PBF ENERGY : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

The following review of our results of operations and financial condition should
be read in conjunction with "Item 1. Business", "Item 1A. Risk Factors", "Item
2. Properties", and "Item 8. Financial Statements and Supplementary Data,"
respectively, included in this Annual Report on Form 10-K.
CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains certain "forward-looking statements,"
as defined in the Private Securities Litigation Reform Act of 1995 ("PSLRA"), of
expected future developments that involve risks and uncertainties. You can
identify forward-looking statements because they contain words such as
"believes," "expects," "may," "should," "seeks," "approximately," "intends,"
"plans," "estimates," "anticipates" or similar expressions that relate to our
strategy, plans or intentions. All statements we make relating to our estimated
and projected earnings, margins, costs, expenditures, cash flows, growth rates
and financial results or to our strategies, objectives, intentions, resources
and expectations regarding future industry trends are forward-looking statements
made under the safe harbor of the PSLRA except to the extent such statements
relate to the operations of a partnership or limited liability company. In
addition, we, through our senior management, from time to time make
forward-looking public statements concerning our expected future operations and
performance and other developments. These forward-looking statements are subject
to risks and uncertainties that may change at any time, and, therefore, our
actual results may differ materially from those that we expected. We derive many
of our forward-looking statements from our operating budgets and forecasts,
which are based upon many detailed assumptions. While we believe that our
assumptions are reasonable, we caution that it is very difficult to predict the
impact of known factors, and, of course, it is impossible for us to anticipate
all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our
expectations, which we refer to as "cautionary statements," are disclosed under
"Item 1A. Risk Factors," and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Annual
Report on Form 10-K. All forward-looking information in this Annual Report on
Form 10-K 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:
•the effect of the COVID-19 pandemic and related governmental and consumer
responses on our business, financial condition and results of operations;
•our ability to target and execute expense reduction measures in 2021 and
thereafter;
•supply, demand, prices and other market conditions for our products, including
volatility in commodity prices;
• the effects of competition in our markets;
•changes in currency exchange rates, interest rates and capital costs;
• adverse developments in our relationship with both our key employees and
unionized employees;
•our ability to operate our businesses efficiently, manage capital expenditures
and costs (including general and administrative expenses) and generate earnings
and cash flow;
•our substantial indebtedness, including the impact of the recent downgrades to
our corporate credit rating, secured notes and unsecured notes;
•our expectations with respect to our capital improvement and turnaround
projects;
•our supply and inventory intermediation arrangements expose us to counterparty
credit and performance risk;
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•termination of our Inventory Intermediation Agreements with J. Aron, which
could have a material adverse effect on our liquidity, as we would be required
to finance our crude oil, intermediate and refined products inventory covered by
the agreements. Additionally, we are obligated to repurchase from J. Aron
certain J. Aron Products located at our J. Aron Storage Tanks upon termination
of these agreements;
•restrictive covenants in our indebtedness that may adversely affect our
operational flexibility;
•payments by PBF Energy to the current and former holders of PBF LLC Series A
Units and PBF LLC Series B Units under PBF Energy's Tax Receivable Agreement for
certain tax benefits we may claim;
•our assumptions regarding payments arising under PBF Energy's Tax Receivable
Agreement and other arrangements relating to our organizational structure are
subject to change due to various factors, including, among other factors, the
timing of exchanges of PBF LLC Series A Units for shares of PBF Energy Class A
common stock as contemplated by the Tax Receivable Agreement, the price of PBF
Energy Class A common stock at the time of such exchanges, the extent to which
such exchanges are taxable, and the amount and timing of our income;
•our expectations and timing with respect to our acquisition activity and
whether such acquisitions are accretive or dilutive to shareholders;
•the impact of disruptions to crude or feedstock supply to any of our
refineries, including disruptions due to problems at PBFX or with third-party
logistics infrastructure or operations, including pipeline, marine and rail
transportation;
•the possibility that we might not make further dividend payments;
•the inability of our subsidiaries to freely pay dividends or make distributions
to us;
•the impact of current and future laws, rulings and governmental regulations,
including the implementation of rules and regulations regarding transportation
of crude oil by rail;
•the threat of cyber-attacks;
•our increased dependence on technology;
•the effectiveness of our crude oil sourcing strategies, including our crude by
rail strategy and related commitments;
•adverse impacts related to legislation by the federal government lifting the
restrictions on exporting U.S. crude oil;
•adverse impacts from changes in our regulatory environment, such as the effects
of compliance with AB32, or from actions taken by environmental interest groups;
•market risks related to the volatility in the price of RINs required to comply
with the Renewable Fuel Standard and GHG emission credits required to comply
with various GHG emission programs, such as AB32;
•our ability to complete the successful integration of the Martinez refinery and
any other acquisitions into our business and to realize the benefits from such
acquisitions;
•unforeseen liabilities associated with the Martinez Acquisition and any other
acquisitions;
•risk associated with the operation of PBFX as a separate, publicly-traded
entity;
•potential tax consequences related to our investment in PBFX; and
•any decisions we continue to make with respect to our energy-related logistics
assets that may be transferred to PBFX.
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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 Annual Report on Form 10-K 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 Annual Report
on Form 10-K. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update or revise any
forward-looking statements. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the foregoing.
Executive Summary
Our business operations are conducted by PBF LLC and its subsidiaries. We were
formed in March 2008 to pursue the acquisitions of crude oil refineries and
downstream assets in North America. We own and operate six domestic oil
refineries and related assets located in Delaware City, Delaware, Paulsboro, New
Jersey, Toledo, Ohio, Chalmette, Louisiana, Torrance, California, and Martinez,
California. Based on current configuration (subsequent to the East Coast
Refining Reconfiguration), our refineries have a combined processing capacity,
known as throughput, of approximately 1,000,000 bpd, and a weighted-average
Nelson Complexity Index of 13.2 based on current operating conditions. The
complexity and throughput capacity of our refineries are subject to change
dependent upon configuration changes we make to respond to market conditions as
well as a result of investments made to improve our facilities and maintain
compliance with environmental and governmental regulations. We operate in two
reportable business segments: Refining and Logistics. Our six oil refineries are
all engaged in the refining of crude oil and other feedstocks into petroleum
products, and are aggregated into the Refining segment. PBFX operates certain
logistical assets such as crude oil and refined petroleum products terminals,
pipelines, and storage facilities, which are aggregated into the Logistics
segment.
Factors Affecting Comparability
Our results over the past three years have been affected by the following
events, the understanding of which will aid in assessing the comparability of
our period to period financial performance and financial condition.
COVID-19 and Market Developments
The impact of the unprecedented global health and economic crisis sparked by the
COVID-19 pandemic was amplified late in the quarter ended March 31, 2020 due to
movements made by the world's largest oil producers to increase market share.
This created simultaneous shocks in oil supply and demand resulting in an
economic challenge to our industry which has not occurred since our formation.
This combination has resulted in significant demand reduction for our refined
products and atypical volatility in oil commodity prices, which are expected to
continue for the foreseeable future. Our results for the year ended December 31,
2020 were impacted by the sustained decreased demand for refined products and
the significant decline in the price of crude oil, both of which negatively
impacted our revenues, cost of products sold and operating income and lowered
our liquidity. Throughput rates across our refining system also decreased and we
are currently operating our refineries at reduced rates. Refer to "Item 1.
Business - Recent Developments" and "Item 1A. Risk Factors" for further
information.
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East Coast Refining Reconfiguration
On December 31, 2020, we completed the East Coast Refining Reconfiguration. As
part of the reconfiguration process, we idled certain of our major processing
units at the Paulsboro refinery, resulting in lower overall throughput and
inventory levels in addition to decreases in capital and operating costs. Based
on this reconfiguration, our East Coast throughput capacity is approximately
285,000 barrels per day.
Turnaround Costs and Assets under Construction
As a result of the East Coast Refining Reconfiguration, certain major processing
units were temporarily idled. As such, we accelerated the recognition of
approximately $56.2 million of unamortized deferred turnaround amortization
costs associated with these idled units. Additionally, we abandoned certain
projects related to assets under construction related to these idled assets,
resulting in an impairment charge of approximately $11.9 million.
Capital Project Abandonments
In connection with our ongoing strategic initiative to address the COVID-19
pandemic, including our East Coast Refining Reconfiguration, we reassessed our
refinery wide slate of capital projects that were either in process or not yet
placed into service as of December 31, 2020. Based on this reassessment and our
strategic plan to reduce capital expenditures, we decided to abandon various
capital projects across the refining system, resulting in an impairment charge
of approximately $79.9 million.
Severance Costs
Following the onset of the COVID-19 pandemic, we have implemented a number of
cost reduction initiatives to strengthen our financial flexibility and
rationalize overhead expenses, including reductions in our workforce. During the
second quarter of 2020, we reduced headcount across our refineries, which
resulted in approximately $12.9 million of severance related costs.
Additionally, as a result of the East Coast Refining Reconfiguration, we
incurred charges in the fourth quarter of 2020 of approximately $11.8 million of
severance related expenses. These severance costs are included in general and
administrative expenses.
Tax Receivable Agreement
In connection with PBF Energy's initial public offering, PBF Energy entered into
a Tax Receivable Agreement pursuant to which PBF Energy is required to pay the
members of PBF LLC, who exchange their units for PBF Energy Class A common stock
or whose units PBF Energy purchases, approximately 85% of the cash savings in
income taxes that PBF Energy realizes as a result of the increase in the tax
basis of its interest in PBF LLC, including tax benefits attributable to
payments made under the Tax Receivable Agreement. There was no Tax Receivable
Agreement liability as of December 31, 2020. PBF Energy has recognized, as of
December 31, 2019 and 2018, a liability for the Tax Receivable Agreement of
$373.5 million, reflecting the estimate of the undiscounted amounts that PBF
Energy expects to pay under the agreement, net of the impact of a deferred tax
asset valuation allowance recognized in accordance with ASC 740, Income Taxes.
As future taxable income is recognized, increases in our Tax Receivable
Agreement liability may be necessary in conjunction with the revaluation of
deferred tax assets. Refer to "Note 14 - Commitments and Contingencies" and
"Note 21 - Income Taxes" of our Notes to Consolidated Financial Statements for
more details.
Early Return of Railcars
In the fourth quarter of 2020 we agreed to voluntarily return a portion of
railcars under an operating lease in order to rationalize certain components of
our railcar fleet. Under the terms of the lease amendment, we agreed to pay
amounts in lieu of satisfaction of return conditions (the "early termination
penalty"). As a result, we recognized an expense of $12.5 million within Cost of
sales, consisting of charges for the early termination penalty and charges
related to the remaining lease payments associated with the railcars identified
within the amended lease, all of which were idled and out of service as of
December 31, 2020.
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In the third quarter of 2018 we agreed to voluntarily return a portion of
railcars under an operating lease in order to rationalize certain components of
our railcar fleet. Under the terms of the lease amendment, we agreed to pay the
early termination penalty and a reduced rental fee over the remaining term of
the lease. As a result, we recognized an expense of $52.3 million for the year
ended December 31, 2018 included within Cost of sales consisting of (i) a $40.3
million charge for the early termination penalty and (ii) a $12.0 million charge
related to the remaining lease payments associated with the railcars identified
within the amended lease, all of which were idled and out of service as of
December 31, 2018.
Torrance Land Sales
On December 30, 2020, August 1, 2019 and August 7, 2018, we closed on
third-party sales of parcels of real property acquired as part of the Torrance
refinery, but not part of the refinery itself. The sales resulted in gains of
approximately $8.1 million, $33.1 million and $43.8 million in the fourth
quarter of 2020, third quarter of 2019 and third quarter of 2018, respectively,
included within Gain on sale of assets in the Consolidated Statements of
Operations.
Sale of Hydrogen Plants
On April 17, 2020, we closed on the sale of five hydrogen plants to Air Products
and Chemicals, Inc. ("Air Products") in a sale-leaseback transaction for gross
cash proceeds of $530.0 million and recognized a gain of $471.1 million. In
connection with the sale, we entered into a transition services agreement
through which Air Products will exclusively supply hydrogen, steam, carbon
dioxide and other products (the "Products") to the Martinez, Torrance and
Delaware City refineries for a specified period (not expected to exceed 18
months). The transition services agreement also requires certain maintenance and
operating activities to be provided by PBF Holding, for which we will be
reimbursed, during the term of the agreement. In August 2020, the parties
executed long-term supply agreements pursuant to which Air Products will supply
the Products for a term of fifteen years at these same refineries.
Debt and Credit Facilities
Credit Ratings
During the fourth quarter of 2020, each of our credit rating agencies downgraded
our corporate family rating as well as our unsecured and secured notes ratings,
with all ratings on negative outlook as the refining sector continues to
experience weak refining margins due to the COVID-19 pandemic and related
negative demand impact. As a result of the downgrade, the cost of borrowing
under our Revolving Credit Facility has increased in accordance with the
Revolving Credit Agreement. The 2028 Senior Notes and the 2025 Senior Notes are
rated B3 by Moody's, B+ by S&P, and B+ by Fitch. The 2025 Senior Secured Notes
are rated Ba3 by Moody's, BB by S&P, and BB by Fitch.
Catalyst Financing Obligations
On September 25, 2020, we closed on agreements to sell a portion of our precious
metals catalyst to certain major commercial banks for approximately
$51.9 million and subsequently leased the catalyst back. The precious metals
financing arrangements cover a portion of the catalyst used in our East Coast
Refining System, Martinez and Toledo refineries. The volumes of the precious
metal catalyst and the interest rates are fixed over the term of each financing
arrangement. We are obligated to repurchase the precious metals catalyst at fair
market value upon expiration of these leases, and the earliest expiration is
September 2021. For all leases not renewed at maturity, we have the ability and
intent to finance such debt through availability under our revolving credit
facilities.
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Senior Notes
On May 13, 2020, we issued $1.0 billion in aggregate principal amount of the
initial 2025 Senior Secured Notes. The net proceeds from this offering were
approximately $982.9 million after deducting the initial purchasers' discount
and offering expenses. We used the net proceeds for general corporate purposes.
On December 21, 2020, we issued $250.0 million, in a tack-on offering, in
aggregate principal amount of the additional 2025 Senior Secured Notes. The net
proceeds from this offering were approximately $245.7 million after deducting
the initial purchasers' discount and estimated offering expenses. We used the
net proceeds for general corporate purposes.
On January 24, 2020, we issued $1.0 billion in aggregate principal amount of the
2028 Senior Notes. The net proceeds from this offering were approximately
$987.0 million after deducting the initial purchasers' discount and offering
expenses. We used $517.5 million of the proceeds to fully redeem our 2023 Senior
Notes and the balance to fund a portion of the cash consideration for the
Martinez Acquisition.
On February 14, 2020, we exercised our rights under the indenture governing the
2023 Senior Notes to redeem all of the outstanding 2023 Senior Notes at a price
of 103.5% of the aggregate principal amount thereof plus accrued and unpaid
interest. The aggregate redemption price for all 2023 Senior Notes approximated
$517.5 million plus accrued and unpaid interest. The difference between the
carrying value of the 2023 Senior Notes on the date they were redeemed and the
amount for which they were redeemed was $22.2 million and has been classified as
Debt extinguishment costs in the Consolidated Statements of Operations for the
year ending December 31, 2020.
Refer to "Note 10 - Credit Facilities and Debt" of our Notes to Consolidated
Financial Statements, for further information.
PBF Holding Revolving Credit Facility
During the year ended December 31, 2020, we used advances under our Revolving
Credit Facility to fund a portion of the Martinez Acquisition and for other
general corporate purposes.
On May 2, 2018, PBF Holding and certain of its wholly-owned subsidiaries, as
borrowers or subsidiary guarantors, replaced our existing asset-based revolving
credit agreement dated as of August 15, 2014 (the "August 2014 Revolving Credit
Agreement") with the Revolving Credit Facility. Among other things, the
Revolving Credit Facility increases the maximum commitment available to PBF
Holding from $2.6 billion to $3.4 billion, extends the maturity date to May
2023, and redefines certain components of the Borrowing Base, as defined in the
Revolving Credit Agreement, to make more funding available for working capital
and other general corporate purposes. In addition, an accordion feature allows
for commitments of up to $3.5 billion. The commitment fees on the unused
portion, the interest rate on advances and the fees for letters of credit are
consistent with the August 2014 Revolving Credit Agreement and further described
in "Note 10 - Credit Facilities and Debt" of our Notes to Consolidated Financial
Statements.
The outstanding borrowings under the Revolving Credit Facility as of
December 31, 2020 were $900.0 million. There were no outstanding borrowings
under the Revolving Credit Facility as of December 31, 2019 and 2018,
respectively.
PBFX Revolving Credit Facility
On July 30, 2018, PBFX entered into the PBFX Revolving Credit Facility with
Wells Fargo Bank, National Association, as administrative agent, and a syndicate
of lenders. The PBFX Revolving Credit Facility amended and restated the May 2014
PBFX Revolving Credit Facility to, among other things, increase the maximum
commitment available to PBFX from $360.0 million to $500.0 million and extend
the maturity date to July 2023. PBFX has the ability to increase the maximum
amount of the PBFX Revolving Credit Facility by an aggregate amount of up to
$250.0 million to a total facility size of $750.0 million, subject to receiving
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increased commitments from lenders or other financial institutions and
satisfaction of certain conditions. The commitment fees on the unused portion,
the interest rate on advances, and the fees for letters of credit are consistent
with the May 2014 PBFX Revolving Credit Facility. The PBFX Revolving Credit
Facility is guaranteed by a limited guaranty of collection from PBF LLC.
During the year ended December 31, 2020, PBFX made net repayments of $83.0
million on the PBFX Revolving Credit Facility. During 2019 and 2018, PBFX
incurred net borrowings of $127.0 million and $126.3 million, respectively,
primarily to fund acquisitions and capital projects.
The outstanding borrowings under the PBFX Revolving Credit Facility were $200.0
million, $283.0 million and $156.0 million as of December 31, 2020, 2019 and
2018, respectively.
Martinez Acquisition
We acquired the Martinez refinery and related logistics assets from Shell Oil
Products on February 1, 2020 for an aggregate purchase price of $1,253.4
million, including final working capital of $216.1 million and the obligation to
make certain post-closing earn-out payments to Shell Oil Products based on
certain earnings thresholds of the Martinez refinery for a period of up to four
years (the "Martinez Contingent Consideration"). The transaction was financed
through a combination of cash on hand, including proceeds from the 2028 Senior
Notes, and borrowings under the Revolving Credit Facility.
The Martinez refinery is located on an 860-acre site in the City of Martinez, 30
miles northeast of San Francisco, California. The refinery is a high-conversion
157,000 bpd, dual-coking facility with a Nelson Complexity Index of 16.1, making
it one of the most complex refineries in the United States. The facility is
strategically positioned in Northern California and provides for operating and
commercial synergies with the Torrance refinery located in Southern California.
In addition to refining assets, the Martinez Acquisition includes a number of
high-quality onsite logistics assets including a deep-water marine facility,
product distribution terminals and refinery crude and product storage facilities
with approximately 8.8 million barrels of shell capacity.
Inventory Intermediation Agreements
The Inventory Intermediation Agreements with J. Aron were amended in the first
quarter of 2019 and amended and restated in the third quarter of 2019, pursuant
to which certain terms of the Inventory Intermediation Agreements were amended,
including, among other things, the maturity date. On March 29, 2019 the
Inventory Intermediation Agreement by and among J. Aron, PBF Holding and DCR was
amended to add the East Coast Storage Assets as a location and crude oil as a
new product type to be included in the products sold to J. Aron by DCR. On
August 29, 2019, the Inventory Intermediation Agreement by and among J. Aron,
PBF Holding and PRC was extended to December 31, 2021, which term may be further
extended by mutual consent of the parties to December 31, 2022 and the Inventory
Intermediation Agreement by and among J. Aron, PBF Holding and DCR was extended
to June 30, 2021, which term may be further extended by mutual consent of the
parties to June 30, 2022. We intend to either extend or replace the Inventory
Intermediation Agreements prior to their expirations.
Pursuant to each Inventory Intermediation Agreement, J. Aron continues to
purchase and hold title to the J. Aron Products produced by the refinery, and
delivered into our J. Aron Storage Tanks. The J. Aron Products are sold back to
us as they are discharged out of our J. Aron Storage Tanks. J. Aron has the
right to store the J. Aron Products purchased in tanks under the Inventory
Intermediation Agreements and will retain these storage rights for the term of
the agreements. At expiration or termination of each of the Inventory
Intermediation Agreements, we will have to repurchase the inventories
outstanding under the applicable Inventory Intermediation Agreement at that
time. PBF Holding continues to market and sell the J. Aron Products
independently to third parties.

