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Table of Contents

As filed with the Securities and Exchange Commission on December 3, 2012

Registration Statement No. 333-177933

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Amendment No. 7

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

PBF ENERGY INC.

(Exact name of Registrant as specified in its charter)

Delaware   2911   45-3763855

(State or other jurisdiction

of incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

 

One Sylvan Way, Second Floor

Parsippany, New Jersey 07054

Telephone: (973) 455-7500

(Name, address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

 

Michael D. Gayda

President

PBF Energy Inc.

One Sylvan Way, Second Floor

Parsippany, New Jersey 07054

Telephone: (973) 455-7500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

Copies to:

Todd E. Lenson, Esq.   Jeffrey Dill, Esq.   William M. Hartnett, Esq.

Jordan M. Rosenbaum, Esq.

  PBF Energy Inc.   Douglas S. Horowitz, Esq.

Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, New York 10038

Telephone: (212) 806-5400

 

Senior Vice President, General Counsel

One Sylvan Way, Second Floor

Parsippany, New Jersey 07054

Telephone: (973) 455-7500

 

Cahill Gordon & Reindel LLP

80 Pine Street

New York, New York 10005

Telephone: (212) 701-3000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer  ¨   Accelerated Filer  ¨   Non-accelerated Filer  þ   Smaller Reporting Company  ¨
    (Do not check if a smaller reporting company)

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title Of Each Class

Of Securities To Be Registered

  Amount to
be Registered(1)
  Proposed Maximum
Aggregate Offering
Price per Unit(2)
  Proposed Maximum
Aggregate Offering
Price(2)
 

Amount of

Registration fee

Class A Common Stock, par value $0.001 per share

  18,975,000   $27.00   $512,325,000   $67,702(3)

 

 

(1)   Includes 2,475,000 shares of Class A common stock subject to underwriters’ option to purchase additional shares of Class A common stock.
(2)   Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
(3)   $11,460 of which has been previously paid.

 

The Registrant hereby amends this registration statement on such date as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

Prospectus (Subject to completion)

Issued December 3, 2012

 

16,500,000 Shares

 

LOGO

Class A Common Stock

 

 

 

PBF Energy Inc. is offering shares of its Class A common stock. We intend to use a significant portion of the net proceeds from this offering to purchase equity interests in our business from certain of our existing owners. Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price of our Class A common stock is expected to be between $25.00 and $27.00 per share.

 

Immediately following this offering, the holders of our Class A common stock will collectively own 100% of the economic interests in PBF Energy Inc., and have 17.2% of the voting power of PBF Energy Inc. The holders of our Class B common stock will have the remaining 82.8% of the voting power of PBF Energy Inc. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange.

 

 

 

We have applied to list our Class A common stock on the New York Stock Exchange under the symbol “PBF”.

 

 

 

Investing in our Class  A common stock involves risks. See “Risk Factors” beginning on page 17.

 

 

 

Price $         Per Share

 

 

 

      

Price to

Public

    

Underwriting

Discounts

and

Commissions

    

Proceeds to

Company

Per Share

     $              $              $        

Total

     $                      $                      $                

 

We have granted the underwriters a 30-day option to purchase up to 2,475,000 additional shares of Class A common stock on the same terms as set forth above. See the section of this prospectus entitled “Use of Proceeds” and “Underwriting.”

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities nor passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the shares on or about                     , 2012.

 

 

 

Citigroup

  Morgan Stanley

Credit Suisse

 

Deutsche Bank Securities

 

 

UBS Investment Bank   Barclays   Wells Fargo Securities

 

 

 

RBC Capital Markets   Credit Agricole CIB   BNP PARIBAS   Scotiabank / Howard Weil
Simmons & Company International   Santander   Tudor, Pickering, Holt & Co.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Glossary of Selected Terms

     ii   

Prospectus Summary

     1   

Risk Factors

     17   

Forward-Looking Statements

     38   

Industry and Market Data

     39   

Organizational Structure

     40   

Use of Proceeds

     45   

Dividend Policy

     46   

Capitalization

     48   

Dilution

     49   

Unaudited Pro Forma Consolidated Financial Statements

     51   

Selected Financial Data

     63   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     66   
     Page  

Industry Overview

     96   

Business

     105   

Management

     119   

Executive Compensation

     125   

Certain Relationships and Related Transactions

     145   

Principal Stockholders

     153   

Description of Capital Stock

     156   

Shares Eligible for Future Sale

     161   

Certain U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders

     164   

Underwriting

     168   

Legal Matters

     176   

Experts

     176   

Where You Can Find More Information

     176   

Index to Financial Statements

     F-1   
 

 

 

 

Until                          , 2012 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

 

We have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so.

 

For investors outside the United States: we have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside the United States.

 

Unless otherwise indicated or the context otherwise requires, all financial data presented in this prospectus reflects the consolidated business and operations of PBF Energy Inc. and its consolidated subsidiaries, and has been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP.

 

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GLOSSARY OF SELECTED TERMS

 

Unless otherwise noted or indicated by context, the following terms used in this prospectus have the following meanings:

 

“API gravity” refers to American Petroleum Institute gravity.

 

“ASCI” refers to the Argus Sour Crude Index, a pricing index used to approximate market prices for sour, heavy crude oil.

 

“Bakken” refers to both a crude oil production region generally covering North Dakota, Montana and Western Canada, and the crude oil that is produced in that region.

 

“barrel” refers to a common unit of measure in the oil industry, which equates to 42 gallons.

 

“blendstocks” refers to various compounds that are combined with gasoline or diesel from the crude oil refining process to make finished gasoline and diesel; these may include natural gasoline, FCC unit gasoline, ethanol, reformate or butane, among others.

 

“bpd” refers to an abbreviation for barrels per day.

 

“CAPP” refers to the Canadian Association of Petroleum Producers.

 

“catalyst” refers to a substance that alters, accelerates, or instigates chemical changes, but is not produced as a product of the refining process.

 

“CBOB” refers to conventional blendstock for oxygenate blending.

 

“coke” refers to a coal-like substance that is produced from heavier crude oil fractions during the refining process.

 

“complexity” refers to the number, type and capacity of processing units at a refinery, measured by the Nelson Complexity Index, which is often used as a measure of a refinery’s ability to process lower quality crude in an economic manner.

 

“crack spread” refers to a simplified calculation that measures the difference between the price for light products and crude oil. For example, we reference (a) the 2-1-1 crack spread, which is a general industry standard that approximates the per barrel refining margin resulting from processing two barrels of crude oil to produce one barrel of gasoline and one barrel of heating oil or ULSD, and (b) the 4-3-1 crack spread, which is a benchmark utilized by our Toledo refinery that approximates the per barrel refining margin resulting from processing four barrels of crude oil to produce three barrels of gasoline and one-half barrel of jet fuel and one-half barrel of ULSD.

 

“Dated Brent” refers to Brent blend oil, a light, sweet North Sea crude oil, characterized by an API gravity of 38° and a sulfur content of approximately 0.4 weight percent that is used as a benchmark for other crude oils.

 

“distillates” refers primarily to diesel, heating oil, kerosene and jet fuel.

 

“downstream” refers to the downstream sector of the energy industry generally describing oil refineries, marketing and distribution companies that refine crude oil and sell and distribute refined products. The opposite of the downstream sector is the upstream sector, which refers to exploration and production companies that search for and/or produce crude oil and natural gas underground or through drilling or exploratory wells.

 

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Table of Contents

“EPA” refers to the United States Environmental Protection Agency.

 

“ethanol” refers to a clear, colorless, flammable oxygenated liquid. Ethanol is typically produced chemically from ethylene, or biologically from fermentation of various sugars from carbohydrates found in agricultural crops and cellulosic residues from crops or wood. It is used in the United States as a gasoline octane enhancer and oxygenate.

 

“feedstocks” refers to crude oil and partially refined petroleum products that are processed and blended into refined products.

 

“FCC” refers to fluid catalytic cracking.

 

“FCU” refers to fluid coking unit.

 

“FOB” refers to free on board, a transportation term that pertains to the port of loading. The buyer assumes responsibility for the goods at the port of loading and is responsible for freight transport, insurance, and any other costs associated with moving goods to their final destination port.

 

“GHG” refers to greenhouse gas.

 

“Group I base oils or lubricants” refers to conventionally refined products characterized by a sulfur content less than 0.03% with a viscosity index between 80 and 120. Typically, these products are used in a variety of automotive and industrial applications.

 

“heavy crude oil” refers to a relatively inexpensive crude oil with a low API gravity characterized by high relative density and viscosity. Heavy crude oils require greater levels of processing to produce high value products such as gasoline and diesel.

 

“KV” refers to Kilovolts.

 

“light crude oil” refers to a relatively expensive crude oil with a high API gravity characterized by low relative density and viscosity. Light crude oils require lower levels of processing to produce high value products such as gasoline and diesel.

 

“light products” refers to the group of refined products with lower boiling temperatures, including gasoline and distillates.

 

“light-heavy differential” refers to the price difference between light crude oil and heavy crude oil.

 

“LPG” refers to liquefied petroleum gas.

 

“Maya” refers to Maya crude oil, a heavy, sour crude oil characterized by an API gravity of approximately 22° and a sulfur content of approximately 3.3 weight percent that is used as a benchmark for other heavy crude oils.

 

“MLP” refers to master limited partnership.

 

“MMbbls” refers to an abbreviation for million barrels.

 

“MMBTU” refers to million British thermal units.

 

“MMSCFD” refers to million standard cubic feet per day.

 

“MSCG” refers to Morgan Stanley Capital Group Inc.

 

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Table of Contents

“MW” refers to Megawatt.

 

“Nelson Complexity Index” refers to the complexity of an oil refinery as measured by the Nelson Complexity Index, which is calculated on an annual basis by the Oil and Gas Journal. The Nelson Complexity Index assigns a complexity factor to each major piece of refinery equipment based on its complexity and cost in comparison to crude distillation, which is assigned a complexity factor of 1.0. The complexity of each piece of refinery equipment is then calculated by multiplying its complexity factor by its throughput ratio as a percentage of crude distillation capacity. Adding up the complexity values assigned to each piece of equipment, including crude distillation, determines a refinery’s complexity on the Nelson Complexity Index. A refinery with a complexity of 10.0 on the Nelson Complexity Index is considered ten times more complex than crude distillation for the same amount of throughput.

 

“NYH” refers to the New York Harbor market value of petroleum products.

 

“PADD 1” refers to the Petroleum Administration for Defense District 1 region of the United States, which covers the following states: Connecticut, Delaware, District of Columbia, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia and West Virginia.

 

“PADD 2” refers to the Petroleum Administration for Defense District 2 region of the United States, which covers the following states: Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee and Wisconsin.

 

“Platts” refers to Platts, a division of The McGraw-Hill Companies.

 

“PPM” refers to parts per million.

 

“RBOB” refers to reformulated blendstock for oxygenate blending.

 

“refined products” refers to petroleum products, such as gasoline, diesel and jet fuel, that are produced by a refinery.

 

“sour crude oil” refers to a crude oil that is relatively high in sulfur content, requiring additional processing to remove the sulfur. Sour crude oil is typically less expensive than sweet crude oil.

 

“Sunoco” refers to Sunoco, Inc. (R&M).

 

“sweet crude oil” refers to a crude oil that is relatively low in sulfur content, requiring less processing to remove the sulfur than sour crude oil. Sweet crude oil is typically more expensive than sour crude oil.

 

“Syncrude” refers to a blend of Canadian synthetic oil, a light, sweet crude oil, typically characterized by an API gravity between 30° and 32° and a sulfur content of approximately 0.1-0.2 weight percent.

 

“throughput” refers to the volume processed through a unit or refinery.

 

“turnaround” refers to a periodically required shutdown and comprehensive maintenance event to refurbish and maintain a refinery unit or units that involves the inspection of such units and occurs generally on a periodic cycle.

 

“ULSD” refers to ultra-low-sulfur diesel.

 

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“WCS” refers to Western Canadian Select, a heavy, sour crude oil blend typically characterized by an API gravity between 20° and 22° and a sulfur content of approximately 3.5 weight percent that is used as a benchmark for heavy Western Canadian crude oil.

 

“WTI” refers to West Texas Intermediate crude oil, a light, sweet crude oil, typically characterized by an API gravity between 38° and 40° and a sulfur content of approximately 0.3 weight percent that is used as a benchmark for other crude oils.

 

“WTS” refers to West Texas Sour crude oil, a sour crude oil characterized by an API gravity between 30° and 33° and a sulfur content of approximately 1.28 weight percent that is used as a benchmark for other sour crude oils.

 

“yield” refers to the percentage of refined products that is produced from crude oil and other feedstocks.

 

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PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus and may not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the information set forth in “Risk Factors” and our financial statements and related notes included elsewhere in this prospectus before making an investment decision. In this prospectus, unless the context otherwise requires, references to the “Company,” “we,” “our,” “us” or “PBF” refer (1) prior to the consummation of the Offering Transactions described under “Organizational Structure—Offering Transactions,” to PBF Energy Company LLC, or PBF LLC, and its consolidated subsidiaries, including PBF Holding Company LLC, or PBF Holding, and (2) after the Offering Transactions described under “Organizational Structure—Offering Transactions,” to PBF Energy Inc., or PBF Energy, and, in each case, unless the context otherwise requires, its consolidated subsidiaries, including PBF LLC, PBF Holding, PBF Investments LLC, or PBF Investments, Toledo Refining Company LLC, or Toledo Refining, Paulsboro Refining Company LLC, or Paulsboro Refining, and Delaware City Refining Company LLC, or Delaware City Refining.

 

Our Company

 

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

 

Our three refineries are located in Toledo, Ohio, Delaware City, Delaware and Paulsboro, New Jersey. Our Midcontinent refinery at Toledo processes light, sweet crude, has a throughput capacity of 170,000 bpd and a Nelson Complexity Index of 9.2. The majority of Toledo’s WTI based crude is delivered via pipelines that originate in both Canada and the United States. Since our acquisition of Toledo in 2011, we have added additional truck and rail crude unloading capabilities that provide feedstock sourcing flexibility for the refinery and enables Toledo to run a more cost-advantaged crude slate. Our East Coast refineries at Delaware City and Paulsboro have a combined refining capacity of 370,000 bpd and Nelson Complexity Indices of 11.3 and 13.2, respectively. These high conversion refineries process primarily medium and heavy, sour crudes and have historically received the bulk of their feedstock via ships and barges on the Delaware River. Importantly, in May 2012 we commenced crude shipments via rail into a newly developed crude rail unloading facility at our Delaware City refinery. Currently, crude delivered to this facility is consumed at our Delaware City refinery. In the future we plan to transport some of the crude delivered by rail from Delaware City via barge to our Paulsboro refinery. The Delaware City rail unloading facility allows our East Coast refineries to source WTI based crudes from Western Canada and the Midcontinent, which provides significant cost advantages versus traditional Brent based international crudes. We are in the process of expanding the rail crude unloading capacity at Delaware City from 40,000 bpd to more than 110,000 bpd by early 2013 and have entered into agreements to lease approximately 2,400 crude railcars (comprised of approximately 1,600 coiled and insulated railcars that are capable of transporting Western Canadian bitumen without diluent and approximately 800 general purpose railcars) that are currently scheduled to be delivered through the second quarter of 2014 and which will be utilized to transport crude by rail to Delaware City.

 

Our Business

 

We produce a variety of products at each of our refineries, including gasoline, ULSD, heating oil, jet fuel, lubricants, petrochemicals and asphalt. We sell our products throughout the Northeast and Midwest of the United States, as well as in other regions of the United States and Canada, and are able to ship products to other international destinations. The majority of our finished products are sold through long-term offtake and supply agreements. For example, we sell the bulk of our gasoline, diesel and heating oil through long-term offtake agreements with MSCG and Sunoco.

 

 

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The following table provides summary operating information concerning each of our three refineries:

 

Refinery

   Approximate
Throughput
Capacity (bpd)
     Nelson
Complexity Index
   Estimated
Replacement Cost
     Benchmark Crack
Spread
 

Toledo

     170,000       9.2    $ 2.4 billion        
WTI
  
              (Chicago) 4-3-1   

Delaware City

     190,000       11.3    $ 3.1 billion        
Dated Brent
  
              (NYH) 2-1-1   

Paulsboro

     180,000       13.2    $ 2.7 billion        
Dated Brent
  
              (NYH) 2-1-1   
  

 

 

    

 

  

 

 

    

Total

     540,000       11.3    $ 8.2 billion      
      (weighted average)      

 

For the year ended December 31, 2011 and the nine months ended September 30, 2012, we had (a) pro forma total revenues of $16.0 billion and $15.2 billion, respectively; (b) pro forma Adjusted EBITDA of $480.7 million and $732.6 million, respectively; and (c) pro forma net income of $280.7 million and $503.3 million, respectively. Our pro forma results for the year ended December 31, 2011 do not include any adjustments for Delaware City to reflect incremental revenue and operating expenses that we expect to generate in connection with the re-start because the refinery was not operational when it was acquired and the transaction was accounted for as an acquisition of assets, not a business combination. For a definition and reconciliation of pro forma Adjusted EBITDA to pro forma net income, see “—Summary Historical and Pro Forma Financial and Other Data.”

 

Our History and Acquisitions

 

March 2008

   PBF was formed.

June 2010

   The idle Delaware City refinery and its related assets were acquired from Valero Energy Corporation, or Valero, for approximately $220.0 million.

December 2010

   The Paulsboro refinery was acquired from Valero for approximately $357.7 million, excluding working capital.

March 2011

   The Toledo refinery was acquired from Sunoco for approximately $400.0 million, excluding working capital.

October 2011

   Delaware City became operational.

 

Delaware City Acquisition and Re-Start. We acquired the idle Delaware City refinery and its related assets, including a petroleum product terminal, a petroleum products pipeline and an electric generation facility, on June 1, 2010 from affiliates of Valero for approximately $220.0 million in cash. In the fourth quarter of 2009, due to, among other reasons, financial losses caused by one of the worst recessions in recent history, the prior owner shut down the refinery. We were therefore able to acquire the refinery at an attractive price. In addition, at the time of acquisition, we reached an agreement with the State of Delaware that provided for a five-year operating permit and up to approximately $45.0 million of economic support to re-start the facility, and negotiated a new long-term contract with the relevant union at the refinery. We believe that the refinery’s ability to process lower quality crudes will allow us to capture a higher margin as these lower quality crudes are typically priced at discounts to benchmark crudes, and to compete effectively in a region where product demand significantly exceeds refining capacity.

 

Since our acquisition, we have invested more than $500.0 million in turnaround and re-start projects at Delaware City, as well as in the recent strategic development of a crude rail unloading facility. The re-start process

 

 

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included the decommissioning of the gasifier unit located on the property which allowed us to decrease emissions and improve the reliability of the refinery. We made significant operating improvements in the first year of operations by modifying the crude slate and product yield, changing operations of the conversion units and re-starting certain units. Through these capital investments and by restructuring certain operations, we have lowered the annual operating expenses of the Delaware City refinery relative to its pre-acquisition operating expense levels by more than 40%. During the first years of the refinery’s operations we anticipate saving in excess of $100.0 million in capital expenditures we otherwise would have expected to make if not for our reconfiguration of the refinery and the terms of our environmental operating agreement issued by the State of Delaware. In 2012, we are spending approximately $57.0 million, $20.0 million of which has been spent as of September 30, 2012, to expand and upgrade the existing on-site rail infrastructure, including the expansion of the crude rail unloading facilities that will be capable of discharging approximately 110,000 bpd.

 

Paulsboro Acquisition. We acquired the Paulsboro refinery (including an associated natural gas pipeline) on December 17, 2010 from Valero for approximately $357.7 million, excluding working capital. The purchase price excludes inventory purchased on our behalf by MSCG and Statoil Marketing & Trading (US) Inc., or Statoil.

 

Toledo Acquisition. We acquired the Toledo refinery on March 1, 2011 from Sunoco for approximately $400.0 million, excluding working capital. We also purchased refined and certain intermediate products in inventory for approximately $299.6 million, and MSCG purchased the refinery’s crude oil inventory on our behalf. Additionally, included in the terms of the sale is a five-year participation payment of up to $125.0 million payable to Sunoco based upon post-acquisition earnings of the refinery, of which $103.6 million was paid in 2012. We currently anticipate paying the balance of the participation payment in April 2013. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Pro Forma Contractual Obligations and Commitments” for additional information regarding the terms of the participation payment to Sunoco.

 

Industry Overview and Market Outlook

 

The United States has historically been the largest consumer of petroleum-based products in the world. According to the U.S. Energy Information Administration’s, or EIA’s, 2012 Refinery Capacity Report, there were 134 operating oil refineries in the United States in January 2012, with a total refining capacity of approximately 16.7 million bpd and a weighted average Nelson Complexity Index of approximately 10.9. Of the total operating refining capacity in the United States, approximately 55.2%, or 9.2 million bpd, is currently owned and operated by independent refining companies compared to 2002 when approximately 31.6%, or 5.1 million bpd, was owned by independent refining companies. The remaining capacity is controlled by integrated oil companies. Because of this trend, the refining industry increasingly must rely on its own operations for its profitability.

