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As filed with the Securities and Exchange Commission on November 6, 2012

Registration Statement No. 333-177933

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Amendment No. 4

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)

 

 

 

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.

 

 

 

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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 November 6, 2012

 

         Shares

 

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 and certain of our employees. 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 $         and $         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     % of the voting power of PBF Energy Inc. The holders of our Class B common stock will have the remaining     % 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 16.

 

 

 

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         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

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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.

 

“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.

 

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“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.

 

“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.

 

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“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.

 

“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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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. 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 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.

 

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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 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;

 

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•

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.

 

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.

 

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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.

 

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.”

 

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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 $         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 $         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.”

 

A significant portion of the proceeds from this offering will be used to purchase PBF LLC Series A Units from Blackstone and First Reserve and certain of our employees.

 

We intend to use a significant portion 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 and certain of our employees 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 $             per share of Class A common stock following the completion of this offering. The declaration, timing and amount of any dividends on our Class A common stock will be subject to our actual future earnings and capital requirements and at the discretion of our board of directors. 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. 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.

 

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.

 

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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 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.

 

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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.

 

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, each of Blackstone and First Reserve will continue to beneficially own in the aggregate approximately     % of the combined voting power of our common stock (or         % 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

 

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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, provided 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.

 

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 a significant portion 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 $         (or $         if the underwriters exercise their option to purchase additional shares) and to range over the next 15 years from approximately $         million to $         million per year (or

 

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approximately $         million to $         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. As a result, (i) we could be required to make payments under the tax receivable agreement that are significantly greater than the specified percentage of the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement, and (ii) if we elect to terminate the tax receivable agreement early or if we undergo certain changes of control, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits (based on the foregoing assumptions), which upfront payment may be made years in advance of the actual realization, if any, of such future tax benefits. 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     %, we estimate that the aggregate amount of these change of control payments would be approximately $     if triggered immediately after this offering. In these situations, our obligations under the tax receivable agreement could have a substantial negative 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.

 

However, 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 benefit 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;

 

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•

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:

 

 

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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 92,281,716 PBF LLC Series A Units issued and outstanding, of which 44,861,169 units were owned by each of Blackstone and First Reserve, 2,535,473 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 4,774,630 PBF LLC Series A Units at a weighted average exercise price of $10.26 per unit, 4,179,610 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 by PBF Energy. Following this offering, PBF Energy will have the right to determine the timing and amount of any distributions (other than tax distributions) 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. The PBF LLC Series A Units and the PBF LLC Series C Units are generally identical in all respects, except that the PBF LLC Series B Units share in the allocations of income and distributions that would otherwise be made to our financial sponsors, and therefore do not dilute the interests of the PBF LLC Series A Units held by our management and certain directors, the holder of PBF LLC Series C Units (PBF Energy) or the direct holders of our Class A common stock. 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.

 

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.”

 

Prior to completion of this offering,             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

 

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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 certain of our employees 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                      PBF LLC Series A Units from Blackstone and First Reserve and certain of our employees for an aggregate of $           million, and will use the remaining net proceeds of this offering to purchase              newly-issued PBF LLC Series C Units from PBF LLC in an amount equal to $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). 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 and certain of our employees.

 

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 subsequent exchanges 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 PBF Energy at the time of this offering will be approximately $         million (or $         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.

 

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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              shares of our Class A common stock (or              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          PBF LLC Series C Units (or          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     % of the total economic interest of PBF LLC;

 

•

our existing owners will hold          PBF LLC Series A Units, representing     % of the total economic interest of PBF LLC (or     % 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     % of the voting power in PBF Energy (or     % 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     % of the voting power in PBF Energy (or     % 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 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.

 

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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 $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

PBF Energy intends to use $         million 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 and certain of our employees, 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 $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), 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 $         million (or $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and other offering expenses estimated at $         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 $         per share would increase (decrease) the net proceeds to PBF Energy from this offering by approximately $         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 $         per share on our Class A common stock following this offering, commencing in the fiscal quarter following this offering. We determined this dividend rate in an effort to provide our stockholders with an attractive annual return on their investment and after taking into consideration our cash flow from operations. The declaration, timing and amount of any dividends on our Class A common stock will be subject to our actual future earnings and capital requirements and at the discretion of our board of directors. 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. 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 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. 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.

 

The ability of PBF Holding to pay dividends and make distributions is and in the future may be limited by covenants in its ABL Revolving Credit Facility, the senior secured notes and other debt instruments. 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 Related to Our Indebtedness—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. Prior to the completion of this offering, PBF LLC anticipates making additional cash distributions to our existing owners of $             million.

 

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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 $         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			$				$
Debt:
Long-term debt (including current portion)(1)		$	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,                  shares to be authorized,                  shares to be issued and outstanding, actual;                  shares to be authorized,                  shares to be issued and outstanding, on a pro forma basis			—				—
Class B common stock, par value $0.001 per share,                  shares to be authorized,                  shares to be issued and outstanding, actual;                  shares to be authorized,                  shares to be issued and outstanding, on a pro forma basis			—				—
Additional paid-in capital			—				—
Accumulated other comprehensive income			(2,357	)			(2,357	)
Retained earnings			710,843
Total members’/stockholders’ equity attributable to the Company			1,633,326
Noncontrolling interest			—
Total equity			1,633,326
Total capitalization		$	2,370,548			$				$

 

(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 $        , or approximately $         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 $         (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 $        , or approximately $         per share. This represents an immediate increase in pro forma net tangible book value of $         per share to existing stockholders and an immediate dilution of $         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						$
Net tangible book value as of September 30, 2012		$
Increase in net tangible book value per share attributable to new investors
Pro forma net tangible book value per share after the offering
Dilution per share to new investors						$

 

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 $         per share. This represents an increase in pro forma net tangible book value of $         per share to existing stockholders and dilution in pro forma net tangible book value of $         per share to new investors.

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) our pro forma net tangible book value per share after this offering and the dilution to new investors by $        , 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 $         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
New investors
Total

 

 

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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.

 

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 is presented for informational purposes only. The 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 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. For example, the unaudited pro forma consolidated financial data does not give effect to the anticipated termination of employees deemed redundant or the reconfiguration of facilities.

 

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     %, 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.

 

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The unaudited pro forma 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			$				$						$				(b)		$
Accounts receivable, net			496,241								496,241
Inventories			1,479,728								1,479,728
Other current assets			26,388								26,388
Total Current Assets			2,172,405
Property, plant and equipment, net			1,574,712								1,574,712
Deferred tax asset			—								—									(c)
Deferred charges and other assets, net			185,390								185,390
Total Assets		$	3,932,507			$				$						$						$
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable		$	246,914							$	246,914											$
Accrued expenses			1,082,143								1,082,143
Deferred revenue			202,953								202,953
Total Current Liabilities			1,532,010								1,532,010
Economic Development Authority Loan			20,000								20,000
Long-term debt			712,961								712,961
Payable to related parties pursuant to tax receivable agreement			—								—									(c)
Other long-term liabilities			29,949								29,949
Total Liabilities			2,294,920								2,294,920
Commitments and Contingencies
Series B Units			4,261								4,261									(d)
Members’/Stockholders’ Equity
Series A Units			924,840								924,840									(d)
Class A common stock			—								—									(d)
Class B common stock			—								—									(d)
Additional paid-in capital			—								—									(d)
Accumulated other comprehensive loss			(2,357	)							(2,357	)
Retained earnings			710,843																	(d)
Members’ equity/stockholders’ equity attributable to PBF Energy Inc.			1,633,326
Noncontrolling interest											—									(e)
Total Liabilities, Series B Units, and Equity		$	3,932,507			$				$						$						$

 

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NOTES TO THE 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 $             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 $             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 $         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     % (which includes a provision for U.S. federal, state, and local income taxes);

 

•

we will record $         million, representing     % 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 $             million to additional paid-in-capital, which is an amount equal to the difference between the increase in deferred tax assets 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 $         million of additional paid-in capital as a result of net proceeds from this offering, (iii) an increase of $         million of additional paid-in-capital due to the tax receivable agreement as described in footnote (c) above, (iv) a decrease of $         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 $         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     %. Pro forma noncontrolling interest represents     % of the pro forma equity of PBF LLC of $        , 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).

 

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Unaudited Pro Forma Consolidated Statement of Operations

For the Nine Months Ended September 30, 2012

 

		PBF Energy Company LLC Actual				Pro Forma Adjustments(f)				PBF Energy Company LLC Pro Forma				Pro Forma Adjustments(g)						PBF Energy Inc.
		(in thousands)
Revenues		$	15,188,327							$	15,188,327
Cost and expenses
Cost of sales, excluding depreciation			13,871,884								13,871,884
Operating expenses, excluding depreciation			537,880								537,880
General and administrative expenses(i)			78,042								78,042
Gain on sale of asset			(2,430	)							(2,430)
Depreciation and amortization expense			67,419								67,419
			14,552,795								14,552,795
Operating income (loss)			635,532								635,532
Other income (expense)
Change in fair value of catalyst lease obligation			(6,929	)			—				(6,929)
Change in fair value of contingent consideration			(2,076	)			—				(2,076)
Interest expense, net			(86,753	)			(139	) (j)			(86,892)
			539,774				(139	)			539,635
Income tax expense (benefit)			—				—				—						(m)
Net income		$	539,774			$	(139	)		$	539,635
Less net income attributable to noncontrolling interest																	(o)
Net income attributable to PBF Energy Inc.																				$
Weighted Average Shares of Class A common stock outstanding(p)
Basic
Diluted
Net income available to Class A common stock per share(p)
Basic
Diluted

 

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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(n)				Pro Forma Adjustments(f)						PBF Energy Company LLC Pro Forma				Pro Forma Adjustments(g)						PBF Energy Inc.
		(in thousands)
Revenues		$	14,960,338			$	1,053,206			$	(52,015	)		(l)		$	15,961,529
Cost and expenses
Cost of sales, excluding depreciation			13,855,163				916,418				(52,015	)		(l)			14,719,566
Operating expenses, excluding depreciation			658,831				40,726				—						699,557
General and administrative expenses(j)			86,183				3,674				—						89,857
Acquisition related expenses			728				—				(556	)		(h)			172
Depreciation and amortization expense			53,743				—				4,209			(i)			57,952
			14,654,648				960,818				(48,362	)					15,567,104
Income (loss) from operations			305,690				92,388				(3,653	)					394,425
Other income (expense)
Change in fair value of catalyst lease obligation			7,316				—				—						7,316
Change in fair value of contingent consideration			(5,215	)			—				—						(5,215	)
Interest expense, net			(65,120	)			—				(30,542	)		(j)			(95,662	)
Other income			—				59				—						59
			242,671				92,447				(34,195	)					300,923
Income tax expense (benefit)			—				—				—						—						(m)
Net income		$	242,671			$	92,447			$	(34,195	)				$	300,923
Less net income attributable to noncontrolling interest																							(o)
Net income attributable to PBF Energy Inc.																										$
Weighted Average Shares of Class A common stock outstanding(p)
Basic
Diluted
Net income available to Class A common stock per share(p)
Basic
Diluted

 

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NOTES TO THE UNAUDITED PRO FORMA

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(f)

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.