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PBF Energy Inc. Public Offerings
As a result of the initial public offering and related reorganization
transactions, PBF Energy became the sole managing member of PBF LLC with a
controlling voting interest in PBF LLC and its subsidiaries. Effective with
completion of the initial public offering, PBF Energy consolidates the financial
results of PBF LLC and its subsidiaries and records a noncontrolling interest in
its Consolidated Financial Statements representing the economic interests of PBF
LLC unitholders other than PBF Energy. Additionally, a series of secondary
offerings were made subsequent to our IPO whereby funds affiliated with The
Blackstone Group L.P. ("Blackstone") and First Reserve Management L.P. ("First
Reserve") sold their interests in us. As a result of these secondary offerings,
Blackstone and First Reserve no longer hold any PBF LLC Series A units.
On August 14, 2018, PBF Energy completed a public offering of an aggregate of
6,000,000 shares of PBF Energy Class A common stock for net proceeds of $287.3
million, after deducting underwriting discounts and commissions and other
offering expenses (the "August 2018 Equity Offering").
As of December 31, 2020, including the offerings described above, PBF Energy
owns 120,122,872 PBF LLC Series C Units and our current and former executive
officers and directors and certain employees and others beneficially own 970,647
PBF LLC Series A Units. The holders of our issued and outstanding shares of PBF
Energy Class A common stock have 99.2% of the voting power in us and the members
of PBF LLC, other than PBF Energy through their holdings of Class B common
stock, have the remaining 0.8% of the voting power in us.
PBFX Equity Offerings
On April 24, 2019, PBFX entered into subscription agreements to sell an
aggregate of 6,585,500 common units to certain institutional investors in a
registered direct offering (the "2019 Registered Direct Offering") for gross
proceeds of approximately $135.0 million. The 2019 Registered Direct Offering
closed on April 29, 2019.
On July 30, 2018, PBFX closed on a common unit purchase agreement with certain
funds managed by Tortoise Capital Advisors, L.L.C. providing for the issuance
and sale in a registered direct offering of an aggregate of 1,775,750 common
units for net proceeds of approximately $34.9 million.
As of December 31, 2020, PBF LLC held a 48.0% limited partner interest in PBFX
with the remaining 52.0% limited partner interest owned by public common
unitholders.
PBFX Assets and Transactions
PBFX's assets consist of various logistics assets (as described in "Item 1.
Business"). Apart from business associated with certain third-party
acquisitions, PBFX's revenues are derived from long-term, fee-based commercial
agreements with subsidiaries of PBF Holding, which include minimum volume
commitments, for receiving, handling, transferring and storing crude oil,
refined products and natural gas. These transactions are eliminated by PBF
Energy and PBF LLC in consolidation.
Since the inception of PBFX in 2014, PBF LLC and PBFX have entered into a series
of drop-down transactions. Such transactions and third-party acquisitions made
by PBFX occurring in the three years ended December 31, 2020 are discussed
below.
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TVPC Acquisition
On April 24, 2019, PBFX entered into the TVPC Contribution Agreement, pursuant
to which PBF LLC contributed to PBFX all of the issued and outstanding limited
liability company interests of TVP Holding for total consideration of $200.0
million. Prior to the TVPC Acquisition, TVP Holding owned a 50% membership
interest in TVPC. Subsequent to the closing of the TVPC Acquisition on May 31,
2019, PBFX owns 100% of the membership interests in TVPC. The transaction was
financed through a combination of proceeds from the 2019 Registered Direct
Offering and borrowings under the PBFX Revolving Credit Facility.
PBFX IDR Restructuring
On February 28, 2019, PBFX closed on the IDR Restructuring Agreement with PBF
LLC and PBF GP, pursuant to which PBFX's IDRs held by PBF LLC were canceled and
converted into 10,000,000 newly issued PBFX common units. Subsequent to the
closing of the IDR Restructuring, no distributions were made to PBF LLC with
respect to the IDRs and the newly issued PBFX common units are entitled to
normal distributions by PBFX.
East Coast Storage Assets Acquisition
On October 1, 2018, PBFX closed on its agreement with Crown Point to purchase
its wholly-owned subsidiary, CPI Operations LLC (the "East Coast Storage Assets
Acquisition") for total consideration of approximately $127.0 million, including
working capital and the Contingent Consideration (as defined in "Note 4 -
Acquisitions" of our Notes to Consolidated Financial Statements), comprised of
an initial payment at closing of $75.0 million with a remaining balance of $32.0
million that was paid on October 1, 2019. The residual purchase consideration
consists of an earn-out provision related to an existing commercial agreement
with a third-party, based on the future results of certain of the acquired idled
assets (the "PBFX Contingent Consideration"). The consideration was financed
through a combination of cash on hand and borrowings under the PBFX Revolving
Credit Facility.
Development Assets Acquisition
On July 16, 2018, PBFX and PBF LLC entered into the Development Assets
Contribution Agreements, pursuant to which PBFX acquired from PBF LLC all of the
issued and outstanding limited liability company interests of Toledo Rail
Logistics Company LLC, whose assets consist of a loading and unloading rail
facility located at PBF Holding's Toledo refinery (the "Toledo Rail Products
Facility"); Chalmette Logistics Company LLC, whose assets consist of a truck
loading rack facility (the "Chalmette Truck Rack") and a rail yard facility (the
"Chalmette Rosin Yard"), both of which are located at PBF Holding's Chalmette
refinery; Paulsboro Terminaling Company LLC, whose assets consist of a lube oil
terminal facility located at PBF Holding's Paulsboro refinery (the "Paulsboro
Lube Oil Terminal"); and DCR Storage and Loading Company LLC, whose assets
consist of an ethanol storage facility located at PBF Holding's Delaware City
refinery (the "Delaware Ethanol Storage Facility" and collectively with the
Toledo Rail Products Facility, the Chalmette Truck Rack, the Chalmette Rosin
Yard, and the Paulsboro Lube Oil Terminal, the "Development Assets"). The
acquisition of the Development Assets closed on July 31, 2018 for total
consideration of $31.6 million consisting of 1,494,134 common units representing
limited partner interests in PBFX, issued to PBF LLC.
Knoxville Terminal Acquisition
On April 16, 2018, PBFX completed the purchase of two refined product terminals
located in Knoxville, Tennessee, which include product tanks, pipeline
connections to the Colonial Pipeline Company and Plantation Pipe Line Company
pipeline systems and truck loading facilities (the "Knoxville Terminals") from
Cummins Terminals, Inc. for total cash consideration of $58.0 million, excluding
working capital adjustments. The transaction was financed through a combination
of cash on hand and borrowings under the PBFX Revolving Credit Facility.
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Renewable Fuels Standard
We are subject to obligations to purchase RINs required to comply with the
Renewable Fuels Standard. Our overall RINs obligation is based on a percentage
of domestic shipments of on-road fuels as established by EPA. To the degree we
are unable to blend the required amount of biofuels to satisfy our RINs
obligation, RINs must be purchased on the open market to avoid penalties and
fines. We record our RINs obligation on a net basis in Accrued expenses when our
RINs liability is greater than the amount of RINs earned and purchased in a
given period and in Prepaid and other current assets when the amount of RINs
earned and purchased is greater than the RINs liability. We incurred
approximately $326.4 million in RINs costs during the year ended December 31,
2020 as compared to $122.7 million and $143.9 million during the years ended
December 31, 2019 and 2018, respectively. The fluctuations in RINs costs are due
primarily to volatility in prices for ethanol-linked RINs and increases in our
production of on-road transportation fuels since 2012. Our RINs purchase
obligation is dependent on our actual shipment of on-road transportation fuels
domestically and the amount of blending achieved.
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 depends 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 income from operations 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, governmental regulations, 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.
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 crack spreads. 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 throughput, provides an approximation of the
gross margin generated by refining activities.
The performance of our East Coast refineries generally follows the Dated Brent
(NYH) 2-1-1 benchmark refining margin. Our Toledo refinery generally follows the
WTI (Chicago) 4-3-1 benchmark refining margin. Our Chalmette refinery generally
follows the LLS (Gulf Coast) 2-1-1 benchmark refining margin. Our Torrance
refinery generally follows the Alaskan North Slope ("ANS") (West Coast) 4-3-1
benchmark refining margin. Our Martinez refinery generally follows the ANS (West
Coast) 3-2-1 benchmark refining margin.
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While the benchmark refinery margins presented below under "Results of
Operations-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 Consolidated Balance Sheets. 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.
We continually monitor our market risk exposure, including the impact and
developments related to the COVID-19 pandemic and the related governmental and
consumer responses which have introduced significant volatility in the financial
markets.
Other Factors
We currently source our crude oil for our refineries on a global basis through a
combination of market purchases and short-term purchase contracts, and through
our crude oil supply agreements. 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 East Coast 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 Mid-Continent and Western Canada, as well as a number of different
countries. We have not sourced crude oil under our crude supply arrangement with
PDVSA since 2017 as PDVSA has suspended deliveries due to our inability to agree
to mutually acceptable payment terms and because of U.S. government sanctions
against PDVSA.
In the past several years, we expanded and upgraded the existing on-site
railroad infrastructure on the east coast. Currently, crude oil delivered by
rail is consumed at our East Coast refineries. The Delaware City rail unloading
facilities, and the East Coast Storage Assets, allow our East Coast refineries
to source WTI-based crude oils from Western Canada and the Mid-Continent, which
we believe, at times, may provide cost advantages versus traditional Brent-based
international crude oils. In support of this rail strategy, we have at times
entered into agreements to lease or purchase crude railcars. Certain of these
railcars were subsequently sold to a third-party, which has leased the railcars
back to us for periods of between four and seven years. In subsequent periods,
we have sold or returned railcars to optimize our railcar portfolio. Our railcar
fleet, at times, provides transportation flexibility within our crude oil
sourcing strategy that allows our East Coast refineries to process cost
advantaged crude from Canada and the Mid-Continent.
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, and emission control regulations,
including the cost of RINs required for compliance with the Renewable Fuels
Standard. The predominant variable cost is energy, in particular, the price of
utilities, natural gas and electricity.
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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 feed logistics,
whereas unplanned downtime does not afford us this opportunity.
Furthermore, during 2020 our operating results were negatively impacted by the
ongoing COVID-19 pandemic which has caused a significant decline in the demand
for our refined products and a decrease in the prices for crude oil and refined
products, both of which have negatively impacted our revenues, cost of sales and
operating income.
Refinery-Specific Information
The following section includes refinery-specific information related to our
operations, crude oil differentials, ancillary costs, and local premiums and
discounts.
East Coast Refining System (Delaware City and Paulsboro Refineries). The
benchmark refining margin for the East Coast Refining System is calculated by
assuming that two barrels of Dated Brent crude oil are converted into one barrel
of gasoline and one barrel of diesel. We calculate this benchmark using the NYH
market value of reformulated blendstock for oxygenate blending ("RBOB") and ULSD
against the market value of Dated Brent and refer to the benchmark as the Dated
Brent (NYH) 2-1-1 benchmark refining margin. The East Coast Refining System has
a product slate of approximately 47% gasoline, 32% distillate, 2% high-value
Group I lubricants, 2% high-value petrochemicals, with the remaining portion of
the product slate comprised of lower-value products (3% petroleum coke, 4% LPGs,
7% black oil and 3% other). For this reason, we believe the Dated Brent (NYH)
2-1-1 is an appropriate benchmark industry refining margin. The majority of East
Coast refining revenues are generated off NYH-based market prices.
The East Coast Refining System's realized gross margin on a per barrel basis is
projected to differ from the Dated Brent (NYH) 2-1-1 benchmark refining margin
due to the following factors:
•the system processes a slate of primarily medium and heavy sour crude oils,
which has constituted approximately 60% to 70% of total throughput. The
remaining throughput consists of sweet crude oil and other feedstocks and
blendstocks. In addition, we have the capability to process a significant volume
of light, sweet crude oil depending on market conditions. 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 our East Coast Refining
system, we produce lower value products including sulfur, carbon dioxide and
petroleum coke. These products are priced at a significant discount to RBOB and
ULSD.
•the Paulsboro refinery produces Group I lubricants which carry a premium sales
price to RBOB and ULSD and the black oil is sold as asphalt which may be sold at
a premium or discount to Dated Brent based on the market.
Toledo Refinery. The benchmark refining margin for the Toledo refinery is
calculated by assuming that four barrels of 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 CBOB
and ULSD and the United States Gulf Coast value of jet fuel against the market
value of WTI and refer to this benchmark as the WTI (Chicago) 4-3-1 benchmark
refining margin. Our Toledo refinery has a product slate of approximately 53%
gasoline, 30% distillate, 4% high-value petrochemicals (including nonene,
tetramer, benzene, xylene and toluene) with the remaining portion of the product
slate comprised of lower-value products (4% LPGs, 8% black oil and 1% 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.
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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 and Canadian synthetic
crude oil. Historically, Toledo's blended average crude costs have differed from
the market value of WTI crude oil;
•the Toledo refinery configuration enables it to produce more barrels of product
than throughput which generates a pricing benefit; and
•the Toledo refinery generates a pricing benefit on some of its refined
products, primarily its petrochemicals.
Chalmette Refinery. The benchmark refining margin for the Chalmette refinery is
calculated by assuming two barrels of LLS crude oil are converted into one
barrel of gasoline and one barrel of diesel. We calculate this benchmark using
the US Gulf Coast market value of 87 conventional gasoline and ULSD against the
market value of LLS and refer to this benchmark as the LLS (Gulf Coast) 2-1-1
benchmark refining margin. Our Chalmette refinery has a product slate of
approximately 42% gasoline and 32% distillate, 2% high-value petrochemicals with
the remaining portion of the product slate comprised of lower-value products (9%
black oil, 5% LPGs, 4% petroleum coke, 3% LPGs, and 3% other). For this reason,
we believe the LLS (Gulf Coast) 2-1-1 is an appropriate benchmark industry
refining margin. The majority of Chalmette revenues are generated off Gulf
Coast-based market prices.
The Chalmette refinery's realized gross margin on a per barrel basis has
historically differed from the LLS (Gulf Coast) 2-1-1 benchmark refining margin
due to the following factors:
•the Chalmette refinery has generally processed a slate of primarily medium and
heavy sour crude oils, which has historically constituted approximately 65% to
75% of total throughput. The remaining throughput consists of sweet crude oil
and other feedstocks and blendstocks; and
•as a result of the heavy, sour crude slate processed at Chalmette, we produce
lower-value products including sulfur and petroleum coke. These products are
priced at a significant discount to 87 conventional gasoline and ULSD.
The PRL (pre-treater, reformer, light ends) project was completed in 2017 which
has increased high-octane, ultra-low sulfur reformate and chemicals production.
The new crude oil tank was also commissioned in 2017 and is allowing additional
gasoline and diesel exports, reduced RINs compliance costs and lower crude ship
demurrage costs.
Additionally, the idled 12,000 barrel per day coker unit was restarted in the
fourth quarter of 2019 to increase the refinery's long-term feedstock
flexibility to capture the potential benefit in the price for heavy and
high-sulfur feedstocks. The unit has increased the refinery's total coking
capacity to approximately 40,000 barrels per day.
Torrance Refinery. The benchmark refining margin for the Torrance refinery is
calculated by assuming that four barrels of ANS crude oil are converted into
three barrels of gasoline, one-half barrel of diesel and one-half barrel of jet
fuel. We calculate this benchmark using the West Coast Los Angeles market value
of California reformulated blendstock for oxygenate blending ("CARBOB"), CARB
diesel and jet fuel and refer to the benchmark as the ANS (West Coast) 4-3-1
benchmark refining margin. Our Torrance refinery has a product slate of
approximately 64% gasoline and 19% distillate with the remaining portion of the
product slate comprised of lower-value products (3% LPG, 3% black oil and 11%
other). For this reason, we believe the ANS (West Coast) 4-3-1 is an appropriate
benchmark industry refining margin. The majority of Torrance revenues are
generated off West Coast Los Angeles-based market prices.
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The Torrance refinery's realized gross margin on a per barrel basis has
historically differed from the ANS (West Coast) 4-3-1 benchmark refining margin
due to the following factors:
•the Torrance refinery has generally processed a slate of primarily heavy sour
crude oils, which has historically constituted approximately 80% to 90% of total
throughput. The Torrance crude slate has the lowest API gravity (typically an
American Petroleum Institute ("API") gravity of less than 20 degrees) of all of
our refineries. The remaining throughput consists of other feedstocks and
blendstocks; and
•as a result of the heavy, sour crude slate processed at Torrance, we produce
lower-value products including petroleum coke and sulfur. These products are
priced at a significant discount to gasoline and diesel.
Martinez Refinery. The benchmark refining margin for the Martinez refinery is
calculated by assuming that three barrels of ANS crude oil are converted into
two barrels of gasoline, one-quarter barrel of diesel and three-quarter barrel
of jet fuel. We calculate this benchmark using the West Coast San Francisco
market value of California reformulated blendstock for oxygenate blending
(CARBOB), CARB diesel and jet fuel and refer to the benchmark as the ANS (West
Coast) 3-2-1 benchmark refining margin. Our Martinez refinery has a product
slate of approximately 56% gasoline and 34% distillate with the remaining
portion of the product slate comprised of lower-value products (4% petroleum
coke, 3% LPG and 3% other). For this reason, we believe the ANS (West Coast)
3-2-1 is an appropriate benchmark industry refining margin. The majority of
Martinez revenues are generated off West Coast San Francisco-based market
prices.
The Martinez refinery's realized gross margin on a per barrel basis has
historically differed from the ANS (West Coast) 4-3-1 benchmark refining margin
due to the following factors:
•the Martinez refinery has generally processed a slate of primarily heavy sour
crude oils, which has historically constituted approximately 80% to 90% of total
throughput. The remaining throughput consists of other feedstocks and
blendstocks; and
•as a result of the heavy, sour crude slate processed at Martinez, we produce
lower-value products including petroleum coke and sulfur. These products are
priced at a significant discount to gasoline and CARB diesel.