 

We believe our three refineries currently benefit from secular growth in North American crude production because of our ability to access lower cost WTI price based crudes. According to a recent EIA publication, average United States crude oil production in 2013 is expected to grow by approximately 1.5 million bpd, to 6.9 million bpd from 5.4 million bpd in 2009, an increase of approximately 28%. This level of United States crude oil production would represent the highest level since 1993. In addition, CAPP projects that Canadian crude oil production will increase by 800,000 bpd, from 3.0 million bpd in 2011 to 3.8 million bpd in 2015. As a result of the recent and projected growth in North American crude production, the United States has reduced its reliance on imported crude. The EIA estimates that crude imported from foreign sources (crude from outside North America) since 2008 has declined by approximately 1.3 million bpd or 13.3%, to 8.5 million bpd as of September 30, 2012 and is forecasted to decline by an additional 500,000 bpd by 2013. With the addition of our crude rail unloading facilities at Delaware City and our investment in a crude railcar fleet, we expect our East Coast refineries to capitalize on the growth in both Canadian and United States crude oil production, while maintaining the flexibility to source waterborne crude.

 

 

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Supply and demand dynamics can vary by region, creating differentiated margin opportunities at any given time for refiners depending on the location of their facilities. Our Toledo refinery is located in the Midcontinent (PADD 2) and our Delaware City and Paulsboro refineries are both located on the East Coast (PADD 1). In both of these regions, product demand exceeds refinery capacity. We expect that this demand/capacity imbalance may continue. For example, since 2009 16 refineries representing approximately 2.6 million bpd of refining capacity have been closed or idled in the Atlantic Basin (which includes PADD 1). This Atlantic Basin reduction has occurred across the United States, Europe and the Caribbean and directly affects our East Coast refineries because we compete with operating refineries in these markets. In addition, the supply reduction provides opportunities to export products to markets formerly served by refineries that are now closed or idled outside of the United States.

 

Refining is primarily a margin-based business where both the feedstock (primarily crude oil) and refined petroleum products are commodities with fluctuating prices. Refiners create value by selling refined petroleum products at prices higher than the costs of acquiring crude oil and other feedstocks, and by managing operating costs. Refining is an industry that historically has seasonal influences as a result of differentiated consumer demand for key refined products during certain months of the year. Most importantly, demand for gasoline is generally higher during the summer months than during the winter months due to seasonal increases in highway traffic and construction work. Decreased demand during the winter months can lower gasoline prices. Consequently, refining margins and profitability have historically generally been stronger in the second and third calendar quarters of each year relative to the first and fourth calendar quarters.

 

Our Competitive Strengths

 

We believe that we have the following competitive strengths:

 

Strategically located refineries with cost and supply advantages. Our Midcontinent Toledo refinery advantageously sources a substantial portion of its WTI based crude slate from sources in Canada and throughout the Midcontinent. The balance of the crude oil is delivered by truck from local sources and by rail to a nearby terminal. Recent increases in production volumes of crudes from Western Canada and the Midcontinent combined with limitations on takeaway capacity in the Midcontinent, including at Cushing, Oklahoma where WTI is priced, have resulted in a price discount for WTI based crudes compared to Brent based crudes. We believe that our access to WTI based crudes at Toledo provides us with a cost advantage versus facilities that do not have similar access to such crudes and must process Brent based feedstocks.

 

Our Delaware City and Paulsboro refineries have similar supply advantages given that they have the flexibility to source crudes from around the world via the Delaware River, and can source currently price advantaged WTI based crudes from Western Canada and the Midcontinent through our Delaware City crude rail unloading facility and through third party rail unloading terminals on the East Coast. The 2,400 crude railcars that we have entered into agreements to lease will enable us to transport this crude to each of our refineries. This transportation flexibility allows our East Coast refineries to process the most cost advantaged crude available.

 

Our three refineries currently have access to inexpensive natural gas, a primary component of a refinery’s operating costs. This access provides us with a competitive advantage versus other refineries, such as those located in Europe and the Caribbean, that are forced to purchase more expensive natural gas or run fuel oil in the refining process.

 

Future crude supply may emerge from the development of other crude oil producing basins, including the Utica Shale play (located in portions of the Appalachian Basin and Canada), which could potentially bring significant oil production online in regional proximity to all three of our refineries, providing an attractive feedstock source with low associated transportation cost.

 

Complex assets with a valuable product slate located in high-demand regions. Our refinery assets are located in regions where product demand exceeds refining capacity. Our refineries have a weighted average

 

 

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Nelson Complexity Index of 11.3, which allows us the flexibility to process a variety of crudes. Our East Coast refineries have the highest Nelson Complexity Indices on the East Coast, allowing them to process lower cost, heavier, more sour crude oils and giving us a cost advantage over other refineries in the same region. The complexity of our refining assets allows us to produce a higher percentage of more valuable light products. For example, our East Coast refineries produce a greater percentage of distillates versus gasoline than other East Coast refineries and have 100% of the East Coast’s heavy coking capacity. In addition, our Paulsboro refinery produces Group I base oils which are typically priced at a premium to both gasoline and distillates. Similarly, our Toledo refinery is a high conversion refinery with high gasoline and distillate yields and also produces high-value petrochemical products.

 

Significant scale and diversification. We currently operate three refineries with a combined crude throughput of 540,000 bpd making us the fifth largest independent refiner in the United States. Our refineries provide us diversification through crude slates, end products, customers and geographic locations. Our scale provides us buying power advantages, and we benefit from the cost efficiencies that result from operating three large refineries.

 

Recent capital investments and restructuring initiatives to improve financial returns. Since 2006, over $2.8 billion of capital has been invested in our three refineries to improve their operating performance, to meet environmental and regulatory standards, and to minimize the need for near-term capital expenditures. For example, since our acquisition of Delaware City, we have invested more than $500.0 million in turnaround and re-start projects that will improve the cost structure and profitability of the refinery, as well as in the recent strategic development of a crude rail unloading facility. In addition, we are spending approximately $57.0 million to expand and upgrade the rail unloading infrastructure that will allow us to discharge more than 110,000 bpd of cost advantaged, WTI based crudes for both our Delaware City and Paulsboro refineries by the first quarter of 2013. In conjunction with the re-start of Delaware City in 2011, we undertook a significant restructuring of the operations to improve its operating cost position, including reductions in labor costs compared to operations before shutdown by Valero, reductions in energy costs and reductions in other ongoing operating and maintenance expenses. Management estimates that the Delaware City restructuring has reduced the refinery’s annual operating expenses by over $200.0 million relative to pre-acquisition operating expense level (without including the rail upgrades). We made significant operating improvements in the first year of operations by modifying the crude slate and product yield, changing operations of the conversion units and re-starting certain units.

 

Experienced management team with a demonstrated track record of acquiring, integrating and operating refining assets. Our management team is led by our Executive Chairman of the Board of Directors, Thomas D. O’Malley, who has more than 30 years experience in the refining industry and has led the acquisition of more than 20 refineries during his career. In addition, our executive management team, including our Chief Executive Officer, Thomas J. Nimbley, our President, Michael D. Gayda, and our head of Commercial Operations, Donald F. Lucey, has a proven track record of successfully operating refining assets. Our core management team has significant experience working together, including while at Tosco Corporation and Premcor Inc. These executives have a long history of acquiring refineries at attractive prices and integrating these operations into a single, consolidated platform. For example, we believe we acquired the Paulsboro, Delaware City and Toledo refineries at or near the bottom of the refining cycle at a small fraction of replacement cost. These acquisitions were made at lower prices on a per barrel basis and significantly lower prices on a complexity barrel basis than other comparable acquisitions over the past five years.

 

Support from strong financial sponsors and management with a substantial investment. Our financial sponsors, funds affiliated with The Blackstone Group L.P., or Blackstone, and First Reserve Management, L.P., or First Reserve, have a long history of successful investments across the energy industry. Together, our financial sponsors and management have invested substantial equity in PBF LLC to date, with management investing over $23.5 million. In addition, Thomas D. O’Malley, our Executive Chairman of the Board of Directors, certain of his affiliates and family

 

 

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members, and certain of our other executives, purchased $25.5 million aggregate principal amount of senior secured notes in the notes offering described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability—Senior Secured Notes Offering.”

 

Our Business Strategy

 

Our primary goal is to create stockholder value by improving our market position as one of the largest independent refiners and suppliers of petroleum products in the United States. We intend to execute the following strategies to achieve our goal:

 

Maintain efficient refinery operations. We intend to operate our refineries as reliably and efficiently as possible and further improve our operations by maintaining our costs at competitive levels, seeking to optimize utilization of our refinery asset base, and making focused high-return capital improvements designed to generate incremental profits.

 

We are continuously looking for ways to improve our overall operating efficiencies. For example, our refineries in Paulsboro and Delaware City are located approximately 30 miles apart from one another on the Delaware River. Both refineries have the capability to process heavy, sour crudes and have complementary operating units, and we exchange certain feedstocks and intermediates between the refineries in an effort to optimize profitability. We are able to recognize cost savings associated with the sharing of crude oil shipments for these refineries. In addition to allowing us to share crude cargoes transported to our East Coast refineries via water, the construction of our new crude rail unloading facility at Delaware City will also help us realize better crude economics, because we will be able to deliver crude via rail through our own facilities and process WTI based crudes at both Paulsboro and Delaware City. We employ a small, centralized corporate staff that provides capital control and oversight and have experienced managers making operational decisions at our refineries.

 

Continue to grow through acquisitions and internal projects. We believe that we will encounter attractive acquisition opportunities as a result of the continuing strategic divestitures by major integrated oil companies and the rationalization of specific refinery assets. In selecting future acquisitions and internal projects, we intend to consider, among other things, the following criteria: performance through the cycle, access to advantageous crude supplies, attractive refined product end market fundamentals, access to storage, distribution and logistics infrastructure, acquisition price and our ability to maintain a conservative capital structure, and synergies with existing assets. In addition, we own a number of energy-related logistical assets that qualify for the favorable tax treatment that is permitted through an MLP structure. We continue to evaluate our strategic alternatives for these assets.

 

Promote operational excellence in reliability and safety. We will continue to devote significant time and resources toward improving the reliability and safety of our operations. We will seek to improve operating performance through our commitment to our preventive maintenance program and to employee training and development programs. We will continue to emphasize safety in all aspects of our operations. We believe that a superior reliability record, which can be measured and managed like all other aspects of our business, is inherently tied to safety and profitability.

 

Create an organization highly motivated to maintain earnings and improve return on capital. We have created an organization in which employees are highly motivated to maintain earnings and improve return on capital. Our cash incentive compensation plan, which covers all non-unionized employees, is solely based on achieving earnings above designated levels. Our equity incentive plan provides participating employees with an equity stake in us and aligns their interests with our investors’ interests.

 

 

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Risk Factors

 

An investment in our Class A common stock involves a number of risks, including changes in industry-wide refining margins and crude oil price differentials, competition and other material factors, that could materially affect our business, financial condition and results of operations, and cause the trading price of our Class A common stock to decline. For a discussion of these risks and other considerations that could negatively affect us, including risks related to this offering and our Class A common stock, see “Risk Factors” and “Forward-Looking Statements.”

 

Corporate Structure and Financial Sponsors

 

Following this offering we will be a holding company and our sole asset will be an equity interest in PBF LLC. See “Organizational Structure” on page 40.

 

We will be the sole managing member of PBF LLC and operate and control all of the business and affairs and consolidate the financial results of PBF LLC and its subsidiaries. PBF LLC is a holding company for the companies that directly or indirectly own and operate our business. Prior to this offering, each of Blackstone and First Reserve owned approximately 48% of the outstanding capital interests in PBF LLC (which we refer to as the “PBF LLC Series A Units”), and Mr. O’Malley, our other executive officers and directors and certain employees beneficially owned the remaining outstanding PBF LLC Series A Units (we refer to all of the holders of the PBF LLC Series A Units as “our existing owners”). In addition, certain of our officers hold interests in PBF LLC, which are profits interests (which we refer to as the “PBF LLC Series B Units”) and certain of our existing owners and other employees hold options and warrants to purchase PBF LLC Series A Units.

 

Immediately prior to this offering, the limited liability company agreement of PBF LLC will be amended and restated to, among other things, designate PBF Energy as the sole managing member of PBF LLC and establish a new series of membership interests (which we refer to as the “PBF LLC Series C Units”) which will be held solely by PBF Energy. The PBF LLC Series A Units will be held solely by our existing owners (and their permitted transferees). The PBF LLC Series C Units rank on a parity with the PBF LLC Series A Units as to distribution rights, voting rights and rights upon liquidation, winding up or dissolution. Profits and losses of PBF LLC will be allocated, and all distributions generally will be made, pro rata to the holders of PBF LLC Series A Units and PBF LLC Series C Units.

 

The PBF LLC Series B Units are profits interests held by certain of our officers which had no taxable value at the date of issuance, have no voting rights and are designed to increase in value only after our financial sponsors achieve certain levels of return on their investment in PBF LLC Series A Units. Under the limited liability company agreement of PBF LLC, distributions initially are made to the holders of PBF LLC Series A Units and PBF LLC Series C Units in proportion to the number of units owned by them. Once the financial sponsors receive a full return of their capital contributions with respect to their PBF LLC Series A Units, distributions and other payments made on account of the PBF LLC Series A Units held by our financial sponsors will then be shared by our financial sponsors with the holders of PBF LLC Series B Units. Accordingly, the amounts paid to the holders of PBF LLC Series B Units will reduce only the amounts otherwise payable to the PBF LLC Series A Units held by our financial sponsors, and will not reduce or otherwise impact any amounts payable to PBF Energy (the holder of our PBF LLC Series C Units), the holders of our Class A common stock or any other holder of PBF LLC Series A Units. For a further discussion of the PBF LLC Series B Units, please see “Executive Compensation—Compensation Discussion and Analysis—Summary of PBF LLC Series B Units.”

 

We also will enter into an exchange agreement pursuant to which our existing owners will have the right to cause PBF LLC to exchange their PBF LLC Series A Units for shares of our Class A common stock on a one-for-one basis, subject to equitable adjustments for stock splits, stock dividends and reclassifications, and

 

 

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further subject to the rights of the holders of PBF LLC Series B Units to share in a portion of the profits realized by our financial sponsors upon the sale of the shares of Class A common stock received by them upon such exchange.

 

Blackstone. Blackstone is one of the world’s leading investment and advisory firms and is an experienced and active investor in the energy and natural resources sector. Blackstone has substantial prior experience as an acquiror and owner of petroleum refineries, having acquired Premcor in 1997 and overseen several acquisitions and capital projects to expand and upgrade refining capacity of that company until its acquisition by Valero in 2005 for total consideration of approximately $6.9 billion. Blackstone has a long-standing relationship with Thomas D. O’Malley, having recruited him to serve as Chairman and Chief Executive Officer of Premcor in early 2002. Blackstone seeks to create positive economic impact and long-term value for its investors, the companies it invests in, the companies it advises and the broader global economy. Blackstone does this through the commitment of its extraordinary people and flexible capital. Blackstone’s alternative asset management businesses include the management of private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. Through its different investment businesses, as of September 30, 2012, Blackstone had total assets under management of approximately $204.6 billion. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services.

 

First Reserve. Founded in 1983, First Reserve is a leading global investment firm dedicated to the energy industry with over $23 billion of raised capital since inception. With offices in North America, Europe and Asia, First Reserve is well positioned to make strategic investments on a global basis across the energy value chain. First Reserve seeks to create value for its investors by applying its deep industry knowledge, decades of investing and operational experience, highly talented management team and powerful network of global relationships to its investments and through active monitoring of its portfolio companies.

 

* * *

 

PBF Energy is a Delaware corporation incorporated on November 7, 2011 with its principal executive offices located at One Sylvan Way, Second Floor, Parsippany, NJ 07054 and our telephone number is (973) 455-7500. Our website address is http://www.pbfenergy.com. The information on our website is not part of this prospectus.

 

 

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The Offering

 

Class A common stock to be offered by PBF Energy

16,500,000 shares

 

Over-allotment option

2,475,000 shares

 

Class A common stock outstanding after the offering

16,500,000 shares (or 95,676,893 shares if all outstanding PBF LLC Series A Units held by our existing owners were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

 

Class B common stock outstanding after the offering

37 shares, or one share for each holder of PBF LLC Series A Units.

 

Voting power held by holders of Class A common stock after the offering

17.2% (or 100% if all outstanding PBF LLC Series A Units held by our existing owners were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

 

Voting power held by holder of Class B common stock after the offering

82.8% (or 0% if all outstanding PBF LLC Series A Units held by our existing owners were exchanged for newly issued shares of Class A common stock on a one-for-one basis).

 

Use of proceeds

The proceeds to PBF Energy from this offering, before deducting underwriting discounts, will be approximately $429.0 million (or $493.4 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

  PBF Energy intends to use $390.0 million of the proceeds from this offering (or $454.4 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), to purchase PBF LLC Series A Units (which will be reclassified as PBF LLC Series C Units in connection with such acquisition) from Blackstone and First Reserve, as described under “Organizational Structure—Offering Transactions.” Accordingly, we will not retain any of these proceeds. See “Principal Stockholders” for further information.

 

 

PBF Energy intends to use all of the remaining proceeds from this offering, or $39.0 million, to purchase newly-issued PBF LLC Series C Units from PBF LLC, as described under “Organizational Structure—Offering Transactions.” We intend to cause PBF LLC to use these proceeds to pay the expenses of

 

 

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this offering, including aggregate underwriting discounts of $21.5 million (or $24.7 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and other offering expenses estimated at $7.8 million. Any remaining proceeds will be used for general corporate purposes, including to potentially repay amounts outstanding under our ABL Revolving Credit Facility. See “Use of Proceeds.”

 

Voting rights

Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.

 

  Our existing owners hold all of the shares of Class B common stock. The shares of Class B common stock have no economic rights but entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes on matters presented to stockholders of PBF Energy that is equal to the aggregate number of PBF LLC Series A Units held by such holder. See “Description of Capital Stock—Class B Common Stock.”

 

  Holders of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.

 

Dividend policy

We currently intend to pay quarterly cash dividends of approximately $0.20 per share on our Class A common stock following this offering, commencing after the completion of the first quarter of 2013. The declaration, timing and amount of any such dividends will be at the sole discretion of our board of directors and will depend on a variety of factors, including general economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, plans for expansion, tax, legal, regulatory and contractual restrictions and implications, including under our outstanding debt documents, and such other factors as our board of directors may deem relevant.

 

  Because we are a holding company, our cash flow and ability to pay dividends depends upon the financial results and cash flows of our operating subsidiaries and the distribution or other payment of cash to us in the form of dividends or otherwise from PBF LLC.

 

 

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Exchange rights of our existing owners

Prior to this offering, we will enter into an exchange agreement pursuant to which our existing owners will have the right to cause PBF LLC to exchange their PBF LLC Series A Units for shares of Class A common stock of PBF Energy on a one-for-one basis, subject to equitable adjustment for stock splits, stock dividends and reclassifications, and further subject to the rights of the holders of PBF LLC Series B Units to share in a portion of the profits realized by our financial sponsors upon the sale of the shares of Class A common stock received by them upon such exchange.

 

Under the amended and restated certificate of incorporation of PBF Energy, each holder of Class B common stock will be entitled, without regard to the number of shares of Class B common stock held by such holder, to one vote for each PBF LLC Series A Unit held by such holder. Accordingly, as our existing owners exchange their PBF LLC Series A Units for shares of Class A common stock pursuant to the exchange agreement, the voting power afforded to our existing owners by their shares of Class B common stock will be automatically and correspondingly reduced.

 

Directed Share Program

At our request, the underwriters have reserved up to 412,500 shares of our Class A common stock offered hereby for sale to certain of our employees and certain other participants. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. See “Risk Factors—Risks Related to This Offering and Ownership of Our Class A Common Stock—Certain participants in our directed share program must hold their shares for a minimum of 180 days following the date of the final prospectus related to this offering and accordingly will be subject to market risks not imposed on other investors in the offering” and “Underwriting.”

 

Risk factors

For a discussion of factors you should consider before buying the shares, see “Risk Factors.”

 

New York Stock Exchange symbol

“PBF”

 

 

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Unless we specifically state otherwise, all information in this prospectus:

 

   

assumes no exercise by the underwriters of their over-allotment option to purchase 2,475,000 additional shares of our Class A common stock;

 

   

does not reflect 79,176,893 shares (or 76,701,893 shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) of Class A common stock issuable upon exchange of PBF LLC Series A Units outstanding immediately following this offering; and

 

   

excludes (a) outstanding options and warrants to purchase 2,181,230 PBF LLC Series A Units, at a weighted average exercise price of $10.24 per unit, 1,586,210 of which will be vested and exercisable as of the date of the closing of this offering, and (b) an additional 5,000,000 shares authorized and reserved for issuance under our equity incentive plan, including 675,000 shares issuable upon the exercise of stock options that we intend to grant to our officers and employees at the time of this offering. See “Executive Compensation — Compensation Discussion and Analysis — Equity Compensation,” “Executive Compensation — Compensation Discussion and Analysis — 2012 Equity Incentive Plan,” “Executive Compensation — Compensation Discussion and Analysis — IPO Date Stock Option Awards and Cash Bonus to Employees” and “Certain Relationships and Related Transactions — Investments in PBF LLC.”

 

 

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Summary Historical and Pro Forma Financial and Other Data

 

The following table sets forth our summary historical and pro forma consolidated financial data at the dates and for the periods indicated. The historical financial data is that of PBF LLC. PBF LLC will be considered our predecessor for accounting purposes, and its consolidated financial statements will be our historical consolidated financial statements following this offering.