 

(g)

These pro forma adjustments give effect to the Offering Transactions.

 

(h)

To eliminate the acquisition related expenses that relate to the Toledo acquisition.

 

(i)

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.

 

(j)

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.

 

(k)

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 administration 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.

(l)

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.

 

(m)

Following the Offering Transactions, PBF Energy will be subject to U.S. federal income taxes, in addition to state and local and foreign 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 corporate income taxes to reflect an effective rate of         %, which includes provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state and local jurisdictions.

 

(n)

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

 

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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.

 

(o)

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     %. Net income attributable to the noncontrolling interest represents     %, $         of income before income taxes of $         for the nine months ended September 30, 2012 and     %, $         of income before income taxes of $         for the year ended December 31, 2011. These amounts have been determined based on an offering price of $         and the assumption that the underwriter’s option to purchase additional shares is not exercised. If the assumed offering price increased by $1.00 to $         per share, the ownership percentage held by the noncontrolling interest would decrease to     %, or     % if the over-allotment is exercised. If the assumed offering price decreased by $1.00 to $         per share, the ownership percentage held by the noncontrolling interest would increase to     % or     % if the over-allotment is exercised. Net income available to Class A common stock per share would not be significantly different if the assumed offering price changed by $1.00.

 

(p)

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 (loss) available per share.

 

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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
			(6,262	)			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)

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, 2008 and 2009 balance sheet data is that of PBF Investments 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)

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

 

Selected Historical Financial Data of Paulsboro, PBF LLC’s Predecessor

 

The following table presents Paulsboro’s selected historical financial data. We refer to Paulsboro as PBF LLC’s “Predecessor” or “Predecessor Paulsboro,” as prior to its acquisition PBF LLC generated substantially no revenues and prior to the acquisition of Paulsboro and the Delaware City assets, was a new company formed to pursue acquisitions of crude oil refineries and downstream assets in North America. At the time of its acquisition, Paulsboro represented the major portion of PBF LLC’s business and assets.

 

The financial statements and supplementary data of Predecessor Paulsboro, are presented as of, and for the years ended, December 31, 2008 and 2009 and for the period from January 1, 2010 through December 16, 2010 and as of December 16, 2010, periods prior to PBF LLC’s acquisition. These financial statements were prepared by the former management of Predecessor Paulsboro and audited by Predecessor Paulsboro’s independent registered public accounting firm. The financial statements and supplementary data of Predecessor Paulsboro presented herein may not be representative of the operations of PBF going forward for the following reasons, among others:

 

•

Both PBF LLC’s financial statements and Paulsboro’s financial statements contain items which require management to make considerable judgments and estimates. There can be no assurance that the judgments and estimates made by PBF LLC’s management will be identical or even similar to the historical judgments and estimates made by Paulsboro’s former management.

 

•

The financial statements of Paulsboro contain allocations of certain general and administrative expenses and income taxes specific to Valero.

 

•

The financial statements of Paulsboro reflect depreciation and amortization expense and asset impairment losses based on Valero’s historical cost basis for the applicable assets. PBF LLC’s cost basis in such assets is different.

 

The historical financial data and other statistical data presented below should be read in conjunction with Paulsboro’s financial statements and the related notes thereto for the year ended December 31, 2009 and for the period from January 1, 2010 through December 16, 2010 and as of December 16, 2010, 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—Results of Operations—Predecessor Paulsboro.” The historical financial data for Paulsboro for the year ended December 31, 2008 and as of December 31, 2008 and 2009 has been derived from audited financial statements not included in this prospectus.

 

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PAULSBORO REFINING BUSINESS—PBF LLC’S PREDECESSOR

 

		Year Ended December 31,								Period from January 1, 2010 through December 16, 2010
		2008				2009
						(in thousands)
Statement of operations data:
Operating revenues(1)		$	6,448,379			$	3,549,517			$	4,708,989
Cost and expenses:
Cost of sales(2)			5,718,685				3,419,460				4,487,825
Operating expenses			317,093				266,319				259,768
General and administrative expenses(3)			15,619				15,594				14,606
Asset impairment loss			705				8,478				895,642
Depreciation and amortization expense			56,634				65,103				66,361
Total costs and expenses			6,108,736				3,774,954				5,724,202
Operating income (loss)			339,643				(225,437	)			(1,015,213	)
Interest and other income and expense, net			551				1,249				500
Income (loss) before income tax expense (benefit)			340,194				(224,188	)			(1,014,713	)
Income tax expense (benefit)(4)			131,445				(86,586	)			(322,962	)
Net income (loss)		$	208,749			$	(137,602	)		$	(691,751	)
Balance sheet data (at end of period):
Total assets		$	1,434,980			$	1,440,557			$	510,205
Total liabilities			392,099				357,289				42,582
Net parent investment			1,042,881				1,083,268				467,623
Selected financial data:
Capital expenditures		$	198,647			$	96,754			$	20,122

 

(1)

Operating revenues consist of refined products sold from Paulsboro to Valero that were recorded at intercompany transfer prices, which were market prices adjusted by quality, location, and other differentials on the date of the sale.

(2)

Cost of sales consist of the cost of feedstock acquired for processing, including transportation costs to deliver the feedstock to Paulsboro. Purchases of feedstock by Paulsboro from Valero were recorded at the cost paid to independent third parties by Valero.

(3)

General and administrative expenses include allocations and estimates of general and administrative costs of Valero that were attributable to the operations of Paulsboro.

(4)

The income tax provision represented the current and deferred income taxes that would have resulted if Paulsboro were a stand-alone taxable entity filing its own income tax returns. Accordingly, the calculations of current and deferred income tax provision require certain assumptions, allocations, and estimates that Paulsboro management believed were reasonable to reflect the tax reporting for Paulsboro as a stand-alone taxpayer.

 

The selected financial data as of December 31, 2007 and for the year ended December 31, 2007 has been omitted because it is not available without the expenditure of unreasonable effort and expense. We believe the omission of this financial data does not have a material impact on the understanding of our results of operations, financial performance and related trends.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis together with “Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. Among other things, those historical financial statements include more detailed information regarding the basis of presentation for the financial data included in the following discussion. This discussion contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus particularly in the sections entitled “Risk Factors” and “Forward-Looking Statements.”

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations is divided into sections entitled “Executive Summary,” “Factors Affecting Comparability,” “Factors Affecting Operating Results,” “Results of Operations—PBF LLC” “Results of Operations—Paulsboro Refining Business—PBF LLC’s Predecessor,” “Liquidity and Capital Resources,” “Cash Flows Analysis of Paulsboro Refining Business—PBF LLC’s Predecessor,” “Senior Secured Notes Offering,” “Credit Facilities,” “Cash Balances,” “Liquidity,” “Working Capital,” “Pro Forma Contractual Obligations and Commitments,” “Off-Balance Sheet Arrangements,” “Quantitative and Qualitative Disclosures about Market Risk,” “Critical Accounting Policies” and “Recent Accounting Pronouncements.” Information therein should help provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during the first three quarters of 2012 and the years ended December 31, 2011 and 2010 compare to the applicable prior periods. The historical results of operations for PBF LLC’s Predecessor is presented and discussed separately to allow the readers of our prospectus to better evaluate the historical operating performance of our current business.

 

Executive Summary

 

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 located in Toledo, Ohio, Delaware City, Delaware, and Paulsboro, New Jersey, which we acquired in 2011 and 2010. 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.

 

The following table summarizes our history and acquisitions:

 

March 2008		PBF was formed.
June 2010		The idle Delaware City refinery and its related assets were acquired from 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.

 

Throughout this prospectus we include financial statements and other financial and operating data for the Paulsboro Refining Business for periods prior to its acquisition date of December 17, 2010. We refer to Paulsboro as PBF LLC’s “Predecessor” or “Predecessor Paulsboro,” because we generated substantially no revenues and prior to our acquisition of Paulsboro and the Delaware City assets, we were a new company formed to pursue acquisitions of crude oil refineries and downstream assets in North America. At the time of its acquisition, Paulsboro represented the major portion of our business and assets.

 

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Factors Affecting Comparability

 

Our results over the past three years have been affected by the following events, which must be understood in order to assess the comparability of our period to period financial performance and condition.

 

Acquisition of Delaware City Refinery

 

Through our subsidiaries, Delaware City Refining and Delaware Pipeline Company LLC, 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. We also incurred approximately $4.3 million in acquisition costs. The acquisition of the Delaware City refinery and its related assets was accounted for as an acquisition of assets. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair value. The results of operations have been included in our consolidated financial statements since June 1, 2010. For the period from June 1, 2010 until June 2011, when we began re-starting refinery operations, our results of operations included only certain minor terminal operations and substantial capital improvement activities to prepare the refinery and power plant for re-start. The refinery became fully operational in October 2011 and the results of operations prior to re-start and during the re-start period may not be indicative of our future performance.

 

The prior owner shut down the Delaware City refinery in the fourth quarter of 2009 due to, among other reasons, financial losses caused by one of the worst recessions in recent history. We were therefore able to acquire the refinery at an attractive price, obtain economic support from the State of Delaware to re-start the refinery, and enter into a new contract with the relevant union at the refinery.

 

On June 1, 2010, we hired 63 employees of the prior owner to assist us with implementing our refinery turnaround/reconfiguration plan and to conduct terminal operations at the refinery. These employees primarily held positions as engineers, refinery operators, terminal operators, dockworkers, maintenance workers and administrative staff prior to our acquisition of the refinery assets. In connection with our acquisition, we were able to negotiate a new contract with the union including: (1) reopening of the refinery with approximately 470 employees, compared to approximately 700 prior to shutdown by Valero; (2) flexibility with respect to which workers are hired (i.e., no seniority clause); (3) different benefits packages; and (4) more flexible work rules.