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Results of Operations
The tables below reflect our consolidated financial and operating highlights for
the years ended December 31, 2020, 2019 and 2018 (amounts in millions, except
per share data). Differences between the results of operations of PBF Energy and
PBF LLC primarily pertain to income taxes, interest expense and noncontrolling
interest as shown below. Earnings per share information applies only to the
financial results of PBF Energy. We operate in two reportable business segments:
Refining and Logistics. Our oil refineries, excluding the assets owned by PBFX,
are all engaged in the refining of crude oil and other feedstocks into petroleum
products, and are aggregated into the Refining segment. PBFX is a
publicly-traded MLP that operates certain logistics assets such as crude oil and
refined petroleum products terminals, pipelines and storage facilities. PBFX's
operations are aggregated into the Logistics segment. We do not separately
discuss our results by individual segments as, apart from PBFX's third-party
acquisitions, our Logistics segment did not have any significant third-party
revenues and a significant portion of its operating results eliminated in
consolidation.
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PBF Energy                                                            Year Ended December 31,
                                                           2020                 2019                 2018
Revenues                                              $  15,115.9          $  24,508.2          $  27,186.1

Cost and expenses:
Cost of products and other                               14,275.6             21,387.5             24,503.4
Operating expenses (excluding depreciation and
amortization expense as reflected below)                  1,918.3              1,782.3              1,721.0
Depreciation and amortization expense                       551.7                425.3                359.1
Cost of sales                                            16,745.6             23,595.1             26,583.5
General and administrative expenses (excluding
depreciation and amortization expense as
reflected below)                                            248.5                284.0                277.0
Depreciation and amortization expense                        11.3                 10.8                 10.6
Change in fair value of contingent
consideration                                               (93.7)                (0.8)                   -
Impairment expense                                           98.8                    -                    -
Gain on sale of assets                                     (477.8)               (29.9)               (43.1)
Total cost and expenses                                  16,532.7             23,859.2             26,828.0

Income (loss) from operations                            (1,416.8)               649.0                358.1

Other income (expense):
Interest expense, net                                      (258.2)              (159.6)              (169.9)
Change in Tax Receivable Agreement liability                373.5                    -                 13.9
Change in fair value of catalyst obligations                (11.8)                (9.7)                 5.6
Debt extinguishment costs                                   (22.2)                   -                    -
Other non-service components of net periodic
benefit cost                                                  4.3                 (0.2)                 1.1
Income (loss) before income taxes                        (1,331.2)               479.5                208.8
Income tax expense                                            2.1                104.3                 33.5
Net income (loss)                                        (1,333.3)               375.2                175.3
Less: net income attributable to noncontrolling
interests                                                    59.1                 55.8                 47.0
Net income (loss) attributable to PBF Energy
Inc. stockholders                                     $  (1,392.4)         $     319.4          $     128.3

Consolidated gross margin                             $  (1,629.7)         $     913.1          $     602.6

Gross refining margin (1)                             $     496.8

$ 2,801.2 $ 2,419.4

Net income available to Class A common stock
per share:
Basic                                                 $    (11.64)         $      2.66          $      1.11
Diluted                                               $    (11.64)         $      2.64          $      1.10


----------

(1) See Non-GAAP Financial Measures.

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PBF LLC                                                               Year Ended December 31,
                                                           2020                 2019                 2018
Revenues                                              $  15,115.9          $  24,508.2          $  27,186.1

Cost and expenses:
Cost of products and other                               14,275.6             21,387.5             24,503.4
Operating expenses (excluding depreciation and
amortization expense as reflected below)                  1,918.3              1,782.3              1,721.0
Depreciation and amortization expense                       551.7                425.3                359.1
Cost of sales                                            16,745.6             23,595.1             26,583.5
General and administrative expenses (excluding
depreciation and amortization expense as
reflected below)                                            247.7                282.3                275.2
Depreciation and amortization expense                        11.3                 10.8                 10.6
Change in fair value of contingent
consideration                                               (93.7)                (0.8)                   -
Impairment expense                                           98.8                    -                    -
Gain on sale of assets                                     (477.8)               (29.9)               (43.1)
Total cost and expenses                                  16,531.9             23,857.5             26,826.2

Income (loss) from operations                            (1,416.0)               650.7                359.9

Other income (expense):
Interest expense, net                                      (268.5)              (169.1)              (178.5)
Change in fair value of catalyst obligations                (11.8)                (9.7)                 5.6
Debt extinguishment costs                                   (22.2)                   -                    -
Other non-service components of net periodic
benefit cost                                                  4.3                 (0.2)                 1.1
Income (loss) before income taxes                        (1,714.2)               471.7                188.1
Income tax expense (benefit)                                  6.1                 (8.3)                 8.0
Net income (loss)                                        (1,720.3)               480.0                180.1
Less: net income attributable to noncontrolling
interests                                                    76.2                 51.5                 42.3
Net income (loss) attributable to PBF Energy
Company LLC                                           $  (1,796.5)         $     428.5          $     137.8



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Operating Highlights
                                                                            Year Ended December 31,
                                                                 2020                2019                2018
Key Operating Information
Production (bpd in thousands)                                     737.1               825.2               854.5
Crude oil and feedstocks throughput (bpd in thousands)            727.7               823.1               849.7

Total crude oil and feedstocks throughput (millions of barrels)

                                                          266.3               300.4               310.0
Consolidated gross margin per barrel of throughput           $    (6.12)

$ 3.04 $ 1.94 Gross refining margin, excluding special items, per barrel of throughput (1)

$     3.23          $     8.51          $     9.09
Refinery operating expense, per barrel of throughput         $     6.89

$ 5.61 $ 5.34

Crude and feedstocks (% of total throughput) (2)
Heavy                                                                42  %               32  %               36  %
Medium                                                               26  %               28  %               30  %
Light                                                                17  %               26  %               21  %
Other feedstocks and blends                                          15  %               14  %               13  %
Total throughput                                                    100  %              100  %              100  %

Yield (% of total throughput)
Gasoline and gasoline blendstocks                                    51  %               49  %               50  %
Distillates and distillate blendstocks                               30  %               32  %               32  %
Lubes                                                                 1  %                1  %                1  %
Chemicals                                                             1  %                2  %                2  %
Other                                                                18  %               16  %               16  %
Total yield                                                         101  %              100  %              101  %


----------
(1) See Non-GAAP Financial Measures.
(2) We define heavy crude oil as crude oil with an API gravity of less than 24
degrees. We define medium crude oil as crude oil with an API gravity between 24
and 35 degrees. We define light crude oil as crude oil with an API gravity
higher than 35 degrees.
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The table below summarizes certain market indicators relating to our operating results as reported by Platts.

                                                                            Year Ended December 31,
                                                               2020                    2019                  2018
                                                                     (dollars per barrel, except as noted)
Dated Brent crude oil                                   $          41.62          $      64.34          $      71.34
West Texas Intermediate (WTI) crude oil                 $          39.25          $      57.03          $      65.20
Light Louisiana Sweet (LLS) crude oil                   $          41.13          $      62.67          $      70.23
Alaska North Slope (ANS) crude oil                      $          42.20          $      65.00          $      71.54
Crack Spreads
Dated Brent (NYH) 2-1-1                                 $           9.11          $      12.68          $      13.17
WTI (Chicago) 4-3-1                                     $           6.30          $      15.25          $      14.84
LLS (Gulf Coast) 2-1-1                                  $           7.59          $      12.43          $      12.30
ANS (West Coast-LA) 4-3-1                               $          11.30          $      18.46          $      15.48
ANS (West Coast-SF) 3-2-1                               $           9.99          $      17.16          $      14.49
Crude Oil Differentials
Dated Brent (foreign) less WTI                          $           2.37          $       7.31          $       6.14
Dated Brent less Maya (heavy, sour)                     $           5.37          $       6.76          $       8.70
Dated Brent less WTS (sour)                             $           2.33          $       8.09          $      13.90
Dated Brent less ASCI (sour)                            $           1.81          $       3.73          $       4.64
WTI less WCS (heavy, sour)                              $          10.72          $      13.61          $      26.93
WTI less Bakken (light, sweet)                          $           2.41          $       0.66          $       2.86
WTI less Syncrude (light, sweet)                        $           2.13          $       0.18          $       6.84
WTI less LLS (light, sweet)                             $          (1.88)         $      (5.64)         $      (5.03)
WTI less ANS (light, sweet)                             $          (2.95)         $      (7.97)         $      (6.34)
Natural gas (dollars per MMBTU)                         $           2.13    

