 
$
493

 
$
1,905

 
$
3,543

 
$
1,521

Purchases
 

 

 

 

Settlements
 
(90
)
 
(1,238
)
 
(1,093
)
 
(12,549
)
Unrealized (loss) gain included in earnings
 
(21
)
 
(852
)
 
(2,068
)
 
10,843

Transfers into Level 3
 

 

 

 

Transfers out of Level 3
 

 

 

 

Balance at end of period
 
$
382

 
$
(185
)
 
$
382

 
$
(185
)

There were no transfers between levels during the three and nine months ended September 30, 2016 and 2015, respectively.

33

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, 2016 and December 31, 2015.
 
September 30, 2016
 
December 31, 2015
 
Carrying
value
 
Fair
 value
 
Carrying
 value
 
Fair
value
Senior Secured Notes due 2020 (a)
$
670,551

 
$
697,649

 
$
669,644

 
$
706,246

Revolving Loan (b)
550,000

 
550,000

 

 

Senior Secured Notes due 2023 (a)
500,000

 
475,031

 
500,000

 
492,452

PBFX Senior Notes (a)
350,000

 
339,989

 
350,000

 
321,722

PBFX Term Loan (b)
59,664

 
59,664

 
234,200

 
234,200

PBFX Revolving Credit Facility (b)
169,200

 
169,200

 
24,500

 
24,500

Rail Facility (b)
56,035

 
56,035

 
67,491

 
67,491

Catalyst leases (c)
44,286

 
44,286

 
31,802

 
31,802

 
2,399,736

 
2,391,854

 
1,877,637

 
1,878,413

Less - Current maturities
59,664

 
59,664

 

 

Less - Unamortized deferred financing costs
34,111

 
n/a

 
41,282

 
n/a

Long-term debt
$
2,305,961

 
$
2,332,190

 
$
1,836,355

 
$
1,878,413


(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. Prior to December 31, 2015, the Company’s crude supply agreement contained 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, 2016, there were no barrels of crude oil and feedstocks (no barrels at December 31, 2015) outstanding under these derivative instruments designated as fair value hedges and no barrels (no barrels at December 31, 2015) outstanding under these derivative instruments not designated as hedges. As of September 30, 2016, there were 3,284,395 barrels of intermediates and refined products (3,776,011 barrels at December 31, 2015) outstanding under these derivative instruments designated as fair value hedges and no barrels (no barrels at

34

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

December 31, 2015) outstanding under these derivative instruments not designated as hedges. These volumes represent the notional value of the contract.
The Company also enters into economic hedges primarily consisting of commodity derivative contracts that are not designated as hedges and are used to manage price volatility in certain crude oil and feedstock inventories as well as crude oil, feedstock, and refined product sales or purchases. The objective in entering into economic hedges is consistent with the objectives discussed above for fair value hedges. As of September 30, 2016, there were 22,482,500 barrels of crude oil and 8,927,000 barrels of refined products (39,577,000 and 4,599,136, respectively, as of December 31, 2015), 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, 2016 and December 31, 2015 and the line items in the condensed 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, 2016:
 
 
Derivatives included with the inventory intermediation agreement obligations
Accrued expenses
$
6,194

December 31, 2015
 
 
Derivatives included with the inventory intermediation agreement obligations
Accrued expenses
$
35,511

 
 
 
Derivatives not designated as hedging instruments:
 
 
September 30, 2016:
 
 
Commodity contracts
Accounts receivable
$
4,843

December 31, 2015
 
 
Commodity contracts
Accounts receivable
$
46,127


35

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

The following table provides information about the gain or loss recognized in income on these derivative instruments and the line items in the condensed 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, 2016:
 
 
Derivatives included with the inventory intermediation agreement obligations
Cost of sales
$
(3,145
)
For the three months ended September 30, 2015:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
1,409

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

For the nine months ended September 30, 2016:
 
 
Derivatives included with the inventory intermediation agreement obligations
Cost of sales
$
(29,317
)
For the nine months ended September 30, 2015:
 
 
Derivatives included with inventory supply arrangement obligations
Cost of sales
$
(3,220
)
Derivatives included with the inventory intermediation agreement obligations
Cost of sales
$
(50,150
)
 
 
 
Derivatives not designated as hedging instruments:
 
 
For the three months ended September 30, 2016:
 
 
Commodity contracts
Cost of sales
$
(15,559
)
For the three months ended September 30, 2015:
 
 
Commodity contracts
Cost of sales
$
31,017

For the nine months ended September 30, 2016:
 
 
Commodity contracts
Cost of sales
$
(54,646
)
For the nine months ended September 30, 2015:
 
 
Commodity contracts
Cost of sales
$
(14,080
)
 
 
 
Hedged items designated in fair value hedges:
 
 
For the three months ended September 30, 2016:
 
 
Intermediate and refined product inventory
Cost of sales
$
3,145

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 nine months ended September 30, 2016:
 
 
Intermediate and refined product inventory
Cost of sales
$
29,317

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
$