 

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 included the decommissioning of the gasifier unit located on the property which allowed us to decrease emissions and improve the reliability of the refinery. In addition, we have completed a cogeneration project to convert the electric generation units at the refinery to use natural gas as a fuel and a hydrocracker corrosion control project aimed at increasing throughput. 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%. 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.

 

In connection with our re-start of the refinery, we received a $20.0 million loan from the State of Delaware which converts to a grant contingent upon our continued operation of the refinery and certain other conditions. The State of Delaware also agreed to reimburse us $12.0 million in the aggregate for the dredging of the Delaware River near the refinery over the next six years, granted us $1.5 million to fund employee training programs, and granted us $10.0 million towards the conversion of the gas turbines at the refinery to run on natural gas and reduce emissions.

 

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We also obtained a new operating agreement for the Delaware City refinery that defers the construction of previously scheduled cooling water towers that the prior owner planned to spend in excess of $100.0 million to install. The deferral allows us to evaluate the cost effectiveness of closed loop cooling water systems and propose alternatives to be implemented in the next permitting cycle, which is at least five years away. The permits issued pursuant to the new operating agreement provide a plant-wide limit for certain emissions rather than source specific limits. Based on our shutdown of the gasifier unit and the resulting reduction of certain emissions by converting the combustion turbines to natural gas, we avoided additional controls on specific sources that the prior owner anticipated spending approximately $200.0 million to install. As a result of these negotiations, we now have the operational flexibility to manage our emissions in a cost effective manner.

 

The Delaware City refinery has a throughput capacity of 190,000 bpd and a Nelson Complexity Index of 11.3. It is located on a 5,000-acre site, with access to waterborne cargoes and an extensive distribution network of pipelines, barges and tankers, truck and rail. Delaware City is a fully integrated operation that receives crude via ship or barge at its docks located on the Delaware River. The crude and other feedstocks are transported, via pipes, to an extensive tank farm where they are stored until processing. In addition, there is a 17-bay, 50,000 bpd capacity truck loading rack located adjacent to the refinery, and a 23-mile interstate pipeline that is used to distribute clean products.

 

Acquisition of Paulsboro Refinery

 

We acquired the entities that owned the Paulsboro refinery (including an associated natural gas pipeline) on December 17, 2010, from Valero for approximately $357.7 million, excluding working capital. We paid the purchase price with the $160.0 million Paulsboro Promissory Note and cash funded with equity. The purchase price excludes inventory purchased on our behalf by MSCG and Statoil. The acquisition was accounted for using the acquisition method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The results of operations of the Paulsboro refinery have been included in our combined and consolidated financial statements as of December 17, 2010. We invested approximately $62.8 million in capital in early 2011 to complete a scheduled turnaround at the refinery.

 

Paulsboro has a throughput capacity of 180,000 bpd and a Nelson Complexity Index of 13.2. The Paulsboro refinery is located on approximately 950 acres on the Delaware River in Paulsboro, New Jersey, just south of Philadelphia, and approximately 30 miles away from Delaware City. The refinery processes a variety of medium and heavy, sour crude oils.

 

Acquisition of Toledo Refinery

 

Through our subsidiary, Toledo Refining, we acquired the Toledo refinery on March 1, 2011, from Sunoco for approximately $400.0 million, excluding working capital. We paid the purchase price with the $200.0 million Toledo Promissory Note and cash funded with equity. We also purchased refined and certain intermediate products in inventory for approximately $299.6 million with the proceeds from a note provided by Sunoco that we subsequently repaid on May 31, 2011 with proceeds from our ABL Revolving Credit Facility, 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 $103.0 million was paid in 2012. We currently anticipate paying the balance of the participation payment in April 2013. See “—Pro Forma Contractual Obligations and Commitments.”

 

The acquisition was accounted for using the acquisition method of accounting with the preliminary purchase price allocated to the assets acquired and liabilities assumed based on their estimated fair values. The results of operations of the Toledo refinery have been included in our consolidated financial statements as of March 1, 2011.

 

Toledo has a throughput capacity of 170,000 bpd and a Nelson Complexity Index of 9.2. Toledo processes a slate of light, sweet crudes from Canada, the Midcontinent, the Bakken region and the U.S. Gulf Coast. The Toledo refinery is located on a 282-acre site near Toledo, Ohio, approximately 60 miles from Detroit.

 

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Amended and Restated ABL Revolving Credit Facility

 

On May 31, 2011, we amended the terms of our ABL Revolving Credit Facility to increase its size to $500.0 million and included certain inventory and accounts receivable of the Toledo refinery in the borrowing base. In addition, the interest rate was changed to the Adjusted LIBOR Rate plus 2.00% to 2.50%, depending on the excess availability, as defined, and the maturity date was extended to May 31, 2016. On an ongoing basis, the ABL Revolving Credit Facility is available to be used for working capital and other general corporate purposes. In March, August, and September 2012, we amended the ABL Revolving Credit Facility again to increase the aggregate size from $500.0 million to $750.0 million, $950 million, and $965 million, respectively. In addition, the ABL Revolving Credit Facility was amended and restated on October 26, 2012 to increase the maximum availability to $1.375 billion, extend the maturity date to October 26, 2017, and amend the borrowing base to include non-U.S. inventory. The amended and restated ABL Revolving Credit Facility includes an accordion feature which allows for commitments of up to $1.8 billion.

 

Letter of Credit Facility

 

On January 25, 2011, we entered into a short-term letter of credit facility, which was subsequently amended on April 26, 2011 and April 24, 2012, under which we can obtain letters of credit up to $750.0 million composed of a committed maximum amount of $500.0 million and an uncommitted maximum amount of $250.0 million to support certain of our crude oil purchases. We are charged letter of credit issuance fees and a fee for the unused portion of the committed letter of credit facility. The facility matures on April 23, 2013. As a result of the increased size of the amended and restated ABL Revolving Credit Facility, we expect to terminate the letter of credit facility prior to its maturity.

 

Senior Secured Notes Offering

 

On February 9, 2012, we completed an offering of $675.5 million aggregate principal amount of 8.25% Senior Secured Notes, due 2020 (which we refer to as the “senior secured notes offering”). The net proceeds from the offering of approximately $665.8 million were used to repay our Paulsboro Promissory Note in the amount of $150.6 million, our Term Loan Facility in the amount of $123.8 million, our Toledo Promissory Note in the amount of $181.7 million, and to reduce indebtedness under the ABL Revolving Credit Facility. As a result of the senior secured notes offering, and the repayment of our Delaware City construction financing on August 31, 2012, with the exception of our catalyst lease, we have no long-term debt maturing before 2020.

 

Factors Affecting Operating Results

 

Overview

 

Our earnings and cash flows from operations are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks. The cost to acquire crude oil and other feedstocks and the price of refined petroleum products ultimately sold depend on numerous factors beyond our control, including the supply of, and demand for, crude oil, gasoline, diesel and other refined petroleum products, which, in turn, depend on, among other factors, changes in global and regional economies, weather conditions, global and regional political affairs, production levels, the availability of imports, the marketing of competitive fuels, pipeline capacity, prevailing exchange rates and the extent of government regulation. Our revenue and operating income fluctuate significantly with movements in industry refined petroleum product prices, our materials cost fluctuate significantly with movements in crude oil prices and our other operating expenses fluctuate with movements in the price of energy to meet the power needs of our refineries. In addition, the effect of changes in crude oil prices on our operating results is influenced by how the prices of refined products adjust to reflect such changes.

 

Crude oil and other feedstock costs and the prices of refined petroleum products have historically been subject to wide fluctuation. Expansion and upgrading of existing facilities and installation of additional refinery distillation or conversion capacity, price volatility, international political and economic developments and other factors beyond our control are likely to continue to play an important role in refining industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction or increase in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for refined petroleum products, such as for gasoline and diesel, during the summer driving season and for home heating oil during the winter.

 

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Benchmark Refining Margins

 

In assessing our operating performance, we compare the refining margins (revenue less materials cost) of each of our refineries against a specific benchmark industry refining margin based on a crack spread. Benchmark refining margins take into account both crude and refined petroleum product prices. When these prices are combined in a formula they provide a single value—a gross margin per barrel—that, when multiplied by a throughput number, provides an approximation of the gross margin generated by refining activities.

 

The performance of our East Coast refineries follows the currently published Dated Brent (NYH) 2-1-1 benchmark refining margins. For our Toledo refinery, we utilize a composite benchmark refining margin, the WTI (Chicago) 4-3-1, that is based on publicly available pricing information for products trading in the Chicago and United States Gulf Coast markets.

 

While the benchmark refinery margins presented below under “Results of Operations—PBF LLC—Market Indicators” and “—Results of Operations—Paulsboro Refining Business—PBF LLC’s Predecessor—Market Indicators,” are representative of the results of our refineries, each refinery’s realized gross margin on a per barrel basis will differ from the benchmark due to a variety of factors affecting the performance of the relevant refinery to its corresponding benchmark. These factors include the refinery’s actual type of crude oil throughput, product yield differentials and any other factors not reflected in the benchmark refining margins, such as transportation costs, storage costs, credit fees, fuel consumed during production and any product premiums or discounts, as well as inventory fluctuations, timing of crude oil and other feedstock purchases, a rising or declining crude and product pricing environment and commodity price management activities. As discussed in more detail below, each of our refineries, depending on market conditions, has certain feedstock-cost and product-value advantages and disadvantages as compared to the refinery’s relevant benchmark.

 

Credit Risk Management

 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to us. Our exposure to credit risk is reflected in the carrying amount of the receivables that are presented in our balance sheet. To minimize credit risk, all customers are subject to extensive credit verification procedures and extensions of credit above defined thresholds are to be approved by the senior management. Our intention is to trade only with recognized creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis. We also limit the risk of bad debts by obtaining security such as guarantees or letters of credit.

 

Other Factors

 

We currently source our crude oil for Paulsboro and Delaware City on a global basis through a combination of market purchases and short-term purchase contracts through our crude supply contracts primarily with Statoil. Our agreement with Statoil for Paulsboro will terminate effective March 31, 2013, at which time we plan to source Paulsboro’s crude oil and feedstocks internally. Our agreement with Statoil for Delaware City has been extended by Statoil through December 31, 2015 and we have recently entered into certain amendments to that agreement that are effective through the extended term. In addition, we have a long-term contract with the Saudi Arabian Oil Company (“Saudi Aramco”). We have been purchasing up to approximately 100,000 bpd of crude oil from Saudi Aramco that is processed at Paulsboro pursuant to this agreement and on a spot basis. Our Toledo refinery sources domestic and Canadian crude oil through similar market purchases through our crude supply contract with MSCG. We believe purchases based on market pricing has given us flexibility in obtaining crude oil at lower prices and on a more accurate “as needed” basis. Since our Paulsboro and Delaware City refineries access their crude slates from the Delaware River via ship or barge and through our rail facilities at Delaware City, these refineries have the flexibility to purchase crude oils from the Midcontinent and Western Canada, as well as a number of different countries.