$ 2.53 $ 3.07

2020 Compared to 2019
Overview- PBF Energy net loss was $(1,333.3) million for the year ended
December 31, 2020 compared to net income of $375.2 million for the year ended
December 31, 2019. PBF LLC net loss was $(1,720.3) million for the year ended
December 31, 2020 compared to net income of $480.0 million for the year ended
December 31, 2019. Net loss attributable to PBF Energy stockholders was
$(1,392.4) million, or $(11.64) per diluted share, for the year ended
December 31, 2020 ($(11.64) per share on a fully-exchanged, fully-diluted basis
based on adjusted fully-converted net loss, or $(11.78) per share on a
fully-exchanged, fully-diluted basis based on adjusted fully-converted net loss
excluding special items, as described below in Non-GAAP Financial Measures)
compared to net income attributable to PBF Energy stockholders of $319.4
million, or $2.64 per diluted share, for the year ended December 31, 2019 ($2.64
per share on a fully-exchanged, fully-diluted basis based on adjusted
fully-converted net income, or $0.90 per share on a fully-exchanged,
fully-diluted basis based on adjusted fully-converted net income excluding
special items, as described below in Non-GAAP Financial Measures). The net
income attributable to PBF Energy stockholders represents PBF Energy's equity
interest in PBF LLC's pre-tax income, less applicable income tax expense. PBF
Energy's weighted-average equity interest in PBF LLC was 99.1% and 99.0% for the
years ended December 31, 2020 and 2019, respectively.
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Our results for the year ended December 31, 2020 were positively impacted by
special items consisting of a gain on the sale of hydrogen plants of $471.1
million, or $345.8 million net of tax, a pre-tax gain on the sale of land at our
Torrance refinery of $8.1 million, or $5.9 million net of tax, a change in fair
value of the contingent consideration related to both the Martinez Acquisition
and the East Coast Storage Asset Acquisition of $93.7 million, or $68.8 million
net of tax and a pre-tax change in the Tax Receivable Agreement liability of
$373.5 million, or $274.1 million net of tax. Our results for the year ended
December 31, 2020 were negatively impacted by special items consisting of a
non-cash, pre-tax LCM inventory adjustment of approximately $268.0 million, or
$196.7 million net of tax, pre-tax, debt extinguishment costs associated with
the early redemption of the 2023 Senior Notes of $22.2 million, or $16.3 million
net of tax, severance costs related to reductions in workforce of $24.7 million,
or $18.1 million net of tax, impairment expense of $98.8 million or $72.5
million net of tax, related to the write-down of certain assets and project
abandonments, early return of certain leased railcars of $12.5 million or $9.2
million net of tax, accelerated turnaround amortization costs of $56.2 million
or $41.3 million net of tax, a LIFO inventory decrement of $83.0 million or
$60.9 million net of tax, reconfiguration charges of $5.3 million or $3.9
million net of tax and $259.1 million of tax expense associated with the
remeasurement of certain deferred tax assets. Our results for the year ended
December 31, 2019 were positively impacted by special items consisting of a
non-cash, pre-tax LCM inventory adjustment of approximately $250.2 million, or
$188.0 million net of tax and a pre-tax gain on the sale of land at our Torrance
refinery of $33.1 million, or $24.9 million net of tax. The LCM inventory
adjustments were recorded due to movements in the price of crude oil and refined
products in the periods presented.
Excluding the impact of these special items, our results were negatively
impacted by the ongoing COVID-19 pandemic which has caused a significant decline
in the demand for our refined products and a decrease in the prices for crude
oil and refined products, both of which have negatively impacted our revenues,
cost of products sold and operating income. In addition, during the year ended
December 31, 2020 we experienced unfavorable movements in certain crude
differentials and overall lower throughput volumes and barrels sold across our
refineries, as well as lower refining margins. All our operating regions
experienced lower refining margins for the year ended December 31, 2020 compared
to the prior year. Our results for the year ended December 31, 2020 were
negatively impacted by higher general and administrative expenses associated
with integration costs associated with the Martinez Acquisition and increased
depreciation and amortization expense associated with the Martinez Acquisition
and accelerated amortization costs associated with the East Coast Refining
Reconfiguration.
Revenues- Revenues totaled $15.1 billion for the year ended December 31, 2020
compared to $24.5 billion for the year ended December 31, 2019, a decrease of
approximately $9.4 billion or 38.4%. Revenues per barrel sold were $49.43 and
$69.93 for the years ended December 31, 2020 and 2019, respectively, a decrease
of 29.3% directly related to lower hydrocarbon commodity prices. For the year
ended December 31, 2020, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
263,000 bpd, 96,700 bpd, 137,700 bpd and 230,300 bpd, respectively. For the year
ended December 31, 2019, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
336,400 bpd, 153,000 bpd, 177,900 bpd and 155,800 bpd, respectively. For the
year ended December 31, 2020, the total barrels sold at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
296,200 bpd, 114,500 bpd, 159,700 bpd and 265,200 bpd, respectively. For the
year ended December 31, 2019, the total barrels sold at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
382,500 bpd, 163,900 bpd, 225,300 bpd and 188,600 bpd, respectively.
The throughput rates at our refineries were lower in the year ended December 31,
2020 compared to the same period in 2019. Our Martinez refinery was not acquired
until the first quarter of 2020 and is therefore not included in the prior
period West Coast throughput. We operated our refineries at reduced rates
beginning in March 2020, and, based on current market conditions, we plan on
continuing to operate our refineries at lower utilization until such time that
sustained product demand justifies higher production. Total refined product
barrels sold were higher than throughput rates, reflecting sales from inventory,
as well as sales and purchases of refined products outside our refineries.
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  Consolidated Gross Margin- Consolidated gross margin totaled $(1,629.7)
million for the year ended December 31, 2020, compared to $913.1 million for the
year ended December 31, 2019, a decrease of $2,542.8 million. Gross refining
margin (as described below in Non-GAAP Financial Measures) totaled $496.8
million, or $1.86 per barrel of throughput, for the year ended December 31, 2020
compared to $2,801.2 million, or $9.34 per barrel of throughput, for the year
ended December 31, 2019, a decrease of approximately $2,304.4 million. Gross
refining margin excluding special items totaled $860.3 million, or $3.23 per
barrel of throughput, for the year ended December 31, 2020 compared to $2,551.0
million, or $8.51 per barrel of throughput, for the year ended December 31,
2019, a decrease of $1,690.7 million.
Consolidated gross margin and gross refining margin were negatively impacted in
the current year by a non-cash LCM inventory adjustment of approximately $268.0
million on a net basis, resulting from the decrease in crude oil and refined
product prices from the year ended 2019, a LIFO inventory decrement charge of
$83.0 million mainly related to our East Coast LIFO inventory layer and the
reduction to our East Coast inventory experienced as part of the East Coast
Refining Reconfiguration, and early return of certain leased railcars of $12.5
million. Gross refining margin, excluding the impact of special items, decreased
due to unfavorable movements in certain crude differentials and an overall
decrease in throughput rates. For the year ended December 31, 2019, special
items impacting our margin calculations included a favorable non-cash LCM
inventory adjustment of approximately $250.2 million on a net basis, resulting
from an increase in crude oil and refined product prices from the year ended
December 31, 2018.
Additionally, our results continue to be impacted by significant costs to comply
with the Renewable Fuel Standard. Total Renewable Fuel Standard costs were
$326.4 million for the year ended December 31, 2020 in comparison to $122.7
million for the year ended December 31, 2019.
Average industry margins were mixed during the year ended December 31, 2020
compared with the prior year, primarily due to the impacts of the COVID-19
pandemic on regional demand and commodity prices in 2020, in addition to impacts
related to 2019 planned turnarounds, all of which were completed in the first
half of the prior year.
On the East Coast, the Dated Brent (NYH) 2-1-1 industry crack spread was
approximately $9.11 per barrel, or 28.2% lower, in the year ended December 31,
2020, as compared to $12.68 per barrel in the same period in 2019. Our margins
were negatively impacted from our refinery specific slate on the East Coast by
weakened Dated Brent/Maya differential, which decreased by $1.39 per barrel, in
comparison to the same period in 2019. Additionally, WTI/WCS differential
decreased to $10.72 per barrel in 2020 compared to $13.61 per barrel in 2019,
which unfavorably impacted our cost of heavy Canadian crude. The WTI/Bakken
differentials increased by $1.75 per barrel when compared to 2019.
Across the Mid-Continent, the WTI (Chicago) 4-3-1 industry crack spread was
$6.30 per barrel, or 58.7% lower, in the year ended December 31, 2020, as
compared to $15.25 per barrel in the prior year. Our margins were positively
impacted from our refinery specific slate in the Mid-Continent by an increasing
WTI/Bakken differential, which averaged $2.41 per barrel in the year ended
December 31, 2020, as compared to $0.66 per barrel in the prior year.
Additionally, the WTI/Syncrude differential averaged $2.13 per barrel for the
year ended December 31, 2020 as compared to $0.18 per barrel in the prior year.
On the Gulf Coast, the LLS (Gulf Coast) 2-1-1 industry crack spread was $7.59
per barrel, or 38.9% lower, in the year ended December 31, 2020 as compared to
$12.43 per barrel in the prior year. Margins on the Gulf Coast were positively
impacted from our refinery specific slate by a strengthening WTI/LLS
differential, which averaged a premium of $1.88 per barrel for the year ended
December 31, 2020 as compared to a premium of $5.64 per barrel in the prior
year.
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On the West Coast, the ANS (West Coast) 4-3-1 industry crack spread was $11.30
per barrel, or 38.8% lower, in the year ended December 31, 2020 as compared to
$18.46 per barrel in the prior year. Additionally, margins on the West Coast
were positively impacted from our refinery specific slate by a strengthening
WTI/ANS differential, which averaged a premium of $2.95 per barrel for the year
ended December 31, 2020 as compared to a premium of $7.97 per barrel in the
prior year.
Favorable movements in these benchmark crude differentials typically result in
lower crude costs and positively impact our earnings, while reductions in these
benchmark crude differentials typically result in higher crude costs and
negatively impact our earnings.
Operating Expenses- Operating expenses totaled $1,918.3 million for the year
ended December 31, 2020 compared to $1,782.3 million for the year ended
December 31, 2019, an increase of approximately $136.0 million, or 7.6%. Of the
total $1,918.3 million of operating expenses for the year ended December 31,
2020, $1,835.2 million, or $6.89 per barrel of throughput, related to expenses
incurred by the Refining segment, while the remaining $83.1 million related to
expenses incurred by the Logistics segment ($1,684.3 million or $5.61 per barrel
of throughput, and $98.0 million of operating expenses for the year ended
December 31, 2019 related to the Refining and Logistics segments, respectively).
Increases in operating expenses were due to costs associated with the Martinez
refinery and related logistic assets which totaled approximately $356.1 million
for the year ended December 31, 2020. Total operating expenses for the year
ended December 31, 2020 excluding our Martinez refinery, decreased due to our
cost reduction initiatives taken to strengthen our financial flexibility and
offset the negative impact of COVID-19, such as significant reductions in
discretionary activities and third party services. Operating expenses related to
our Logistics segment decreased as a result of lower discretionary spending,
including maintenance and outside service costs, in response to the COVID-19
pandemic, as well as lower environmental clean-up remediation costs and lower
utility expenses due to reduced energy usage.
General and Administrative Expenses- General and administrative expenses totaled
$248.5 million for the year ended December 31, 2020, compared to $284.0 million
for the year ended December 31, 2019, a decrease of $35.5 million or 12.5%. The
decrease in general and administrative expenses for the year ended December 31,
2020 in comparison to the year ended December 31, 2019 primarily relates to
reduction in our workforce as a result of the East Coast Refining
Reconfiguration and reduction in overhead expenses through temporary salary
reductions to a large portion of our workforce. These costs decreases were
offset by headcount reduction severance costs across the refineries as well as
integration costs pertaining to the Martinez Acquisition. Our general and
administrative expenses are comprised of personnel, facilities and other
infrastructure costs necessary to support our refineries and related logistics
assets.
Gain on Sale of Assets- There was a gain of $477.8 million for the year ended
December 31, 2020 related primarily to the sale of five hydrogen plants and the
sale of a parcel of land at our Torrance refinery. There was a gain on sale of
assets of $29.9 million for the year ended December 31, 2019, primarily
attributable to the sale of a parcel of land at our Torrance refinery.
Depreciation and Amortization Expense- Depreciation and amortization expense
totaled $563.0 million for the year ended December 31, 2020 (including $551.7
million recorded within Cost of sales) compared to $436.1 million for the year
ended December 31, 2019 (including $425.3 million recorded within Cost of
sales), an increase of $126.9 million. The increase was a result of additional
depreciation expense associated with the assets acquired in the Martinez
Acquisition and a general increase in our fixed asset base due to capital
projects and turnarounds completed since the third quarter of 2019.
Additionally, amortization expense recorded in 2020 includes $56.2 million of
accelerated unamortized deferred turnaround costs associated with assets that
were idled as part of the East Coast Refining Reconfiguration.
Change in Fair Value of Contingent Consideration- Change in fair value of
contingent consideration represented a gain of $93.7 million and $0.8 million
for the years ended December 31, 2020 and December 31, 2019, respectively. This
change represents the decrease in the estimated fair value of the Martinez
Contingent Consideration and the PBFX Contingent Consideration (as defined in
"Note 4 - Acquisitions" of our Notes to Consolidated Financial Statements), both
associated with acquisition related earn-out obligations.
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Change in Fair Value of Catalyst Obligations- Change in fair value of catalyst
obligations represented a loss of $11.8 million for the year ended December 31,
2020, compared to a loss of $9.7 million for the year ended December 31, 2019.
These losses relate to the change in value of the precious metals underlying the
sale and leaseback of our refineries' precious metal catalysts, which we are
obligated to repurchase at fair market value on the catalyst financing
arrangement termination dates.
Impairment expense- Impairment expense totaled $98.8 million for the year ended
December 31, 2020, and was associated with the write-down of certain assets as a
result of the East Coast Refining Reconfiguration, other refinery wide project
abandonments and the write-down of certain PBFX long-lived assets. There was no
such expense recorded in the prior year.
Change in Tax Receivable Agreement Liability- Change in Tax Receivable Agreement
liability for the year ended December 31, 2020, represented a gain of $373.5
million. This gain was primarily the result of a deferred tax asset valuation
allowance recorded in accordance with ASC 740, Income Taxes, related to the
reduction of deferred tax assets associated with the payments made or expected
to be made in connection with the Tax Receivable Agreement liability and based
on future taxable income. There was no change in the Tax Receivable Agreement
liability for the year ended December 31, 2019.
Debt Extinguishment Costs- Debt extinguishment costs of $22.2 million incurred
in the year ended December 31, 2020 relate to the early redemption of our 2023
Senior Notes. There were no such costs in the same period of 2019.
Interest Expense, net- PBF Energy interest expense totaled $258.2 million for
the year ended December 31, 2020, compared to $159.6 million for the year ended
December 31, 2019, an increase of $98.6 million. This net increase is mainly
attributable to higher interest costs associated with the issuance of the 2028
Senior Notes in January 2020, the issuance of the 2025 Senior Secured Notes in
May 2020 and December 2020, as well as higher outstanding borrowings on our
Revolving Credit Facility. Interest expense includes interest on long-term debt
including the PBFX credit facilities, costs related to the sale and leaseback of
our precious metal catalysts, financing costs associated with the Inventory
Intermediation Agreements with J. Aron, letter of credit fees associated with
the purchase of certain crude oils and the amortization of deferred financing
costs. PBF LLC interest expense totaled $268.5 million and $169.1 million for
the year ended December 31, 2020 and December 31, 2019, respectively (inclusive
of $10.3 million and $9.5 million, respectively, of incremental interest expense
on the affiliate note payable with PBF Energy that eliminates in consolidation
at the PBF Energy level).
Income Tax Expense- PBF LLC is organized as a limited liability company and PBFX
is an MLP, both of which are treated as "flow-through" entities for federal
income tax purposes and therefore are not subject to income tax. However, two
subsidiaries of Chalmette Refining and our Canadian subsidiary, PBF Energy
Limited ("PBF Ltd."), are treated as C-Corporations for income tax purposes and
may incur income taxes with respect to their earnings, as applicable. The
members of PBF LLC are required to include their proportionate share of PBF
LLC's taxable income or loss, which includes PBF LLC's allocable share of PBFX's
pre-tax income or loss, on their respective tax returns. PBF LLC generally makes
distributions to its members, per the terms of PBF LLC's amended and restated
limited liability company agreement, related to such taxes on a pro-rata basis.
PBF Energy recognizes an income tax expense or benefit in our consolidated
financial statements based on PBF Energy's allocable share of PBF LLC's pre-tax
income or loss, which was approximately 99.1% and 99.0%, on a weighted-average
basis for the years ended December 31, 2020 and 2019, respectively. PBF Energy's
Consolidated Financial Statements do not reflect any benefit or provision for
income taxes on the pre-tax income or loss attributable to the noncontrolling
interests in PBF LLC or PBFX (although, as described above, PBF LLC must make
tax distributions to all its members on a pro-rata basis). PBF Energy's
effective tax rate, including the impact of noncontrolling interests, for the
years ended December 31, 2020 and 2019 was 0.2% and 21.8%, respectively. The
effective tax rate for the year ended December 31, 2020 was significantly
impacted by the recording of a $358.4 million deferred tax asset valuation
allowance.
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Noncontrolling Interest- PBF Energy is the sole managing member of, and has a
controlling interest in, PBF LLC. As the sole managing member of PBF LLC, PBF
Energy operates and controls all of the business and affairs of PBF LLC and its
subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its
subsidiaries, including PBFX. With respect to the consolidation of PBF LLC, the
Company records a noncontrolling interest for the economic interest in PBF LLC
held by members other than PBF Energy, and with respect to the consolidation of
PBFX, the Company records a noncontrolling interest for the economic interests
in PBFX held by the public unitholders of PBFX, and with respect to the
consolidation of PBF Holding, the Company records a 20% noncontrolling interest
for the ownership interests in two subsidiaries of Chalmette Refining held by a
third party. The total noncontrolling interest on the Consolidated Statements of
Operations represents the portion of the Company's earnings or loss attributable
to the economic interests held by members of PBF LLC other than PBF Energy, by
the public common unitholders of PBFX and by the third-party stockholders of
certain of Chalmette Refining's subsidiaries. The total noncontrolling interest
on the Consolidated Balance Sheets represents the portion of the Company's net
assets attributable to the economic interests held by the members of PBF LLC
other than PBF Energy, by the public common unitholders of PBFX and by the
third-party stockholders of the two Chalmette Refining subsidiaries. PBF
Energy's weighted-average equity noncontrolling interest ownership percentage in
PBF LLC for the years ended December 31, 2020 and 2019 was approximately 0.9%
and 1.0%, respectively. The carrying amount of the noncontrolling interest on
our Consolidated Balance Sheets attributable to the noncontrolling interest is
not equal to the noncontrolling interest ownership percentage due to the effect
of income taxes and related agreements that pertain solely to PBF Energy.
2019 Compared to 2018
Overview- PBF Energy net income was $375.2 million for the year ended
December 31, 2019 compared to net income of $175.3 million for the year ended
December 31, 2018. PBF LLC net income was $480.0 million for the year ended
December 31, 2019 compared to net income of $180.1 million for the year ended
December 31, 2018. Net income attributable to PBF Energy stockholders was $319.4
million, or $2.64 per diluted share, for the year ended December 31, 2019 ($2.64
per share on a fully-exchanged, fully-diluted basis based on adjusted
fully-converted net income, or $0.90 per share on a fully-exchanged, fully-
diluted basis based on adjusted fully-converted net income excluding special
items, as described below in Non-GAAP Financial Measures) compared to net income
attributable to PBF Energy stockholders of $128.3 million, or $1.10 per diluted
share, for the year ended December 31, 2018 ($1.10 per share on a
fully-exchanged, fully-diluted basis based on adjusted fully-converted net
income, or $3.26 per share on a fully-exchanged, fully-diluted basis based on
adjusted fully-converted net income excluding special items, as described below
in Non-GAAP Financial Measures). The net income attributable to PBF Energy
stockholders represents PBF Energy's equity interest in PBF LLC's pre-tax
income, less applicable income tax expense. PBF Energy's weighted-average equity
interest in PBF LLC was 99.0% and 98.3% for the years ended December 31, 2019
and 2018, respectively.
Our results for the year ended December 31, 2019 were positively impacted by
special items consisting of a non-cash, pre-tax LCM inventory adjustment of
approximately $250.2 million, or $188.0 million net of tax, and a pre-tax gain
on the sale of land at our Torrance refinery of $33.1 million, or $24.9 million
net of tax. Our results for the year ended December 31, 2018 were negatively
impacted by special items consisting of a non-cash, pre-tax LCM inventory
adjustment of approximately $351.3 million, or $260.0 million net of tax, and
the early return of certain leased railcars, resulting in a pre-tax charge of
$52.3 million, or $38.7 million net of tax. These unfavorable impacts were
partially offset by special items related to a pre-tax benefit associated with
the change in the Tax Receivable Agreement liability of $13.9 million, or $10.3
million net of tax, and a pre-tax gain on the sale of land at our Torrance
refinery of $43.8 million, or $32.4 million net of tax.
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Excluding the impact of these special items, our results were negatively
impacted by unfavorable movements in crude differentials and overall lower
throughput volumes and barrels sold across our refineries, partially offset by
higher crack spreads realized at our West Coast refinery. Refining margins for
the current year compared to the prior year were weaker at our East Coast,
Mid-Continent and Gulf Coast refineries, offset by significantly stronger
margins realized on the West Coast. Our results for the year ended December 31,
2019 were also negatively impacted by increased operating expenses and
depreciation and amortization expense associated with our continued investment
in our refining assets and the effect of significant turnaround and maintenance
activity during 2019.
Revenues- Revenues totaled $24.5 billion for the year ended December 31, 2019
compared to $27.2 billion for the year ended December 31, 2018, a decrease of
approximately $2.7 billion, or 9.9%. Revenues per barrel sold were $69.93 and
$77.08 for the years ended December 31, 2019 and 2018, respectively, a decrease
of 9.3% directly related to lower hydrocarbon commodity prices. For the year
ended December 31, 2019, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
336,400 bpd, 153,000 bpd, 177,900 bpd and 155,800 bpd, respectively. For the
year ended December 31, 2018, the total throughput rates at our East Coast,
Mid-Continent, Gulf Coast and West Coast refineries averaged approximately
344,700 bpd, 149,600 bpd, 185,600 bpd and 169,800 bpd, respectively. The
throughput rates at our East Coast and West Coast refineries were lower in the
year ended December 31, 2019 compared to the same period in 2018 due to planned
downtime associated with turnarounds of the coker and associated units at our
Delaware City and Torrance refineries and the crude unit at our Paulsboro
refinery, all of which were completed in the first half of 2019, and unplanned
downtime at our Delaware City refinery in the first quarter of 2019. Throughput
rates at our Mid-Continent refinery were higher in the year ended December 31,
2019 compared to 2018 due to a planned turnaround at our Toledo refinery in the
first half of 2018. Throughput rates at our Gulf Coast refinery were lower in
the year ended December 31, 2019 compared to the same period in 2018 due to
unplanned downtime in the fourth quarter of 2019. For the year ended
December 31, 2019, the total barrels sold at our East Coast, Mid-Continent, Gulf
Coast and West Coast refineries averaged approximately 382,500 bpd, 163,900 bpd,
225,300 bpd and 188,600 bpd, respectively. For the year ended December 31, 2018,
the total barrels sold at our East Coast, Mid-Continent, Gulf Coast and West
Coast refineries averaged approximately 372,700 bpd, 161,800 bpd, 233,700 bpd
and 198,100 bpd, respectively. Total refined product barrels sold were higher
than throughput rates, reflecting sales from inventory as well as sales and
purchases of refined products outside the refineries.
Consolidated Gross Margin- Consolidated gross margin totaled $913.1 million for
the year ended December 31, 2019, compared to $602.6 million for the year ended
December 31, 2018, an increase of $310.5 million. Gross refining margin (as
described below in Non-GAAP Financial Measures) totaled $2,801.2 million, or
$9.34 per barrel of throughput, for the year ended December 31, 2019 compared to
$2,419.4 million, or $7.79 per barrel of throughput, for the year ended
December 31, 2018, an increase of approximately $381.8 million. Gross refining
margin excluding special items totaled $2,551.0 million, or $8.51 per barrel of
throughput for the year ended December 31, 2019 compared to $2,823.0 million or
$9.09 per barrel of throughput, for the year ended December 31, 2018, a decrease
of $272.0 million.
Consolidated gross margin and gross refining margin were positively impacted in
the year ended December 31, 2019 by a non-cash LCM inventory adjustment of
approximately $250.2 million on a net basis, resulting from the increase in
crude oil and refined product prices from the year ended 2018. Gross refining
margin excluding the impact of special items decreased due to unfavorable
movements in certain crude differentials and refining margins and reduced
throughput rates at the majority of our refineries, partially offset by higher
throughput rates in the Mid-Continent and stronger crack spreads on the West
Coast. For the year ended December 31, 2018, special items impacting our margin
calculations included a non-cash LCM inventory adjustment of approximately
$351.3 million on a net basis, resulting from a decrease in crude oil and
refined product prices and a $52.3 million charge resulting from costs
associated with the early return of certain leased railcars.
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Additionally, our results continue to be impacted by significant costs to comply
with the Renewable Fuel Standard, although at a reduced level from the prior
year. Total Renewable Fuel Standard costs were $122.7 million for the year ended
December 31, 2019 compared with $143.9 million for the year ended December 31,
2018.
Average industry margins were mixed during the year ended December 31, 2019
compared with the prior year, primarily as a result of varying regional product
inventory levels and seasonal and unplanned refining downtime issues impacting
product margins. Crude oil differentials were generally unfavorable compared
with the prior year, with notable light-heavy crude differential compression
negatively impacting our gross refining margin and moving our overall crude
slate lighter.
On the East Coast, the Dated Brent (NYH) 2-1-1 industry crack spread was
approximately $12.68 per barrel, or 3.7% lower, in the year ended December 31,
2019 as compared to $13.17 per barrel in the same period in 2018. Our margins
were negatively impacted from our refinery specific slate on the East Coast by
tightening in the Dated Brent/Maya and WTI/Bakken differentials, which decreased
$1.94 per barrel and $2.20 per barrel, respectively, in comparison to the prior
year. In addition, the WTI/WCS differential decreased significantly to $13.61
per barrel in 2019 compared to $26.93 per barrel in 2018, which unfavorably
impacted our cost of heavy Canadian crude.
Across the Mid-Continent, the WTI (Chicago) 4-3-1 industry crack spread was
$15.25 per barrel, or 2.8% higher, in the year ended December 31, 2019, as
compared to $14.84 per barrel in the same period in 2018. Our margins were
negatively impacted from our refinery specific slate in the Mid-Continent by a
decreasing WTI/Bakken differential, which averaged approximately $0.66 per
barrel in the year ended December 31, 2019, as compared to $2.86 per barrel in
the prior year. Additionally, the WTI/Syncrude differential averaged $0.18 per
barrel for the year ended December 31, 2019 as compared to $6.84 per barrel in
the same period of 2018.
In the Gulf Coast, the LLS (Gulf Coast) 2-1-1 industry crack spread was $12.43
per barrel, or 1.1% higher, in the year ended December 31, 2019 as compared to
$12.30 per barrel in the prior year. Margins in the Gulf Coast were negatively
impacted from our refinery specific slate by a weakening WTI/LLS differential,
which averaged a premium of $5.64 for the year ended December 31, 2019 as
compared to a premium of $5.03 per barrel experienced in the prior year.
On the West Coast, the ANS (West Coast) 4-3-1 industry crack spread was $18.46
per barrel, or 19.3% higher, in the year ended December 31, 2019 as compared to
$15.48 per barrel in the same period in 2018. Margins on the West Coast were
negatively impacted from our refinery specific slate by a weakening WTI/ANS
differential, which averaged a premium of $7.97 per barrel for the year ended
December 31, 2019 as compared to a premium of $6.34 per barrel in the same
period of 2018.
Favorable movements in these benchmark crude differentials typically result in
lower crude costs and positively impact our earnings, while reductions in these
benchmark crude differentials typically result in higher crude costs and
negatively impact our earnings.
Operating Expenses- Operating expenses totaled $1,782.3 million for the year
ended December 31, 2019 compared to $1,721.0 million for the year ended
December 31, 2018, an increase of approximately $61.3 million, or 3.6%. Of the
total $1,782.3 million of operating expenses for the year ended December 31,
2019, $1,684.3 million, or $5.61 per barrel of throughput, related to expenses
incurred by the Refining segment, while the remaining $98.0 million related to
expenses incurred by the Logistics segment ($1,654.8 million or $5.34 per barrel
of throughput, and $66.2 million of operating expenses for the year ended
December 31, 2018 related to the Refining and Logistics segments respectively).
Increases in operating expenses were mainly attributed to higher outside service
costs related to turnaround and maintenance activity. Operating expenses related
to our Logistics segment increased when compared to 2018 due to expenses related
to the operations of PBFX's recently acquired assets and higher environmental
clean-up remediation costs and product contamination remediation costs.
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General and Administrative Expenses- General and administrative expenses totaled
$284.0 million for the year ended December 31, 2019, compared to $277.0 million
for the year ended December 31, 2018, an increase of $7.0 million or 2.5%. The
increase in general and administrative expenses for the year ended December 31,
2019 compared with the year ended December 31, 2018 primarily related to higher
outside services, including legal settlement charges, and transaction costs
related to the Martinez Acquisition, partially offset by a reduction in
incentive compensation. Our general and administrative expenses are comprised of
personnel, facilities and other infrastructure costs necessary to support our
refineries and related logistics assets.
Gain on Sale of Assets- Gain on sale of assets was $29.9 million and $43.1
million for the year ended December 31, 2019 and December 31, 2018,
respectively, mainly attributed to the sale of two separate parcels of land at
our Torrance refinery.
Depreciation and Amortization Expense- Depreciation and amortization expense
totaled $436.1 million for the year ended December 31, 2019 (including $425.3
million recorded within Cost of sales) compared to $369.7 million for the year
ended December 31, 2018 (including $359.1 million recorded within Cost of
sales), an increase of $66.4 million. The increase was a result of additional
depreciation expense associated with a general increase in our fixed asset base
due to capital projects and turnarounds completed during 2019 and 2018, as well
as accelerated amortization related to the Delaware City and Torrance refinery
turnarounds, which were completed in the first half of 2019.
Change in Tax Receivable Agreement Liability- There was no change in the Tax
Receivable Agreement liability for the year ended December 31, 2019. Change in
the Tax Receivable Agreement liability for the year ended December 31, 2018
represented a gain of $13.9 million.
Change in Fair Value of Catalyst Obligations- Change in the fair value of
catalyst obligations represented a loss of $9.7 million for the year ended
December 31, 2019, compared to a gain of $5.6 million for the year ended
December 31, 2018. These gains and losses relate to the change in value of the
precious metals underlying the sale and leaseback of our refineries' precious
metal catalysts, which we are obligated to return or repurchase at fair market
value on the catalyst financing arrangement termination dates.
Interest Expense, net- PBF Energy interest expense totaled $159.6 million for
the year ended December 31, 2019, compared to $169.9 million for the year ended
December 31, 2018, a decrease of $10.3 million. This net decrease is mainly
attributable to lower outstanding revolver borrowings for the year ended
December 31, 2019. Interest expense includes interest on long-term debt
including the PBFX credit facilities, costs related to the sale and leaseback of
our precious metal catalysts, financing costs associated with the Inventory
Intermediation Agreements with J. Aron, letter of credit fees associated with
the purchase of certain crude oils and the amortization of deferred financing
costs. PBF LLC interest expense totaled $169.1 million and $178.5 million for
the year ended December 31, 2019 and 2018, respectively (inclusive of $9.5
million and $8.6 million, respectively, of incremental interest expense on the
affiliate note payable with PBF Energy that eliminates in consolidation at the
PBF Energy level).
Income Tax Expense- PBF LLC is organized as a limited liability company and PBFX
is an MLP, both of which are treated as "flow-through" entities for federal
income tax purposes and therefore are not subject to income tax. However, two
subsidiaries of Chalmette Refining and PBF Ltd. are treated as C-Corporations
for income tax purposes and may incur income taxes with respect to their
earnings, as applicable. The members of PBF LLC are required to include their
proportionate share of PBF LLC's taxable income or loss, which includes PBF
LLC's allocable share of PBFX's pre-tax income or loss, on their respective tax
returns. PBF LLC generally makes distributions to its members, per the terms of
PBF LLC's amended and restated limited liability company agreement, related to
such taxes on a pro-rata basis. PBF Energy recognizes an income tax expense or
benefit in our consolidated financial statements based on PBF Energy's allocable
share of PBF LLC's pre-tax income or loss, which was approximately 99.0% and
98.3%, on a weighted-average basis for the years ended December 31, 2019 and
2018, respectively. PBF Energy's Consolidated Financial Statements do not
reflect any benefit or provision for income taxes on the pre-tax income or loss
attributable to the noncontrolling interests in PBF LLC or PBFX (although, as
described above, PBF LLC must make tax distributions to all its members on a
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pro-rata basis). PBF Energy's effective tax rate, excluding the impact of
noncontrolling interest, for the years ended December 31, 2019 and 2018 was
21.8% and 16.0%, respectively, reflecting tax adjustments for discrete items and
the impact of tax return to income tax provision adjustments.
Noncontrolling Interest- PBF Energy is the sole managing member of, and has a
controlling interest in, PBF LLC. As the sole managing member of PBF LLC, PBF
Energy operates and controls all of the business and affairs of PBF LLC and its
subsidiaries. PBF Energy consolidates the financial results of PBF LLC and its
subsidiaries, including PBFX. With respect to the consolidation of PBF LLC, the
Company records a noncontrolling interest for the economic interest in PBF LLC
held by members other than PBF Energy, and with respect to the consolidation of
PBFX, the Company records a noncontrolling interest for the economic interests
in PBFX held by the public unitholders of PBFX, and with respect to the
consolidation of PBF Holding, the Company records a 20% noncontrolling interest
for the ownership interests in two subsidiaries of Chalmette Refining held by a
third-party. The total noncontrolling interest on the Consolidated Statements of
Operations represents the portion of the Company's earnings or loss attributable
to the economic interests held by members of PBF LLC other than PBF Energy, by
the public common unitholders of PBFX and by the third-party stockholders of
certain of Chalmette Refining's subsidiaries. The total noncontrolling interest
on the Consolidated Balance Sheets represents the portion of the Company's net
assets attributable to the economic interests held by the members of PBF LLC
other than PBF Energy, by the public common unitholders of PBFX and by the
third-party stockholders of the two Chalmette Refining subsidiaries. PBF
Energy's weighted-average equity noncontrolling interest ownership percentage in
PBF LLC for the years ended December 31, 2019 and 2018 was approximately 1.0%
and 1.7%, respectively. The carrying amount of the noncontrolling interest on
our Consolidated Balance Sheets attributable to the noncontrolling interest is
not equal to the noncontrolling interest ownership percentage due to the effect
of income taxes and related agreements that pertain solely to PBF Energy.
Non-GAAP Financial Measures
Management uses certain financial measures to evaluate our operating performance
that are calculated and presented on the basis of methodologies other than in
accordance with GAAP ("Non-GAAP"). These measures should not be considered a
substitute for, or superior to, measures of financial performance prepared in
accordance with GAAP, and our calculations thereof may not be comparable to
similarly entitled measures reported by other companies. Such Non-GAAP financial
measures are presented only in the context of PBF Energy's results and are not
presented or discussed in respect to PBF LLC.
Special Items
The Non-GAAP measures presented include Adjusted Fully-Converted Net Income
(Loss) excluding special items, EBITDA excluding special items and gross
refining margin excluding special items. Special items for the periods presented
relate to LCM inventory adjustments, changes in the Tax Receivable Agreement
liability, debt extinguishment costs, changes in fair value of contingent
consideration, gain on sale of hydrogen plants, severance costs related to
reductions in workforce, impairment expense, net tax expense on remeasurement of
deferred tax assets, gains on sale of assets at our Torrance refinery, charges
associated with the early return of certain leased railcars, turnaround
acceleration costs, reconfiguration costs and a LIFO inventory decrement.
Although we believe that Non-GAAP financial measures, excluding the impact of
special items, provide useful supplemental information to investors regarding
the results and performance of our business and allow for helpful
period-over-period comparisons, such Non-GAAP measures should only be considered
as a supplement to, and not as a substitute for, or superior to, the financial
measures prepared in accordance with GAAP.
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Adjusted Fully-Converted Net Income (Loss) and Adjusted Fully-Converted Net
Income (Loss) Excluding Special Items
PBF Energy utilizes results presented on an Adjusted Fully-Converted basis that
reflects an assumed exchange of all PBF LLC Series A Units for shares of PBF
Energy Class A common stock. In addition, we present results on an Adjusted
Fully-Converted basis excluding special items as described above. We believe
that these Adjusted Fully-Converted measures, when presented in conjunction with
comparable GAAP measures, are useful to investors to compare PBF Energy results
across different periods and to facilitate an understanding of our operating
results.
Neither Adjusted Fully-Converted Net Income (Loss) nor Adjusted Fully-Converted
Net Income (Loss) excluding special items should be considered an alternative to
net income presented in accordance with GAAP. Adjusted Fully-Converted Net
Income (Loss) and Adjusted Fully-Converted Net Income (Loss) excluding special
items presented by other companies may not be comparable to our presentation,
since each company may define these terms differently. The differences between
Adjusted Fully-Converted and GAAP results are as follows:

1. Assumed exchange of all PBF LLC Series A Units for shares of PBF Energy Class A

common stock. As a result of the assumed exchange of all PBF LLC Series A Units, the

noncontrolling interest related to these units is converted to controlling interest.

Management believes that it is useful to provide the per-share effect associated

with the assumed exchange of all PBF LLC Series A Units.

2. Income Taxes. Prior to PBF Energy's IPO, PBF Energy was organized as a limited

liability company treated as a "flow-through" entity for income tax purposes, and

even after PBF Energy's IPO, not all of its earnings are subject to corporate-level

income taxes. Adjustments have been made to the Adjusted Fully-Converted tax

provisions and earnings to assume that PBF Energy had adopted its post-IPO corporate

tax structure for all periods presented and is taxed as a C-corporation in the U.S.

at the prevailing corporate rates. These assumptions are consistent with the

assumption in clause 1 above that all PBF LLC Series A Units are exchanged for

shares of PBF Energy Class A common stock, as the assumed exchange would change the

amount of PBF Energy's earnings that are subject to corporate income tax.

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The following table reconciles PBF Energy's Adjusted Fully-Converted results with its results presented in accordance with GAAP for the years ended December 31, 2020, 2019 and 2018 (in millions, except share and per share amounts):

                                                                                        Year Ended December 31,
                                                                           2020                   2019                   2018

Net income (loss) attributable to PBF Energy Inc. stockholders $ (1,392.4) $ 319.4 $ 128.3 Less: Income allocated to participating securities

                             0.1                    0.5                    0.7

Income (loss) available to PBF Energy Inc. stockholders - basic

                                                                     (1,392.5)                 318.9                  127.6

Add: Net income (loss) attributable to noncontrolling interests(1)

                                                                 (17.1)                   4.3                    4.6
Less: Income tax benefit (expense) (2)                                         4.6                   (1.0)                  (1.2)
Adjusted fully-converted net income (loss)                           $    

(1,405.0) $ 322.2 $ 131.0 Special Items:(3) Add: Non-cash LCM inventory adjustment

                                       268.0                 (250.2)                 351.3
Add: Change in fair value of contingent consideration                        (93.7)                     -                      -
Add: Gain on sale of hydrogen plants                                        (471.1)                     -                      -
Add: Gain on Torrance land sales                                              (8.1)                 (33.1)                 (43.8)
Add: Impairment expense                                                       98.8                      -                      -
Add: LIFO inventory decrement                                                 83.0                      -                      -
Add: Turnaround acceleration costs                                            56.2                      -                      -
Add: Severance and reconfiguration costs                                      30.0                      -                      -
Add: Early railcar return expense                                             12.5                      -                   52.3
Add: Debt extinguishment costs                                                22.2                      -                      -
Add: Change in Tax Receivable Agreement liability                           (373.5)                     -                  (13.9)

Add: Net tax expense on remeasurement of deferred tax assets                 259.1                      -                      -
Less: Recomputed income tax on special items                                  99.9                   70.4                  (89.9)

Adjusted fully-converted net income (loss) excluding special items

                                                                $    

(1,421.7) $ 109.3 $ 387.0

Weighted-average shares outstanding of PBF Energy Inc.                 119,617,998            119,887,646            115,190,262
Conversion of PBF LLC Series A Units (4)                                 1,042,667              1,207,581              1,938,089
Common stock equivalents (5)                                                     -                758,072              1,645,255

Fully-converted shares outstanding-diluted                             120,660,665            121,853,299            118,773,606

Diluted net income (loss) per share                                  $      

(11.64) $ 2.64 $ 1.10 Adjusted fully-converted net income (loss) per fully exchanged, fully diluted shares outstanding (5)

                      $      

(11.64) $ 2.64 $ 1.10 Adjusted fully-converted net income (loss) excluding special items per fully exchanged, fully diluted shares outstanding $ (11.78) $ 0.90 $ 3.26

----------

See Notes to Non-GAAP Financial Measures.

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Gross Refining Margin and Gross Refining Margin Excluding Special Items
Gross refining margin is defined as consolidated gross margin excluding refinery
depreciation, refinery operating expense, and gross margin of PBFX. We believe
both gross refining margin and gross refining margin excluding special items are
important measures of operating performance and provide useful information to
investors because they are helpful metric comparisons to the industry refining
margin benchmarks, as the refining margin benchmarks do not include a charge for
refinery operating expenses and depreciation. In order to assess our operating
performance, we compare our gross refining margin (revenues less cost of
products and other) to industry refining margin benchmarks and crude oil prices
as defined in the table below.
Neither gross refining margin nor gross refining margin excluding special items
should be considered an alternative to consolidated gross margin, income from
operations, net cash flows from operating activities or any other measure of
financial performance or liquidity presented in accordance with GAAP. Gross
refining margin and gross refining margin excluding special items presented by
other companies may not be comparable to our presentation, since each company
may define these terms differently. The following table presents our GAAP
calculation of gross margin and a reconciliation of gross refining margin to the
most directly comparable GAAP financial measure, consolidated gross margin, on a
historical basis, as applicable, for each of the periods indicated (in millions,
except per barrel amounts):
                                                                                 Year Ended December 31,
                                                      2020                                 2019                                 2018
                                                        per barrel of                        per barrel of                        per barrel of
                                               $          throughput                $          throughput                $          throughput
Calculation of consolidated gross
margin:
Revenues                                 $ 15,115.9    $       56.76          $ 24,508.2    $       81.58          $ 27,186.1    $       87.67
Less: Cost of sales                        16,745.6            62.88            23,595.1            78.54            26,583.5            85.73
Consolidated gross margin                $ (1,629.7)   $       (6.12)         $    913.1    $        3.04          $    602.6    $        1.94
Reconciliation of consolidated
gross margin to gross refining
margin:
Consolidated gross margin                $ (1,629.7)   $       (6.12)

$ 913.1 $ 3.04 $ 602.6 $ 1.94 Add: PBFX operating expense

                    99.9             0.38               118.7             0.40                84.4             0.27
Add: PBFX depreciation expense                 53.7             0.19                38.6             0.13                29.4             0.09
Less: Revenues of PBFX                       (360.3)           (1.35)             (340.2)           (1.13)             (281.5)           (0.91)
Add: Refinery operating expense             1,835.2             6.89             1,684.3             5.61             1,654.8             5.34
Add: Refinery depreciation expense            498.0             1.87               386.7             1.29               329.7             1.06
Gross refining margin                    $    496.8    $        1.86          $  2,801.2    $        9.34          $  2,419.4    $        7.79
Special Items: (3)
Add: Non-cash LCM inventory
adjustment                                    268.0             1.01              (250.2)           (0.83)              351.3             1.13
Add: LIFO inventory decrement                  83.0             0.31                   -                -                   -                -
Add: Early railcar return expense              12.5             0.05                   -                -                52.3             0.17
Gross refining margin excluding
special items                            $    860.3    $        3.23          $  2,551.0    $        8.51          $  2,823.0    $        9.09


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See Notes to Non-GAAP Financial Measures.