 

The summary historical consolidated financial data as of December 31, 2010 and 2011 and for the years ended December 31, 2009, 2010 and 2011 have been derived from audited financial statements of PBF LLC included elsewhere in this prospectus. The summary historical consolidated financial data as of December 31, 2009 has been derived from audited financial statements of PBF LLC not included in this prospectus. As a result of the Paulsboro and Toledo acquisitions, the historical consolidated financial results of PBF LLC only include the results of operations for Paulsboro and Toledo from December 17, 2010 and March 1, 2011, respectively. The information as of and for the nine months ended September 30, 2011 and 2012 was derived from the unaudited condensed consolidated financial statements of PBF LLC (included elsewhere in this prospectus) which include all adjustments, consisting of normal recurring adjustments, which management considers necessary for a fair presentation of the financial position and the results of operations for such periods. Results for the interim periods are not necessarily indicative of the results for the full year.

 

The summary unaudited pro forma consolidated financial data have been derived by the application of pro forma adjustments to the historical consolidated financial statements of PBF LLC included elsewhere in this prospectus. The summary unaudited pro forma consolidated statements of operations data for the year ended December 31, 2011 and for the nine months ended September 30, 2012 give effect to the acquisition of Toledo, the senior secured notes offering (as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability—Senior Secured Notes Offering”), the Offering Transactions (as described under “Organizational Structure”), and the use of the estimated net proceeds from this offering as if they had occurred on January 1, 2011. The summary unaudited pro forma consolidated balance sheet data as of September 30, 2012 gives effect to cash distributions to our existing owners made prior to the completion of this offering (as described under “Dividend Policy”), the Offering Transactions and the use of the estimated net proceeds from this offering as if they had occurred on September 30, 2012.

 

You should read this information in conjunction with the consolidated financial statements of PBF LLC and the related notes thereto, and the statements of assets acquired and liabilities assumed and the related statements of revenues and direct expenses of Toledo and the related notes thereto, included elsewhere in this prospectus, and the sections entitled “Organizational Structure,” “Unaudited Pro Forma Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Selected Financial Data.” Our summary unaudited pro forma consolidated financial information is presented for informational purposes only. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. Our summary unaudited pro forma consolidated financial information does not purport to represent what our results of operations or financial position would have been if we operated as a public company during the periods presented and may not be indicative of our future performance.

 

 

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    Year Ended
December 31,
2009(3)
    Year Ended
December 31,
2010
          Pro Forma     Nine Months
Ended
September 30,
2011
    Nine Months
Ended
September 30,
2012
    Pro Forma  
      Year
Ended
December  31,
2011
    Year
Ended
December 31,
2011
        Nine Months
Ended
September 30,
2012
 
    (in thousands)        

Statement of operations data:

             

Revenues(1)

  $ 228      $ 210,671      $ 14,960,338      $ 15,961,529      $ 10,183,897      $ 15,188,327      $ 15,188,327   

Cost and expenses

             

Cost of sales, excluding depreciation

           203,971        13,855,163        14,719,566        9,147,063        13,871,884        13,871,884   

Operating expenses, excluding depreciation

           25,140        658,831        699,557        457,722        537,880        537,880   

General and administrative expenses

    6,294        15,859        86,183        89,857        71,533        78,042        78,042   

Acquisition related expenses(2)

           6,051        728        172        684                 

(Gain) on sale of asset

                   (2,430     (2,430

Depreciation and amortization expense

    44        1,402        53,743        57,952        35,636        67,419        67,419   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    6,338        252,423        14,654,648        15,567,104        9,712,638        14,552,795        14,552,795   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

    (6,110     (41,752     305,690        394,425        471,259        635,532        635,532   

Other (expense) income

             

Change in fair value of catalyst lease obligation

           (1,217     7,316        7,316        4,848        (6,929     (6,929

Change in fair value of contingent consideration

                  (5,215     (5,215     (4,829     (2,076     (2,076

Interest income (expense), net

    10        (1,388     (65,120     (95,603     (44,127     (86,753     (86,892
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before taxes

    (6,100     (44,357     242,671        300,923        427,151        539,774        539,635   

Income taxes

                         20,239                      36,295   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

  $ (6,100   $ (44,357   $ 242,671        280,684      $ 427,151      $ 539,774        503,340   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

Less—Net (loss) income attributable to noncontrolling interest

          249,027            446,572   
       

 

 

       

 

 

 

Net (loss) income attributable to PBF Energy Inc.

        $ 31,657          $ 56,768   
       

 

 

       

 

 

 

Balance sheet data (at end of period):

             

Total assets

  $ 19,150      $ 1,274,393      $ 3,621,109      $ 3,611,186      $ 3,872,150      $ 3,932,507      $ 3,909,103   

Total long-term debt(4)

           325,064        804,865        824,260        713,255        732,961        732,961   

Total equity

    18,694        456,739        1,107,615        936,700        1,296,131        1,633,326        1,467,888   

Selected financial data:

             

Adjusted EBITDA(5)

  $ (6,066   $ (28,699   $ 388,219      $ 480,666      $ 507,070      $ 732,603      $ 732,603   

Capital expenditures(6)

  $ 70      $ 72,118      $ 551,544      $ 551,544      $ 504,034      $ 129,505      $ 129,505   

 

  (1)   Consulting services income provided to a related party was $10 and $221 for the years ended December 31, 2010 and 2009, respectively. No consulting services income was earned subsequent to 2010.
  (2)   Acquisition related expenses consist of consulting and legal expenses related to the Paulsboro and Toledo acquisitions as well as non-consummated acquisitions.
  (3)   December 31, 2009 balance sheet data is that of PBF Investment LLC. See footnote 1, Description of Business and Basis of Presentation, in the PBF LLC consolidated financial statements.
  (4)   Total long-term debt includes current maturities and our Delaware Economic Development Authority loan of $20.0 million.
  (5)   We believe Adjusted EBITDA is an important measure of operating performance and provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on GAAP measures and eliminates items that have less bearing on our operating performance.

 

 

 

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         Adjusted EBITDA, as presented herein, is a supplemental measure of performance that is not required by, or presented in accordance with, GAAP. We use this non-GAAP financial measure as a supplement to our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA is a measure of operating performance that is not defined by GAAP and should not be considered a substitute for net income as determined in accordance with GAAP.

 

         Also, because Adjusted EBITDA is not calculated in the same manner by all companies, it is not necessarily comparable to other similarly titled measures used by other companies. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of Adjusted EBITDA are:

 

   

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

   

Although depreciation and amortization are non-cash charges, the asset being depreciated or amortized often will have to be replaced and Adjusted EBITDA does not reflect the cash requirements for such replacements;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital requirements; and

 

   

Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to make payments of interest or principal on our indebtedness.

 

The following table reconciles net income (loss) (or, on a pro forma basis, net income attributable to PBF Energy Inc.) to Adjusted EBITDA:

 

                      Pro Forma                 Pro Forma  
    Year Ended
December  31,
2009
    Year Ended
December  31,
2010
    Year Ended
December 31,
2011
    Year Ended
December 31,
2011
    Nine Months
Ended
September 30,
2011
    Nine Months
Ended
September 30,
2012
    Nine Months
Ended
September 30,
2012
 
    (in thousands)  

Net income (loss)

  $ (6,100   $ (44,357   $ 242,671      $ 280,684 (f)    $ 427,151      $ 539,774      $ 503,340 (g) 

Income taxes

    —          —          —          20,239        —          —          36,295   

Interest (income) expense, net

    (10     1,388        65,120        95,662        44,127        86,753        86,892   

Depreciation and amortization

    44        1,402        53,743        57,952        35,636        67,419        67,419   

Stock-based compensation

    —          2,300        2,516        2,516        1,911        1,707        1,707   

Acquisition related expense(a)

    —          6,051        728       
172
  
    684        —          —     

Non-cash change in market value of inventory repurchase obligation(b)

    —          2,043        18,771        18,771        (4,932     9,716        9,716   

Non-cash deferral of gross profit on finished product sales(c)

    —          1,257        6,771        6,771        2,512        18,229        18,229   

Change in fair value of catalyst lease obligations(d)

    —          1,217        (7,316     (7,316     (4,848     6,929        6,929   

Change in fair value of contingent consideration(e)

    —          —          5,215        5,215        4,829        2,076        2,076   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ (6,066   $ (28,699   $ 388,219      $ 480,666      $ 507,070      $ 732,603      $ 732,603   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  (a) See footnote (2) above.
  (b) Certain of our crude and feedstock supply agreements require that we repurchase inventory held by our counterparties at a future date at the then fair market value. We are required to record these repurchase obligations at their fair market value at the end of each reporting period. The change in fair market value based on changes in commodity prices is a non-cash charge or benefit included in cost of sales. We add back the impact of the change in market value of these future inventory repurchase obligations in arriving at Adjusted EBITDA to better reflect Adjusted EBITDA on a cash-basis.
  (c) We sell our production of light finished products at our Paulsboro and Delaware City refineries to a single counterparty. On a daily basis, the counterparty purchases and pays for the products as they are produced, delivered to the refineries’ storage tanks, and legal title passes to the counterparty. Revenue and gross profit on these product sales are deferred until the products are shipped out of our storage facility, which typically occurs within an average of six days. We add back the non-cash deferral of the gross profit on these product sales in arriving at Adjusted EBITDA to better reflect Adjusted EBITDA on a cash-basis.

 

 

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  (d) We entered into agreements pursuant to which certain precious metals catalyst located at our Delaware City and Toledo refineries were sold and leased back for three one-year periods. We have recorded these transactions as capital leases as we are required to repurchase the precious metals catalyst at its market value at lease termination. We elected the fair value option for accounting for the catalyst repurchase obligations and the change in fair value of the underlying precious metals is recorded in the income statement as a non-cash charge or benefit each reporting period. We add back the impact of the change in fair value of these future precious metal catalyst repurchase obligations in arriving at Adjusted EBITDA to better reflect Adjusted EBITDA on a cash-basis.
  (e) In connection with the Toledo acquisition, the seller will be paid an amount equal to 25% of the amount by which the purchased assets’ EBITDA exceeds $125.0 million in a given calendar year through 2016 (pro-rated for 2011 and 2016). The aggregate amount of such payments cannot exceed $125.0 million. The purchased assets’ EBITDA is calculated using calendar year earnings we have earned solely from the purchase of Toledo including reasonable direct and allocated overhead expenses, less any significant extraordinary or non-recurring expenses, and any fees or expenses incurred by us in connection with the Toledo acquisition. A charge or benefit is recorded each reporting period reflecting the change in the estimated fair value of the contingent consideration we expect to pay in connection with our acquisition of the Toledo refinery. We add back the impact of the change in fair value of the contingent consideration in arriving at Adjusted EBITDA to better reflect Adjusted EBITDA on a cash-basis.
  (f) Includes net income attributable to PBF Energy Inc. of $31,657 and net income attributable to noncontrolling interests of $249,027.
  (g) Includes net income attributable to PBF Energy Inc. of $56,768 and net income attributable to noncontrolling interests of $446,572.

 

  (6)   Includes expenditures for construction in progress, property, plant and equipment and deferred turnaround costs.

 

 

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RISK FACTORS

 

An investment in our Class A common stock involves a number of risks. You should carefully consider, in addition to the other information contained in this prospectus (including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes), the following risks before investing in our Class A common stock. These risks could materially affect our business, financial condition and results of operations, and cause the trading price of our Class A common stock to decline. You could lose part or all of your investment. You should bear in mind, in reviewing this prospectus, that past experience is no indication of future performance. You should read the section titled “Forward-Looking Statements” immediately following these risk factors for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this prospectus.

 

Risks Relating to Our Business and Industry

 

We have incurred losses in the past and may incur losses in the future. If we incur losses over an extended period of time, the value of our Class A common stock could decline.

 

We experienced losses during our time as a development company. We may not be profitable in future periods. A lack of profitability could adversely affect the price of our Class A common stock. We may not continue to remain profitable, which could impair our ability to complete future financings and have a material adverse effect on our business.

 

Our limited operating history makes it difficult to evaluate our current business and future prospects. If we are unsuccessful in executing our business model, our business and operating results will be adversely affected.

 

We were formed in March 2008, we acquired our first oil refinery in June 2010 in an idle state and we acquired our first operating asset in December 2010. Therefore, we have a limited operating history and track record in executing our business model. Our future success depends on our ability to execute our business strategy effectively. Our limited operating history may make it difficult to evaluate our current business and future prospects. We may not be successful in operating any of our refineries or any other properties we may acquire in the future. In addition, we have encountered and will continue to encounter risks and difficulties frequently experienced by new companies, and specifically companies in the oil refining industry. If we do not manage these risks successfully, our business, results of operations and financial condition will be adversely affected.

 

The price volatility of crude oil, other feedstocks, blendstocks, refined products and fuel and utility services may have a material adverse effect on our revenues, profitability, cash flows and liquidity.

 

Our revenues, profitability, cash flows and liquidity from operations depend primarily on the margin above operating expenses (including the cost of refinery feedstocks, such as crude oil, intermediate partially refined petroleum products, and natural gas liquids that are processed and blended into refined products) at which we are able to sell refined products. Refining is primarily a margin-based business and, to increase profitability, it is important to maximize the yields of high value finished products while minimizing the costs of feedstock and operating expenses. When the margin between refined product prices and crude oil and other feedstock costs contracts, our earnings, profitability and cash flows are negatively affected. Refining margins historically have been volatile, and are likely to continue to be volatile, as a result of a variety of factors, including fluctuations in the prices of crude oil, other feedstocks, refined products and fuel and utility services. An increase or decrease in the price of crude oil will likely result in a similar increase or decrease in prices for refined products; however, there may be a time lag in the realization, or no such realization, of the similar increase or decrease in prices for refined products. The effect of changes in crude oil prices on our refining margins therefore depends in part on how quickly and how fully refined product prices adjust to reflect these changes.

 

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In addition, the nature of our business requires us to maintain substantial crude oil, feedstock and refined product inventories. Because crude oil, feedstock and refined products are commodities, we have no control over the changing market value of these inventories. Our crude oil, feedstock and refined product inventories are valued at the lower of cost or market value under the last-in-first-out (“LIFO”), inventory valuation methodology. If the market value of our crude oil, feedstock and refined product inventories were to decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of sales.

 

Prices of crude oil, other feedstocks, blendstocks, and refined products depend on numerous factors beyond our control, including the supply of and demand for crude oil, other feedstocks, gasoline, diesel, ethanol, asphalt and other refined products. Such supply and demand are affected by a variety of economic, market, environmental and political conditions.

 

Our direct operating expense structure also impacts our profitability. Our major direct operating expenses include employee and contract labor, maintenance and energy. Our predominant variable direct operating cost is energy, which is comprised primarily of fuel and other utility services. The volatility in costs of fuel, principally natural gas, and other utility services, principally electricity, used by our refineries and other operations affect our operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets. Natural gas prices have historically been volatile and, typically, electricity prices fluctuate with natural gas prices. Future increases in fuel and utility prices may have a negative effect on our revenues, profitability and cash flows.

 

Our historical financial statements may not be helpful in predicting our future performance.

 

We have grown rapidly since our inception and have not owned or operated our refineries for a substantial period of time. Accordingly, our historical financial information may not be useful either as a means of understanding our current financial situation or as an indicator of our future results. For the period from March 1, 2008 to December 16, 2010, we were considered to be in the development stage. Our historical financial information for that period reflects our activities principally in connection with identifying acquisition opportunities; acquiring the Delaware City refinery assets and commencing a reconfiguration of the refinery; and acquiring the Paulsboro refinery. As a result of the Paulsboro and Toledo acquisitions, our historical consolidated financial results include the results of operations for Paulsboro and Toledo from December 17, 2010 and March 1, 2011 forward, respectively. Certain information in our financial statements and certain other financial data included in this prospectus are based in part on financial data related to, and the operations of, those companies that previously owned and operated our refineries. For example, at the time of its acquisition, Paulsboro represented the major portion of our business and assets. As a result, we separately present the financial statements of Paulsboro for periods prior to the acquisition date of December 17, 2010 as PBF LLC’s “Predecessor” entity. Such information is not necessarily indicative of our future results of operations and financial performance. In addition, the financial statements presented in this prospectus for our Toledo refinery reflect a more limited “Statement of Revenues and Direct Expenses” and a “Statement of Net Assets Acquired and Liabilities Assumed” as opposed to full audited carve-out financial statements, which may not be indicative of the operating results and financial condition of the refinery had we been operating the refinery during the periods presented. As has been the case in our acquisitions to date, it is likely that, when we acquire refineries, we will not have access to the type of historical financial information that we will report regarding the prior operation of the refineries. As a result, it may be difficult for investors to evaluate the probable impact of major acquisitions on our financial performance until we have operated the acquired refineries for a substantial period of time.

 

Our profitability is affected by crude oil differentials, which fluctuate substantially.

 

A significant portion of our profitability is derived from the ability to purchase and process crude oil feedstocks that historically have been cheaper than benchmark crude oils, such as the heavy, sour crude oils processed at our Delaware City and Paulsboro refineries and the WTI based crude oils processed at our Toledo refinery. These crude oil differentials vary significantly from quarter to quarter depending on overall economic conditions and trends and conditions within the markets for crude oil and refined products. Any change in these

 

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crude oil differentials may have an impact on our earnings. Our rail investment and strategy to acquire cost advantaged Midcontinent and Canadian crude, which are priced based on WTI, could be adversely affected if the WTI-Brent differential narrows. For example, the WTI/WCS differential, a proxy for the difference between light U.S. and heavy Canadian crudes, has increased from $15.63 per barrel in 2011 to $20.40 for the nine month period ended September 30, 2012, however, this increase may not be indicative of the differential going forward. Conversely, a narrowing of the light-heavy differential may reduce our refining margins and adversely affect our recent profitability and earnings. In addition, while our Toledo refinery benefits from a widening of the Dated Brent/WTI differential, a narrowing of this differential may result in our Toledo refinery losing a portion of its crude price advantage over certain of our competitors, which negatively impacts our profitability. Divergent views have been expressed as to the expected magnitude of changes to these crude differentials in future periods, including some analysts that currently expect these crude differentials to contract significantly in upcoming periods. Any narrowing of these differentials could have a material adverse effect on our business and profitability.

 

A significant interruption or casualty loss at any of our refineries and related assets could reduce our production, particularly if not fully covered by our insurance. Failure by one or more insurers to honor its coverage commitments for an insured event could materially and adversely affect our future cash flows, operating results and financial condition.

 

Our business currently consists of owning and operating three refineries and related assets. As a result, our operations could be subject to significant interruption if any of our refineries were to experience a major accident, be damaged by severe weather or other natural disaster, or otherwise be forced to shut down or curtail production due to unforeseen events, such as acts of God, nature, power outages, acts of terrorism, fires, toxic emissions and maritime hazards. Any such shutdown would reduce the production from that refinery. There is also risk of mechanical failure and equipment shutdowns both general and following unforeseen events. Further, in such situations, undamaged refinery processing units may be dependent on or interact with damaged sections of our refineries and, accordingly, are also subject to being shut down. In the event any of our refineries is forced to shut down for a significant period of time, it would have a material adverse effect on our earnings, our other results of operations and our financial condition as a whole.

 

As protection against these hazards, we maintain insurance coverage against some, but not all, such potential losses and liabilities. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies may increase substantially. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. For example, coverage for hurricane damage can be limited, and coverage for terrorism risks can include broad exclusions. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position.

 

Our insurance program includes a number of insurance carriers. Significant disruptions in financial markets could lead to a deterioration in the financial condition of many financial institutions, including insurance companies and, therefore, we may not be able to obtain the full amount of our insurance coverage for insured events.

 

Our Toledo refinery is subject to interruptions of supply and distribution as a result of our reliance on pipelines for transportation of crude oil and refined products.

 

Our Toledo refinery receives a substantial portion of its crude oil and delivers a portion of its refined products through pipelines. The Enbridge system is our primary supply route for crude oil from Canada, the Bakken region and Michigan, and supplies approximately 55% to 60% of the crude oil used at our Toledo refinery. In addition, we source domestic crude oil through our connections to the Capline and Mid-Valley pipelines. We also distribute a portion of our transportation fuels through pipelines owned and operated by Sunoco Logistics Partners L.P. and Buckeye Partners L.P. We could experience an interruption of supply or delivery, or an increased cost of receiving crude oil and delivering refined products to market, if the ability of these pipelines to transport crude oil or refined products is disrupted because of accidents, weather interruptions, governmental regulation, terrorism, other third party action or any of the types of events described in the preceding risk factor.

 

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In addition, due to the common carrier regulatory obligation applicable to interstate oil pipelines, capacity is prorated among shippers in accordance with the tariff then in effect in the event there are nominations in excess of capacity. Therefore, nominations by new shippers or increased nominations by existing shippers may reduce the capacity available to us. Any prolonged interruption in the operation or curtailment of available capacity of the pipelines that we rely upon for transportation of crude oil and refined products could have a further material adverse effect on our business, financial condition, results of operations and cash flows.

 

We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital markets. This may hinder or prevent us from meeting our future capital needs.

 

Global financial markets and economic conditions have been, and continue to be, disrupted and volatile due to a variety of factors, including uncertainty in the financial services sector, low consumer confidence, continued high unemployment, geopolitical issues and the current weak economic conditions. In addition, the fixed income markets have experienced periods of extreme volatility that have negatively impacted market liquidity conditions. As a result, the cost of raising money in the debt and equity capital markets has increased substantially at times while the availability of funds from those markets diminished significantly. In particular, as a result of concerns about the stability of financial markets generally and the solvency of lending counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders and institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt on similar terms or at all and reduce or, in some cases, cease to provide funding to borrowers. Due to these factors, we cannot be certain that new debt or equity financing will be available on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due. Moreover, without adequate funding, we may be unable to execute our growth strategy, complete future acquisitions, take advantage of other business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our revenues and results of operations.