 

Our operating cost structure is also important to our profitability. Major operating costs include costs relating to employees and contract labor, energy, maintenance and environmental compliance. The predominant variable cost is energy, in particular, the price of utilities, natural gas and chemicals.

 

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Our operating results are also affected by the reliability of our refinery operations. Unplanned downtime of our refinery assets generally results in lost margin opportunity and increased maintenance expense. The financial impact of planned downtime, such as major turnaround maintenance, is managed through a planning process that considers such things as the margin environment, the availability of resources to perform the needed maintenance and feedstock logistics, whereas unplanned downtime does not afford us this opportunity.

 

Refinery-Specific Information

 

The following section includes refinery-specific information related to crude differentials, ancillary costs, and local premiums and discounts.

 

Delaware City Refinery. The benchmark refining margin for the Delaware City refinery is calculated by assuming that two barrels of the benchmark Dated Brent crude oil are converted into one barrel of gasoline and one barrel of heating oil. We calculate this refining margin using the New York Harbor market value of gasoline and heating oil against the market value of Dated Brent crude oil and refer to the benchmark as the Dated Brent (NYH) 2-1-1 benchmark refining margin. Our Delaware City refinery has a product slate of approximately 52.5% gasoline, 35% distillate (split evenly between ULSD and heating oil), 1.5% high-value petrochemicals, with the remaining 11% of the product slate comprised of lower-value products (5% petroleum coke, 5% LPGs and 1% other). For this reason, we believe the Dated Brent (NYH) 2-1-1 is an appropriate benchmark industry refining margin. The Dated Brent (NYH) 2-1-1 benchmark crack has averaged $14.55 per barrel over the period from January 1, 2012 to September 30, 2012. The majority of Delaware City revenues are generated off NYH-based market prices.

 

The Delaware City refinery’s realized gross margin on a per barrel basis has historically differed from the Dated Brent (NYH) 2-1-1 benchmark refining margin due to the following factors:

 

•

the Delaware City refinery processes a slate of primarily medium and heavy, and sour crude oil, which has constituted approximately 70% to 80% of total throughput. The remaining throughput consists of sweet crude oil and other feedstocks and blendstocks. Our total throughput costs have historically priced at a discount to Dated Brent; and

 

•

as a result of the heavy, sour crude slate processed at Delaware City, we produce low value products including sulfur and petroleum coke. These products are priced at a significant discount to gasoline, ULSD and heating oil and represent approximately 5% of our total production volume.

 

Paulsboro Refinery. The benchmark refining margin for the Paulsboro refinery is calculated by assuming that two barrels of the benchmark Dated Brent crude oil are converted into one barrel of gasoline and one barrel of heating oil. We calculate this refining margin using the New York Harbor market value of gasoline and heating oil against the market value of Dated Brent crude oil and refer to the benchmark as the Dated Brent (NYH) 2-1-1 benchmark refining margin. Our Paulsboro refinery has a product slate of approximately 37.5% gasoline, 40.5% distillate (comprised of approximately one-third jet fuel and two-thirds heating oil), 5.5% high-value Group I lubricants, with the remaining 16.5% of the product slate comprised of lower-value products (4% petroleum coke, 3% LPGs, 3% fuel oil, 5% asphalt, and 1.5% other). For this reason, we believe the Dated Brent (NYH) 2-1-1 is an appropriate benchmark industry refining margin. The Dated Brent (NYH) 2-1-1 benchmark crack has averaged $14.55 per barrel over the period from January 1, 2012 to September 30, 2012. The majority of Paulsboro revenues are generated off NYH-based market prices.

 

The Paulsboro refinery’s realized gross margin on a per barrel basis has historically differed from the Dated Brent (NYH) 2-1-1 benchmark refining margin due to the following factors:

 

•

the Paulsboro refinery processes a slate of primarily medium and heavy, and sour crude oil, which has historically constituted approximately 70% to 80% of total throughput. The remaining throughput consists of sweet crude oil and other feedstocks and blendstocks. Historically, Paulsboro’s delivered crude costs have priced at a discount to Dated Brent;

 

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•

as a result of the heavy, sour crude slate processed at Paulsboro, we produce low value products including sulfur, petroleum coke and fuel oil. These products are priced at a significant discount to gasoline and heating oil and represent approximately 8% to 9.5% of our total production volume; and

 

•

the Paulsboro refinery produces Group I lubricants which, through an extensive production process, has a low volume yield which limits the volume expansion on crude inputs.

 

Toledo Refinery. The benchmark refining margin for the Toledo refinery is calculated by assuming that four barrels of benchmark WTI crude oil are converted into three barrels of gasoline, one-half barrel of ULSD and one-half barrel of jet fuel. We calculate this refining margin using the Chicago market values of gasoline and ULSD and the United States Gulf Coast value of jet fuel against the market value of WTI crude oil and refer to this benchmark as the WTI (Chicago) 4-3-1 benchmark refining margin. Our Toledo refinery has a product slate of approximately 51% gasoline, 35% distillate (comprised of approximately 45% jet fuel and 55% ULSD), 5% high-value petrochemicals (including nonene, tetramer, benzene, xylene and toluene) with the remaining 9% of the product slate comprised of lower-value products (6% LPGs, 2.5% fuel oil and 0.5% other). For this reason, we believe the WTI (Chicago) 4-3-1 is an appropriate benchmark industry refining margin. The majority of Toledo revenues are generated off Chicago-based market prices. The WTI (Chicago) 4-3-1 benchmark crack has averaged $28.05 per barrel over the period from January 1, 2012 to September 30, 2012.

 

The Toledo refinery’s realized gross margin on a per barrel basis has historically differed from the WTI (Chicago) 4-3-1 benchmark refining margin due to the following factors:

 

•

the Toledo refinery processes a slate of domestic sweet crude oil (60% of total crude throughput) and Syncrude (40% of total crude throughput). Historically, Toledo’s delivered crude costs have been higher than the market value of WTI crude oil;

 

•

the Toledo refinery is connected to its distribution network through a variety of third party product pipelines. While lower in cost when compared to barge or rail transportation, the inclusion of transportation costs increases our overall cost relative to the 4-3-1 benchmark refining margin; and

 

•

the Toledo refinery generates a pricing benefit on some of its products, primarily its petrochemicals.

 

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Results of Operations—PBF LLC

 

The tables below summarize certain information relating to our operating results derived from our unaudited condensed consolidated financial data for the nine months ended September 30, 2012 and 2011 and our audited consolidated financial data for the years ended December 31, 2009, 2010 and 2011. This data should be read in conjunction with our audited and unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 

PBF LLC and Subsidiaries

 

		Year Ended December 31, 2009				Year Ended December 31, 2010				Year Ended December 31, 2011				Nine Months Ended September 30, 2011				Nine Months Ended September 30, 2012
		(in thousands)
Revenues		$	228			$	210,671			$	14,960,338			$	10,183,897			$	15,188,327
Cost of sales, excluding depreciation			—				203,971				13,855,163				9,147,063				13,871,884
Non-GAAP gross margin(1)			228				6,700				1,105,175				1,036,834				1,316,443
Operating expenses, excluding depreciation			—				25,140				658,831				457,722				537,880
General and administrative expenses			6,294				15,859				86,183				71,533				78,042
Acquisition related expenses			—				6,051				728				684				—
Gain on sale of asset			—				—				—				—				(2,430	)
Depreciation and amortization expense			44				1,402				53,743				35,636				67,419
			6,338				48,452				799,485				565,575				680,911
(Loss) income from operations			(6,110	)			(41,752	)			305,690				471,259				635,532
Change in fair value of catalyst leases			—				(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			10				(1,388	)			(65,120	)			(44,127	)			(86,753	)
Net (loss) income		$	(6,100	)		$	(44,357	)		$	242,671			$	427,151			$	539,774
Gross margin		$	228			$	6,157			$	1,053,479			$	1,002,403			$	1,254,147

 

(1)

Non-GAAP gross margin is defined as gross margin excluding depreciation expense related to the refineries. We believe non-GAAP gross margin is an important measure of operating performance and provides useful information to investors because it is a better metric comparison for the industry refining margin benchmarks, as the refining margin benchmarks do not include a charge for depreciation expense. In order to assess our operating performance, we compare our non-GAAP gross margin (revenue less cost of sales) to industry refining margin benchmarks and crude oil prices as defined in the table below. Information is shown only for the periods during which we had refining operations.

 

Non-GAAP gross margin should not be considered an alternative to gross margin, operating income, net cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Non-GAAP gross margin presented by other companies may not be comparable to our presentation, since each company may define this term differently. The following table presents a reconciliation of Non-GAAP gross margin to the most directly comparable GAAP financial measure, gross margin, on a historical basis, as applicable, for each of the periods indicated:

 

 

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		Year Ended December 31, 2010(b)				Year Ended December 31, 2011				Nine Months  Ended September 30, 2011				Nine Months  Ended September 30, 2012
Market Indicators(a) (dollars per barrel, except as noted)
Dated Brent crude oil		$	92.77			$	111.26			$	111.89			$	112.21
West Texas Intermediate (WTI) crude oil		$	90.03			$	95.04			$	95.37			$	96.13
Crack Spreads
Dated Brent (NYH)2-1-1		$	10.41			$	9.93			$	10.38			$	14.55
WTI (Chicago) 4-3-1		$	10.30			$	24.14			$	26.18			$	28.05
Crude Oil Differentials
Dated Brent (foreign) less WTI		$	2.74			$	16.22			$	16.52			$	16.08
Dated Brent less Maya (heavy, sour)		$	13.19			$	12.63			$	14.86			$	10.51
Dated Brent less WTS (sour)		$	5.22			$	18.28			$	18.98			$	20.18
Dated Brent less ASCI (sour)		$	2.55			$	3.82			$	4.26			$	4.46
WTI less WCS (heavy, sour)		$	18.25			$	15.63			$	16.71			$	20.40
WTI less Bakken (light, sweet)		$	2.96			$	(3.31	)		$	(4.73	)		$	6.36
WTI less Syncrude (light, sweet)		$	1.43			$	(9.79	)		$	(11.06	)		$	1.37
Natural gas (dollars per MMBTU)		$	4.17			$	4.00			$	4.21			$	2.58
Key Operating Information
Production (barrels per day in thousands)			146.5				427.9				318.7				463.0
Crude oil and feedstocks throughput (barrels per day in thousands)			143.8				429.4				316.0				464.0
Total crude oil and feedstocks throughput (millions of barrels)			2.2				128.7				86.3				127.1

 

(a)

As reported by Platts.