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EBITDA, EBITDA Excluding Special Items and Adjusted EBITDA
Our management uses EBITDA (earnings before interest, income taxes, depreciation
and amortization), EBITDA excluding special items and Adjusted EBITDA as
measures of operating performance to assist in comparing performance from period
to period on a consistent basis and to readily view operating trends, as a
measure for planning and forecasting overall expectations and for evaluating
actual results against such expectations, and in communications with our board
of directors, creditors, analysts and investors concerning our financial
performance. Our outstanding indebtedness for borrowed money and other
contractual obligations also include similar measures as a basis for certain
covenants under those agreements which may differ from the Adjusted EBITDA
definition described below.
EBITDA, EBITDA excluding special items and Adjusted EBITDA are not presentations
made in accordance with GAAP and our computation of EBITDA, EBITDA excluding
special items and Adjusted EBITDA may vary from others in our industry. In
addition, Adjusted EBITDA contains some, but not all, adjustments that are taken
into account in the calculation of the components of various covenants in the
agreements governing our senior notes and other credit facilities. EBITDA,
EBITDA excluding special items and Adjusted EBITDA should not be considered as
alternatives to income from operations or net income as measures of operating
performance. In addition, EBITDA, EBITDA excluding special items and Adjusted
EBITDA are not presented as, and should not be considered, an alternative to
cash flows from operations as a measure of liquidity. Adjusted EBITDA is defined
as EBITDA before adjustments for items such as stock-based compensation expense,
the non-cash change in the fair value of catalyst obligations, gain on sale of
hydrogen plants, the write down of inventory to the LCM, changes in the
liability related to the Tax Receivable Agreement due to factors out of PBF
Energy's control such as changes in tax rates, debt extinguishment costs related
to refinancing activities, change in the fair value of contingent consideration
and certain other non-cash items. Other companies, including other companies in
our industry, may calculate EBITDA, EBITDA excluding special items and Adjusted
EBITDA differently than we do, limiting their usefulness as comparative
measures. EBITDA, EBITDA excluding special items and Adjusted EBITDA also have
limitations as analytical tools and should not be considered in isolation, or as
a substitute for analysis of our results as reported under GAAP. Some of these
limitations include that EBITDA, EBITDA excluding special items and Adjusted
EBITDA:
•do not reflect depreciation expense or our cash expenditures, or future
requirements, for capital expenditures or contractual commitments;
•do not reflect changes in, or cash requirements for, our working capital needs;
•do not reflect our interest expense, or the cash requirements necessary to
service interest or principal payments, on our debt;
•do not reflect realized and unrealized gains and losses from certain hedging
activities, which may have a substantial impact on our cash flow;
•do not reflect certain other non-cash income and expenses; and
•exclude income taxes that may represent a reduction in available cash.
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The following tables reconcile net income (loss) as reflected in PBF Energy's
results of operations to EBITDA, EBITDA excluding special items and Adjusted
EBITDA for the periods presented (in millions):

                                                                           

Year Ended December 31,

                                                                 2020                2019               2018

Reconciliation of net income (loss) to EBITDA and EBITDA excluding special items: Net income (loss)

$ (1,333.3)         $   375.2          $   175.3
Add: Depreciation and amortization expense                        563.0              436.1              369.7
Add: Interest expense, net                                        258.2              159.6              169.9
Add: Income tax expense                                             2.1              104.3               33.5
EBITDA                                                       $   (510.0)

$ 1,075.2 $ 748.4

 Special Items: (3)
Add: Non-cash LCM inventory adjustment                            268.0             (250.2)             351.3
    Add: Change in fair value of contingent consideration         (93.7)                 -                  -
    Add: Gain on sale of hydrogen plants                         (471.1)                 -                  -
Add: Gain on Torrance land sales                                   (8.1)             (33.1)             (43.8)
    Add: Impairment expense                                        98.8                  -                  -
Add: LIFO inventory decrement                                         83.0               -                  -
    Add: Severance and reconfiguration costs                       30.0                  -                  -
Add: Early railcar return expense                                  12.5                  -               52.3
Add: Debt extinguishment costs                                     22.2                  -                  -
Add: Change in Tax Receivable Agreement liability                (373.5)                 -              (13.9)

EBITDA excluding special items                               $   (941.9)

$ 791.9 $ 1,094.3

Reconciliation of EBITDA to Adjusted EBITDA:
EBITDA                                                       $   (510.0)         $ 1,075.2          $   748.4
Add: Stock based compensation                                      34.2               37.3               26.0
Add: Change in fair value of catalyst obligations                  11.8                9.7               (5.6)
Add: Non-cash LCM inventory adjustment (3)                        268.0             (250.2)             351.3

Add: Change in fair value of contingent consideration (3)

                                                               (93.7)                 -                  -
    Add: Gain on sale of hydrogen plants (3)                     (471.1)                 -                  -
Add: Gain on Torrance land sales (3)                               (8.1)             (33.1)             (43.8)
    Add: Impairment expense (3)                                    98.8                  -                  -
    Add: LIFO inventory decrement (3)                              83.0                  -                  -
    Add: Severance and reconfiguration costs (3)                   30.0                  -                  -
Add: Early railcar return expense (3)                              12.5                  -               52.3
Add: Debt extinguishment costs (3)                                 22.2                  -                  -
Add: Change in Tax Receivable Agreement liability (3)            (373.5)                 -              (13.9)

Adjusted EBITDA                                              $   (895.9)         $   838.9          $ 1,114.7


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See Notes to Non-GAAP Financial Measures.

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Notes to Non-GAAP Financial Measures
The following notes are applicable to the Non-GAAP Financial Measures above:
(1)  Represents the elimination of the noncontrolling interest associated with
the ownership by the members of PBF LLC other than PBF Energy, as if such
members had fully exchanged their PBF LLC Series A Units for shares of PBF
Energy Class A common stock.
(2)  Represents an adjustment to reflect PBF Energy's annualized statutory
corporate tax rate of approximately 26.6%, 24.9% and 26.0% for the 2020, 2019
and 2018 periods, respectively, applied to the net income (loss) attributable to
noncontrolling interest for all periods presented. The adjustment assumes the
full exchange of existing PBF LLC Series A Units as described in (1) above.
(3)  Special items:
     LCM inventory adjustment - LCM is a GAAP requirement related to inventory
valuation that mandates inventory to be stated at the lower of cost or market.
Our inventories are stated at the lower of cost or market. Cost is determined
using the LIFO inventory valuation methodology, in which the most recently
incurred costs are charged to cost of sales and inventories are valued at base
layer acquisition costs. Market is determined based on an assessment of the
current estimated replacement cost and net realizable selling price of the
inventory. In periods where the market price of our inventory declines
substantially, cost values of inventory may exceed market values. In such
instances, we record an adjustment to write down the value of inventory to
market value in accordance with GAAP. In subsequent periods, the value of
inventory is reassessed and an LCM inventory adjustment is recorded to reflect
the net change in the LCM inventory reserve between the prior period and the
current period. The net impact of these LCM inventory adjustments are included
in the Refining segment's income from operations, but are excluded from the
operating results presented, as applicable, in order to make such information
comparable between periods.
  The following table includes the LCM inventory reserve as of each date
presented (in millions):
                 2020         2019         2018
January 1,     $ 401.6      $ 651.8      $ 300.5

December 31,     669.6        401.6        651.8



  The following table includes the corresponding impact of changes in the LCM
inventory reserve on income (loss) from operations and net income (loss) for the
periods presented (in millions):
                                                             Year Ended 

December 31,

                                                2020                   2019                   2018
Net LCM inventory adjustment (charge)
benefit in income (loss) from operations  $      (268.0)         $       250.2          $      (351.3)
Net LCM inventory adjustment (charge)
benefit in net income (loss)                     (196.7)                 188.0                 (260.0)

Change in fair value of contingent consideration - During the year ended December 31, 2020, we recorded a change in fair value of the contingent consideration related to the Martinez Contingent Consideration and the PBFX Contingent Consideration which increased income from operations and net income by $93.7 million and $68.8 million, respectively. Change in fair value of contingent consideration during the year ended December 31, 2019 was not significant. There were no such changes in fair value of contingent consideration during the year ended December 31, 2018.

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Gain on sale of hydrogen plants - During the year ended December 31, 2020, we
recorded a gain on the sale of five hydrogen plants. The gain increased income
from operations and net income by $471.1 million and $345.8 million,
respectively. There were no such gains in the years ended December 31, 2019 and
December 31, 2018.

Gain on Torrance land sales - During the years ended December 31, 2020,
December 31, 2019 and December 31, 2018, we recorded gains on the sale of three
separate parcels of real property acquired as part of the Torrance refinery, but
not part of the refinery itself. The gain on sale increased income from
operations and net income by $8.1 million and $5.9 million, respectively, during
the year ended December 31, 2020. The gain on sale increased income from
operations and net income by $33.1 million and $24.9 million, respectively,
during the year ended December 31, 2019. The gain on sale increased income from
operations and net income by $43.8 million and $32.4 million, respectively,
during the year ended December 31, 2018.

Impairment expense - During the year ended December 31, 2020, we recorded an
impairment charge which decreased income from operations and net income by $98.8
million and $72.5 million, respectively, resulting from the write-down of
certain assets as a result of the East Coast Refining Reconfiguration, project
abandonments and the write-down of certain PBFX long-lived assets. There were no
such charges during the years ended December 31, 2019 and December 31, 2018.

LIFO inventory decrement - As part of our overall reduction in throughput in
2020 and our reduction in inventory volume as of December 31, 2020, the Company
recorded a pre-tax charge to cost of products and other related to a LIFO
inventory layer decrement. The majority of the decrement related to our East
Coast LIFO inventory layer and the reduction to our East Coast inventory
experienced as part of the East Coast Refining Reconfiguration. These charges
decreased income from operations and net income by $83.0 million and
$60.9 million, respectively, for the year ended December 31, 2020. Decrements
recorded in the years ended December 31, 2019 and December 31, 2018 were not
significant.

Turnaround acceleration costs - During the year ended December 31, 2020, we
accelerated the recognition of turnaround amortization associated with units
that were temporarily idled as part of the East Coast Refining Reconfiguration.
These costs decreased income from operations and net income by $56.2 million and
$41.3 million, respectively. There were no such costs in the years ended
December 31, 2019 and December 31, 2018.

Severance and reconfiguration costs - During the year ended December 31, 2020,
we recorded severance charges related to reductions in our workforce. These
charges decreased income from operations and net income by $24.7 million and
$18.1 million, respectively. There were no such costs in the years ended
December 31, 2019 and December 31, 2018. During the year ended December 31,
2020, we recorded reconfiguration charges related to the temporary idling of
certain assets as part of our East Coast Refining System. These charges
decreased income from operations and net income by $5.3 million and $3.9
million, respectively. There were no such costs in the years ended December 31,
2019 and December 31, 2018.

Early return of railcars - During the years ended December 31, 2020 and
December 31, 2018 we recognized certain expenses within Cost of sales associated
with the voluntary early return of certain leased railcars. These charges
decreased income from operations and net income by $12.5 million and $9.2
million, respectively, during the year ended December 31, 2020. These charges
decreased income from operations and net income by $52.3 million and
$38.7 million, respectively, during the year ended December 31, 2018. There were
no such expenses recorded in the year ended December 31, 2019.

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Debt extinguishment costs - During the year ended December 31, 2020, we recorded
pre-tax debt extinguishment costs of $22.2 million related to the redemption of
the 2023 Senior Notes. These nonrecurring charges decreased net income by $16.3
million for the year ended December 31, 2020. There were no such costs in the
years ended December 31, 2019 and December 31, 2018.

Change in Tax Receivable Agreement liability - During the year ended
December 31, 2020, we recorded a change in the Tax Receivable Agreement
liability that increased income before income taxes and net income by $373.5
million and $274.1 million, respectively. During the year ended December 31,
2018, PBF Energy recorded a change in the Tax Receivable Agreement liability
that increased income before taxes and net income by $13.9 million and
$10.3 million, respectively. There was no such change during the year ended
December 31, 2019. The changes in the Tax Receivable Agreement liability reflect
charges or benefits attributable to changes in PBF Energy's obligation under the
Tax Receivable Agreement due to factors out of our control such as changes in
tax rates, as well as periodic adjustments to our liability based, in part, on
an updated estimate of the amounts that we expect to pay, using assumptions
consistent with those used in our concurrent estimate of the deferred tax asset
valuation allowance.

Net tax expense on remeasurement of deferred tax assets - During the year ended
December 31, 2020, we recorded a deferred tax valuation allowance of
$358.4 million in accordance with ASC 740, Income Taxes. This amount includes
tax expense of approximately $99.3 million related to our net change in the Tax
Receivable Agreement liability or a net tax expense of $259.1 million related
primarily to the remeasurement of deferred tax assets. There was no such expense
in the years ended December 31, 2019 and December 31, 2018.

Recomputed income tax on special items - The income tax impact on special items,
other than the net tax expense special item discussed below, is calculated using
the tax rates shown in (2) above.

(4)   Represents an adjustment to weighted-average diluted shares outstanding to
assume the full exchange of existing PBF LLC Series A Units as described in (1)
above.
(5)  Represents weighted-average diluted shares outstanding assuming the
conversion of all common stock equivalents, including options and warrants for
PBF LLC Series A Units and performance share units and options for shares of PBF
Energy Class A common stock as calculated under the treasury stock method (to
the extent the impact of such exchange would not be anti-dilutive) for the years
ended December 31, 2020, 2019 and 2018, respectively. Common stock equivalents
exclude the effects of performance share units and options and warrants to
purchase 14,446,894, 6,765,526 and 1,293,242 shares of PBF Energy Class A common
stock and PBF LLC Series A Units because they are anti-dilutive for the years
ended December 31, 2020, 2019 and 2018, respectively. For periods showing a net
loss, all common stock equivalents and unvested restricted stock are considered
anti-dilutive.
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Liquidity and Capital Resources
Overview
Typically our primary sources of liquidity are our cash flows from operations,
cash and cash equivalents and borrowing availability under our credit
facilities, as described below; however, due to the COVID-19 pandemic and the
related governmental and consumer responses, our business and results of
operations are being negatively impacted. The demand destruction as a result of
the worldwide economic slowdown and governmental responses, including travel
restrictions, and stay-at-home orders, has resulted in a significant decrease in
the demand for and market prices of our products. In addition, the global
geopolitical and macroeconomic events that took place during the first quarter
of 2020 further contributed to the overall volatility in crude oil and refined
product prices, contributing to an adverse impact on our liquidity. We continue
to be focused on assessing and adapting to the challenging operating environment
and evaluating our strategic measures to preserve liquidity and strengthen our
balance sheet. Our response to the current economic environment and its impact
on our liquidity is more fully described in the "Liquidity" section below.
Cash Flow Analysis
Cash Flows from Operating Activities
Net cash used in operating activities was $(631.6) million for the year ended
December 31, 2020 compared to net cash provided by operating activities of
$933.5 million for the year ended December 31, 2019. Our operating cash flows
for the year ended December 31, 2020 included our net loss of $1,333.3 million,
gain on sale of assets of $477.8 million mainly related to the sale of the
hydrogen plants and the sale of land at our Torrance refinery, change in the Tax
Receivable Agreement liability of $373.5 million, net non-cash charges relating
to the change in the fair value of our inventory repurchase obligations of $12.6
million and change in the fair value of the contingent consideration of $93.7
million, partially offset by depreciation and amortization of $581.1 million,
net non-cash charge of $268.0 million relating to an LCM inventory adjustment,
impairment expense of $98.8 million, pension and other post-retirement benefits
costs of $55.7 million, stock-based compensation of $34.2 million, debt
extinguishment costs related to the early redemption of our 2023 Senior Notes of
$22.2 million, change in the fair value of our catalyst obligations of $11.8
million and deferred income taxes of $1.6 million. In addition, net changes in
operating assets and liabilities reflects cash inflows of $585.9 million driven
by the timing of inventory purchases, payments for accrued expenses and accounts
payable and collections of accounts receivable. Our operating cash flows for the
year ended December 31, 2019 included our net income of $375.2 million,
depreciation and amortization of $447.5 million, deferred income tax expense of
$103.7 million, pension and other post-retirement benefits costs of $44.8
million, stock-based compensation of $37.3 million, net non-cash charges
relating to the change in the fair value of our inventory repurchase obligations
of $25.4 million, and changes in the fair value of our catalyst obligations of
$9.7 million, partially offset by a net non-cash benefit of $250.2 million
relating to an LCM inventory adjustment, a gain on sale of assets of $29.9
million and change in fair value of contingent consideration of $0.8 million. In
addition, net changes in operating assets and liabilities reflected cash inflows
of approximately $170.8 million driven by the timing of inventory purchases,
payments for accrued expenses and accounts payable and collections of accounts
receivables.
Net cash provided by operating activities was $933.5 million for the year ended
December 31, 2019 compared to net cash provided by operating activities of
$838.0 million for the year ended December 31, 2018. Our operating cash flows
for the year ended December 31, 2018 included our net income of $175.3 million,
depreciation and amortization of $378.6 million, deferred income tax expense of
$32.7 million, pension and other post-retirement benefits costs of $47.4
million, a net non-cash charge of $351.3 million relating to an LCM inventory
adjustment and stock-based compensation of $26.0 million, partially offset by a
gain on sale of assets of $43.1 million, net non-cash charges relating to the
change in the fair value of our inventory repurchase obligations of $31.8
million, change in the Tax Receivable Agreement liability of $13.9 million and
changes in the fair value of our catalyst obligations of $5.6 million. In
addition, net changes in operating assets and
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liabilities reflected uses of cash of approximately $78.9 million driven by the
timing of inventory purchases, payments for accrued expenses and accounts
payable and collections of accounts receivables.
Cash Flows from Investing Activities
Net cash used in investing activities was $1,026.5 million for the year ended
December 31, 2020 compared to $712.6 million for the year ended December 31,
2019. The net cash flows used in investing activities for the year ended
December 31, 2020 was comprised of cash outflows of $1,176.2 million used to
fund the Martinez Acquisition, capital expenditures totaling $196.2 million,
expenditures for refinery turnarounds of $188.1 million, and expenditures for
other assets of $9.1 million, partially offset by proceeds from sale of assets
of $543.1 million. Net cash used in investing activities for the year ended
December 31, 2019 was comprised of cash outflows of $404.9 million for capital
expenditures, expenditures for refinery turnarounds of $299.3 million and
expenditures for other assets of $44.7 million, partially offset by proceeds of
$36.3 million related to the sale of land at our Torrance refinery.
Net cash used in investing activities was $712.6 million for the year ended
December 31, 2019 compared to $685.6 million for the year ended December 31,
2018. Net cash used in investing activities for the year ended December 31, 2018
was comprised of cash outflows of $317.5 million for capital expenditures,
expenditures for refinery turnarounds of $266.0 million, expenditures for other
assets of $17.0 million, expenditures for the acquisition of the East Coast
Storage Assets by PBFX of $75.0 million and expenditures for the acquisition of
the Knoxville Terminals by PBFX of $58.4 million, partially offset by proceeds
of $48.3 million related to the sale of land at our Torrance refinery.
Cash Flows from Financing Activities
Net cash provided by financing activities was $2,452.7 million for the year
ended December 31, 2020 compared to net cash used in financing activities of
$3.3 million for the year ended December 31, 2019. For the year ended
December 31, 2020, net cash provided by financing activities consisted of cash
proceeds of $1,228.7 million from the issuance of the 2025 Senior Secured Notes
net of related issuance costs, cash proceeds of $469.9 million from the issuance
of the 2028 Senior Notes net of cash paid to redeem the 2023 Senior Notes and
related issuance costs, net borrowings under our Revolving Credit Facility of
$900.0 million, and proceeds from catalyst financing arrangements of $51.9
million, partially offset by net repayments on the PBFX Revolving Credit
Facility of $83.0 million, net settlements of precious metal catalyst
obligations of $8.8 million, distributions and dividends of $82.2 million,
principal amortization payments of the PBF Rail Term Loan of $7.2 million,
payments on finance leases of $12.4 million, taxes paid for net settlement of
equity-based compensation of $2.1 million, repurchases of our common stock in
connection with tax withholding obligations upon the vesting of certain
restricted stock awards of $1.6 million and deferred financing costs and other
of $0.5 million. For the year ended December 31, 2019, net cash used in
financing activities consisted primarily of distributions and dividends of
$209.2 million, principal amortization payments of the PBF Rail Term Loan of
$7.0 million, settlements of catalyst obligations of $6.5 million, taxes paid
for net settlement of equity-based compensation of $4.8 million, repurchases of
our common stock in connection with tax withholding obligations upon the vesting
of certain restricted stock awards of $4.9 million and deferred payment for the
East Coast Storage Assets Acquisition of $32.0 million, partially offset by
$132.5 million in net proceeds from the issuance of PBFX common units, net
borrowings from the PBFX Revolving Credit Facility of $127.0 million and
deferred financing costs and other of $1.6 million. Additionally, during the
year ended December 31, 2019, we borrowed and repaid $1,350.0 million under our
Revolving Credit Facility resulting in no net change to amounts outstanding for
the year ended December 31, 2019.
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Net cash used in financing activities was $3.3 million for the year ended
December 31, 2019 compared to net cash used in financing activities of $128.1
million for the year ended December 31, 2018. For the year ended December 31,
2018, net cash used in financing activities consisted primarily of distributions
and dividends of $189.3 million, principal amortization payments of the PBF Rail
Term Loan of $6.8 million, repayment of the note payable of $5.6 million,
settlements of catalyst obligations of $9.1 million, taxes paid for net
settlement of equity-based compensation of $5.4 million, deferred financing
costs and other of $16.2 million, repurchases of our common stock in connection
with tax withholding obligations upon the vesting of certain restricted stock
awards of $8.2 million, and net repayments of our Revolving Credit Facility of
$350.0 million, partially offset by $287.3 million in net proceeds from the
August 2018 Equity Offering, $34.9 million in net proceeds from the issuance of
PBFX common units, net borrowings from the PBFX Revolving Credit Facility
of $126.3 million and proceeds from stock options exercised of $14.0 million.
The cash flow activity of PBF LLC for the years ended December 31, 2020, 2019
and 2018 is materially consistent with that of PBF Energy discussed above, other
than changes in deferred income taxes and certain working capital items, which
are different from PBF Energy due to certain tax related items not applicable to
PBF LLC. Additionally, PBF LLC reflects net borrowings of $0.1 million and $3.1
million and net proceeds of $44.1 million for the years ended December 31, 2020,
2019 and 2018, respectively, related to an affiliate loan with PBF Energy,
included in cash flows from financing activities, which eliminates in
consolidation at PBF Energy.
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Capitalization