 

Competition from companies who produce their own supply feedstocks, have extensive retail outlets, make alternative fuels or have greater financial and other resources than we do could materially and adversely affect our business and results of operations.

 

Our refining operations compete with domestic refiners and marketers in regions of the United States in which we operate, as well as with domestic refiners in other regions and foreign refiners that import products into the United States. In addition, we compete with producers and marketers in other industries that supply alternative forms of energy and fuels to satisfy the requirements of our industrial, commercial and individual consumers. Certain of our competitors have larger and more complex refineries, and may be able to realize lower per-barrel costs or higher margins per barrel of throughput. Several of our principal competitors are integrated national or international oil companies that are larger and have substantially greater resources than we do and access to proprietary sources of controlled crude oil production. Unlike these competitors, we obtain substantially all of our feedstocks from unaffiliated sources. We are not engaged in the petroleum exploration and production business and therefore do not produce any of our crude oil feedstocks. We do not have a retail business and therefore are dependent upon others for outlets for our refined products. Because of their integrated operations and larger capitalization, these companies may be more flexible in responding to volatile industry or market conditions, such as shortages of crude oil supply and other feedstocks or intense price fluctuations.

 

Newer or upgraded refineries will often be more efficient than our refineries, which may put us at a competitive disadvantage. We have taken significant measures to maintain our refineries including the installation of new equipment and redesigning older equipment to improve our operations. However, these actions involve significant uncertainties, since upgraded equipment may not perform at expected throughput levels, the yield and product quality of new equipment may differ from design specifications and modifications may be needed to correct equipment that does not perform as expected. Any of these risks associated with new equipment, redesigned older equipment or repaired equipment could lead to lower revenues or higher costs or otherwise have an adverse effect

 

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on future results of operations and financial condition. Over time, our refineries may become obsolete, or be unable to compete, because of the construction of new, more efficient facilities by our competitors.

 

Any political instability, military strikes, sustained military campaigns, terrorist activity, or changes in foreign policy could have a material adverse effect on our business, results of operations and financial condition.

 

Any political instability, military strikes, sustained military campaigns, terrorist activity, or changes in foreign policy in areas or regions of the world where we acquire crude oil and other raw materials or sell our refined petroleum products may affect our business in unpredictable ways, including forcing us to increase security measures and causing disruptions of supplies and distribution markets. We may also be subject to United States trade and economic sanctions laws, which change frequently as a result of foreign policy developments, and which may necessitate changes to our crude oil acquisition activities. Further, like other industrial companies, our facilities may be the target of terrorist activities. Any act of war or terrorism that resulted in damage to any of our refineries or third-party facilities upon which we are dependent for our business operations could have a material adverse effect on our business, results of operations and financial condition.

 

Continued economic turmoil in the global financial system has had and may continue to have an adverse impact on the refining industry.

 

Our business and profitability are affected by the overall level of demand for our products, which in turn is affected by factors such as overall levels of economic activity and business and consumer confidence and spending. Declines in global economic activity and consumer and business confidence and spending during the recent global downturn have significantly reduced the level of demand for our products. Reduced demand for our products has had and may continue to have an adverse impact on our business, financial condition, results of operations and cash flows. In addition, continued downturns in the economy impact the demand for refined fuels and, in turn, result in excess refining capacity. Refining margins are impacted by changes in domestic and global refining capacity, as increases in refining capacity can adversely impact refining margins, earnings and cash flows.

 

Our business is indirectly exposed to risks faced by our suppliers, customers and other business partners. The impact on these constituencies of the risks posed by the continued economic turmoil in the global financial system have included or could include interruptions or delays in the performance by counterparties to our contracts, reductions and delays in customer purchases, delays in or the inability of customers to obtain financing to purchase our products and the inability of customers to pay for our products. Any of these events may have an adverse impact on our business, financial condition, results of operations and cash flows.

 

The geographic concentration of our East Coast refineries creates a significant exposure to the risks of the local economy and other local adverse conditions.

 

Our East Coast refineries are both located in the mid-Atlantic region on the East Coast and therefore are vulnerable to economic downturns in that region. These refineries are located within a relatively limited geographic area and we primarily market our refined products in that area. As a result, we are more susceptible to regional conditions than the operations of more geographically diversified competitors and any unforeseen events or circumstances that affect the area could also materially adversely affect our revenues and profitability. These factors include, among other things, changes in the economy, damages to infrastructure, weather conditions, demographics and population.

 

We must make substantial capital expenditures on our operating facilities to maintain their reliability and efficiency. If we are unable to complete capital projects at their expected costs and/or in a timely manner, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations or cash flows could be materially and adversely affected.

 

Delays or cost increases related to capital spending programs involving engineering, procurement and construction of new facilities (or improvements and repairs to our existing facilities and equipment) could adversely

 

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affect our ability to achieve targeted internal rates of return and operating results. Such delays or cost increases may arise as a result of unpredictable factors in the marketplace, many of which are beyond our control, including:

 

   

denial or delay in issuing regulatory approvals and/or permits;

 

   

unplanned increases in the cost of construction materials or labor;

 

   

disruptions in transportation of modular components and/or construction materials;

 

   

severe adverse weather conditions, natural disasters or other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of vendors and suppliers;

 

   

shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;

 

   

market-related increases in a project’s debt or equity financing costs; and/or

 

   

non-performance or force majeure by, or disputes with, vendors, suppliers, contractors or sub-contractors involved with a project.

 

Our refineries contain many processing units, a number of which have been in operation for many years. Equipment, even if properly maintained, may require significant capital expenditures and expenses to keep it operating at optimum efficiency. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled turnarounds for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the units are not operating.

 

Our forecasted internal rates of return are also based upon our projections of future market fundamentals, which are not within our control, including changes in general economic conditions, available alternative supply and customer demand. Any one or more of these factors could have a significant impact on our business. If we were unable to make up the delays associated with such factors or to recover the related costs, or if market conditions change, it could materially and adversely affect our financial position, results of operations or cash flows.

 

Our operating results have generally been seasonal and generally lower in the first and fourth quarters of the year for our refining business.

 

Demand for gasoline is generally higher during the summer months than during the winter months due to seasonal increases in highway traffic and construction work. Decreased demand during the winter months can lower gasoline prices. As a result, our operating results for the first and fourth calendar quarters may be lower than those for the second and third calendar quarters of each year.

 

We may not be able to successfully execute our strategy of growth within the refining industry through acquisitions.

 

A component of our growth strategy is to selectively consider strategic acquisitions within the refining sector based on performance through the cycle, advantageous access to crude oil supplies, attractive refined products market fundamentals and access to distribution and logistics infrastructure. Our ability to do so will be dependent upon a number of factors, including our ability to identify acceptable acquisition candidates, consummate acquisitions on acceptable terms, successfully integrate acquired assets and obtain financing to fund acquisitions and to support our growth and many other factors beyond our control. Risks associated with acquisitions include those relating to the diversion of management time and attention from our existing business, liability for known or unknown environmental conditions or other contingent liabilities and greater than anticipated expenditures required for compliance with environmental, safety or other regulatory standards or for investments to improve operating results, and the incurrence of additional indebtedness to finance acquisitions or capital expenditures relating to acquired assets. We may also enter into transition services agreements in the future with sellers of any additional refineries we acquire. Such services may not be performed timely and effectively, and any significant disruption in such transition services or unanticipated costs related to such services could adversely affect our business and results of operations.

 

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We may not be successful in acquiring additional assets, and any acquisitions that we do consummate may not produce the anticipated benefits or may have adverse effects on our business and operating results.

 

Our business may suffer if any of our key senior executives or other key employees discontinues employment with us. Furthermore, a shortage of skilled labor or disruptions in our labor force may make it difficult for us to maintain labor productivity.

 

Our future success depends to a large extent on the services of our key senior executives and other key employees. Our business depends on our continuing ability to recruit, train and retain highly qualified employees in all areas of our operations, including engineering, accounting, business operations, finance and other key back-office and mid-office personnel. Furthermore, our operations require skilled and experienced employees with proficiency in multiple tasks. The competition for these employees is intense, and the loss of these executives or employees could harm our business. If any of these executives or other key personnel resigns or becomes unable to continue in his or her present role and is not adequately replaced, our business operations could be materially adversely affected.

 

A portion of our workforce is unionized, and we may face labor disruptions that would interfere with our operations.

 

As of September 30, 2012, approximately 289 of our 446 employees at Paulsboro are covered by a collective bargaining agreement that expires in March of 2015. In addition, 639 of our 986 employees at Delaware City and Toledo are covered by a collective bargaining agreement that is currently anticipated to expire in February of 2015. We may not be able to renegotiate our collective bargaining agreements on satisfactory terms or at all when such agreements expire. A failure to do so may increase our costs. Other employees of ours who are not presently represented by a union may become so represented in the future as well. In addition, our existing labor agreements may not prevent a strike or work stoppage at any of our facilities in the future, and any work stoppage could negatively affect our results of operations and financial condition.

 

Our hedging activities may limit our potential gains, exacerbate potential losses and involve other risks.

 

We may enter into commodity derivatives contracts to hedge our crack spread risk with respect to a portion of our expected gasoline and diesel production on a rolling basis. Consistent with that policy we, or MSCG at our request, may hedge some percentage of future gasoline and diesel production. We may enter into hedging arrangements with the intent to secure a minimum fixed cash flow stream on the volume of products hedged during the hedge term and to protect against volatility in commodity prices. Our hedging arrangements may fail to fully achieve these objectives for a variety of reasons, including our failure to have adequate hedging arrangements, if any, in effect at any particular time and the failure of our hedging arrangements to produce the anticipated results. We may not be able to procure adequate hedging arrangements due to a variety of factors. Moreover, such transactions may limit our ability to benefit from favorable changes in crude oil and refined product prices. In addition, our hedging activities may expose us to the risk of financial loss in certain circumstances, including instances in which:

 

   

the volumes of our actual use of crude oil or production of the applicable refined products is less than the volumes subject to the hedging arrangement;

 

   

accidents, interruptions in feedstock transportation, inclement weather or other events cause unscheduled shutdowns or otherwise adversely affect our refineries, or those of our suppliers or customers;

 

   

changes in commodity prices have a material impact on collateral and margin requirements under our hedging arrangements, including resulting in our being subject to margin calls;

 

   

the counterparties to our futures contracts fail to perform under the contracts; or

 

   

a sudden, unexpected event materially impacts the commodity or crack spread subject to the hedging arrangement.

 

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As a result, the effectiveness of our hedging strategy could have material impact on our financial results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.”

 

In addition, these hedging activities involve basis risk. Basis risk in a hedging arrangement occurs when the price of the commodity we hedge is more or less variable than the index upon which the hedged commodity is based, thereby making the hedge less effective. For example, a NYMEX index used for hedging certain volumes of crude oil or refined products may have more or less variability than the cost or price for such crude oil or refined products. We generally do not expect to hedge the basis risk inherent in our derivatives contracts.

 

Our commodity derivative activities could result in period-to-period earnings volatility.

 

We do not apply hedge accounting to all of our commodity derivative contracts and, as a result, unrealized gains and losses will be charged to our earnings based on the increase or decrease in the market value of the unsettled position. These gains and losses may be reflected in our income statement in periods that differ from when the underlying hedged items (i.e., gross margins) are reflected in our income statement. Such derivative gains or losses in earnings may produce significant period-to-period earnings volatility that is not necessarily reflective of our underlying operational performance.

 

The adoption of derivatives legislation by the United States Congress could have an adverse effect on our ability to use derivatives contracts to reduce the effect of commodity price, interest rate and other risks associated with our business.

 

The United States Congress in 2010 adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, which, among other things, established federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. In connection with the Dodd-Frank Act, the Commodity Futures Trading Commission, or the CFTC, adopted regulations to set position limits for certain futures and option contracts in the major energy markets. Although these regulations were recently vacated by the U.S. District Court for the District of Columbia, the court remanded the matter to the CFTC and the CFTC is currently exploring other ways to proceed. The legislation may also require us to comply with margin requirements, and with certain clearing and trade-execution requirements if we do not satisfy certain specific exceptions. The legislation may also require the counterparties to our derivatives contracts to transfer or assign some of their derivatives contracts to a separate entity, which may not be as creditworthy as the current counterparty. The legislation and any new regulations could significantly increase the cost of derivatives contracts (including through requirements to post collateral), materially alter the terms of derivatives contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivatives contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the legislation and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Any of these consequences could have a material adverse effect on us, our financial condition and our results of operations.

 

Our operations could be disrupted if our information systems fail, causing increased expenses and loss of sales.

 

Our business is highly dependent on financial, accounting and other data processing systems and other communications and information systems, including our enterprise resource planning tools. We process a large number of transactions on a daily basis and rely upon the proper functioning of computer systems. If a key system was to fail or experience unscheduled downtime for any reason, even if only for a short period, our operations and financial results could be affected adversely. Our systems could be damaged or interrupted by a security breach, fire, flood, power loss, telecommunications failure or similar event. We have a formal disaster recovery plan in place, but this plan may not prevent delays or other complications that could arise from an information systems failure. Further, our business interruption insurance may not compensate us adequately for losses that may occur.

 

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We may have difficulty implementing our enterprise-wide information systems.

 

We are making a substantial investment in new enterprise-wide information systems. The systems may not function as we expect when subjected to the demands of our operations and our employees may have problems adapting to the new processes and procedures necessary to operate the new systems. If these systems do not function as expected during the implementation period or our employees are not able to comply with the process and procedural demands of the new systems, we could have difficulty, for example, procuring products, scheduling deliveries to our customers, invoicing our customers, paying our suppliers, managing our inventories, analyzing our performance and preparing financial statements. In addition, we could incur substantial additional expense if the implementation takes longer than currently planned. If we experience difficulty implementing our new enterprise-wide information systems, it could have a material adverse impact on our financial condition and results of operations.

 

Product liability claims and litigation could adversely affect our business and results of operations.

 

Product liability is a significant commercial risk. Substantial damage awards have been made in certain jurisdictions against manufacturers and resellers based upon claims for injuries and property damage caused by the use of or exposure to various products. Failure of our products to meet required specifications or claims that a product is inherently defective could result in product liability claims from our shippers and customers, and also arise from contaminated or off-specification product in commingled pipelines and storage tanks and/or defective fuels. Product liability claims against us could have a material adverse effect on our business or results of operations.

 

We may incur significant liability under or costs and capital expenditures to comply with environmental, product specification, health and safety regulations, which are complex and change frequently.

 

Our refinery and pipeline operations are subject to federal, state and local laws regulating, among other things, the generation, storage, handling, use and transportation of petroleum and other regulated materials, the emission and discharge of materials into the environment, waste management, remediation of contaminated sites, characteristics and composition of gasoline and diesel and other matters otherwise relating to the protection of the environment. Our operations are also subject to various laws and regulations relating to occupational health and safety.

 

Compliance with the complex array of federal, state and local laws relating to the protection of the environment, product specification, health and safety is difficult. We may not be able to operate in compliance with all environmental, product specification, health and safety requirements at all times. Violations of applicable requirements could result in substantial fines and penalties, criminal sanctions, permit revocations, injunctions and/or facility shutdowns, or claims for alleged personal injury, property damage or damage to natural resources. Moreover, our business is subject to accidental spills, discharges or other releases of petroleum or other regulated materials into the environment including at neighboring areas or third party storage, treatment or disposal facilities. Certain environmental laws impose strict, and in certain circumstances, joint and several, liability for costs of investigation and cleanup of such spills, discharges or releases on owners and operators of, as well as persons who arrange for treatment or disposal of regulated materials at, contaminated sites. Under these laws, we may be required to pay more than our fair share of any required investigation or cleanup of such sites.

 

We cannot predict what additional environmental, product specification, health and safety legislation or regulations will be adopted in the future, or how existing or future laws or regulations will be administered or interpreted with respect to our operations. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. For example, in 2010 New York State adopted a Low-Sulfur Heating Oil mandate that beginning July 1, 2012 requires all heating oil sold in New York State to contain no more than 15 PPM sulfur. Not all of the heating oil we produce meets this specification. In addition, on June 1, 2012, the EPA issued final amendments to the New Source Performance Standards (“NSPS”) for petroleum refineries, including standards for emissions of nitrogen

 

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oxides from process heaters and work practice standards and monitoring requirements for flares. We are evaluating the regulation and amended standards, as may be applicable to the flare, process heaters and operations at our refineries. We cannot currently predict the costs that we may have to incur, if any, to comply by July 1, 2015 with the amended NSPS, but these costs could be material. Furthermore, the EPA has announced that it plans to propose new “Tier 3” motor vehicle emission and fuel standards. It has been reported that these new Tier 3 regulations may, among other things, lower the maximum average sulfur content of gasoline from 30 PPM to 10 PPM. If the Tier 3 regulations are eventually implemented and lower the maximum allowable content of sulfur or other constituents in fuels that we produce, we may at some point in the future be required to make significant capital expenditures and/or incur materially increased operating costs to comply with the new standards. Expenditures or costs for environmental, product specification, health and safety compliance could have a material adverse effect on our results of operations, financial condition and profitability.

 

We may also incur liability or be required to pay penalties for past contamination, and third parties may assert claims against us for damages allegedly arising out of any past or future contamination. The potential penalties and clean-up costs for past or future releases or spills, the failure of prior owners of our facilities to complete their clean-up obligations, the liability to third parties for damage to their property, or the need to address newly-discovered information or conditions that may require a response could be significant, and the payment of these amounts could have a material adverse effect on our business, financial condition and results of operations.

 

Furthermore, we operate in environmentally sensitive coastal waters where tanker, pipeline and refined product transportation operations are closely regulated by federal, state and local agencies and monitored by environmental interest groups.

 

Finally, transportation of crude oil and refined products over water involves inherent risk and subjects us to the provisions of the Federal Oil Pollution Act of 1990 and the laws of various states. Among other things, these laws require us to demonstrate in some situations our capacity to respond to a “worst case discharge” to the maximum extent possible. There may be accidents involving tankers transporting crude oil or refined products, and response service companies that we have contracted with, in the areas in which we transport crude oil and refined products, may not respond to a “worst case discharge” in a manner that will adequately contain that discharge, and we may be subject to liability in connection with a discharge.

 

Environmental clean-up and remediation costs of our sites and environmental litigation could decrease our net cash flow, reduce our results of operations and impair our financial condition.

 

We are subject to liability for the investigation and clean-up of environmental contamination at each of the properties that we own or operate and at off-site locations where we arrange for the treatment or disposal of regulated materials. We may become involved in future litigation or other proceedings. If we were to be held responsible for damages in any litigation or proceedings, such costs may not be covered by insurance and may be material. Historical soil and groundwater contamination has been identified at each of our refineries. Currently remediation projects are underway in accordance with regulatory requirements at the Paulsboro and Delaware City refineries. In connection with the acquisitions of our refineries, the prior owners have retained certain liabilities or indemnified us for certain liabilities, including those relating to pre-acquisition soil and groundwater conditions, and in some instances we have assumed certain liabilities and environmental obligations, including certain remediation obligations at the Paulsboro refinery. If the prior owners fail to satisfy their obligations for any reason, or if significant liabilities arise in the areas in which we assumed liability, we may become responsible for remediation expenses and other environmental liabilities, which could have a material adverse effect on our financial condition. As a result, in addition to making capital expenditures or incurring other costs to comply with environmental laws, we also may be liable for significant environmental litigation or for investigation and remediation costs and other liabilities arising from the ownership or operation of these assets by prior owners, which could materially adversely affect our financial condition, results of operations and cash flow. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Pro Forma Contractual Obligations and Commitments” and “Business—Environmental, Health and Safety Matters.”

 

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We may also face liability arising from current or future claims alleging personal injury or property damage due to exposure to chemicals or other regulated materials, such as asbestos, benzene, MTBE and petroleum hydrocarbons, at or from our facilities. We may also face liability for personal injury, property damage, natural resource damage or clean-up costs for the alleged migration of contamination from our properties. A significant increase in the number or success of these claims could materially adversely affect our financial condition, results of operations and cash flow.

 

Regulation of emissions of greenhouse gases could force us to incur increased capital and operating costs and could have a material adverse effect on our results of operations and financial condition.

 

Both houses of Congress have actively considered legislation to reduce emissions of GHGs, such as carbon dioxide and methane, including proposals to: (i) establish a cap and trade system, (ii) create a federal renewable energy or “clean” energy standard requiring electric utilities to provide a certain percentage of power from such sources, and (iii) create enhanced incentives for use of renewable energy and increased efficiency in energy supply and use. In addition, the EPA is taking steps to regulate GHGs under the existing federal Clean Air Act, or CAA. The EPA has already adopted regulations limiting emissions of GHGs from motor vehicles, addressing the permitting of GHG emissions from stationary sources, and requiring the reporting of GHG emissions from specified large GHG emission sources, including refineries. These and similar regulations could require us to incur costs to monitor and report GHG emissions or reduce emissions of GHGs associated with our operations. In addition, various states, individually as well as in some cases on a regional basis, have taken steps to control GHG emissions, including adoption of GHG reporting requirements, cap and trade systems and renewable portfolio standards. Efforts have also been undertaken to delay, limit or prohibit EPA and possibly state action to regulate GHG emissions, and it is not possible at this time to predict the ultimate form, timing or extent of federal or state regulation. In the event we do incur increased costs as a result of increased efforts to control GHG emissions, we may not be able to pass on any of these costs to our customers. Such requirements also could adversely affect demand for the refined petroleum products that we produce. Any increased costs or reduced demand could materially and adversely affect our business and results of operation.