(b)

Data is for the period from December 17, 2010 to December 31, 2010.

 

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

 

Overview—Net income was $539.8 million for the nine months ended September 30, 2012 compared to $427.2 for the nine months ended September 30, 2011. During the 2011 period, our results reflect nine months of operations of our Paulsboro refinery, seven months of operations of our Toledo refinery, which was acquired on March 1, 2011, and activities to turnaround, reconfigure and re-start our Delaware City Refinery. We began restarting our Delaware City refinery in June 2011 and it was fully operational in October 2011. During the nine months ended September 30, 2012, all three of our refineries were operating, although the Toledo refinery was impacted by a thirty day turnaround of its hydrocracker, reformer and UDEX units which commenced on March 9, 2012. Our results for the nine months ended September 30, 2012 were favorably impacted by improved crack spreads despite the narrowing of the light/heavy crude differential.

 

Revenues—Revenues totaled $15.2 billion for the nine months ended September 30, 2012 compared to $10.2 billion for the nine months ended September 30, 2011, an increase of $5.0 billion, or 49%. The revenue

 

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increase primarily relates to nine months of operations of the Toledo refinery in 2012 compared to seven months in 2011 as a result of its acquisition on March 1, 2011, and nine months of operations of our Delaware City refinery in 2012, which was being reconfigured and prepared for restart during the 2011 period. For the nine months ended September 30, 2012, the total throughput rates at our Paulsboro, Toledo, and Delaware City refineries averaged approximately 155,000 bpd, 147,400 bpd, and 161,500 bpd, respectively. For the nine months ended September 30, 2011, the total throughput rates at our Paulsboro, Toledo and Delaware City refineries averaged approximately 150,100 bpd, 151,300 bpd, and 105,700 bpd, respectively. For the nine months ended September 30, 2012, the total barrels sold at our Paulsboro, Toledo, and Delaware City refineries averaged approximately 148,000 bpd, 154,200 bpd, and 154,100 bpd, respectively. For the nine months ended September 30, 2011, the total barrels sold at our Paulsboro, Toledo, and Delaware City refineries averaged approximately 150,800 bpd, 159,800 bpd, and 89,800 bpd, respectively.

 

The throughput rate and barrels sold for our Toledo and Delaware City refineries for the nine months ended September 30, 2011 reflect the period from March 1 to September 30 and June 1 to September 30, respectively. Total barrels sold during the nine months ended September 30, 2012 were approximately 128.5 million barrels at an average price of $118.19 per barrel, compared to 86.3 million barrels at an average price of $117.97 per barrel during the 2011 period.

 

Gross Margin—Non-GAAP gross margin totaled $1,316.4 million, or $10.36 per barrel of throughput, for the nine months ended September 30, 2012 compared to $1,036.8 billion, or $12.02 per barrel of throughput during the nine months ended September 30, 2011, an increase of $279.6 million. Gross margin totaled $1,254.1 million, or $9.87 per barrel of throughput, for the nine months ended September 30, 2012 compared to $1,002.4 million, or $11.62 per barrel of throughput, for the nine months ended September 30, 2011, an increase of $251.7 million. The increase in non-GAAP gross margin and gross margin was primarily due to a full nine months of operations at the Toledo and Delaware City refineries in 2012.

 

Average industry refining margins in the Midcontinent were generally stronger during the nine month period ended September 30, 2012 as compared to the same period in 2011. The WTI (Chicago) 4-3-1 industry crack spread was approximately $1.87 per barrel or 7.1% higher in the nine month period ended September 30, 2012 as compared to the same period in 2011. During the nine month period ended September 30, 2012, we believe the strong industry refining margins and crude oil price differentials reflect limitations on takeaway capacity of WTI crude stored at Cushing, Oklahoma and the increase in domestically available supply which depressed the price of WTI versus Dated Brent and other crudes. The WTI-Syncrude differential improved by $12.43 per barrel during the nine month period ended September 30, 2012 compared to the same period in 2011. As the WTI-Syncrude premium increases, it has a positive impact on our Toledo refinery’s gross margin because Syncrude represents a significant portion of its crude slate.

 

While the Dated Brent (NYH) 2-1-1 industry crack spread was approximately $4.17 per barrel, or 40.2%, higher in the nine month period ended September 30, 2012 as compared to the same period in 2011, the Dated Brent/Maya differential was approximately $4.35 per barrel, or approximately 29.2%, lower in 2012 than in 2011. A reduction in the Dated Brent/Maya crude differential, our proxy for the light/heavy crude differential, has a negative impact on Paulsboro and Delaware City as both refineries process a large slate of medium and heavy, sour crude oil that is priced at a discount to light, sweet crude oil.

 

The decrease in our non-GAAP gross margin per barrel to $10.36 per barrel for the nine months ended September 30, 2012 from $12.02 per barrel during the same period in 2011 was primarily driven by an unfavorable increase in the landed cost of crude at our East Coast refineries due to the narrowing of the light/heavy crude differential, partially offset by improved crack spreads and lower cost of crude at our Toledo refinery. The impact of the narrowing of the light/heavy crude differential on the results of our Paulsboro and Delaware City refineries was compounded by their significant production of low value products such as sulfur, petroleum coke and fuel oils as these products price at a substantial discount to light products. As a result, we were not able to fully benefit from the increase in gasoline and distillates prices during the nine month period.

 

Operating Expenses—Operating expenses totaled $537.9 million, or $4.23 per barrel of throughput, for the nine months ended September 30, 2012 compared to $457.7 million, or $5.31 per barrel of throughput, for the

 

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nine months ended September 30, 2011, an increase of $80.2 million, or 17.5%. The increase in operating expenses primarily relates to having Toledo for a full nine months in the 2012 period versus seven months in 2011, and the restart of the Delaware City refinery. During the 2011 period, our Delaware City refinery was undergoing a turnaround and reconfiguration. It was fully operational during the nine months ended September 30, 2012. The decrease in operating expenses per barrel of throughput is mainly attributable to a reduction in energy and utilities costs, primarily driven by lower natural gas prices, and the increase in throughput barrels. Our operating expenses principally consist of salaries and employee benefits, maintenance, energy and catalyst and chemicals costs.

 

General and Administrative Expenses—General and administrative expenses totaled $78.0 million for the nine months ended September 30, 2012 compared to $71.5 million for the nine months ended September 30, 2011, an increase of $6.5 million or 9%. The increase in general and administrative expenses primarily relates to higher information technology expenses for the implementation of accounting and commercial software recorded in 2012. Our general and administrative expenses are comprised of the personnel, facilities and other infrastructure costs necessary to support our refineries.

 

Acquisition-related Expenses—Acquisition-related expenses for the nine months ended September 30, 2011 were $0.7 million and related to our acquisition of Toledo.

 

Depreciation and Amortization Expense—Depreciation and amortization expense totaled $67.4 million for the nine months ended September 30, 2012 compared to $35.6 million for the nine months ended September 30, 2011, an increase of $31.8 million. The increase was principally due to the acquisition of Toledo in March 2011, commencement of depreciation in July 2011 related to the restart of Delaware City, and capital expenditure and turnaround activity.

 

Change in Fair Value of Catalyst Leases—Change in the fair value of catalyst leases represented a loss of $6.9 million for the nine months ended September 30, 2012 compared to a gain of $4.8 million for the nine months ended September 30, 2011. This gain or loss relates to the change in value of the precious metals underlying the sale and leaseback of our refineries’ precious metals catalyst, which we are obligated to repurchase at fair market value at the lease termination dates.

 

Change in Fair Value of Contingent Consideration—Change in the fair value of contingent consideration was an expense of $2.1 million for the nine months ended September 30, 2012, compared to $4.8 for the 2011 period. This change represents the increase in the estimated fair value of the total contingent consideration we expect to pay in connection with our acquisition of the Toledo refinery.

 

Interest (Expense) Income—Interest expense totaled $86.7 million for the nine months ended September 30, 2012 compared to $44.1 million for the nine months ended September 30, 2011, an increase of $42.6 million. Interest expense includes interest on long-term debt, costs related to the sale and leaseback of our precious metals catalyst, interest expense incurred in connection with our crude and feedstock supply agreements with Statoil and MSCG, letter of credit fees associated with the purchase of certain crude oils, and the amortization of deferred financing fees. The increase in interest expense primarily relates to an increase in overall debt associated with the issuance of senior secured notes in February 2012 and precious metals catalyst leases for the Toledo and Delaware City refineries, interest expense associated with the Statoil agreement related to the Delaware City restart and the write off of $4.4 million in deferred financing costs on debt that was repaid from the proceeds of our senior secured notes offering.

 

2011 Compared to 2010

 

Overview—Net income was $242.7 million for the year ended December 31, 2011 compared to a net loss of $44.4 million for the year ended December 31, 2010. During most of 2010, we were a development stage company focused on the acquisition of oil refineries and other downstream assets in North America and activities to turnaround, reconfigure and re-start our Delaware City refinery. Our net loss in 2010 was related to those

 

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activities, plus the results of operations of our Paulsboro refinery for the period from December 17, 2010 to December 31, 2010. Our 2011 net income primarily reflects a full year’s operation of our Paulsboro refinery, the results of our Toledo refinery, which we acquired on March 1, 2011, and the results of our Delaware City refinery, which we began re-starting in June 2011 and which was fully operational in October 2011.

 

Revenues—Revenues totaled $15.0 billion for the year ended December 31, 2011 compared to $210.7 million in the year ended December 31, 2010. The revenue increase was primarily due to the operations of our Paulsboro and Toledo refineries, and the commencement of refining operations at our Delaware City refinery, which became operational in October 2011. The total throughput rate and barrels sold rate at our Paulsboro refinery averaged 151,400 bpd and 151,700 bpd, respectively, during the year ended December 31, 2011. The total throughput rate and barrels sold rate at our Toledo refinery averaged 151,400 bpd and 160,800 bpd, respectively, during the period from March 1, 2011 to December 31, 2011. We began re-starting our Delaware City refinery during June 2011 and it became operational in October 2011. Its throughput rate and barrels sold rate averaged approximately 126,600 bpd and 116,200 bpd, respectively, for the period from June 2011 through December 31, 2011. Our 2010 revenues were primarily related to consulting services that we provided to third parties, minor terminaling operations at our Delaware City refinery beginning June 1, 2010, and revenue from our Paulsboro refinery from December 17, 2010 to December 31, 2010. During this period, the refinery had an average throughput rate of approximately 143,800 bpd.