Our capital structure was comprised of the following as of December 31, 2020 (in millions):

                                                                          December 31, 2020
Debt, including current maturities: (1)
PBF LLC debt
Affiliate note payable                                                  $            376.3
PBF Holding debt
2025 Senior Secured Notes                                                          1,250.0
2028 Senior Notes                                                                  1,000.0
2025 Senior Notes                                                                    725.0
Revolving Credit Facility                                                            900.0
PBF Rail Term Loan                                                                     7.4
Catalyst financing arrangements                                                      102.5
PBF Holding debt                                                                   3,984.9
PBFX debt
PBFX 2023 Senior Notes                                                               525.0
PBFX Revolving Credit Facility                                              

200.0

PBFX debt                                                                   

725.0

Unamortized deferred financing costs                                        

(51.1)

Unamortized premium                                                                    2.2

Total PBF LLC debt, net of unamortized deferred financing costs and premium

5,037.3

Less: Affiliate note payable                                                

(376.3)

Total PBF Energy debt, net of unamortized deferred financing costs and
premium (2)                                                             $          4,661.0

Total PBF Energy Equity                                                 $          2,202.3
Total PBF Energy Capitalization (3)                                     $   

6,863.3

Total PBF Energy Debt to Capitalization Ratio                                           68  %

_______________________________________________

(1) Refer to "Note 10 - Credit Facilities and Debt" and "Note 11 - Affiliate
Note Payable - PBF LLC" of our Notes to Consolidated Financial Statements for
further discussion related to debt.
(2) Excludes the PBF LLC affiliate note payable that is eliminated at the PBF
Energy level.
(3) Total Capitalization refers to the sum of debt, excluding intercompany debt,
plus total Equity.

  Revolving Credit Facilities Overview
Typically, one of our primary sources of liquidity are borrowings available
under our revolving lines of credit. As of December 31, 2020, PBF Energy had
$1,609.5 million of cash and cash equivalents, a $900.0 million outstanding
balance under the Revolving Credit Facility and $200.0 million outstanding under
the PBFX Revolving Credit Facility. PBF LLC cash and cash equivalents totaled
$1,607.3 million as of December 31, 2020.
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We had available capacity under revolving credit facilities as follows at December 31, 2020 (in millions):

                                                     Amount Borrowed as
                                     Total             of December 31,            Outstanding            Borrowing base
                                  Commitment                2020               Letters of Credit          Availability            Expiration date
Revolving Credit Facility
(a)                              $  3,400.0          $          900.0          $         184.4          $      2,759.2                      May 2023
PBFX Revolving Credit
Facility                              500.0                     200.0                      4.9                   295.1                     July 2023
Total Credit Facilities          $  3,900.0          $        1,100.0          $         189.3          $      3,054.3

___________________________________

(a)  The amount available for borrowings and letters of credit under the
Revolving Credit Facility is calculated according to a "borrowing base" formula
based on (i) 90% of the book value of Eligible Accounts with respect to
investment grade obligors plus (ii) 85% of the book value of Eligible Accounts
with respect to non-investment grade obligors plus (iii) 80% of the cost of
Eligible Hydrocarbon Inventory plus (iv) 100% of Cash and Cash Equivalents in
deposit accounts subject to a control agreement, in each case as defined in the
Revolving Credit Agreement. The borrowing base is subject to customary reserves
and eligibility criteria and in any event cannot exceed $3.4 billion.
Additional Information on Indebtedness
Our debt, including our revolving credit facilities, term loans and senior
notes, include certain typical financial covenants and restrictions on our
subsidiaries' ability to, among other things, incur or guarantee new debt,
engage in certain business activities including transactions with affiliates and
asset sales, make investments or distributions, engage in mergers or pay
dividends in certain circumstances. These covenants are subject to a number of
important exceptions and qualifications. We are in compliance as of December 31,
2020 with all covenants, including financial covenants, in all of our debt
agreements. For further discussion of our indebtedness and these covenants and
restrictions, see "Note 10 - Credit Facilities and Debt" of our Notes to
Consolidated Financial Statements.
Liquidity
The outbreak of the COVID-19 pandemic and certain developments in the global oil
markets began negatively impacting our liquidity beginning towards the end of
the first quarter of 2020.
As of December 31, 2020, our liquidity was approximately $2.3 billion ($2.3
billion as of December 31, 2019) based on $1.6 billion of cash, excluding cash
held at PBFX, and more than $700.0 million of availability under our Revolving
Credit Facility. Our total liquidity includes the amount of excess availability
under the Revolving Credit Facility, which includes our cash on hand. In
addition, as of December 31, 2020, PBFX had approximately $295.1 million of
borrowing capacity under the PBFX Revolving Credit Facility compared with $340.0
million as of December 31, 2019. The PBFX Revolving Credit Facility is available
to fund working capital, acquisitions, distributions, capital expenditures, and
other general corporate purposes incurred by PBFX.
Due to the unprecedented events caused by the COVID-19 pandemic and the negative
impact it has caused to our liquidity, we executed a plan to strengthen our
balance sheet and increase our flexibility and responsiveness by incorporating
the following measurements:
•Implemented cost reduction and cash preservation initiatives, including a
significant decrease in 2020 capital expenditures, lowering 2020 operating
expenses driven by minimizing discretionary activities and third party services,
headcount reductions, and cutting corporate overhead expenses through temporary
salary reductions to a significant portion of our workforce;
•Suspended our quarterly dividend of $0.30 per share, anticipated to preserve
approximately $35.0 million of cash each quarter, to support the balance sheet;
•Closed on the sale of five hydrogen facilities for gross cash proceeds of
$530.0 million on April 17, 2020;
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•In May and December 2020, issued, respectively, $1.0 billion and $250.0 million
in aggregate principal amount of 2025 Senior Secured Notes for net proceeds of
approximately $982.9 million and $245.7 million, respectively. See "Note 10 -
Credit Facilities and Debt" of our Notes to Consolidated Financial Statements
for additional details related to the notes offerings;
•Entered into catalyst financing arrangements on September 25, 2020 for net
proceeds of approximately $51.9 million;
•As of December 31, 2020 completed the operational reconfiguration of our East
Coast Refining System comprised of our Delaware City and Paulsboro refineries.
The reconfiguration resulted in the temporary idling of certain Paulsboro
Refining units and overall lower throughput and inventory levels. Annual
operating and capital expenditures savings are expected to be approximately
$100.0 million and $50.0 million, respectively, relative to average historic
levels;
•On December 30, 2020, closed on a third-party sale of parcels of real property
acquired as part of the Torrance refinery, but not part of the refinery itself,
for net proceeds of $13.7 million; and
•In the fourth quarter of 2020, sold AB32 credits to a third party for gross
proceeds of approximately $87.5 million and concurrently entered into forward
purchase agreements to repurchase these credits in the fourth quarter of 2021
prior to settlement of our AB32 obligation.
We are actively responding to the impacts of the COVID-19 pandemic and ongoing
rebalancing in the global oil markets. We adjusted our operational plans to the
evolving market conditions and took steps to lower our 2020 operating expenses
through significant reductions in discretionary activities and third party
services. We successfully reduced our 2020 operating expenses by $235.0 million,
excluding energy savings, and exceeded our full-year goal of $140.0 million in
total operating expense reductions. Including energy expenses, our full-year
operating expenses reductions for 2020 totaled approximately $325.0 million.
While some of these savings are a result of reduced operational tempo, the
majority are deliberate operating and other expense reductions. Looking ahead,
we expect operating expenses on a system-wide basis for 2021 to be reduced by
$200.0 million to $225.0 million annually as a result of our efforts versus 2019
levels, including the East Coast Reconfiguration.
We aggressively managed our capital expenditures in 2020, with total refining
capital expenditures of $370.4 million, an almost 50% reduction to our planned
2020 expenditures.
While it is impossible to estimate the duration or complete financial impact of
the COVID-19 pandemic, we believe that the strategic actions we have taken, plus
our cash flows from operations and available capital resources will be
sufficient to meet our and our subsidiaries' capital expenditures, working
capital needs, and debt service requirements, for the next twelve months. We
cannot assure you that our assumptions used to estimate our liquidity
requirements will be correct because the impact that the COVID-19 pandemic is
having on us and our industry is ongoing and unprecedented. The extent of the
impact of the COVID-19 pandemic on our business, financial condition, results of
operation and liquidity will depend largely on future developments, including
the duration of the outbreak, particularly within the geographic areas where we
operate, and the related impact on overall economic activity, all of which are
uncertain and cannot be predicted with certainty at this time. As a result, we
may require additional capital, and, from time to time, may pursue funding
strategies in the capital markets or through private transactions to strengthen
our liquidity and/or fund strategic initiatives. Such additional financing may
not be available on favorable terms or at all.
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We may incur additional indebtedness in the future, including additional secured
indebtedness, subject to the satisfaction of any debt incurrence and, if
applicable, lien incurrence limitation covenants in our existing financing
agreements. Although we were in compliance with incurrence covenants during the
year ended December 31, 2020, to the extent that any of our activities triggered
these covenants, there are no assurances that conditions could not change
significantly, and that such changes could adversely impact our ability to meet
some of these incurrence covenants at the time that we needed to. Failure to
meet the incurrence covenants could impose certain incremental restrictions on,
among other matters, our ability to incur new debt (including secured debt) and
also may limit the extent to which we may pay future dividends, make new
investments, repurchase our stock or incur new liens.
During the fourth quarter of 2020, each of our credit rating agencies downgraded
our corporate credit rating in addition to the ratings on both our unsecured and
secured notes, and maintained our outlook as negative as the refining sector
continues to experience weak refining margins due to the COVID-19 pandemic and
related negative demand impact. As a result of the downgrade, the cost of
borrowings under our Revolving Credit Facility has increased in accordance with
the Revolving Credit Agreement. Given the current market conditions, we expect
that our other credit ratings agencies may also re-evaluate our corporate credit
rating and the ratings of our unsecured and secured notes. Further adverse
actions taken by the rating agencies on our corporate credit rating or the
rating of our notes may further increase our cost of borrowings or hinder our
ability to raise financing in the capital markets, which could impair our
ability to operate our business, increase our liquidity and make future cash
distributions to our shareholders.
Working Capital
PBF Energy's working capital at December 31, 2020 was approximately $1,415.9
million, consisting of $3,867.4 million in total current assets and $2,451.5
million in total current liabilities. PBF Energy's working capital at
December 31, 2019 was $1,314.5 million, consisting of $3,823.7 million in total
current assets and $2,509.2 million in total current liabilities. PBF LLC's
working capital at December 31, 2020 was approximately $1,374.1 million,
consisting of $3,865.2 million in total current assets and $2,491.1 million in
total current liabilities. PBF LLC's working capital at December 31, 2019 was
$1,281.7 million, consisting of $3,821.5 million in total current assets and
$2,539.8 million in total current liabilities.
Working capital has increased during the year ended December 31, 2020 primarily
as a result of proceeds from financing activities, partially offset by operating
losses.
Crude and Feedstock Supply Agreements
Certain of our purchases of crude oil under our agreements with foreign national
oil companies require that we post letters of credit, if open terms are
exceeded, and arrange for shipment. We pay for the crude when invoiced, at which
time any applicable letters of credit are lifted. We have a contract with Saudi
Aramco pursuant to which we have been purchasing up to approximately 100,000 bpd
of crude oil from Saudi Aramco that is processed at our Paulsboro refinery. In
connection with the acquisition of the Chalmette refinery we entered into a
contract with PDVSA for the supply of 40,000 to 60,000 bpd of crude oil that can
be processed at any of our East or Gulf Coast refineries. We have not sourced
crude oil under this agreement since 2017 when PDVSA suspended deliveries due to
the parties' inability to agree to mutually acceptable payment terms and because
of U.S. government sanctions against PDVSA. Notwithstanding the suspension, the
recent U.S. government sanctions imposed against PDVSA and Venezuela would
prevent us from purchasing crude oil under this agreement. In connection with
the closing of the acquisition of the Torrance refinery, we entered into a crude
supply agreement with ExxonMobil for approximately 60,000 bpd of crude oil that
can be processed at our Torrance refinery. We currently purchase all of our
crude and feedstock needs independently from a variety of suppliers on the spot
market or through term agreements for our Delaware City and Toledo refineries.
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We have entered into various five-year crude supply agreements with Shell Oil
Products for approximately 145,000 bpd, in the aggregate, to support our West
Coast and Mid-Continent refinery operations. In addition, we have entered into
certain offtake agreements for our West Coast system with the same counterparty
for clean products with varying terms up to 15 years.
Inventory Intermediation Agreements
We entered into Inventory Intermediation Agreements with J. Aron, to support the
operations of the Delaware City and Paulsboro refineries. The Inventory
Intermediation Agreement by and among J. Aron, PBF Holding and DCR expires on
June 30, 2021, which term may be further extended by mutual consent of the
parties to June 30, 2022. The Inventory Intermediation Agreement by and among J.
Aron, PBF Holding and PRC expires on December 31, 2021, which term may be
further extended by mutual consent of the parties to December 31, 2022. If not
extended or replaced, at expiration, we will be required to repurchase the
inventories outstanding under the Inventory Intermediation Agreements at that
time. We intend to either extend or replace the Inventory Intermediation
Agreements prior to their expirations.
At December 31, 2020, the LIFO value of the J. Aron Products included within
Inventory in our Consolidated Balance Sheets was $266.5 million. We accrue a
corresponding liability for such crude oil, intermediates and finished products.
Capital Spending
Capital spending, excluding $1,176.2 million attributed to the Martinez
Acquisition, was $393.4 million for the year ended December 31, 2020, which
primarily included costs for the construction of the Delaware City refinery
hydrogen plant, turnaround costs at our Toledo refinery, safety related
enhancements and facility improvements at our refineries, and approximately
$12.3 million of capital expenditures related to PBFX. Due to current
challenging market conditions, we have taken strategic steps to increase our
flexibility and responsiveness, one of which is the reduction of capital
expenditures. Total refining capital expenditures for the year ended December
31, 2020 totaled $370.4 million, an almost 50% reduction to our planned 2020
expenditures. We currently expect to spend an aggregate of approximately $400.0
million to $475.0 million in net refining capital expenditures during 2021,
excluding PBFX, for facility improvements, refinery maintenance and turnarounds
with the intention of satisfying all required safety, environmental and
regulatory capital commitments. In addition, PBFX expects to spend an aggregate
of approximately $10.0 million to $20.0 million in net capital expenditures
during 2021.
On February 1, 2020 we acquired the Martinez refinery and related logistic
assets. The purchase price for the Martinez Acquisition was $960.0 million in
cash, plus final working capital of $216.1 million and $77.3 million related to
the Martinez Contingent Consideration. The transaction was financed through a
combination of cash on hand including proceeds from the 2028 Senior Notes, and
borrowings under the Revolving Credit Facility.
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Contractual Obligations and Commitments
The following table summarizes our material contractual payment obligations as
of December 31, 2020 (in millions). The table below does not include any
contractual obligations with PBFX as these related party transactions are
eliminated upon consolidation of our financial statements.
                                                                               Payments due by period
                                                                   Less than                                                More than
                                                  Total              1 year           1-3 Years          3-5 Years           5 years
PBF Energy:
Credit facilities and debt (a)                $  4,709.9          $    86.3

$ 1,648.6 $ 1,975.0 $ 1,000.0 Interest payments on credit facilities and debt (a)

                                     1,396.7              306.4              568.0              372.3              150.0

Leases and other rental-related
commitments (b)                                  2,500.2              265.7              413.8              361.6            1,459.1

Purchase obligations: (c)
Crude and Feedstock Supply and
Inventory Intermediation Agreements             14,406.6            4,879.4            6,966.1            2,561.1                  -
Other Supply and Capacity Agreements               254.6               83.9               53.0               35.1               82.6
AB32 Settlement Obligations                        249.7              249.7                  -                  -                  -
Construction obligations                            32.1               32.1                  -                  -                  -
Environmental obligations (d)                      159.9               12.0               34.6               18.2               95.1
Pension and post-retirement obligations
(e)                                                312.5               36.9               34.2               28.5              212.9

Contingent Consideration (f)                        12.1               12.1                  -                  -                  -
Total contractual cash obligations for
PBF Energy                                    $ 24,034.3          $ 5,964.5

$ 9,718.3 $ 5,351.8 $ 2,999.7 Adjustments for PBF LLC:

Add: Affiliate Note Payable (g)                    376.3                  -                  -                  -              376.3

Total contractual cash obligations for
PBF LLC                                       $ 24,410.6          $ 5,964.5