 

Renewable fuels mandates may reduce demand for the refined fuels we produce, which could have a material adverse effect on our results of operations and financial condition.

 

Pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007, the EPA has issued Renewable Fuel Standards, or RFS, implementing mandates to blend renewable fuels into the petroleum fuels produced and sold in the United States. Under RFS, the volume of renewable fuels that obligated refineries must blend into their finished petroleum fuels increases annually over time until 2022. In addition, certain states have passed legislation that requires minimum biodiesel blending in finished distillates. On October 13, 2010, the EPA raised the maximum amount of ethanol allowed under federal law from 10% to 15% for cars and light trucks manufactured since 2007. The maximum amount allowed under federal law currently remains at 10% ethanol for all other vehicles. Existing laws and regulations could change, and the minimum volumes of renewable fuels that must be blended with refined petroleum fuels may increase. Because we do not produce renewable fuels, increasing the volume of renewable fuels that must be blended into our products displaces an increasing volume of our refinery’s product pool, potentially resulting in lower earnings and profitability. In addition, in order to meet certain of these and future EPA requirements, we must purchase credits, known as “RINS,” which have fluctuating costs.

 

Our pipelines are subject to federal and/or state regulations, which could reduce the amount of cash we generate.

 

Our transportation activities are subject to regulation by multiple governmental agencies. The regulatory burden on the industry increases the cost of doing business and affects profitability. Additional proposals and proceedings that affect the oil industry are regularly considered by Congress, the states, the Federal Energy Regulatory Commission, the United States Department of Transportation, and the courts. We cannot predict when or whether any such proposals may become effective or what impact such proposals may have. Projected

 

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operating costs related to our pipelines reflect the recurring costs resulting from compliance with these regulations, and these costs may increase due to future acquisitions, changes in regulation, changes in use, or discovery of existing but unknown compliance issues.

 

We are subject to strict laws and regulations regarding employee and process safety, and failure to comply with these laws and regulations could have a material adverse effect on our results of operations, financial condition and profitability.

 

We are subject to the requirements of the Occupational Safety & Health Administration, or OSHA, and comparable state statutes that regulate the protection of the health and safety of workers. In addition, OSHA requires that we maintain information about hazardous materials used or produced in our operations and that we provide this information to employees, state and local governmental authorities, and local residents. Failure to comply with OSHA requirements, including general industry standards, process safety standards and control of occupational exposure to regulated substances, could have a material adverse effect on our results of operations, financial condition and the cash flows of the business if we are subjected to significant fines or compliance costs.

 

Compliance with and changes in tax laws could adversely affect our performance.

 

We are subject to extensive tax liabilities, including federal, state, local and foreign taxes such as income, excise, sales/use, payroll, franchise, property, gross receipts, withholding and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. These liabilities are subject to periodic audits by the respective taxing authorities, which could increase our tax liabilities. Subsequent changes to our tax liabilities as a result of these audits may also subject us to interest and penalties. There can be no certainty that our federal, state, local or foreign taxes could be passed on to our customers.

 

Our rapid growth may strain our resources and divert management’s attention.

 

We were a development stage enterprise prior to our acquisition of Paulsboro on December 17, 2010. With the further acquisition of Toledo and the re-start of Delaware City, we have experienced rapid growth in a short period of time. Continued expansion may strain our resources and force management to focus attention from other business concerns to the development of incremental internal controls and procedures, which could harm our business and operating results. We may also need to hire more employees, which will increase our costs and expenses.

 

We rely on Statoil and MSCG, over whom we may have limited control, to provide us with certain volumetric and pricing data used in our inventory valuations.

 

We rely on Statoil and MSCG to provide us with certain volumetric and pricing data used in our inventory valuations. Our limited control over the accuracy and the timing of the receipt of this data could materially and adversely affect our ability to produce financial statements in a timely manner.

 

Changes in our credit profile could adversely affect our business.

 

Changes in our credit profile could affect the way crude oil suppliers view our ability to make payments and induce them to shorten the payment terms for our purchases or require us to post security or letters of credit prior to payment. Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by our suppliers of more burdensome payment terms on us may have a material adverse effect on our liquidity and our ability to make payments to our suppliers. This, in turn, could cause us to be unable to operate one or more of our refineries at full capacity.

 

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We could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits and authorizations.

 

Our operations require numerous permits and authorizations under various laws and regulations, including environmental and health and safety laws and regulations. These authorizations and permits are subject to revocation, renewal or modification and can require operational changes, which may involve significant costs, to limit impacts or potential impacts on the environment and/or health and safety. A violation of these authorizations or permit conditions or other legal or regulatory requirements could result in substantial fines, criminal sanctions, permit revocations, injunctions and/or refinery shutdowns. In addition, major modifications of our operations could require changes to our existing permits or expensive upgrades to our existing pollution control equipment, which could have a material adverse effect on our business, financial condition or results of operations.

 

Risks Related to Our Indebtedness

 

Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.

 

Our substantial indebtedness may significantly affect our financial flexibility in the future. As of September 30, 2012, we have total long-term debt, including current maturities and the Delaware Economic Development Authority Loan, of $733.0 million, all of which is secured, and we could have incurred an additional $495.1 million of senior secured indebtedness under our existing debt agreements. We may incur additional indebtedness in the future. Our strategy includes executing future refinery acquisitions. Any significant acquisition would likely require us to incur additional indebtedness in order to finance all or a portion of such acquisition. The level of our indebtedness has several important consequences for our future operations, including that:

 

   

a significant portion of our cash flow from operations will be dedicated to the payment of principal of, and interest on, our indebtedness and will not be available for other purposes;

 

   

covenants contained in our existing debt arrangements limit our ability to borrow additional funds, dispose of assets and make certain investments;

 

   

these covenants also require us to meet or maintain certain financial tests, which may affect our flexibility in planning for, and reacting to, changes in our industry, such as being able to take advantage of acquisition opportunities when they arise;

 

   

our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes may be limited; and

 

   

we may be at a competitive disadvantage to those of our competitors that are less leveraged; and we may be more vulnerable to adverse economic and industry conditions.

 

Our substantial indebtedness increases the risk that we may default on our debt obligations, certain of which contain cross-default and/or cross-acceleration provisions. We have significant principal payments due under our debt instruments. Our subsidiaries’ ability to meet their principal obligations will be dependent upon our future performance, which in turn will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. Our business may not continue to generate sufficient cash flow from operations to repay our substantial indebtedness. If we are unable to generate sufficient cash flow from operations, we may be required to sell assets, to refinance all or a portion of our indebtedness or to obtain additional financing. Refinancing may not be possible and additional financing may not be available on commercially acceptable terms, or at all.

 

Despite our level of indebtedness, we and our subsidiaries may be able to incur substantially more debt, which could exacerbate the risks described above.

 

We and our subsidiaries may be able to incur substantial additional indebtedness in the future including additional secured debt. Although our debt instruments and financing arrangements contain restrictions on the

 

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incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. To the extent new debt is added to our currently anticipated debt levels, the substantial leverage risks described above would increase. Also, these restrictions do not prevent us from incurring obligations that do not constitute indebtedness.

 

Restrictive Covenants in our debt instruments may limit our ability to undertake certain types of transactions.

 

Various covenants in our debt instruments and other financing arrangements may restrict our and our subsidiaries’ financial flexibility in a number of ways. Our indebtedness subjects us to significant financial and other restrictive covenants, including restrictions on our ability to incur additional indebtedness, place liens upon assets, pay dividends or make certain other restricted payments and investments, consummate certain asset sales or asset swaps, conduct businesses other than our current businesses, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. Some of these debt instruments also require our subsidiaries to satisfy or maintain certain financial condition tests in certain circumstances. Our subsidiaries’ ability to meet these financial condition tests can be affected by events beyond our control and they may not meet such tests.

 

We may have capital needs for which our internally generated cash flows and other sources of liquidity may not be adequate.

 

If we cannot generate sufficient cash flows or otherwise secure sufficient liquidity to support our short-term and long-term capital requirements, we may not be able to meet our payment obligations in connection with the acquisitions of our refineries (including any earn-outs), or our future debt obligations, comply with certain deadlines related to environmental regulations and standards, or pursue our business strategies, in which case our operations may not perform as we currently expect. We have substantial short-term capital needs and may have substantial long term capital needs. Our short-term working capital needs are primarily related to financing certain of our refined products inventory not covered by our various clean products offtake agreements. We have recently terminated our agreement with Statoil for our Paulsboro refinery effective March 31, 2013. If we cannot adequately handle our crude oil and feedstock requirements without the benefit of the Statoil arrangement at Paulsboro, or if we are required to obtain our crude oil supply at our other refineries without the benefit of the existing supply arrangements or the applicable counterparty defaults in its obligations, our crude oil pricing costs may increase as the number of days between when we pay for the crude oil and when the crude oil is delivered to us increases. Such increased exposure could negatively impact our liquidity due to our increased working capital needs as a result of the increase in the amount of crude oil inventory we would have to carry on our balance sheet. Our long-term needs for cash include those to support ongoing capital expenditures for equipment maintenance and upgrades during turnarounds at our refineries and to complete our routine and normally scheduled maintenance, regulatory and security expenditures. In addition, from time to time, we are required to spend significant amounts for repairs when one or more processing units experiences temporary shutdowns. We continue to utilize significant capital to upgrade equipment, improve facilities, and reduce operational, safety and environmental risks. In connection with the Paulsboro acquisition, we assumed certain significant environmental obligations, and may similarly do so in future acquisitions. We will likely incur substantial compliance costs in connection with new or changing environmental, health and safety regulations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Pro Forma Contractual Obligations and Commitments.” Our liquidity will affect our ability to satisfy any of these needs or obligations.

 

Risks Relating to This Offering and Ownership of Our Class A Common Stock

 

You will experience an immediate and substantial dilution in the net tangible book value of the Class A common stock you purchase in this offering.

 

The initial public offering price per share of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our Class A common stock immediately after this offering. As a result, you may pay a price per share that substantially exceeds the book value of our assets after subtracting our

 

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liabilities. Investors who purchase Class A common stock in this offering will be diluted by $10.66 per share after giving effect to the sale of shares of Class A common stock in this offering at an assumed initial public offering price of $26.00 per share, the mid-point of the estimated price range set forth on the cover page of this prospectus. If we grant options in the future to our employees, and those options are exercised or other issuances of Class A common stock are made, there will be further dilution. See “Dilution.”

 

Substantially all of the proceeds from this offering will be used to purchase PBF LLC Series A Units from Blackstone and First Reserve.

 

We intend to use substantially all of the proceeds from this offering to purchase PBF LLC Series A Units (which will be reclassified as PBF LLC Series C Units in connection with such acquisition) from Blackstone and First Reserve as described under “Organizational Structure—Offering Transactions.” Accordingly, we will not retain any of these proceeds. See “Use of Proceeds” included elsewhere in this prospectus.

 

There is no existing market for our Class A common stock, and we do not know if one will develop to provide you with adequate liquidity.

 

Prior to this offering, there has not been a public market for our Class A common stock. We have applied to list our Class A common stock on the NYSE. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our Class A common stock that you buy. The initial public offering price for the shares was determined by negotiations between us and the representatives of the underwriters based on numerous factors that we discuss in the “Underwriting” section of this prospectus and may not be indicative of prices that will prevail in the open market following this offering.

 

Consequently, you may not be able to sell our Class A common stock at prices equal to or greater than the price you paid in this offering.

 

The initial public offering price of our Class A common stock may not be indicative of the market price of our Class A common stock after this offering and our stock price may be highly volatile.

 

The initial public offering price of our Class A common stock is based on numerous factors and may not be indicative of the market price of our Class A common stock after this offering. The market price may be affected by such factors as:

 

   

variations in actual or anticipated operating results;

 

   

changes in, or failure to meet, earnings estimates of securities analysts;

 

   

market conditions in the oil refining industry;

 

   

regulatory actions;

 

   

general economic and stock market conditions; and

 

   

the availability for sale, or sales, of a significant number of shares of our Class A common stock in the public market.

 

These and other factors may cause the market price of our Class A common stock to decline below the initial public offering price, which in turn would adversely affect the value of your investment.

 

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which could significantly harm our profitability and reputation.

 

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We cannot assure you that we will declare dividends or have the available cash to make dividend payments. We are a holding company that depends upon cash from our subsidiaries to meet our obligations and/or to pay dividends in the future.

 

We currently intend to pay quarterly cash dividends in an amount equal to approximately $0.20 per share of Class A common stock following this offering, commencing after the completion of the first quarter of 2013. The declaration, amount and payment of this and any other future dividends on shares of Class A common stock will be at the sole discretion of our board of directors, and we are not obligated under any applicable laws, our governing documents or any contractual agreements with our existing owners or otherwise to declare or pay any dividends or other distributions (other than the obligations of PBF LLC to make tax distributions to its members). Our board of directors may take into account, among other things, general economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, plans for expansion, tax, legal, regulatory and contractual restrictions and implications, including under our outstanding debt documents, and such other factors as our board of directors may deem relevant in determining whether to declare or pay any dividend. As a result, if we do not declare dividends you may not receive any return on an investment in our Class A common stock unless you sell our Class A common stock for a price greater than that which you paid for it. Any dividends that we may declare and pay will not be cumulative.

 

We are a holding company and all of our operations are conducted through subsidiaries of PBF Holding. We have no independent means of generating revenue and no material assets other than our ownership interest in PBF LLC. Therefore, we depend on the earnings and cash flow of our subsidiaries to meet our obligations, including our indebtedness, tax liabilities and obligations to make payments under the tax receivable agreement. If we or PBF LLC do not receive such cash distributions, dividends or other payments from our subsidiaries, we and PBF LLC may be unable to meet our obligations and/or pay dividends.

 

We intend to cause PBF LLC to make distributions to its members in an amount sufficient to enable us to cover all applicable taxes at assumed tax rates, make payments owed by us under the tax receivable agreement, and to pay other obligations and dividends, if any, declared by us. To the extent we need funds and PBF LLC or any of its subsidiaries is restricted from making such distributions under applicable law or regulation or under the terms of our financing or other contractual arrangements, or is otherwise unable to provide such funds, such restrictions could materially adversely affect our liquidity and financial condition.

 

Our ABL Revolving Credit Facility, senior secured notes and certain of our other outstanding debt arrangements include a restricted payment covenant, which restricts the ability of PBF Holding to make distributions to us, and we anticipate our future debt will contain a similar restriction. In addition, there may be restrictions on payments by our subsidiaries under applicable laws, including laws that require companies to maintain minimum amounts of capital and to make payments to stockholders only from profits. For example, PBF Holding is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of the limited liability company (with certain exceptions) exceed the fair value of its assets. As a result, we may be unable to obtain that cash to satisfy our obligations and make payments to our stockholders, if any.

 

Certain participants in our directed share program must hold their shares for a minimum of 180 days following the date of the final prospectus related to this offering and accordingly will be subject to market risks not imposed on other investors in the offering.

 

At our request, the underwriters have reserved up to 412,500 shares of our Class A common stock offered hereby for sale to our employees and certain other participants through a directed share program. Any purchasers of these shares who have entered into a lock-up agreement with the underwriters in connection with this offering will be required to agree that they will not, subject to exceptions, offer, sell, contract to sell or otherwise dispose of or hedge any shares of our Class A common stock for a period of 180 days after the date of the final prospectus relating to this offering, subject to certain specified extensions. As a result of such restriction, such

 

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purchasers may face risks not faced by other investors who have the right to sell their shares of Class A common stock at any time following this offering. These risks include the market risk of holding our shares of Class A common stock during the period that such restrictions are in effect. In addition, the price of our Class A common stock may be adversely affected following expiration of the lock-up period if there is an increase in the number of shares for sale in the market.

 

Future sales of our shares could depress the market price of our Class A common stock.

 

The market price of our Class A common stock could decline as a result of sales of a large number of shares of Class A common stock in the market after the offering or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

 

The shares of Class A common stock we are offering will be freely tradable without restriction in the United States, unless purchased by one of our affiliates. In connection with this offering, we, our executive officers and directors and Blackstone and First Reserve have agreed with the underwriters, subject to certain exceptions, not to sell, dispose of or hedge any of our Class A common stock or securities convertible into or exchangeable for shares of Class A common stock, during the period ending 180 days after the date of this prospectus, except with the prior written consent of Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC. See “Underwriting.” After the expiration of the 180-day lock-up period, we are required to register the issuance and resale of the shares of Class A common stock that may be issued to our existing owners pursuant to the exchange agreement. These shares also may be sold under Rule 144 under the Securities Act of 1933, as amended, depending on the holding period and subject to restrictions in the case of shares held by persons deemed to be our affiliates. As restrictions on resale end or if we register additional shares, the market price of our stock could decline if the holders of restricted shares sell them or are perceived by the market as intending to sell them.

 

If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, our stock price and trading volume could decline.

 

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our Class A common stock price or trading volume to decline and our Class A common stock to be less liquid.

 

As a “controlled company” within the meaning of the NYSE rules, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

 

Upon completion of this offering Blackstone and First Reserve will continue to control a majority of the combined voting power of all classes of our voting stock. As a result, we will be a “controlled company” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by another company is a “controlled company” and may elect not to comply with certain NYSE corporate governance requirements, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that we have a corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, (3) the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (4) the requirement that there be an annual performance evaluation of the corporate governance and compensation committees. If available, we intend to utilize some or all of these exemptions. As a result, we will not be required to have a majority of independent directors nor will our nominating and corporate governance

 

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and compensation committees be required to consist entirely of independent directors. We will rely on the phase-in rules of the SEC and NYSE with respect to the independence of our audit committee. These rules permit us to have an audit committee that has one member that is independent upon the effectiveness of the registration statement of which this prospectus forms a part, a majority of members that are independent within 90 days thereafter and all members that are independent within one year thereafter. Accordingly, you would not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

 

Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and share price.

 

As a result of this offering, we will become subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended. Beginning with the year ending December 31, 2013, pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to furnish a report by our management on our internal control over financial reporting, and our auditors will be required to deliver an attestation report on the operating effectiveness of our internal control over financial reporting. The report by our management must contain, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.

 

As an organization that recently exited the development stage and has grown rapidly through the acquisition of significant operations, we are currently in the process of developing our internal controls over financial reporting and establishing formal policies, processes and practices related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization. Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act that we will eventually be required to meet.

 

In connection with the preparation of our financial statements during 2011, we identified a material weakness relating to controls over critical business and accounting functions performed by third party service providers and significant deficiencies regarding spreadsheet controls and the timely completion and review of account reconciliations and other analyses as part of our financial closing process. Management has taken the following steps to remediate these issues:

 

   

In August 2011, we retained a nationally recognized certified public accounting firm to assist us with assessing, designing and documenting our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act;

 

   

We hired additional resources (and expect to continue to hire additional resources) to assist with completing the financial statement closing process on a more timely basis;

 

   

We are in the process of documenting our financial statement closing process, including establishing more comprehensive account reconciliation and review procedures and spreadsheet controls;

 

   

We developed and implemented information technology systems, accounting processes and procedures, and hired commercial, accounting and information technology personnel in order to bring in-house the business and accounting processes that were performed by third parties. We expect to continue to develop and improve these new systems and processes.

 

We may not be able to successfully remediate these matters on or before December 31, 2013, the date by which we must comply with Section 404 of the Sarbanes-Oxley Act, and we may have additional deficiencies or material weaknesses in the future. We have not yet determined the costs directly associated with these remediation activities, but they could be substantial.

 

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If we are not able to complete our initial assessment of our internal controls and otherwise implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, management may not be able to certify as to the adequacy of our internal controls over financial reporting. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules, and result in a breach of the covenants under our debt agreements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting in the future. This could materially adversely affect us and lead to a decline in our Class A common stock price.

 

We are controlled by our existing owners, whose interests may differ from those of our public stockholders.

 

We are controlled, and after this offering will continue to be controlled, by Blackstone and First Reserve. After the completion of this offering, Blackstone and First Reserve collectively will continue to beneficially own in the aggregate approximately 78.1% of the combined voting power of our common stock (or 75.5% if the underwriters exercise their option to purchase additional shares in full). As a result, Blackstone and First Reserve will have the ability to elect all of our directors and thereby control our policies and operations, including the appointment of management, future issuances of our Class A common stock or other securities, the payment of dividends, if any, on our Class A common stock, the incurrence of debt by us, amendments to our certificate of incorporation and bylaws and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests.

 

Our existing owners, including Blackstone and First Reserve, hold all of the outstanding PBF LLC Series A Units. Because our existing owners hold their economic interest in our business through PBF LLC, rather than through the public company, they may have conflicting interests with holders of shares of our Class A common stock. For example, our existing owners may have different tax positions from us which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, especially in light of the existence of the tax receivable agreement that we will enter into in connection with this offering, and whether and when we should undergo certain changes of control within the meaning of the tax receivable agreement or terminate the tax receivable agreement, which would accelerate our obligations thereunder. In addition, the structuring of future transactions may take into consideration these tax or other considerations even where no similar benefit would accrue to us. See “Certain Relationships and Related Transactions—Tax Receivable Agreement.”

 

Blackstone and First Reserve may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to you. For example, they could cause us to make acquisitions that increase our indebtedness or to sell revenue-generating assets. So long as they continue to beneficially own a majority of the combined voting power of our common stock, they will have the ability to control the vote in any election of directors. In addition, pursuant to a stockholders agreement entered into between us and Blackstone and First Reserve, following this offering Blackstone and First Reserve will also have the ability to nominate a number of our directors, including a majority of our directors, so long as certain ownership thresholds are maintained. See “Management,” “Principal Stockholders” and “Certain Relationships and Related Transactions.” This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive stockholders of an opportunity to receive a premium for their Class A common stock as part of a sale of our company and might ultimately affect the market price of our Class A common stock. Lastly, Blackstone and First Reserve are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. They may also pursue acquisition opportunities that are complementary to our business and, as a result, those acquisition opportunities may not be available to us.