 

Gross Margin—Non-GAAP gross margin totaled $1,105.2 million, or $8.59 per barrel of throughput, for the year ended December 31, 2011 compared to $6.7 million, or $3.05 per barrel of throughput for the year ended December 31, 2010, an increase of $1,098.5 million. Gross margin totaled $1,053.5 million, or $8.19 per barrel of throughput, for the year ended December 31, 2011 compared to $6.2 million, or $2.82 per barrel of throughput, for the year ended December 31, 2010, an increase of $1,047.3. The increase in non-GAAP gross margin and gross margin in 2011 was due to the acquisition of the Toledo refinery, a full year of operations at the Paulsboro refinery, and the re-start of the Delaware City refinery during the year. Additionally, the increase in non-GAAP gross margin and gross margin was also driven by strong margins for most of the products we produce and wider crude oil price differentials.

 

Average industry refining margins and crude oil price differentials were stronger in 2011 as compared to 2010. The WTI (Chicago) 4-3-1 industry crack spread was approximately 169.1% higher in 2011 compared to 2010. The Dated Brent/WTI differential and Dated Brent/Maya differentials were $16.17 per barrel and $3.36 per barrel higher, respectively, in 2011 than in 2010. In 2011, we believe these industry refining margins and crude oil price differentials were impacted by supply limitations of WTI crude stored at Cushing, Oklahoma which depressed the price of WTI. In addition, the demand for crude oil increased which, in turn, increased prices for non-WTI crude worldwide. As a result, the differential between light and heavy barrels widened. A strong Dated Brent/WTI crude differential has a significant positive impact on Toledo’s gross margin because its primary feedstock is mainly WTI and WTI based light, sweet crude oil. A wide Dated Brent/Maya crude differential, our proxy for the light/heavy differential, has a positive impact on Paulsboro and Delaware City as both refineries process a large slate of medium and heavy, sour crude oil that is priced at a discount to light, sweet crude oil.

 

Demand for transportation fuels has generally been higher in the spring and summer months than during the fall and winter months. As a result, we expect our operating results for the second and third quarters will generally be higher than for the first and fourth quarters.

 

Operating Expenses—Operating expenses totaled $658.8 million, or $5.12 per barrel of throughput, for the year ended December 31, 2011 compared to $25.1 million for the year ended December 31, 2010, an increase of $633.7 million. Our operating expenses principally consist of salaries and employee benefits, maintenance, energy and catalyst and chemicals. Operating expenses for 2011 include our Paulsboro refinery for the entire year and our Toledo refinery from March 1, 2011 through December 31, 2011. During 2011, our Delaware City refinery was undergoing a turnaround and reconfiguration and we began re-starting the refinery in June 2011. It was fully operational in October 2011. During 2010, our operating expenses included expenses associated with

 

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the Delaware City turnaround and reconfiguration projects, minor terminaling operations, and the operating expenses of our Paulsboro refinery from December 17, 2010 to December 31, 2010. Our consolidated operating expense per barrel of $5.12 for the year ended December 31, 2011 may not be indicative of our future performance, primarily because it included the operating expenses of Delaware City prior to the period we began re-starting the refinery and during the re-start period which began in June 2011.

 

General and Administrative Expenses—General and administrative expenses totaled $86.2 million for the year ended December 31, 2011 compared to $15.9 million for the year ended December 31, 2010, an increase of $70.3 million or 443.4%. The increase is primarily attributable to increased personnel, facilities and other infrastructure costs necessary to support our three operating oil refineries in 2011. During 2010, we were primarily focused on completing the acquisitions of our three refineries and starting the process of building out our infrastructure to support our transition from a development stage company to an operating entity.

 

Acquisition-related Expenses—Acquisition-related expenses totaled $0.7 million for the year ended December 31, 2011 compared to $6.1 million for the year ended December 31, 2010, a decrease of $5.4 million or 88.0%. Acquisition related expense in 2010 represented consulting and legal expenses related to the Paulsboro and Toledo acquisitions and other pending or non-consummated acquisitions. In addition, we capitalized $4.3 million in acquisition related costs associated with our acquisition of the Delaware City assets. Our acquisition related expenses in 2011 were primarily related to Toledo.

 

Depreciation and Amortization Expense—Depreciation and amortization expense totaled $53.7 million for the year ended December 31, 2011 compared to $1.4 million for the year ended December 31, 2010, an increase of $52.3 million. The increase was principally due to a year of Paulsboro activity, the acquisition of Toledo in March 2011, commencement of depreciation in July 2011 related to the beginning of re-start activity for Delaware City, and capital expenditure activity. In the comparable period in 2010, depreciation expense related primarily to our Paulsboro refinery for the period from December 17, 2010 to December 31, 2010.

 

Change in Fair Value of Catalyst Leases—Change in the fair value of catalyst leases represented a gain of $7.3 million for the year ended December 31, 2011 compared to a loss of $1.2 million for the year ended December 31, 2010. This gain or loss relates to the change in value of the precious metals underlying the sale leaseback of the Delaware City refinery and Toledo refinery precious metals catalyst, which we are obligated to repurchase at fair market value at the lease termination date.

 

Change in Fair Value of Contingent Consideration—Change in the fair value of contingent consideration was $5.2 million for the year ended December 31, 2011, compared to zero in 2010. This change represents the increase in the estimated fair value of the contingent consideration we expect to pay in connection with our acquisition of the Toledo refinery.

 

Interest (Expense) Income—Interest expense totaled $65.1 million for the year ended December 31, 2011 compared to $1.4 million for the year ended December 31, 2010. We incurred long-term debt in connection with our acquisitions of Delaware City, Paulsboro and Toledo, giving rise to interest expense. We also incurred interest expense in connection with our crude and feedstock supply agreements with Statoil and MSCG and letter of credit fees associated with the purchase of certain crude oils.

 

2010 Compared to 2009

 

Overview—Our net loss was $44.4 million in 2010 compared to a net loss of $6.1 million in 2009, an increase of $38.3 million or 627.9%. During 2009 and throughout most of 2010, we were a development stage company focused on the acquisition of oil refineries and downstream assets in North America. Our net loss in 2009 related to costs associated with those activities. In 2010, our net loss results from acquisition activities, terminal operations and non-capitalizable maintenance activities at our Delaware City refinery, which we acquired on June 1, 2010, and the operating results of our Paulsboro refinery, which we acquired on December 17, 2010.

 

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Revenues—Revenues totaled $210.7 million in 2010 compared to $0.2 million in 2009, an increase of $210.5 million. The increase was principally due to $4.8 million in terminal revenues at our Delaware City refinery for the period from June 1, 2010 to December 31, 2010 and $205.9 million in revenue at our Paulsboro refinery for the period from December 17, 2010 to December 31, 2010. Total throughput averaged 143,800 bpd at Paulsboro from December 17, 2010 to December 31, 2010. Our revenue in 2009 related primarily to consulting services that we provided to third parties.

 

Gross Margin—Non-GAAP gross margin totaled $6.7 million in 2010 and $0.2 million in 2009. Gross margin totaled $6.2 million in 2010 and $0.2 million in 2009. Our non-GAAP gross margin and gross margin in 2009 related to consulting activities. In 2010, we reported gross margin of $4.8 million related to our terminal operations at our Delaware City refinery for the period from June 1, 2010 to December 31, 2010 and $1.9 million in gross margin for our Paulsboro refinery for the period from December 17, 2010 to December 31, 2010. Non-GAAP gross margin and gross margin at our Paulsboro refinery for December 17, 2010 through December 31, 2010 totaled $0.98 per barrel of crude oil throughput.

 

Operating Expenses—Operating expenses totaled $25.1 million in 2010 compared to zero in 2009. We did not incur any operating expenses in 2009 as we were a development stage company without any operations. We began to incur operating expenses concurrent with our acquisition of Delaware City in June 2010, where we reported $14.1 million in operating expenses related to terminal operations and non-capitalizable maintenance expenses incurred while the refinery was undergoing a major turnaround and reconfiguration project. Operating expenses at our Paulsboro refinery for December 17, 2010 through December 31, 2010 totaled $11.0 million, or $5.01 per barrel of crude oil throughput.

 

General and Administrative Expenses—General and administrative expenses totaled $15.9 million in 2010 compared to $6.3 million in 2009, an increase of $9.6 million or 152.0%. The increase is principally attributable to increased personnel, facilities and other infrastructure costs as we began to build-out our back office administrative functions to support our acquisitions.

 

Acquisition-related Expenses—Acquisition-related expenses totaled $6.1 million in 2010 compared to zero in 2009. Acquisition-related expenses in 2010 represented consulting and legal expenses related to the Paulsboro and Toledo acquisitions and other pending or non-consummated acquisitions.

 

Depreciation and Amortization Expense—Depreciation and amortization expense totaled $1.4 million in 2010 compared to $44 thousand in 2009, an increase of $1.4 million. This increase was principally due to our commencing operations in 2010 following the acquisitions of Delaware City and Paulsboro. In 2009, we had de minimis depreciable assets.

 

Change in Fair Value of Catalyst Lease Obligation—Change in the fair value of catalyst lease totaled $1.2 million in 2010 compared to zero in 2009. This charge relates to the change in value of the precious metals underlying the sale leaseback of the Delaware City precious metals catalyst, which we are obligated to repurchase at fair market value at the lease termination date.

 

Interest Income (Expense)—Interest expense totaled $1.4 million in 2010 compared to $10 thousand of interest income in 2009. We incurred long-term debt in 2010 in connection with our acquisitions of Delaware City and Paulsboro, giving rise to interest expense. In 2009, we had no long-term debt.