$ 9,718.3 $ 5,351.8 $ 3,376.0

___________________________

(a)  Credit Facilities, debt and related interest payments
Credit and debt obligations represent (i) the repayment of the outstanding
borrowings under the Revolving Credit Facility; (ii) the repayment of
indebtedness incurred in connection with the 2025 Senior Secured Notes, 2028
Senior Notes and 2025 Senior Notes; (iii) the repayment of our catalyst
financing obligations on their maturity dates; (iv) the repayment of outstanding
amounts under the PBFX Revolving Credit Facility and the PBFX 2023 Senior Notes
and (v) the repayment of our PBF Rail Term Loan.
Interest payments on debt facilities include cash interest payments on the 2025
Senior Secured Notes, 2028 Senior Notes, 2025 Senior Notes, PBFX Revolving
Credit Facility, PBFX 2023 Senior Notes, catalyst financing obligations, PBF
Rail Term Loan, plus cash payments for the commitment fees on the unused portion
on our revolving credit facilities and letter of credit fees on the letters of
credit outstanding at December 31, 2020. With the exception of our PBF Rail Term
Loan and our catalyst financing obligations, we have no debt maturing before
2023 as of December 31, 2020.
Refer to "Note 10 - Credit Facilities and Debt" of our Notes to Consolidated
Financial Statements for further discussion related to debt.
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(b)  Leases and other rental-related commitments
We enter into leases and other rental-related agreements in the normal course of
business. As described in "Note 2 - Summary of Significant Accounting Policies"
of our Notes to Consolidated Financial Statements, we adopted new guidance on
leases effective January 1, 2019 which brought substantially all leases with
initial terms of over twelve months outstanding as of the implementation date
onto our Consolidated Balance Sheets. Leases with initial terms of twelve months
or less are considered short-term and we elected the practical expedient in the
new lease guidance to exclude these leases from our Consolidated Balance Sheets.
Some of our leases provide us with the option to renew the lease at or before
expiration of the lease terms. Future lease obligations would change if we chose
to exercise renewal options or if we enter into additional operating or finance
lease agreements. Certain of our lease obligations contain a fixed and variable
component. The table above reflects the fixed component of our lease
obligations, including short-term lease expense. The variable component could be
significant. In addition, we have entered into certain agreements for the supply
of hydrogen that contain both lease and non-lease components. The table above
also includes such non-lease components of these agreements. See "Note 15 -
Leases" of our Notes to Consolidated Financial Statements for further details
and disclosures regarding our operating and finance lease obligations.
We also enter into contractual obligations with third parties for the right to
use property for locating pipelines and accessing certain of our assets (also
referred to as land easements) in the normal course of business. Our obligations
regarding such land easements are included within Leases and other
rental-related commitments in the table above.
(c)  Purchase obligations
We have obligations to repurchase the J. Aron Products under the Inventory
Intermediation Agreements with J. Aron as further explained in "Note 2 - Summary
of Significant Accounting Policies", "Note 6 - Inventories" and "Note 9 -
Accrued Expenses" of our Notes to Consolidated Financial Statements.
Additionally, purchase obligations under "Crude and Feedstock Supply and
Inventory Intermediation Agreements" include commitments to purchase crude oil
from certain counterparties under supply agreements entered into to ensure
adequate supplies of crude oil for our refineries. These obligations are based
on aggregate minimum volume commitments at 2020 year end market prices.
Payments under "Other Supply and Capacity Agreements" include contracts for the
transportation of crude oil and supply of hydrogen, steam, or natural gas to
certain of our refineries, contracts for the treatment of wastewater, and
contracts for pipeline capacity. We enter into these contracts to facilitate
crude oil deliveries and to ensure an adequate supply of energy or essential
services to support our refinery operations. Substantially all of these
obligations are based on fixed prices. Certain agreements include fixed or
minimum volume requirements, while others are based on our actual usage. The
amounts included in this table are based on fixed or minimum quantities to be
purchased and the fixed or estimated costs based on market conditions as of
December 31, 2020.
Payments under "AB32 Settlement Obligations" include future obligations to
repurchase AB32 credits previously sold to third parties and will be used to
settle our AB32 liability. Liabilities related to these obligations are included
in "Accrued expenses" in the Consolidated Balance Sheets at December 31, 2020.
See "Note 9 - Accrued Expenses" of our Notes to Consolidated Financial
Statements for details.
The amounts included in this table exclude our crude supply agreement with
PDVSA. We have not sourced crude oil under this agreement since the third
quarter of 2017 as PDVSA has suspended deliveries due to the parties inability
to agree to mutually acceptable payment terms and because of U.S. government
sanctions against PDVSA.
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(d)  Environmental obligations
In connection with certain of our refinery and logistics acquisitions, we have
assumed certain environmental remediation obligations to address matters that
were outstanding at the time of such acquisitions. In addition, in connection
with most of these acquisitions, we have purchased environmental insurance
policies to insure against unknown environmental liabilities at each site. The
obligations in the table above reflect our undiscounted best estimate in cost
and tenure to remediate our outstanding obligations and are further discussed in
"Note 14 - Commitments and Contingencies" of our Notes to Consolidated Financial
Statements.
(e)  Pension and post-retirement obligations
Pension and post-retirement obligations include only those amounts we expect to
pay out in benefit payments and are further explained in "Note 19 - Employee
Benefit Plans" of our Notes to Consolidated Financial Statements.
(f)  Contingent Consideration
Contingent consideration includes our obligations to pay certain contractual
earn-outs entered into as part of acquisitions. As of December 31, 2020 we do
not expect to achieve any earn-out obligations related to the Martinez
acquisition. Our earn-out obligation related to the East Coast Storage Assets
acquisition and our amount payable to Crown Point relates to our year one
earn-out obligation payable in 2021 with no future estimated earn-out
obligations for years thereafter.
(g)  Affiliate Note Payable
As described in "Note 11 - Affiliate Note Payable - PBF LLC" of our Notes to
Consolidated Financial Statements, as of December 31, 2020, PBF LLC had an
outstanding note payable with PBF Energy for an aggregate principal amount of
$376.3 million. The note has an interest rate of 2.5% and matures in April 2030,
but may be prepaid in whole or in part at any time, at the option of PBF LLC
without penalty or premium. This affiliate note payable is a cash obligation of
PBF LLC only and eliminates in consolidation for PBF Energy.
(h)  Tax Receivable Agreement obligation
The table above does not include an amount associated with our Tax Receivable
Agreement obligation as our liability was reduced to zero as of December 31,
2020 in conjunction with our recording of a deferred tax asset valuation
allowance recognized in accordance with ASC 740, Income Taxes. Refer to "Note 14
- Commitments and Contingencies" and "Note 21 - Income Taxes" of our Notes to
Consolidated Financial Statements for further discussion of the Tax Receivable
Agreement.
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Tax Distributions
PBF LLC is required to make periodic tax distributions to the members of PBF
LLC, including PBF Energy, pro rata in accordance with their respective
percentage interests for such period (as determined under the amended and
restated limited liability company agreement of PBF LLC), subject to available
cash and applicable law and contractual restrictions (including pursuant to our
debt instruments) and based on certain assumptions. Generally, these tax
distributions will be an amount equal to our estimate of the taxable income of
PBF LLC for the year multiplied by an assumed tax rate equal to the highest
effective marginal combined U.S. federal, state and local income tax rate
prescribed for an individual or corporate resident in New York, New York (taking
into account the nondeductibility of certain expenses). If, with respect to any
given calendar year, the aggregate periodic tax distributions were less than the
actual taxable income of PBF LLC multiplied by the assumed tax rate, PBF LLC
will make a "true up" tax distribution, no later than March 15 of the following
year, equal to such difference, subject to the available cash and borrowings of
PBF LLC. As these distributions are conditional they have been excluded from the
table above.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of December 31, 2020, other than
outstanding letters of credit of approximately $189.3 million.
Critical Accounting Policies
The following summary provides further information about our critical accounting
policies that involve critical accounting estimates and should be read in
conjunction with "Note 2 - Summary of Significant Accounting Policies" of our
Notes to Consolidated Financial Statements. The following accounting policies
involve estimates that are considered critical due to the level of subjectivity
and judgment involved, as well as the impact on our financial position and
results of operations. We believe that all of our estimates are reasonable.
Unless otherwise noted, estimates of the sensitivity to earnings that would
result from changes in the assumptions used in determining our estimates is not
practicable due to the number of assumptions and contingencies involved, and the
wide range of possible outcomes.
Inventory
Inventories are carried at the lower of cost or market. The cost of crude oil,
feedstocks, blendstocks and refined products is determined under the LIFO method
using the dollar value LIFO method with increments valued based on average cost
during the year. The cost of supplies and other inventories is determined
principally on the weighted average cost method. In addition, the use of the
LIFO inventory method may result in increases or decreases to cost of sales in
years that inventory volumes decline as the result of charging cost of sales
with LIFO inventory costs generated in prior periods. At December 31, 2020 and
2019, market values had fallen below historical LIFO inventory costs and, as a
result, we recorded an LCM or market inventory valuation reserves of $669.6
million and $401.6 million, respectively. The LCM or market inventory valuation
reserve, or a portion thereof, is subject to reversal as a reduction to cost of
products sold in subsequent periods as inventories giving rise to the reserve
are sold, and a new reserve is established. Such a reduction to cost of products
sold could be significant if inventory values return to historical cost price
levels. Additionally, further decreases in overall inventory values could result
in additional charges to cost of products sold should the LCM or market
inventory valuation reserve be increased.
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Environmental Matters
Liabilities for future clean-up costs are recorded when environmental
assessments and/or clean-up efforts are probable and the costs can be reasonably
estimated. Other than for assessments, the timing and magnitude of these
accruals generally are based on the completion of investigations or other
studies or a commitment to a formal plan of action. Environmental liabilities
are based on best estimates of probable future costs using currently available
technology and applying current regulations, as well as our own internal
environmental policies. The actual settlement of our liability for environmental
matters could materially differ from our estimates due to a number of
uncertainties such as the extent of contamination, changes in environmental laws
and regulations, potential improvements in remediation technologies and the
participation of other responsible parties. While we believe that our current
estimates of the amounts and timing of the costs related to the remediation of
these liabilities are reasonable, we have had limited experience with certain of
these environmental obligations due to our short operating history with certain
of our assets. It is possible that our estimates of the costs and duration of
the environmental remediation activities related to these liabilities could
materially change.
Business Combinations
We use the acquisition method of accounting for the recognition of assets
acquired and liabilities assumed in business combinations at their estimated
fair values as of the date of acquisition. Any excess consideration transferred
over the estimated fair values of the identifiable net assets acquired is
recorded as goodwill. Significant judgment is required in estimating the fair
value of assets acquired. As a result, in the case of significant acquisitions,
we obtain the assistance of third-party valuation specialists in estimating fair
values of tangible and intangible assets based on available historical
information and on expectations and assumptions about the future, considering
the perspective of marketplace participants. While management believes those
expectations and assumptions are reasonable, they are inherently uncertain.
Unanticipated market or macroeconomic events and circumstances may occur, which
could affect the accuracy or validity of the estimates and assumptions.
Certain of our acquisitions may include earn-out provisions or other forms of
contingent consideration. As of the acquisition date, we record contingent
consideration, as applicable, at the estimated fair value of expected future
payments associated with the earn-out. Any changes to the recorded fair value of
contingent consideration, subsequent to the measurement period, will be
recognized as earnings in the period in which it occurs. Such contingent
consideration liabilities are based on best estimates of future expected payment
obligations, which are subject to change due to many factors outside of our
control. Changes to the estimate of expected future contingent consideration
payments may occur, from time to time, due to various reasons, including actual
results differing from estimates and adjustments to the revenue or earnings
assumptions used as the basis for the liability based on historical experience.
While we believe that our current estimate of the fair value of our contingent
consideration liability is reasonable, it is possible that the actual future
settlement of our earn-out obligations could materially differ.

Deferred Turnaround Costs
Refinery turnaround costs, which are incurred in connection with planned major
maintenance activities at our refineries, are capitalized when incurred and
amortized on a straight-line basis over the period of time estimated until the
next turnaround occurs (generally three to six years). While we believe that the
estimates of time until the next turnaround are reasonable, it should be noted
that factors such as competition, regulation or environmental matters could
cause us to change our estimates thus impacting amortization expense in the
future.
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Derivative Instruments
We are exposed to market risk, primarily related to changes in commodity prices
for the crude oil and feedstocks used in the refining process, as well as the
prices of the refined products sold and the risk associated with the price of
credits needed to comply with various governmental and regulatory environmental
compliance programs. The accounting treatment for commodity and environmental
compliance contracts depends on the intended use of the particular contract and
on whether or not the contract meets the definition of a derivative.
Non-derivative contracts are recorded at the time of delivery.
All derivative instruments that are not designated as normal purchases or sales
are recorded in our Consolidated Balance Sheets as either assets or liabilities
measured at their fair values. Changes in the fair value of derivative
instruments that either are not designated or do not qualify for hedge
accounting treatment or normal purchase or normal sale accounting are recognized
in income. Contracts qualifying for the normal purchases and sales exemption are
accounted for upon settlement. We elect fair value hedge accounting for certain
derivatives associated with our inventory repurchase obligations.
Derivative accounting is complex and requires management judgment in the
following respects: identification of derivatives and embedded derivatives;
determination of the fair value of derivatives; identification of hedge
relationships; assessment and measurement of hedge ineffectiveness; and election
and designation of the normal purchases and sales exception. All of these
judgments, depending upon their timing and effect, can have a significant impact
on earnings.
Impairment of Long-Lived Assets
Long-lived assets are tested for recoverability whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. A long-lived asset is not recoverable if its carrying amount
exceeds the sum of the undiscounted cash flows expected to result from its use
and eventual disposition. If a long-lived asset is not recoverable, an
impairment loss is recognized for the amount by which the carrying amount of the
long-lived asset exceeds its fair value, with fair value determined based on
discounted estimated net cash flows or other appropriate methods.
The global crisis resulting from the COVID-19 pandemic has had a substantial
impact on the economy and overall consumer demand for energy and hydrocarbon
products. As a result of the significant decrease in PBF Energy's stock price in
2020, enduring throughput reductions across our refineries and noticeable
decrease in demand for our products, we determined that an impairment triggering
event had occurred. Therefore, we performed an impairment assessment on certain
long-lived assets as of December 31, 2020. As a result of the impairment test,
we determined that our long-lived assets were not impaired when comparing the
carrying value of the long-lived assets to the estimated undiscounted future
cash flows expected to result from use of the assets over their remaining
estimated useful life. If adverse market conditions persist or there is further
deterioration in the general economic environment due to the COVID-19 pandemic,
there could be additional indicators that our assets are impaired requiring
evaluation that may result in future impairment charges to earnings. Refer to
"Note 1 - Description of the Business and Basis of Presentation" of our Notes to
Consolidated Financial Statements.
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  Income Taxes and Tax Receivable Agreement
As a result of PBF Energy's acquisition of PBF LLC Series A Units or exchanges
of PBF LLC Series A Units for PBF Energy Class A common stock, it expects to
benefit from amortization and other tax deductions reflecting the step up in tax
basis in the acquired assets. Those deductions will be allocated to PBF Energy
and will be taken into account in reporting its taxable income. As a result of a
federal income tax election made by PBF LLC, applicable to a portion of PBF
Energy's acquisition of PBF LLC Series A Units, the income tax basis of the
assets of PBF LLC, underlying a portion of the units PBF Energy acquired, has
been adjusted based upon the amount that PBF Energy paid for that portion of its
PBF LLC Series A Units. PBF Energy entered into the Tax Receivable Agreement (as
defined in "Note 14 - Commitments and Contingencies" of the Notes to our
Consolidated Financial Statements) which provides for the payment by PBF Energy
equal to 85% of the amount of the benefits, if any, that it is deemed to realize
as a result of (i) increases in tax basis 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 a result of
these transactions, PBF Energy's tax basis in its share of PBF LLC's assets will
be higher than the book basis of these same assets. This resulted in a deferred
tax asset of $155.2 million as of December 31, 2020.
Deferred taxes are calculated using a liability method, whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences represent the differences between reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effect of changes in tax laws
and rates on the date of enactment. We recognize tax benefits for uncertain tax
positions only if it is more likely than not that the position is sustainable
based on its technical merits. Interest and penalties on uncertain tax positions
are included as a component of the provision for income taxes on the
Consolidated Statements of Operations. As a result of management's assessment of
the available positive and negative evidence to estimate whether sufficient
future taxable income will be generated to permit use of the existing deferred
tax assets as of December 31, 2020, a valuation allowance of $358.4 million was
recorded to recognize only the portion of deferred tax assets that are more
likely than not to be realized. The amount of the deferred tax assets considered
realizable, however, could be adjusted if estimates of future taxable income are
reduced or increased or if objective negative evidence in the form of cumulative
losses is no longer present and additional weight is given to subjective
evidence such as our projections for future taxable income. As a result of the
valuation allowance, the liability associated with the Tax Receivable Agreement
was reduced to zero.
Pursuant to the Tax Receivable Agreement PBF Energy entered into at the time of
its initial public offering, it is required to pay the current and former PBF
LLC Series A unitholders, who exchange their units for PBF Energy stock or whose
units we purchase, approximately 85% of the cash savings in income taxes that
PBF Energy is deemed to realize as a result of the increase in the tax basis of
its interest in PBF LLC, including tax benefits attributable to payments made
under the Tax Receivable Agreement. These payment obligations are of PBF Energy
and not of PBF LLC or any of its subsidiaries. PBF Energy has recognized a
liability for the Tax Receivable Agreement reflecting its estimate of the
undiscounted amounts that it expects to pay under the agreement. PBF Energy's
estimate of the Tax Receivable Agreement liability is based, in part, on
forecasts of future taxable income over the anticipated life of PBF Energy's
future business operations, assuming no material changes in the relevant tax
law. The assumptions used in the forecasts are subject to substantial
uncertainty about PBF Energy's future business operations and the actual
payments that it is required to make under the Tax Receivable Agreement could
differ materially from its current estimates. PBF Energy must adjust the
estimated Tax Receivable Agreement liability each time we purchase PBF LLC
Series A Units or upon an exchange of PBF LLC Series A Units for PBF Energy
Class A common stock. Such adjustments will be based on forecasts of future
taxable income and PBF Energy's future business operations at the time of such
purchases or exchanges. Periodically, PBF Energy may adjust the liability based
on an updated estimate of the amounts that it expects to pay, using assumptions
consistent with those used in its concurrent estimate of the deferred tax asset
valuation allowance. These periodic adjustments to the Tax Receivable Agreement
liability, if any, are
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recorded in general and administrative expense and may result in adjustments to
our income tax expense and deferred tax assets and liabilities.
Recent Accounting Pronouncements
Refer to "Note 2 - Summary of Significant Accounting Policies" of our Notes to
Consolidated Financial Statements, for Recently Issued Accounting
Pronouncements.

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