 

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We will be required to pay the holders of PBF LLC Series A Units and PBF LLC Series B Units for certain tax benefits we may claim arising in connection with this offering and future exchanges of PBF LLC Series A Units for shares of our Class A Common Stock and related transactions, and the amounts we may pay could be significant.

 

As described in “Organizational Structure—Offering Transactions,” we intend to use substantially all of the net proceeds from this offering to purchase PBF LLC Series A Units from certain of our existing owners, with the balance used to purchase newly issued PBF LLC Series C Units from PBF LLC. We will enter into a tax receivable agreement with the holders of PBF LLC Series A Units and PBF LLC Series B Units that will provide for the payment from time to time by PBF Energy to such persons of 85% of the benefits, if any, that PBF Energy is deemed to realize as a result of (i) the increases in tax basis resulting from its acquisitions of PBF LLC Series A Units as part of the Offering Transactions or in the future and (ii) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. See “Certain Relationships and Related Transactions—Tax Receivable Agreement.”

 

We expect that the payments that we may make under the tax receivable agreement will be substantial. Assuming no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, we expect future payments under the tax receivable agreement relating to the purchase by PBF Energy of PBF LLC Series A Units as part of the Offering Transactions to aggregate $96.8 million (or $112.7 million if the underwriters exercise their option to purchase additional shares) and to range over the next 15 years from approximately $3.6 million to $16.0 million per year (or approximately $4.2 million to $18.6 million per year if the underwriters exercise their option to purchase additional shares) and decline thereafter. Future payments by us in respect of subsequent exchanges of PBF LLC Series A Units would be in addition to these amounts and are expected to be substantial as well. The foregoing numbers are merely estimates—the actual payments could differ materially. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding tax receivable agreement payments. There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the tax receivable agreement exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement, and/or (ii) distributions to PBF Energy by PBF LLC are not sufficient to permit PBF Energy to make payments under the tax receivable agreement after it has paid its taxes and other obligations. The payments under the tax receivable agreement are not conditioned upon any recipient’s continued ownership of us.

 

In certain cases, payments by us under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement.

 

The tax receivable agreement will provide that upon certain changes of control, or if, at any time, PBF Energy elects an early termination of the tax receivable agreement, PBF Energy’s (or its successor’s) obligations with respect to exchanged or acquired PBF LLC Series A Units (whether exchanged or acquired before or after such transaction) would be based on certain assumptions, including (i) that PBF Energy would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement and (ii) that the subsidiaries of PBF LLC will sell certain nonamortizable assets (and realize certain related tax benefits) no later than a specified date. Moreover, in each of these instances, we would be required to make an immediate payment equal to the present value (at a discount rate equal to LIBOR plus 100 basis points) of the anticipated future tax benefits (based on the foregoing assumptions). Accordingly, payments under the tax receivable agreement may be made years in advance of the actual realization, if any, of the anticipated future tax benefits and may be significantly greater than the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement. Assuming that the market value of a share of Class A common stock were to be equal to the initial public offering price per share of Class A common stock in this offering and that LIBOR were to be 1.86%, we estimate that the aggregate amount of these change of control payments would be approximately $602.6 million if triggered immediately after this offering. In these situations, our obligations under the tax receivable agreement could have a substantial negative

 

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impact on our liquidity. We may not be able to finance our obligations under the tax receivable agreement and our existing indebtedness may limit our subsidiaries’ ability to make distributions to us to pay these obligations.

 

Moreover, payments under the tax receivable agreement will be based on the tax reporting positions that we determine in accordance with the tax receivable agreement. We will not be reimbursed for any payments previously made under the tax receivable agreement if the Internal Revenue Service subsequently disallows part or all of the tax benefits that gave rise to such prior payments. As a result, in certain circumstances, payments could be made under the tax receivable agreement that are significantly in excess of the benefits that we actually realize in respect of (a) the increases in tax basis resulting from our purchases or exchanges of PBF LLC Series A Units and (b) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement.

 

Anti-takeover and certain other provisions in our certificate of incorporation and bylaws and Delaware law may discourage or delay a change in control.

 

Our certificate of incorporation and bylaws contain provisions which could make it more difficult for stockholders to effect certain corporate actions. Among other things, these provisions:

 

   

authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval;

 

   

prohibit stockholder action by written consent after the date on which Blackstone and First Reserve collectively cease to beneficially own at least a majority of all of the outstanding shares of our capital stock entitled to vote;

 

   

restrict certain business combinations with stockholders who obtain beneficial ownership of a certain percentage of our outstanding common stock after the date Blackstone and First Reserve and their affiliates collectively cease to beneficially own at least 5% of all of the outstanding shares of our capital stock entitled to vote;

 

   

provide that special meetings of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the board of directors, or Blackstone or First Reserve, for so long as Blackstone or First Reserve, in its individual capacity as the party calling the meeting, continues to beneficially own at least 25% of the total voting power of all the then outstanding shares of our capital stock, and establish advance notice procedures for the nomination of candidates for election as directors or for proposing matters that can be acted upon at stockholder meetings; and

 

   

provide that on and after the date Blackstone and First Reserve collectively cease to beneficially own a majority of all of the outstanding shares of our capital stock entitled to vote, our stockholders may only amend our bylaws with the approval of 75% or more of all of the outstanding shares of our capital stock entitled to vote.

 

These anti-takeover provisions and other provisions of Delaware law may have the effect of delaying or deterring a change of control of our company. Certain provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our Class A common stock. See “Description of Capital Stock.”

 

In addition, in connection with this offering, we will be entering into a stockholders agreement with Blackstone and First Reserve pursuant to which they will each be entitled to nominate a number of directors so long as certain ownership thresholds are maintained. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”

 

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FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements” that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.

 

Important factors that could cause actual results to differ materially from our expectations, which we refer to as “cautionary statements,” are disclosed under “Risk Factors” and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. All forward-looking information in this prospectus 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 services;

 

   

the effects of competition in our markets;

 

   

changes in currency exchange rates, interest rates and capital costs;

 

   

adverse developments in our relationship with both our key employees and unionized employees;

 

   

our ability to operate our businesses efficiently, manage capital expenditures and costs (including general and administrative expenses) tightly and generate earnings and cash flow;

 

   

our substantial indebtedness described in this prospectus;

 

   

restrictive covenants in our indebtedness that may adversely affect our operational flexibility;

 

   

our expectations with respect to our acquisition activity;

 

   

our ability to retain key employees; and

 

   

the costs of being a public company, including Sarbanes-Oxley Act compliance.

 

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 prospectus 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 prospectus or as of the date as of which they are made. Except as required by applicable law, including the securities laws of the United States, we do not intend to update or revise any forward-looking statements.

 

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INDUSTRY AND MARKET DATA

 

This prospectus includes industry data and forecasts that we obtained from industry publications and surveys, public filings and internal company sources. Statements as to our ranking, market position and market estimates are based on independent industry publications, government publications, third party forecasts and management’s good faith estimates and assumptions about our markets and our internal research. Although industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, we have not independently verified such third party information. While we are not aware of any misstatements regarding our market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings “Forward-Looking Statements” and “Risk Factors.”

 

This prospectus contains certain information regarding refinery complexity as measured by the Nelson Complexity Index, which is calculated on an annual basis by data from the Oil and Gas Journal. Certain data presented in this prospectus is from the Oil and Gas Journal Report dated December 5, 2011.

 

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ORGANIZATIONAL STRUCTURE

 

The diagram below depicts our organizational structure immediately following this offering:

 

LOGO

 

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Reorganization Transactions at PBF LLC

 

PBF LLC is a holding company for the companies that directly or indirectly own and operate our business. Prior to this offering, there were 94,176,893 PBF LLC Series A Units issued and outstanding, of which 44,861,169 units were owned by each of Blackstone and First Reserve, 4,430,650 units were owned by our remaining existing owners, including Mr. O’Malley, and 23,904 units were restricted Series A Units held by our independent directors. In addition, there are 1,000,000 PBF LLC Series B Units issued and outstanding, all of which are held by certain of our officers. The PBF LLC Series B Units are profits interests which entitle the holders to participate in the profits of PBF LLC after the date of issuance. Certain of our existing owners and other employees hold options and warrants to purchase an additional 2,181,230 PBF LLC Series A Units at a weighted average exercise price of $10.24 per unit, 1,586,210 of which will be vested and exercisable as of the date of the closing of this offering.

 

Immediately prior to this offering, PBF LLC’s limited liability company agreement will be amended and restated to, among other things, designate PBF Energy as the sole managing member of PBF LLC and establish the PBF LLC Series C Units which will be held solely by PBF Energy. The PBF LLC Series A Units will be held solely by our existing owners (and their permitted transferees). The PBF LLC Series C Units rank on a parity with the PBF LLC Series A Units as to distribution rights, voting rights and rights upon liquidation, winding up or dissolution. Following this offering, PBF Energy will have the right to determine the timing and amount of any distributions (other than tax distributions as described in “Holding Company Structure” below) to be made to holders of PBF LLC Series A Units and PBF LLC Series C Units. Profits and losses of PBF LLC will be allocated, and all distributions generally will be made, pro rata to the holders of PBF LLC Series A Units (subject, under certain circumstances, to the rights of the holders of PBF LLC Series B Units) and PBF LLC Series C Units. In addition, the amended and restated limited liability company agreement of PBF LLC provides that any PBF LLC Series A Units acquired by PBF Energy from our existing owners, whether at the time of this initial public offering or thereafter in accordance with the exchange agreement, will automatically, and without any further action, be reclassified as PBF LLC Series C Units in connection with such acquisition.

 

The PBF LLC Series B Units are profits interests held by certain of our officers which had no taxable value at the date of issuance, have no voting rights and are designed to increase in value only after our financial sponsors achieve certain levels of return on their investment in PBF LLC Series A Units. Under the limited liability company agreement of PBF LLC, distributions initially are made to the holders of PBF LLC Series A Units and PBF LLC Series C Units in proportion to the number of units owned by them. Once the financial sponsors receive a full return of their capital contributions with respect to their PBF LLC Series A Units, distributions and other payments made on account of the PBF LLC Series A Units held by our financial sponsors will then be shared by our financial sponsors with the holders of PBF LLC Series B Units. Accordingly, the amounts paid to the holders of PBF LLC Series B Units will reduce only the amounts otherwise payable to the PBF LLC Series A Units held by our financial sponsors, and will not reduce or otherwise impact any amounts payable to PBF Energy (the holder of our PBF LLC Series C Units), the holders of our Class A common stock or any other holder of PBF LLC Series A Units. For a further discussion of the PBF LLC Series B Units, please see “Executive Compensation—Compensation Discussion and Analysis—Summary of PBF LLC Series B Units.”

 

We refer to the foregoing transactions, collectively, as the “Reorganization Transactions.”

 

Incorporation of PBF Energy

 

PBF Energy was incorporated as a Delaware corporation on November 7, 2011. PBF Energy has not engaged in any business or other activities except in connection with its formation. The certificate of incorporation of PBF Energy at the time of the offering will authorize two classes of common stock, Class A common stock and Class B common stock, each having the terms described in “Description of Capital Stock.”

 

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Prior to completion of this offering, 37 shares of Class B common stock of PBF Energy will be issued to our existing owners, providing them with no economic rights but entitling them, without regard to the number of shares of Class B common stock held by such holder, to one vote on matters presented to stockholders of PBF Energy for each PBF LLC Series A Unit held by such holder, as described in “Description of Capital Stock—Class B Common Stock.” Holders of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.

 

We also will enter into an exchange agreement pursuant to which each of our existing owners (and certain of their permitted assignees and other holders who acquire PBF LLC Series A Units upon the exercise of certain warrants and options) will have the right to cause PBF LLC to exchange their PBF LLC Series A Units for shares of our Class A common stock on a one-for-one basis, subject to equitable adjustments for stock splits, stock dividends and reclassifications, and further subject to the rights of the holders of PBF LLC Series B Units to share in a portion of the profits realized by our financial sponsors upon the sale of the shares of Class A common stock received by them upon such exchange. See “Certain Relationships and Related Transactions—Exchange Agreement.”

 

Offering Transactions

 

At the time of this offering, PBF Energy intends to use the net proceeds from this offering to purchase PBF LLC Series A Units (which will be reclassified as PBF LLC Series C Units in connection with such acquisition) from Blackstone and First Reserve and newly-issued PBF LLC Series C Units from PBF LLC, at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering. PBF Energy will purchase 15,000,000 PBF LLC Series A Units from Blackstone and First Reserve (or 17,475,000 PBF LLC Series A Units if the underwriters exercise in full their option to purchase additional shares of Class A common stock) for an aggregate of $390.0 million (or $454.4 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), and will use the remaining net proceeds of this offering to purchase 1,500,000 newly-issued PBF LLC Series C Units from PBF LLC in an amount equal to $39.0 million. PBF LLC will bear or reimburse PBF Energy for all of the expenses of this offering, including underwriting discounts. See “Use of Proceeds” and “Principal Stockholders” for further information regarding the proceeds from this offering that will be paid to Blackstone and First Reserve.

 

Following this offering, our existing owners may from time to time (subject to the terms of the exchange agreement) cause PBF LLC to exchange their remaining PBF LLC Series A Units for shares of Class A common stock of PBF Energy on a one-for-one basis, subject to equitable adjustments for stock splits, stock dividends and reclassifications, and further subject to the rights of the holders of PBF LLC Series B Units to share in a portion of the profits realized by our financial sponsors upon the sale of the shares of Class A common stock received by them upon such exchange. See “Certain Relationships and Related Transactions—Exchange Agreement.” Any PBF LLC Series A Units being exchanged will be reclassified as PBF LLC Series C Units in connection with such exchange. The purchase of PBF LLC Series A Units by PBF Energy from certain of our existing owners at the closing of this offering and exchanges of PBF LLC Series A Units for shares of Class A common stock are expected to result, with respect to PBF Energy, in increases in the tax basis of the assets of PBF LLC that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that PBF Energy would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

 

We will enter into a tax receivable agreement with the holders of PBF LLC Series A Units and PBF LLC Series B Units (and certain permitted assignees thereof and other holders who acquire PBF LLC Series A Units upon the exercise of certain warrants) that will provide for the payment from time to time by PBF Energy to such persons of 85% of the amount of the benefits, if any, that PBF Energy is deemed to realize as a result of (i) these increases in tax basis and (ii) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These payment obligations are obligations of PBF Energy and not of PBF LLC. We estimate that the incremental tax basis of the assets of PBF LLC that will be attributable to

 

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PBF Energy at the time of this offering will be approximately $205.3 million (or $239.2 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). The tax receivable agreement also will provide that upon certain changes of control or if, at any time, PBF Energy elects an early termination of the tax receivable agreement, payments due under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement. See “Risk Factors—Risks Related to This Offering and Ownership of Our Class A Common Stock—In certain cases, payments by us under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement” and “Certain Relationships and Related Transactions—Tax Receivable Agreement.”

 

In connection with its acquisition of PBF LLC Series C Units, PBF Energy will become the sole managing member of PBF LLC at the closing of this offering. Accordingly, although PBF Energy will initially have a minority economic interest in PBF LLC, PBF Energy will have 100% of the voting power and control the management of PBF LLC.

 

We refer to the foregoing transactions as the “Offering Transactions.”

 

As a result of the transactions described above:

 

   

the investors in this offering will collectively own 16,500,000 shares of our Class A common stock (or 18,975,000 shares of Class A common stock if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and PBF Energy will hold 16,500,000 PBF LLC Series C Units (or 18,975,000 PBF LLC Series C Units if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock), representing 17.2% of the total economic interest of PBF LLC (or 19.8% of the total economic interest of PBF LLC if the underwriters exercise in full their over-allotment option);

 

   

our existing owners will hold 79,176,893 PBF LLC Series A Units, representing 82.8% of the total economic interest of PBF LLC (or 76,701,893 PBF LLC Series A Units, representing 80.2% if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

   

the investors in this offering will collectively have 17.2% of the voting power in PBF Energy (or 19.8% if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

 

   

our existing owners, through their holdings of our Class B common stock, will have 82.8% of the voting power in PBF Energy (or 80.2% if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

Our post-offering organizational structure will allow our existing owners to retain their equity ownership in PBF LLC, an entity that is classified as a partnership for United States federal income tax purposes, in the form of PBF LLC Series A Units. Investors in this offering will, by contrast, hold their equity ownership in PBF Energy, a Delaware corporation that is a domestic corporation for United States federal income tax purposes, in the form of shares of Class A common stock. We believe that our existing owners generally find it advantageous to hold their equity interests in an entity that is not taxable as a corporation for United States federal income tax purposes.

 

Our existing owners also hold shares of Class B common stock of PBF Energy. Although the shares of Class B common stock have no economic rights, they allow our existing owners to exercise voting power at PBF Energy, the managing member of PBF LLC, at a level that is consistent with their overall equity ownership of the business of PBF LLC and its subsidiaries. Under the amended and restated certificate of incorporation of PBF Energy, following the offering, each holder of Class B common stock will be entitled, without regard to the number of shares of Class B common stock held by such holder, to one vote for each PBF LLC Series A Unit held by such holder. Accordingly, as our existing owners sell PBF LLC Series A Units to us as part of the

 

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Offering Transactions or subsequently cause PBF LLC to exchange PBF LLC Series A Units for shares of Class A common stock of PBF Energy pursuant to the exchange agreement, the voting power afforded to our existing owners by their shares of Class B common stock is automatically and correspondingly reduced.

 

Holding Company Structure

 

PBF Energy will be a holding company, and its sole material asset will be an equity interest in PBF LLC. As the sole managing member of PBF LLC, PBF Energy will control all of the business and affairs of PBF Holding and its subsidiaries.

 

PBF Energy will consolidate the financial results of PBF LLC and its subsidiaries, and the ownership interest of our existing owners in PBF LLC will be reflected as a noncontrolling interest in PBF Energy’s consolidated financial statements.

 

Pursuant to the limited liability company agreement of PBF LLC, PBF Energy has the right to determine when distributions (other than tax distributions) will be made to the members of PBF LLC and the amount of any such distributions. If PBF Energy authorizes a distribution, such distribution will be made to the members of PBF LLC pro rata in accordance with their respective percentage interests.

 

The holders of limited liability company interests in PBF LLC, including PBF Energy, will generally have to include for purposes of calculating their U.S. federal, state and local income taxes their share of any taxable income of PBF LLC. Taxable income of PBF LLC generally will be allocated to the holders of units (including PBF Energy) pro rata in accordance with their respective share of the net profits and net losses of PBF LLC. PBF LLC is obligated, subject to available cash and applicable law and contractual restrictions (including pursuant to our debt instruments), to make cash distributions, which we refer to as “tax distributions,” based on certain assumptions, to its members (including PBF Energy) pro rata in accordance with their respective percentage interests. Generally, these tax distributions will be an amount equal to our estimate of the taxable income of PBF LLC 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).

 

See “Certain Relationships and Related Transactions—PBF LLC Limited Liability Company Agreement.”

 

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USE OF PROCEEDS

 

The proceeds to PBF Energy from this offering, before deducting underwriting discounts, will be approximately $429.0 million (or $493.4 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

PBF Energy intends to use $390.0 million (or $454.4 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), of the proceeds from this offering to purchase PBF LLC Series A Units (which will be reclassified as PBF LLC Series C Units in connection with such acquisition) from Blackstone and First Reserve, as described under “Organizational Structure—Offering Transactions.” Accordingly, we will not retain any of these proceeds. See “Principal Stockholders” for further information regarding the proceeds from this offering.

 

PBF Energy intends to use all of the remaining proceeds from this offering, or $39.0 million, to purchase newly-issued PBF LLC Series C Units from PBF LLC, as described under “Organizational Structure—Offering Transactions.” We intend to cause PBF LLC to use these proceeds to pay the expenses of this offering, including aggregate underwriting discounts of $21.5 million (or $24.7 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and other offering expenses estimated at $7.8 million. Any remaining proceeds, including proceeds from the exercise by the underwriters of their option to purchase additional shares of Class A common stock, will be used by PBF LLC for general corporate purposes, including to potentially repay outstanding indebtedness under the ABL Revolving Credit Facility.

 

The ABL Revolving Credit Facility is scheduled to expire on October 26, 2017. As of September 30, 2012, there were no outstanding loans under the ABL Revolving Credit Facility.

 

A $1.00 increase (decrease) in the assumed initial public offering price of $26.00 per share would increase (decrease) the net proceeds to PBF Energy from this offering by approximately $15.7 million, assuming that the number of shares offered by PBF Energy, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by PBF Energy.

 

Pending specific application of these proceeds, the proceeds will be invested primarily in cash.