 

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Paulsboro Refining Business—PBF LLC’s Predecessor

 

		Year Ended December 31, 2009				Period from January 1, 2010 through December 16, 2010
		(in thousands)
Operating revenues		$	3,549,517			$	4,708,989
Cost of sales, excluding depreciation			3,419,460				4,487,825
Non-GAAP gross margin(1)			130,057				221,164
Operating expenses, excluding depreciation			266,319				259,768
General and administrative expenses			15,594				14,606
Asset impairment loss			8,478				895,642
Depreciation and amortization expense			65,103				66,361
Operating income (loss)			(225,437	)			(1,015,213	)
Interest and other income, net			1,249				500
Income (loss) before income tax expense (benefit)			(224,188	)			(1,014,713	)
Income tax expense (benefit)			(86,586	)			(322,962	)
Net income (loss)		$	(137,602	)		$	(691,751	)
Gross margin		$	77,957			$	169,064

 

(1)

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

 

Non-GAAP gross margin should not be considered an alternative to gross margin, operating income, net cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Non-GAAP gross margin presented by other companies may not be comparable to our presentation, since each company may define this term differently. The following table presents a reconciliation of non-GAAP gross margin to the most directly comparable GAAP financial measure, gross margin, on a historical basis, as applicable, for each of the periods indicated:

 

		Year Ended December  31, 2009				Period from January  1, 2010 through December 16, 2010
		(in thousands)
Reconciliation of gross margin to Non-GAAP gross margin:
Gross margin		$	77,957			$	169,064
Add:
Refinery depreciation expense			52,100				52,100
Non-GAAP gross margin		$	130,057			$	221,164

 

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		Year Ended December 31, 2009				Period from January 1, 2010 through December 16, 2010
Market Indicators(a)
(dollars per barrel, except as noted)
Dated Brent crude oil		$	61.67			$	79.01
West Texas Intermediate (WTI) crude oil		$	61.92			$	79.01
Crack Spreads
Dated Brent (NYH) 2-1-1		$	8.24			$	9.40
WTI (Chicago) 4-3-1		$	8.62			$	8.92
Crude Oil Differentials
Dated Brent (foreign) less WTI		$	(0.25	)		$	0.00
Dated Brent less Maya (heavy, sour)		$	5.00			$	9.20
Dated Brent less WTS (sour)		$	1.27			$	2.13
Dated Brent less ASCI (sour)		$	1.26			$	1.59
WTI less WCS (heavy, sour)		$	7.65			$	13.61
WTI less Bakken (light, sweet)			N/A			$	3.13
WTI less Syncrude (light, sweet)		$	(1.61	)		$	(0.17	)
Natural gas (dollars per MMBTU)		$	4.16			$	4.39
Key Operating Information
Production (barrels per day in thousands)			147.0				153.0
Crude oil and feedstocks throughput (barrels per day in thousands)			148.6				154.0
Total crude oil and feedstocks throughput (millions of barrels)			54.2				53.9

 

(a)

As reported by Platts.

 

Paulsboro Refining Business—PBF LLC’s Predecessor

 

Period from January 1, 2010 through December 16, 2010 Compared to 2009

 

Overview—Net loss was $691.8 million in the period from January 1, 2010 through December 16, 2010 compared to a net loss of $137.6 million in 2009, an increase of $554.2 million or 402.8%. The net loss in 2010 was driven primarily by the $895.6 million impairment charge discussed below. Excluding the charge, the pretax loss would have been $119.1 million as compared to a reported pretax loss of $1.0 billion in 2010. The operating losses in both periods resulted from narrow margins on refined products and high operating costs to maintain the refinery.

 

Operating Revenues—Operating revenues totaled $4.7 billion in the 2010 period compared to $3.5 billion in 2009, an increase of $1.2 billion or 34.3%. The increase was principally due to an increase in average finished product prices. The spot prices of conventional gasoline and diesel increased approximately 27% over the period, while throughput increased 3.6%. Total throughput averaged 154,000 bpd over the 2010 period compared to 148,600 bpd in 2009.

 

Cost of Sales—Cost of sales totaled $4.5 billion in the 2010 period compared to $3.4 billion in 2009, an increase of $1.1 billion or 32.4%. The increase was principally due to a rise in average crude prices. The Dated Brent crude average price increased 28% from period to period, while throughput increased 3.6%. Non-GAAP gross margin per barrel averaged $4.10 in 2010 versus $2.40 per barrel in 2009 and gross margin per barrel averaged $3.14 in 2010 versus $1.44 per barrel in 2009.

 

Expenses—Operating expenses totaled $259.8 million, or $4.82 per barrel of throughput, in the 2010 period compared to $266.3 million, or $4.91 per barrel of throughput, in 2009, a decrease of $6.5 million or 2.4%. General and administrative expenses totaled $14.6 million in the 2010 period compared to $15.6 million in 2009, a decrease of $1.0 million or 6.4%. The decreases were principally due to there being 14 fewer days in 2010 as compared to a full year of 2009.

 

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Asset Impairment Loss—Asset impairment loss totaled $895.6 million in the 2010 period compared to $8.5 million in 2009, an increase of $887.1 million. The impairment loss in 2010 is due to the write-down of assets to their fair value in connection with the sale of the refinery to PBF. The impairment loss in 2009 related to capital projects in progress that were permanently cancelled in light of deteriorating economic conditions.

 

Depreciation and Amortization Expense—Depreciation and amortization expense totaled $66.4 million in the 2010 period compared to $65.1 million in 2009, an increase of $1.3 million or 2.0%. This increase was principally due to a slight increase in capital expenditures in 2010 following the decline in spending in 2009.

 

Interest and Other Income and Expense—Interest and other income totaled $0.5 million in the 2010 period compared to $1.2 million in 2009, a decrease of $0.7 million or 58.3%. The decrease is mainly attributable to the reversal of tax related accruals that were reversed upon expiration of the statutory audit period in 2010.

 

Income Tax Expense (Benefit)—Income tax benefit totaled $323.0 million in the 2010 period compared to income tax benefit of $86.6 million in 2009, an increase of $236.4 million or 273.0%. The increase was primarily due to the larger pre-tax loss in 2010 as compared to 2009.

 

Liquidity and Capital Resources

 

Overview

 

Our primary source of liquidity is our cash flows from operations and borrowing availability under our credit facilities, as more fully described below. We believe that our cash flows from operations and available capital resources will be sufficient to meet our capital expenditure, working capital, including payment of the Toledo refinery contingent consideration, and debt service requirements for the next twelve months. However, our ability to generate sufficient cash flow from operations depends, in part, on oil market pricing and general economic, political and other factors beyond our control. We believe we could, during periods of economic downturn, access the capital markets and/or other available financial resources or reduce our capital and discretionary expenditure plans to strengthen our financial position.

 

Cash Flow Analysis—PBF LLC

 

Cash Flows from Operating Activities

 

Net cash provided by operating activities was $468.8 million for the nine months ended September 30, 2012 compared to net cash provided by operating activities of $467.6 million for the nine months ended September 30, 2011. During the 2011 period, our cash flows reflect only seven months of operations of our Toledo refinery, which was acquired on March 1, 2011, and limited operations at our Delaware City refinery, which was not fully operational until October 2011. Our operating cash flows for the nine months ended September 30, 2012 included our net income of $539.8 million, plus net non-cash charges relating to depreciation and amortization of $71.1 million, pension and other post retirement benefits of $9.5 million, changes in the fair value of our catalyst lease and Toledo contingent consideration obligations of $9.0 million, change in the fair value of our inventory repurchase obligations of $5.1 million, the write-off of unamortized deferred financing fees related to retired debt of $4.4 million and stock-based compensation of $1.7 million, partially offset by a gain on asset sales of $2.4 million. In addition, net changes in working capital used $169.4 million in cash driven by increases in hydrocarbon purchases and sales volumes and their associated impact on inventory, accounts receivable, and hydrocarbon-related liabilities. Our operating cash flows for the nine months ended September 30, 2011 included our net income of $427.2 million, plus net non-cash charges relating to depreciation and amortization of $37.8 million, pension and other post retirement benefits of $7.2 million, change in the fair value of the Toledo contingent consideration of $4.8 million and stock-based compensation of $1.9 million, partially offset by change in the fair value of our inventory repurchase obligations of $4.9 million, changes in the fair value of our catalyst lease obligations of $4.8 million, and net cash used in working capital of $1.6 million.

 

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Net cash provided by operating activities was $249.3 million for the year ended December 31, 2011 compared to net cash used in operating activities of $1.2 million for the year ended December 31, 2010. During 2011, our operations were comprised primarily of a full year of operations of our Paulsboro refinery, ten months of operations of our Toledo refinery, which was acquired on March 1, 2011, and activities to turnaround, reconfigure and re-start our Delaware City refinery. We began re-starting our Delaware City refinery in June 2011 and it was fully operational in October 2011. During most of 2010, we were a development stage company focused on the acquisition of oil refineries and other downstream assets in North America and activities to turnaround, reconfigure and re-start our Delaware City refinery. Our cash flow in 2010 was related to those activities, plus the results of operations of our Paulsboro refinery for the period from December 17, 2010 to December 31, 2010. Our operating cash flows for the year ended December 31, 2011 included our net income of $242.7 million, plus net non-cash charges relating to depreciation and amortization of $56.9 million, stock-based compensation of $2.5 million, pension and other post retirement benefit costs of $9.8 million, an increase in the fair value of our inventory repurchase obligations of $25.3 million, an increase in the fair value of the contingent consideration liability for our Toledo refinery of $5.2 million, less a decrease in the fair value of our catalyst lease obligations of $7.3 million. In addition, net working capital changes used $85.8 million in cash, primarily related to the acquisition of our Toledo refinery. During 2010, our net loss of $44.4 million was partially offset by non-cash charges totaling $7.4 million and net cash from working capital of $35.8 million.

 

Net cash used in operating activities was $1.2 million for the year ended December 31, 2010 as compared to the net cash flows used in operating activities of $5.8 million for the year ended December 31, 2009. During 2010, our operating cash flows were comprised of our net loss of $44.4 million, which was partially offset by net cash provided by working capital of $35.8 million, as well as non-cash charges relating to depreciation and amortization of $1.5 million, stock based compensation expense of $2.3 million and the $1.2 million change in the fair value of our catalyst lease obligation, the $2.0 million change in the value of inventory repurchase obligations and other changes totaling $0.4 million. During 2009, our net loss of $6.1 million was primarily offset by the net impact of a non-cash charge relating to pension and other post retirement benefits and working capital changes of $0.3 million.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities was $133.9 million for the nine months ended September 30, 2012 compared to net cash used in investing activities of $690.7 million for the nine months ended September 30, 2011. The net cash flows used in investing activities in the 2012 period were comprised of capital expenditures totaling $102.0 million, expenditures for turnarounds of $27.5 million, primarily at our Toledo refinery, and expenditures for other assets of $7.7 million, partially offset by $3.3 million in proceeds from the sale of assets. Net cash used in investing activities for the nine months ended September 30, 2011 consisted primarily of the acquisition of the Toledo refinery of $168.2 million, capital expenditures totaling $447.0 million, primarily related to the reconfiguration and re-start of our Delaware City refinery, expenditures for a turnaround at our Paulsboro refinery of $57.0 million and expenditures for other assets of $23.2 million slightly offset by $4.7 million in proceeds from the sale of assets.