 

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DIVIDEND POLICY

 

We currently intend to pay quarterly cash dividends of approximately $0.20 per share on our Class A common stock following this offering, commencing after the completion of the first quarter of 2013. The declaration, amount and payment of this and any other future dividends on shares of Class A common stock will be at the sole discretion of our board of directors, and we are not obligated under any applicable laws, our governing documents or any contractual agreements with our existing owners or otherwise to declare or pay any dividends or other distributions (other than the obligations of PBF LLC to make tax distributions to its members). Our board of directors may take into account, among other things, general economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, plans for expansion, tax, legal, regulatory and contractual restrictions and implications, including under our outstanding debt documents, and such other factors as our board of directors may deem relevant in determining whether to declare or pay any dividend. In addition, we expect that to the extent we declare a dividend for a particular quarter, our cash flow from operations for that quarter will substantially exceed any dividend payment for such period. Because any future declaration or payment of dividends will be at the sole discretion of our board of directors, we do not expect that any such dividend payments will have a material adverse impact on our liquidity or otherwise limit our ability to fund capital expenditures or otherwise pursue our business strategy over the long-term. Although we have the ability to borrow funds and sell assets to pay future dividends (subject to certain limitations in our ABL Revolving Credit Facility and senior secured notes), we intend to fund any future dividends out of our cash flow from operations and, as a result, we do not expect to incur any indebtedness or to use the proceeds from this or other offerings to fund such payments.

 

PBF Energy is a holding company and has no material assets other than its ownership interests of PBF LLC. In order for us to pay any dividends, we will need to cause PBF LLC to make distributions to us and the holders of PBF LLC Series A Units, and PBF LLC will need to cause PBF Holding to make distributions to it, in an amount sufficient to cover cash dividends, if any, declared by us. PBF Holding is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of the limited liability company (with certain exceptions) exceed the fair value of its assets. As a result, PBF LLC may be unable to obtain cash from PBF Holding to satisfy our obligations and make payments to our stockholders, if any. If PBF LLC makes such distributions to us, the holders of PBF LLC Series A Units will also be entitled to receive distributions pro rata in accordance with the number of units held by them and us.

 

The ability of PBF Holding to pay dividends and make distributions to PBF LLC is and in the future may be limited by covenants in our ABL Revolving Credit Facility, the senior secured notes and other debt instruments. Subject to certain exceptions, our ABL Revolving Credit Facility and the indenture governing our senior secured notes prohibit PBF Holding from making distributions to PBF LLC if certain defaults exist. In addition, both the indenture and our ABL Revolving Credit Facility contain additional restrictions limiting PBF Holding’s ability to make distributions to PBF LLC. Subject to certain exceptions, the restricted payment covenant under the indenture governing our senior secured notes restricts PBF Holding from making cash distributions unless its fixed charge coverage ratio, as defined in the indenture, is at least 2.0 to 1.0 after giving pro forma effect to such distributions and such cash distributions do not exceed an amount equal to the aggregate net equity proceeds received by it (either as a result of certain capital contributions or from the sale of certain equity or debt securities) plus 50% of its consolidated net income (or less 100% of consolidated net loss) which is defined to exclude certain non-cash charges, such as impairment charges, plus certain other items. Two important exceptions to the foregoing are (i) a permission to pay up to the greater of $100.0 million and 1% of our total assets and (ii) a permission to pay an additional $200.0 million subject to compliance with a total debt ratio of 2 to 1. Our ABL Revolving Credit Facility generally restricts PBF Holding’s ability to make cash distributions if (x) the aggregate amount of such distributions exceeds the then existing available amount basket (as defined by the ABL Revolving Credit Facility) and (y) before and after giving effect to any such distribution, (a) it fails to have pro forma excess availability under the facility greater than an amount equal to 17.5% of the lesser of (1) the then existing borrowing base and (2) the then current aggregate revolving commitment amount, which as of October 26, 2012 was $1.375 billion or (b) it fails to maintain

 

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on a pro forma basis a fixed charge coverage ratio, as defined by the ABL Revolving Credit Facility, of at least 1.1 to 1.0. As a result, we cannot assure you that PBF Holding will be able to make distributions to PBF LLC in order for PBF LLC to make distributions to us. If that is the case, it is unlikely that we will be able to declare dividends as contemplated herein.

 

Based upon our operating results for the quarter ended September 30, 2012, we would have been permitted to pay a quarterly dividend at the rate specified above under our ABL Revolving Credit Facility and senior secured notes, assuming as of the beginning of such period that we had completed this offering at the assumed initial public offering price of $26.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The ability of PBF Holding to comply with the foregoing limitations and restrictions is, to a significant degree, subject to its operating results, which is dependent on a number of factors outside of our control. As a result, we cannot assure you that we will be able to declare dividends as contemplated herein. See “Risk Factors—Risks Related to Our Indebtedness—Restrictive Covenants in our debt instruments may limit our ability to undertake certain types of transactions” and “Risk Factors—Risks Relating to This Offering and Ownership of Our Class A Common Stock. We cannot assure you that we will declare dividends or have the available cash to make dividend payments. We are a holding company that depends upon cash from our subsidiaries to meet our obligations and/or to pay dividends in the future.”

 

PBF LLC made cash distributions to our existing owners in the amount of $15.1 million during the nine months ended September 30, 2012, and prior to the completion of this offering, PBF LLC anticipates making additional cash distributions to our existing owners of approximately $142.8 million, substantially all of which will have constituted tax distributions.

 

Assuming approximately 95,676,893 PBF LLC Series A Units and PBF LLC Series C Units outstanding immediately following the offering, the aggregate annual distributions which are anticipated to be required to be made by PBF LLC to its members (including PBF Energy) in order for PBF Energy to pay the anticipated $0.20 per quarter cash dividend would be approximately $76.5 million. If we had paid an equivalent $0.20 per unit quarterly cash dividend during the nine months ended September 30, 2012, this would have represented the equivalent of approximately 8% of our Adjusted EBITDA for such period. As of September 30, 2012, our cash and cash equivalents totaled $170.0 million. Accordingly, as of September 30, 2012, there was sufficient cash and cash equivalents available to PBF Holding to make distributions to PBF LLC, which in turn will make pro rata distributions to its members, including PBF Energy, necessary to fund in excess of one year’s cash dividend payments by us, as well as approximately $495.1 million of unused borrowing availability under our ABL Revolving Credit Facility to fund our operations, if necessary. We believe our available cash and cash equivalents, other sources of liquidity to operate our business and operating performance provides us with a reasonable basis for our assessment that we can support our intended dividend policy.

 

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and total capitalization as of September 30, 2012:

 

   

on a historical basis for PBF LLC;

 

   

on an as adjusted basis to reflect the payment of cash distributions to our existing owners of $142.8 million and IPO cash bonuses to certain of our employees of $8.2 million prior to the completion of this offering; and

 

   

on a pro forma as further adjusted basis for PBF Energy, giving effect to the transactions described under “Unaudited Pro Forma Consolidated Financial Statements,” including the application of the proceeds from this offering as described in “Use of Proceeds.”

 

This information should be read in conjunction with sections entitled “Organizational Structure,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Unaudited Pro Forma Consolidated Financial Statements,” and the historical consolidated financial statements and related notes thereto included in this prospectus.

 

    September 30, 2012  
        Actual             As Adjusted             Pro Forma    
as Further
Adjusted
 
   

(in thousands, except share and

per share data)

 

Cash and cash equivalents

  $ 170,048      $ 19,048      $ 28,848   
 

 

 

   

 

 

   

 

 

 

Debt:

     

Long-term debt (including current portion)(1)

  $ 732,961      $ 732,961      $ 732,961   

PBF LLC Series B Units

    4,261        4,261          

Equity:

     

Series A Units

    924,840        924,840          

Class A common stock, par value $0.001 per share, 1,000,000,000 shares to be authorized, 16,500,000 shares to be issued and outstanding, on a pro forma basis

                  17   

Class B common stock, par value $0.001 per share, 1,000,000 shares to be authorized, 37 shares to be issued and outstanding, on a pro forma basis

                    

Preferred stock, par value $0.001 per share, 100,000,000 shares to be authorized, none to be issued and outstanding on a pro forma basis

                    

Additional paid-in capital

                    

Accumulated other comprehensive income

    (2,357     (2,357     (2,357

Retained earnings

    710,843        559,843        255,486   
 

 

 

   

 

 

   

 

 

 

Total members’/stockholders’ equity attributable to the Company

    1,633,326        1,482,326        253,145   

Noncontrolling interest

                  1,214,742   
 

 

 

   

 

 

   

 

 

 

Total equity

    1,633,326        1,482,326        1,467,888   
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 2,370,548      $ 2,219,548      $ 2,200,849   
 

 

 

   

 

 

   

 

 

 

 

  (1)   Actual long-term debt includes our Delaware Economic Development Authority Loan of $20.0 million and unamortized original issue discount of $9.2 million related to the senior secured notes.

 

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DILUTION

 

Dilution is the amount by which the offering price paid by purchasers of shares of Class A common stock in this offering will exceed the net tangible book value per share of Class A common stock immediately after the completion of this offering. Net tangible book value per share as of a particular date represents the amount of our total tangible assets less our total liabilities divided by the number of shares of Class A common stock outstanding as of such date. The net tangible book value of our Class A common stock as of September 30, 2012 was $1.5 billion, or approximately $15.79 per share. On a pro forma basis, after giving effect to the transactions described under “Organizational Structure,” including the sale of shares of Class A common stock in this offering at an assumed initial public offering price of $26.00 (the mid-point of the estimated price range set forth on the cover page of this prospectus), assuming that our existing owners exchanged all of their PBF LLC Series A Units for newly-issued shares of Class A common stock on a one-for-one basis, and after deducting the underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of September 30, 2012 would have been $1.5 billion, or approximately $15.34 per share. This represents an immediate decrease in pro forma net tangible book value of $0.45 per share to existing stockholders and an immediate dilution of $10.66 per share to new investors.

 

The following table illustrates this dilution on a per share of Class A common stock basis:

 

Assumed initial public offering price per share

     $ 26.00   

Net tangible book value per share as of September 30, 2012

   $ 15.79     

Decrease in net tangible book value per share attributable to new investors

     (0.45  
  

 

 

   

Pro forma net tangible book value per share after the offering

       15.34   
    

 

 

 

Dilution per share to new investors

     $ 10.66   
    

 

 

 

 

Because our existing owners do not own any Class A common stock or other economic interest in us, we have presented dilution in pro forma net tangible book value per share of Class A common stock to investors in this offering assuming that our existing owners exchanged their PBF LLC Series A Units for newly-issued shares of Class A common stock on a one-for-one basis in order to more meaningfully present the dilutive impact on the investors in this offering.

 

If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share after giving effect to the offering would be $15.94 per share. This represents an increase in pro forma net tangible book value of $0.15 per share to existing stockholders and dilution in pro forma net tangible book value of $10.06 per share to new investors.

 

A $1.00 increase in the assumed initial public offering price of $26.00 per share would increase our pro forma net tangible book value per share after this offering by $0.01 and the dilution to new investors by $0.99, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

A $1.00 decrease in the assumed initial public offering price of $26.00 per share would not change our pro forma net tangible book value per share after this offering and would decrease the dilution to new investors by $1.00, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The following table presents, on a pro forma basis, as of September 30, 2012, the differences among the number of shares of Class A common stock purchased, the total consideration paid or exchanged and the average price per share paid by our existing owners and by new investors purchasing shares of our Class A common stock in this offering, assuming that our existing owners exchanged all of their PBF LLC Series A Units for shares of our Class A common stock on a one-for-one basis, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The table assumes an initial public offering price of $26.00 per share, as specified above, and excludes underwriting discounts and commissions and estimated offering expenses payable by PBF Energy:

 

     Shares Purchased   Total Consideration   Average
Price
Per
Share
     Number    Percent   Amount      Percent  

Existing owners

   79,176,893      82.8%   $ 791,769,000         64.9%   $10.00

New investors

   16,500,000      17.2%   $ 429,000,000         35.1%   $26.00
  

 

  

 

 

 

 

    

 

 

 

Total

   95,676,893    100.0%   $ 1,220,769,000       100.0%   $12.76
  

 

  

 

 

 

 

    

 

 

 

 

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

 

The unaudited pro forma consolidated financial statements are presented to show how we might have looked if the Toledo acquisition, the senior secured notes offering, the Offering Transactions described under “Organizational Structure,” and the use of the estimated net proceeds from this offering as described under “Use of Proceeds” had occurred on the dates and for the periods indicated below. We derived the following unaudited pro forma consolidated financial statements by applying pro forma adjustments to the historical consolidated financial statements of PBF LLC and the statements of revenues and direct expenses of Toledo, each included elsewhere in this prospectus. PBF LLC will be considered our predecessor for accounting purposes, and its consolidated financial statements will be our historical consolidated financial statements following this offering.

 

The unaudited pro forma consolidated statements of operations for the year ended December 31, 2011 have been derived by starting with PBF LLC’s financial data and giving pro forma effect to the consummation of the Toledo acquisition, the senior secured notes offering, the Offering Transactions, and the use of the estimated net proceeds from this offering as if they had occurred on January 1, 2011. The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2012 have been derived by starting with PBF LLC’s unaudited financial data and giving pro forma effect to consummation of the senior secured notes offering, the Offering Transactions, and the use of the estimated net proceeds from this offering as if they had occurred on January 1, 2011. The unaudited pro forma consolidated balance sheet as of September 30, 2012 gives effect to cash distributions to our existing owners made prior to the completion of this offering, the Offering Transactions and the use of the estimated net proceeds from this offering as if they had occurred on September 30, 2012. As a result of the Toledo acquisition, our historical financial results include the results of operations for Toledo from March 1, 2011 forward.

 

We have also provided supplemental unaudited pro forma consolidated statements of operations for the year ended December 31, 2011, supplemental unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2012, and a supplemental unaudited pro forma consolidated balance sheet as of September 30, 2012. In addition to the pro forma adjustments outlined above, such supplemental unaudited pro forma information is provided to give effect to the exchange of all the remaining PBF LLC Series A Units held by the existing owners of PBF LLC for shares of Class A common stock of PBF Energy concurrent with the offering. The supplemental unaudited pro forma financial information is presented for illustrative purposes only as future exchanges of PBF LLC Series A Units for shares of our Class A common stock are dependent on numerous factors outside of our control and such future exchanges are not directly attributable to the Offering Transactions.

 

Sunoco did not manage Toledo as a stand-alone business as either a subsidiary or division, and therefore complete historical financial statements are not available. The statements of revenue and expenses reflect items specifically identified to the refinery and therefore exclude certain other items such as interest income, interest expenses and income taxes not directly related to the refinery. They also reflect certain allocations Sunoco made for shared resources utilized prior to the acquisition which were considered reasonable.

 

The unaudited pro forma consolidated financial information and supplemental unaudited pro forma consolidated financial information is presented for informational purposes only. The unaudited pro forma consolidated financial information and supplemental unaudited pro forma consolidated financial information does not purport to represent what our results of operations or financial condition would have been had the transactions to which the pro forma adjustments relate actually occurred on the dates indicated, and they do not purport to project our results of operations or financial condition for any future period or as of any future date. Further, the unaudited pro forma consolidated financial statements and the supplemental unaudited pro forma consolidated financial statements do not reflect the impact of restructuring activities, cost savings, non-recurring charges, employee termination costs and other exit costs that may result from or in connection with the Toledo acquisition.

 

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The pro forma adjustments for the year ended December 31, 2011 and for the nine months ended September 30, 2012 principally give effect to:

 

   

the impact on interest expense as a result of the senior secured notes offering and the refinancing of our existing senior debt;

 

   

the consummation of the Offering Transactions described in “Organizational Structure—Offering Transactions” and the related effects of the tax receivable agreement. See “Certain Relationships and Related Transactions—Tax Receivable Agreement”; and

 

   

a provision for corporate income taxes on the income of PBF Energy at an effective rate of 39%, which includes a provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state, local and/or foreign jurisdiction.

 

The pro forma adjustments for the year ended December 31, 2011 also give effect to the acquisition of Toledo.

 

The unaudited pro forma consolidated balance sheet and statements of operations and supplemental unaudited consolidated balance sheet and statements of operations should be read in conjunction with the sections entitled “Organizational Structure,” “Use of Proceeds,” “Capitalization,” “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—PBF LLC,” our historical consolidated financial statements and related notes thereto, and the historical financial information and related notes thereto of Toledo, included elsewhere in this prospectus.

 

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Unaudited Pro Forma Consolidated Balance Sheet

As of September 30, 2012

 

    PBF Energy
Company LLC
Actual
    Pro Forma
Adjustments(a)
    PBF Energy
Company LLC

Pro Forma
        Pro Forma
Adjustments
         PBF Energy
Inc.

Pro Forma
 
   

(in thousands)

 

ASSETS

              

Current Assets

              

Cash and cash equivalents

  $ 170,048      $ (151,000   $ 19,048        $ 9,800      (b)    $ 28,848   

Accounts receivable, net

    496,241          496,241               496,241   

Inventories

    1,479,728          1,479,728               1,479,728   

Other current assets

    26,388          26,388               26,388   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Current Assets

    2,172,405        (151,000     2,021,405          9,800           2,031,205   

Property, plant and equipment, net

    1,574,712          1,574,712               1,574,712   

Deferred tax asset

                      117,796      (c)      117,796   

Deferred charges and other assets, net

    185,390          185,390               185,390   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Assets

  $ 3,932,507      $ (151,000   $ 3,781,507        $ 127,596         $ 3,909,103   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

LIABILITIES AND EQUITY

              

Current Liabilities

              

Accounts payable

  $ 246,914        $ 246,914             $ 246,914   

Accrued expenses

    1,082,143          1,082,143               1,082,143   

Deferred revenue

    202,953          202,953               202,953   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Current Liabilities

    1,532,010          1,532,010               1,532,010   

Economic Development Authority Loan

    20,000          20,000               20,000   

Long-term debt

    712,961          712,961               712,961   

Payable to related parties pursuant to tax receivable agreement

                      96,800      (c)      96,800   

Deferred tax liabilities

                           49,495      (c)      49,495   

Other long-term liabilities

    29,949          29,949               29,949   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Liabilities

    2,294,920          2,294,920          146,295           2,441,215   

Commitments and Contingencies

              

Series B Units

    4,261          4,261          (4,261   (d)        

Members’/Stockholders’ Equity

              

Series A Units

    924,840          924,840          (924,840  

(d)

       

Class A common stock

                      17     

(d)

     17   

Class B common stock

                          

(d)

       

Preferred stock

                                  

Additional paid-in capital

                          

(d)

       

Accumulated other comprehensive loss

    (2,357       (2,357                 (2,357

Retained earnings

    710,843        (151,000     559,843          (304,357   (d)      255,486   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Members’ equity/stockholders’ equity attributable to PBF
Energy Inc.

    1,633,326        (151,000     1,482,326          (1,229,181        253,146   

Noncontrolling interest

                           1,214,742     

(e)

     1,214,742   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Liabilities, Series B Units, and Equity

  $ 3,932,507      $ (151,000   $ 3,781,507        $ 127,596         $ 3,909,103   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

 

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Table of Contents

Supplemental Unaudited Pro Forma Consolidated Balance Sheet

As of September 30, 2012

 

    PBF Energy
Company LLC
Actual
    Pro Forma
Adjustments(a)
    PBF Energy
Company LLC

Pro Forma
        Pro Forma
Adjustments
         PBF Energy
Inc.

Pro Forma
 
   

(in thousands)

 

ASSETS

              

Current Assets

              

Cash and cash equivalents

  $ 170,048      $ (151,000   $ 19,048        $ 9,800      (b)    $ 28,848   

Accounts receivable, net

    496,241          496,241               496,241   

Inventories

    1,479,728          1,479,728               1,479,728   

Other current assets

    26,388          26,388               26,388   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Current Assets

    2,172,405        (151,000     2,021,405          9,800           2,031,205   

Property, plant and equipment, net

    1,574,712          1,574,712               1,574,712   

Deferred tax asset

                      796,164      (f)      796,164   

Deferred charges and other assets, net

    185,390          185,390               185,390   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Assets

  $ 3,932,507      $ (151,000   $ 3,781,507        $ 805,964         $ 4,587,471   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

LIABILITIES AND EQUITY

              

Current Liabilities

              

Accounts payable

  $ 246,914        $ 246,914             $ 246,914   

Accrued expenses

    1,082,143          1,082,143               1,082,143   

Deferred revenue

    202,953          202,953               202,953   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Current Liabilities

    1,532,010          1,532,010               1,532,010   

Economic Development Authority Loan

    20,000          20,000               20,000   

Long-term debt

    712,961          712,961               712,961   

Payable to related parties pursuant to tax receivable agreement

                      655,800      (f)      655,800   

Deferred tax liabilities

                           287,764      (f)      287,764   

Other long-term liabilities

    29,949          29,949               29,949   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Liabilities

    2,294,920          2,294,920          943,564           3,238,484   

Commitments and Contingencies

              

Series B Units

    4,261          4,261          (4,261   (g)        

Members’/Stockholders’ Equity

              

Series A Units

    924,840          924,840          (924,840  

(g)

       

Class A common stock

                      96     

(g)

     96   

Class B common stock

                          

(g)

       

Preferred stock

                                  

Additional paid-in capital

                      791,405     

(g)

     791,405   

Accumulated other comprehensive loss

    (2,357       (2,357                 (2,357

Retained earnings

    710,843        (151,000     559,843                    559,843   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Members’ equity/stockholders’
equity

    1,633,326        (151,000     1,482,326          (133,339        1,348,987   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

Total Liabilities, Series B Units, and Equity

  $ 3,932,507      $ (151,000   $ 3,781,507        $ 805,964         $ 4,587,471   
 

 

 

   

 

 

   

 

 

     

 

 

      

 

 

 

 

54


Table of Contents

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AND SUPPLEMENTAL UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

 

(a)   Reflects the net effect on cash and cash equivalents and retained earnings of cash distributions to our existing owners of $142.8 million and IPO cash bonuses to certain of our employees of $8.2 million to be made prior to the completion of this offering.

 

(b)   Reflects the net effect on cash and cash equivalents of the receipt of offering proceeds of $9.8 million and net uses of proceeds as described in “Use of Proceeds”.

 

(c)   Reflects adjustments to give effect to the tax receivable agreement (as described in “Certain Relationships and Related Transactions—Tax Receivable Agreement”) based on the following assumptions:

 

   

we will record an increase of $117.8 million in deferred tax assets for estimated income tax effects of the increase in the tax basis of the purchased interests, based on an effective income tax rate of 39% (which includes a provision for U.S. federal, state, and local income taxes);

 

   

we will record $96.8 million, representing 85% of the estimated realizable tax benefit resulting from (i) the increase in the tax basis of the purchased interests as noted above 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 as an increase to the liability under the tax receivable agreement;

 

   

We will record an increase of $49.5 million in deferred tax liabilities reflecting the expected future tax consequences of the differences between the carrying amounts of existing assets and liabilities and their respective tax bases. The deferred tax liabilities arise from taxable temporary differences primarily related to depreciation on property, plant and equipment.

 

   

we will record a decrease of $28.5 million to additional paid-in-capital, which is an amount equal to the difference between the increase in deferred tax assets and liabilities and the increase in the liability due to existing owners under the tax receivable agreement; and

 

   

there are no material changes in the relevant tax law and that we earn sufficient taxable income in each year to realize the full tax benefit of the amortization of our assets.

 

(d)   Represents adjustments to stockholders’ equity reflecting (i) par value for Class A and Class B common stock to be outstanding following this offering, (ii) an increase of $9.8 million of additional paid-in capital as a result of net proceeds from this offering, (iii) a decrease of $28.5 million of additional paid-in-capital due to the deferred tax asset, tax receivable agreement and deferred tax liabilities as described in footnote (c) above, (iv) an increase of $18.7 million of additional paid-in-capital to allocate a portion of PBF Energy’s equity to the noncontrolling interest, (v) the elimination of PBF LLC Series A Units of $924.8 million upon consolidation, (vi) the elimination of PBF LLC Series B Units of $4.3 million upon consolidation, and (vii) a decrease of $304.4 million in retained earnings to allocate a portion of PBF Energy’s equity to noncontrolling interest.

 

(e)   As described in “Organizational Structure,” PBF Energy will become the sole managing member of PBF LLC. PBF Energy will initially own less than 100% of the economic interest in PBF LLC, but will have 100% of the voting power and control the management of PBF LLC. As a result, we will consolidate the financial results of PBF LLC and will record a noncontrolling interest. Immediately following this offering, the noncontrolling interest, based on the assumptions to the pro forma information, will be 82.8%. Pro forma noncontrolling interest represents 81.2% of the pro forma equity of PBF LLC of $1.5 billion, which differs from the pro forma equity of PBF Energy as the former is not affected by the adjustments related to the tax receivable agreement described in footnote (c).

 

(f)  

Future exchanges of our Class A common stock for PBF LLC Series A Units by our existing owners, or purchases of PBF LLC Series A Units by us, could result in changes to our deferred tax asset, deferred tax liabilities and amounts owed under our tax receivable agreement. These adjustments give effect to the tax

 

55


Table of Contents
  receivable agreement (as described in “Certain Relationships and Related Transactions—Tax Receivable Agreement”) assuming all of the PBF LLC Series A Units are sold to us or exchanged for our Class A common stock concurrent with the offering. These adjustments do not reflect the Offering Transactions and are provided for illustrative purposes only. These adjustments are based on the following assumptions:

 

   

we will record an increase of $796.2 million in deferred tax assets for estimated income tax effects of the increase in the tax basis of the purchased interests, based on an effective income tax rate of 39% (which includes a provision for U.S. federal, state, and local income taxes);

 

   

we will record $655.8 million, representing 85% of the estimated realizable tax benefit resulting from (i) the increase in the tax basis of the purchased interests as noted above 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 as an increase to the liability under the tax receivable agreement;

 

   

we will record an increase of $287.8 million in deferred tax liabilities reflecting the expected future tax consequences of the differences between the carrying amounts of existing assets and liabilities and their respective tax bases. The deferred liabilities arise from taxable temporary differences primarily related to depreciation on property, plant and equipment;

 

   

we will record a decrease of $147.4 million to additional paid-in-capital, which is an amount equal to the difference between the increase in deferred tax assets and liabilities and the increase in the liability due to existing owners under the tax receivable agreement; and

 

   

there are no material changes in the relevant tax law and that we earn sufficient taxable income in each year to realize the full tax benefit of the amortization of our assets.

 

(g)   Represents adjustments to stockholders’ equity assuming all of the PBF LLC Series A Units are sold to us or exchanged for our Class A common stock concurrent with the offering. The adjustments do not reflect the Offering Transactions and are provided for illustrative purposes only. The adjustments to stockholders’ equity reflect (i) par value for Class A and Class B common stock to be outstanding following this offering, (ii) an increase of $9.8 million of additional paid-in capital as a result of net proceeds from this offering, (iii) a decrease of $147.4 million in additional paid-in-capital due to the deferred tax asset, tax receivable agreement and deferred tax liabilities as described in footnote (f) above, (iv) the elimination of PBF LLC Series A Units of $924.8 million upon consolidation, and (v) the elimination of PBF LLC Series B Units of $4.3 million upon consolidation.

 

56


Table of Contents

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Nine Months Ended September 30, 2012

 

    PBF Energy
Company LLC

Actual
    Pro Forma
Adjustments(h)
    PBF Energy
Company LLC
Pro Forma
    Pro Forma
Adjustments(i)
          PBF Energy
Inc.
 
    (in thousands)  

Revenues

  $ 15,188,327        $ 15,188,327          $ 15,188,327   

Cost and expenses

           

Cost of sales, excluding depreciation

    13,871,884          13,871,884            13,871,884   

Operating expenses, excluding depreciation

    537,880          537,880            537,880   

General and administrative expenses

    78,042          78,042            78,042   

Gain on sale of asset

    (2,430       (2,430)            (2,430

Depreciation and amortization expense

    67,419          67,419            67,419   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
    14,552,795          14,552,795            14,552,795   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating income (loss)

    635,532          635,532            635,532   

Other income (expense)

           

Change in fair value of catalyst lease obligation

    (6,929            (6,929)            (6,929

Change in fair value of contingent consideration

    (2,076            (2,076)            (2,076

Interest expense, net

    (86,753     (139 ) (l)      (86,892)            (86,892
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
    539,774        (139     539,635            539,635   

Income tax expense (benefit)

                         36,295        (o)        36,295   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

  $ 539,774      $ (139   $ 539,635        (36,295       503,340   
 

 

 

   

 

 

   

 

 

       

Less—net income (loss) attributable to noncontrolling interest

          446,572        (q)        446,572   
       

 

 

     

 

 

 

Net income (loss) attributable to PBF Energy Inc.

        $ (482,867     $ 56,768   
       

 

 

     

 

 

 

Weighted Average Shares of Class A common stock outstanding(r)

           

Basic

              16,500,000   

Diluted

              17,760,661   

Net income available to Class A common stock per share(r)

           

Basic

            $ 3.44   

Diluted

            $ 3.40   

 

57


Table of Contents

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2011

 

    PBF Energy
Company LLC

Actual
    Toledo
Period from
January 1,
2011
through
February 28,
2011(p)
    Pro Forma
Adjustments(h)
        PBF Energy
Company LLC
Pro Forma
    Pro Forma
Adjustments(i)
          PBF Energy
Inc.
 
    (in thousands)  

Revenues

  $ 14,960,338      $ 1,053,206      $ (52,015   (n)   $  15,961,529          $ 15,961,529   

Cost and expenses

               

Cost of sales, excluding depreciation

    13,855,163        916,418        (52,015   (n)     14,719,566            14,719,566   

Operating expenses, excluding depreciation

    658,831        40,726                 699,557            699,557   

General and administrative expenses(m)

    86,183        3,674                 89,857            89,857   

Acquisition related expenses

    728               (556   (j)     172            172   

Depreciation and amortization expense

    53,743               4,209      (k)     57,952            57,952   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
    14,654,648        960,818        (48,362       15,567,104            15,567,104   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income (loss) from operations

    305,690        92,388        (3,653       394,425            394,425   

Other income (expense)

               

Change in fair value of catalyst lease obligation

    7,316                        7,316            7,316   

Change in fair value of contingent consideration

    (5,215                     (5,215         (5,215

Interest expense, net

    (65,120            (30,542   (l)     (95,662         (95,662

Other income

           59                 59            59   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
    242,671        92,447        (34,195       300,923            300,923   

Income tax expense (benefit)

                                  20,239        (o)        20,239   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss)

  $ 242,671      $ 92,447      $ (34,195     $ 300,923        (20,239       280,684   
 

 

 

   

 

 

   

 

 

     

 

 

       

Less—net income (loss) attributable to noncontrolling interest

              249,027        (q)        249,027   
           

 

 

     

 

 

 

Net income (loss) attributable to PBF Energy Inc.

            $ (269,266)        $ 31,657   
           

 

 

     

 

 

 

Weighted Average Shares of Class A common stock outstanding(r)

               

Basic

                  16,500,000   

Diluted

                  17,594,441   

Net income available to Class A common stock per share(r)

               

Basic

                  $  1.92   

Diluted

                  $  1.90   

 

58


Table of Contents

Supplemental Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Nine Months Ended September 30, 2012

 

    PBF Energy
Company LLC

Actual
    Pro Forma
Adjustments(h)
    PBF Energy
Company LLC
Pro Forma
    Pro Forma
Adjustments(s)
          PBF Energy
Inc.
 
    (in thousands)  

Revenues

  $ 15,188,327        $ 15,188,327          $ 15,188,327   

Cost and expenses

           

Cost of sales, excluding depreciation

    13,871,884          13,871,884            13,871,884   

Operating expenses, excluding depreciation

    537,880          537,880            537,880   

General and administrative expenses

    78,042          78,042            78,042   

Gain on sale of asset

    (2,430       (2,430)            (2,430

Depreciation and amortization expense

    67,419          67,419            67,419   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
    14,552,795          14,552,795            14,552,795   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating income (loss)

    635,532          635,532            635,532   

Other income (expense)

           

Change in fair value of catalyst lease obligation

    (6,929            (6,929)            (6,929

Change in fair value of contingent consideration

    (2,076            (2,076)            (2,076

Interest expense, net

    (86,753     (139 ) (l)      (86,892)            (86,892
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
    539,774        (139     539,635            539,635   

Income tax expense (benefit)

                         210,458        (o)        210,458   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

  $ 539,774      $ (139   $ 539,635      $ (210,458     $ 329,177   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Weighted Average Shares of Class A common stock outstanding(t)

           

Basic

              95,676,893   

Diluted

              96,937,555   

Net income available to Class A common stock per share(t)

           

Basic

            $ 3.44   

Diluted

            $ 3.40   

 

59


Table of Contents

Supplemental Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2011

 

    PBF Energy
Company LLC

Actual
    Toledo
Period from
January 1,
2011
through
February 28,
2011(p)
    Pro Forma
Adjustments(h)
        PBF Energy
Company LLC
Pro Forma
    Pro Forma
Adjustments(s)
          PBF Energy
Inc.
 
    (in thousands)  

Revenues

  $ 14,960,338      $ 1,053,206      $ (52,015   (n)   $  15,961,529          $ 15,961,529   

Cost and expenses

               

Cost of sales, excluding depreciation

    13,855,163        916,418        (52,015   (n)     14,719,566            14,719,566   

Operating expenses, excluding depreciation

    658,831        40,726                 699,557            699,557   

General and administrative expenses(m)

    86,183        3,674                 89,857            89,857   

Acquisition related expenses

    728               (556   (j)     172            172   

Depreciation and amortization expense

    53,743               4,209      (k)     57,952            57,952   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
    14,654,648        960,818        (48,362       15,567,104            15,567,104   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income (loss) from operations

    305,690        92,388        (3,653       394,425            394,425   

Other income (expense)

               

Change in fair value of catalyst lease obligation

    7,316                        7,316            7,316   

Change in fair value of contingent consideration

    (5,215                     (5,215         (5,215

Interest expense, net

    (65,120            (30,542   (l)     (95,662         (95,662

Other income

           59                 59            59   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
    242,671        92,447        (34,195       300,923            300,923   

Income tax expense (benefit)

                                  117,360        (o)        117,360   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss)

  $ 242,671      $ 92,447      $ (34,195     $ 300,923      $ (117,360     $ 183,563   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

   

 

 

     

 

 

 

Weighted Average Shares of Class A common stock outstanding(t)

               

Basic

                  95,676,893   

Diluted

                  96,771,335   

Net income available to Class A common stock per share(t)

               

Basic

                  $  1.92   

Diluted

                  $  1.90   

 

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NOTES TO THE UNAUDITED PRO FORMA

CONSOLIDATED STATEMENTS OF OPERATIONS

AND SUPPLEMENTAL UNAUDITED PRO FORMA

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(h)   These pro forma adjustments give effect to the senior secured notes offering. The pro forma adjustments for the year ended December 31, 2011 also give effect to the acquisition of Toledo.

 

(i)   These pro forma adjustments give effect to the Offering Transactions.

 

(j)   To eliminate the acquisition related expenses that relate to the Toledo acquisition.

 

(k)   To reflect the change in depreciation and amortization arising from the Toledo acquisition as a result of the pro forma depreciation and amortization expense for the two months prior to our acquisition of Toledo on March 1, 2011.

 

(l)   Estimates the impact of the senior secured notes offering and the refinancing of existing senior debt as follows:

 

     Nine Months
Ended
September 30,
2012
    Year Ended
December 31,
2011
 

Estimated interest expense for the notes issued in connection with the senior secured notes offering(1)

   $ (6,217   $ (57,393

Estimated amortization of deferred financing fees related to the notes issued in connection with the senior secured notes offering(2)

     (244     (2,250

Eliminate historical interest expense and amortization of deferred financing fees for refinanced debt(3)

     6,322        29,101   
  

 

 

   

 

 

 

Pro forma adjustment

   $ (139   $ (30,542
  

 

 

   

 

 

 

 

  (1)   Reflects pro forma cash interest expense related to the notes issued in connection with the senior secured notes offering.
  (2)   Amortization expense related to the estimated deferred financing fees capitalized in connection with the indebtedness to be incurred in connection with the senior secured notes offering, which are being amortized over 8 years.
  (3)   Reflects the elimination of historical interest expense and amortization of deferred financing fees, net of the unused commitment fee, arising from debt instruments paid off in connection with the notes issued in connection with the senior secured notes offering.

 

(m)   General and administrative expenses represent historical costs from PBF LLC and Toledo. Toledo’s historical financial information includes certain general and administrative costs incurred by Sunoco that were subsequently allocated to Toledo as direct and indirect costs attributable to the refinery. These costs are not necessarily indicative of what would have been incurred had the refinery been a standalone entity or operated as a subsidiary of PBF LLC nor are these costs necessarily indicative of what general and administrative costs will be in the future. In addition, under various transition service agreements with Sunoco, we have incurred a total of $13.7 million of expense for the ten month period ended December 31, 2011.
(n)   To adjust consumer excise taxes reported gross within the historical Toledo statement of operations to net which conforms to PBF LLC accounting policy and statement of operations presentation.

 

(o)  

Following the Offering Transactions, PBF Energy will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to its allocable share of any taxable income of PBF LLC. As a result, the pro forma consolidated statement of operations reflects an adjustment to our provision for

 

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  corporate income taxes to reflect an effective rate of 39%, which includes provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state and local jurisdictions.

 

(p)   Reflects the historical revenues and direct expenses of Toledo. The statements of revenue and expenses reflect items specifically identified to the refinery and therefore exclude certain other items such as interest income, interest expenses and income taxes not directly related to the refinery. They also reflect certain allocations Sunoco made for shared resources utilized prior to the acquisition which were considered reasonable.

 

(q)   As described in “Organizational Structure,” PBF Energy will become the sole managing member of PBF LLC. PBF Energy will initially own less than 100% of the economic interest in PBF LLC, but will have 100% of the voting power and control the management of PBF LLC. Immediately following this offering, the noncontrolling interest will be 82.8%. Net income attributable to the noncontrolling interest represents 82.8%, or $446.6 of income before income taxes of $539.6 for the nine months ended September 30, 2012 and 82.8%, or $249.0 of income before income taxes of $300.9 for the year ended December 31, 2011. Net income available to Class A common stock per share would not be significantly different if the assumed offering price changed by $1.00.

 

(r)   The shares of Class B common stock do not share in our earnings and are therefore not included in the weighted average shares outstanding or net income available per share.

 

(s)   These pro forma adjustments assume the exchange of all the remaining PBF LLC Series A Units held by the existing owners of PBF LLC for shares of Class A common stock of PBF Energy concurrent with the offering. The supplemental pro forma adjustments are presented for illustrative purposes only as such future exchanges are not directly attributable to the Offering Transactions and do not necessarily reflect the actual amount of exchanges that may occur subsequent to the offering.

 

(t)   The shares of Class B common stock do not share in our earnings and are therefore not included in the weighted average shares outstanding or net income available per share. The pro forma weighted average shares outstanding and net income available per share give effect to the exchange of all the remaining PBF LLC Series A Units held by the existing owners of PBF LLC for shares of Class A common stock of PBF Energy concurrent with the offering. The supplemental pro forma adjustments are presented for illustrative purposes only as such future exchanges are not directly attributable to the Offering Transactions and do not necessarily reflect the actual amount of exchanges that may occur subsequent to the offering. Net income available to Class A common stock per share would not be significantly different if the assumed offering price changed by $1.00.

 

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SELECTED FINANCIAL DATA

 

Selected Historical Consolidated Financial Data of PBF LLC

 

The following table presents the selected historical consolidated financial data of PBF LLC. PBF LLC will be considered our predecessor for accounting purposes, and its consolidated financial statements will be our historical consolidated financial statements following this offering. The selected historical consolidated financial data as of December 31, 2010 and 2011 and for the years ended December 31, 2009, 2010 and 2011 have been derived from audited financial statements of PBF LLC, included elsewhere in this prospectus. The selected historical consolidated financial data for the period from March 1, 2008 (date of inception) through December 31, 2008 and as of December 31, 2008 and 2009 have been derived from the audited financial statements of PBF LLC not included in this prospectus. As a result of the Paulsboro and Toledo acquisitions, the historical consolidated financial results of PBF LLC only include the results of operations for Paulsboro and Toledo from December 17, 2010 and March 1, 2011 forward, respectively. The information as of September 30, 2011 and 2012, and for the nine months ended September 30, 2011 and 2012 was derived from the unaudited condensed consolidated financial statements of PBF LLC (included elsewhere in this prospectus) which include all adjustments, consisting of normal recurring adjustments, which management considers necessary for a fair presentation of the financial position and the results of operations for such periods. Results for the interim periods are not necessarily indicative of the results for the full year.

 

The historical consolidated financial data and other statistical data presented below should be read in conjunction with the consolidated financial statements of PBF LLC and the related notes thereto, included elsewhere in this prospectus, and the sections entitled “Unaudited Pro Forma Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The consolidated financial information may not be indicative of our future performance.

 

PBF ENERGY COMPANY LLC AND SUBSIDIARIES

 

    Period From
March 1, 2008
(Date of Inception)
through

December 31,
2008(3)
    Year Ended
December 31,
2009(3)
    Year Ended
December 31,
2010
    Year Ended
December 31,
2011
    Nine
Months
Ended
September  30,
2011
    Nine
Months
Ended
September  30,
2012
 
   

(in thousands)

 

Statement of operations data:

           

Revenues(1)

  $ 134      $ 228      $ 210,671      $ 14,960,338      $ 10,183,897      $ 15,188,327   

Cost and expenses

           

Cost of sales, excluding depreciation

                  203,971        13,855,163        9,147,063        13,871,884   

Operating expenses, excluding depreciation

                  25,140        658,831        457,722        537,880   

General and administrative expenses

    6,378        6,294        15,859        86,183        71,533        78,042   

Acquisition related expenses(2)

                  6,051        728        684          

Gain on sale of asset

                   (2,430

Depreciation and amortization expense

    18        44        1,402        53,743        35,636       
67,419
  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    6,396        6,338        252,423        14,654,648        9,712,638        14,552,795   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

    (6,262     (6,110     (41,752     305,690        471,259        635,532   

Other (expense) income

           

Change in fair value of catalyst lease obligation

                  (1,217     7,316        4,848        (6,929

Change in fair value of contingent consideration

                         (5,215     (4,829     (2,076

Interest income (expense), net

    198        10        (1,388     (65,120     (44,127     (86,753
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (6,064     (6,100     (44,357     242,671        427,151        539,774   

Less—Net loss attributable to the noncontrolling interest

    (165                                   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to PBF Energy Company LLC

  $ (6,229   $ (6,100   $ (44,357   $ 242,671      $ 427,151      $ 539,774   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance sheet data (at end of period):

           

Total assets

  $ 25,040      $ 19,150      $ 1,274,393      $ 3,621,109      $ 3,872,150      $ 3,932,507   

Total long-term debt(4)

                  325,064        804,865        713,255        732,961   

Total equity

    24,810        18,694        456,739        1,107,615        1,293,211        1,633,326   

Other financial data:

           

Capital expenditures(5)

  $ 118      $ 70      $ 72,118      $ 551,544      $ 504,034      $ 129,505   

 

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  (1)   Consulting services income provided to a related party was $10, $221, and $98 for the years ended December 31, 2010, 2009 and the period from March 1, 2008 (date of inception) to December 31, 2008, respectively. No consulting services income was earned subsequent to 2010.
  (2)