 

Net cash used in investing activities was $739.2 million for the year ended December 31, 2011 compared to net cash used in investing activities of $501.3 million for the year ended December 31, 2010. The net cash flows used in investing activities in 2011 were comprised of the acquisition of the Toledo refinery of $168.2 million, capital expenditures totaling $488.7 million related to the reconfiguration and re-start of our Delaware City refinery, expenditures for turnarounds, primarily at our Paulsboro refinery, of $62.8 million and expenditures for other assets of $23.3 million, partially offset by $4.7 million in proceeds from the sale of assets, and $0.8 million for other investing activities. Net cash used in investing activities for the year ended December 31, 2010 were comprised of cash paid for the acquisition of Delaware City for $224.3 million, cash paid for the acquisition of the Paulsboro refinery of $204.9 million, $69.1 million in expenditures primarily for the reconfiguration and re-start of the Delaware City refinery, and $3.0 million for other capital expenditures.

 

Net cash used in investing activities was $501.3 million for the year ended December 31, 2010 as compared to the net cash flows used in investing activities of $0.1 million for the year ended December 31, 2009. The cash

 

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flows used in investing activities in 2010 reflect the acquisition of the Paulsboro refinery and pipeline and Delaware City refinery and pipeline assets totaling $204.9 million and $224.3 million, respectively. In addition, $69.1 million was expended during 2010 relating to the reconfiguration of the Delaware City refinery in order to bring it back into working condition with improved reliability and efficiency. In 2010, $3.0 million was used for other capital expenditures while, in 2009, $0.1 million was used for other capital expenditures.

 

Cash Flows from Financing Activities

 

Net cash used in financing activities was $215.1 million for the nine months ended September 30, 2012 compared to net cash provided by financing activities of $292.3 million for the nine months ended September 30, 2011. For the 2012 period, net cash used in financing activities consisted primarily of repayments of $484.6 million of long-term debt, net repayments on the ABL credit facility of $270.0 million, a contingent consideration payment related to the Toledo acquisition of $103.6 million, cash distributions to members of PBF LLC of $15.1 million and $17.3 million in deferred financing costs, partially offset by net proceeds from the senior secured notes offering of $665.8 million, proceeds of $9.5 million from the Paulsboro catalyst lease and proceeds of $0.2 million from stock options. For the nine months ended September 30, 2011, cash provided by financing activities consisted primarily of capital contributions from PBF LLC of $408.4 million, proceeds from the issuance of long-term debt of $343.7 million and proceeds from catalyst leases of $18.6 million, partially offset by principal repayments of $299.6 million on a seller note for inventory, repayments of long-term debt of $169.3 million and $9.5 million for deferred financing and other costs.

 

Net cash provided by financing activities was $384.6 million for the year ended December 31, 2011 compared to $639.2 million for the year ended December 31, 2010. For 2011, net financing cash flows were comprised of capital contributions from PBF LLC of $408.4 million; net borrowings on our ABL Revolving Credit Facility of $270.0 million, which was used primarily to repay our $299.6 million seller note for Toledo inventory; proceeds totaling $18.9 million for Delaware City construction financing which was used to fund a portion of that refinery’s turnaround and re-start activity; proceeds of $18.6 million for the sale and leaseback of Toledo’s precious metals catalyst which was used to partially repay $18.3 million of the Toledo Promissory Note; other principal repayments totaling $2.2 million; and payments of $11.2 million for deferred financing costs. Net cash provided by financing activities was $639.2 million for the year ended December 31, 2010. Cash provided by financing activities consisted of capital contributions of $483.1 million; proceeds from the Delaware Economic Development Authority Loan in connection with the Delaware City acquisition of $20.0 million; proceeds from the Delaware City catalyst sale and leaseback of $17.7 million; proceeds from a term loan of $125.0 million; less the payment of deferred financing fees totaling $6.6 million.

 

Net cash provided by financing activities was $639.2 million for the year ended December 31, 2010 as compared to $8 thousand used for the year ended December 31, 2009. In 2010, net cash provided by financing was comprised of contributions totaling $483.1 million from PBF LLC; proceeds from an interest free loan in connection with the Delaware City acquisition of $20.0 million; proceeds from the Delaware City catalyst sale and leaseback of $17.7 million; proceeds from the $125.0 million Term Loan Credit Agreement with UBS AG, Stamford Branch, as administrative and collateral agent and certain other lenders, or the Term Loan Facility; less the payment of deferred financing fees totaling $6.6 million.

 

Cash Flows Analysis of Paulsboro Refining Business—PBF LLC’s Predecessor

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $33.7 million for the period from January 1, 2010 to December 16, 2010 as compared to the net cash used in operating activities of $61.9 million for the year ended December 31, 2009. During the 2010 period, Paulsboro’s operating cash flows were comprised of its net loss of $691.8 million, adjusted for non-cash charges (benefits) related to depreciation and amortization expense of $66.4 million, an asset impairment loss of $895.6 million and a deferred tax benefit of ($283.5) million and cash used in working capital and other changes of $20.5 million. During 2009, net cash used in operating activities was comprised of

 

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Paulsboro’s net loss of $137.6 million, adjusted for depreciation and amortization expense of $65.1 million, asset impairment loss of $8.5 million and deferred tax expense of $13.8 million and cash used in working capital and other changes of $11.7 million.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities was $42.4 million for the period from January 1, 2010 to December 16, 2010 as compared to the net cash flows used in investing activities of $116.0 million for the year ended December 31, 2009. The cash flows used in investing activities in the 2010 period reflect capital expenditures of $20.1 million, deferred turnaround and catalyst costs of $17.0 million and other investing activities, net of $5.2 million. For the year ended December 31, 2009, cash flows used in investing activities included capital expenditures of $96.8 million and deferred turnaround and catalyst costs of $19.3 million.

 

Cash Flows from Financing Activities

 

Net cash provided by financing activities was $76.1 million for the period from January 1, 2010 to December 16, 2010 as compared to the net cash flows provided by financing activities of $178.0 million for the year ended December 31, 2009. In both periods, cash provided by financing activities represented net cash advances from Paulsboro’s parent, Valero.

 

Senior Secured Notes Offering

 

On February 9, 2012, PBF Holding completed the senior secured notes offering. The net proceeds from the offering of approximately $665.8 million were used to repay our Paulsboro Promissory Note in the amount of $150.6 million, our Term Loan Facility in the amount of $123.8 million, our Toledo Promissory Note in the amount of $181.7 million, and to reduce indebtedness under the ABL Revolving Credit Facility. As a result of the senior secured notes offering, and the repayment of our Delaware City construction financing on August 31, 2012, with the exception of our catalyst leases, we have no long-term debt maturing before 2020. Our Executive Chairman of the Board of Directors, and certain of our other executives, purchased $25.5 million aggregate principal amount of the senior secured notes. The senior secured notes were offered pursuant to exemptions under the Securities Act, and have not been registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.

 

Credit Facilities

 

ABL Revolving Credit Facility

 

On May 31, 2011, we amended our ABL Revolving Credit Facility with UBS AG, Stamford Branch, as administrative agent and co-collateral agent and certain other lenders to increase its size to $500.0 million by including certain inventory and accounts receivable of the Toledo refinery in the borrowing base. A portion of the proceeds of the ABL Revolving Credit Facility was used on the closing date thereof to repay in full all amounts then outstanding under and to terminate the Products and Intermediates Inventory Promissory Note, dated as of March 1, 2011, in an aggregate principal amount equal to $299.6 million, issued by Toledo Refining in favor of Sunoco. In March, August, and September 2012, we amended the ABL Revolving Credit Facility again to increase the aggregate size to $965.0 million. The ABL Revolving Credit Facility was amended and restated on October 26, 2012 to increase the maximum availability to $1.375 billion, extend the maturity date to October 26, 2017, and amend the borrowing base to include non-U.S. inventory. The amended and restated ABL Revolving Credit facility includes an accordion feature which allows for commitments of up to $1.8 billion. On an ongoing basis, the ABL Revolving Credit Facility is available to PBF Holding and its subsidiaries for working capital and other general corporate purposes.

 

The ABL Revolving Credit Facility contains customary covenants and restrictions on the activities of PBF Holding and its subsidiaries, including, but not limited to, limitations on the incurrence of additional indebtedness;

 

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liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends and the repurchase of capital stock; transactions with affiliates; the ability to change the nature of our business or our fiscal year; the ability to amend the terms of the senior secured notes facility documents; and sale and leaseback transactions. As of September 30, 2012, we were in compliance with these covenants.

 

The ABL Revolving Credit Facility currently provides for revolving loans of up to an aggregate of $965.0 million, a portion of which is available in the form of letters of credit. The amount available for borrowings and letters of credit under the ABL Revolving Credit Facility is calculated according to a “borrowing base” formula based on (1) 90% of the book value of eligible accounts receivable with respect to investment grade obligors plus (2) 85% of the book value of eligible accounts receivable with respect to non-investment grade obligors plus (3) 80% of the cost of eligible hydrocarbon inventory plus (4) 100% of cash and cash equivalents in deposit accounts subject to a control agreement. The borrowing base is subject to customary reserves and eligibility criteria and in any event cannot exceed $965.0 million. As of September 30, 2012, there were no outstanding borrowings under the ABL Revolving Credit Facility. Additionally, we had $36.0 million in standby letters of credit issued and outstanding as of that date.

 

All obligations under the ABL Revolving Credit Facility are guaranteed (solely on a limited recourse basis to the extent required to support the lien described in clause (y) below by PBF LLC, PBF Finance Corporation, or PBF Finance, and each of our domestic operating subsidiaries and secured by a lien on (y) PBF LLC’s equity interests in PBF Holding and (z) substantially all of the assets of the borrowers and the subsidiary guarantors (subject to certain exceptions). The lien of the ABL Revolving Credit Facility lenders ranks first in priority with respect to the following: all deposit accounts (other than