PBF LOGISTICS LP The Acquisitions from PBF were transfers between entities under common control. Accordingly, our financial information, and that of our Predecessor, contained herein has been retrospectively adjusted to include the historical results of the assets acquired in the Acquisitions from PBF prior to the effective date of each acquisition for all periods presented with the exception of theDelaware Ethanol Storage Facility, which is considered an asset purchase. With the exception of revenue generated by the DCR Products Pipeline and thePaulsboro Lube Oil Terminal , our Predecessor generally recognized only the costs and did not record revenue for transactions withPBF Energy prior to the IPO and the Acquisitions from PBF. Affiliate revenue has been recorded for certain of our assets in the Transportation and Terminaling and Storage segments subsequent to the commencement of the commercial agreements withPBF Energy upon completion of the IPO and the Acquisitions from PBF. Refer to "Factors Affecting the Comparability of Our Financial Results" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information. Refer to "Overview" in "Item 1. Business" for further information regarding the Acquisitions from PBF. The following information concerning 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 Form 10-K.
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as "believes," "expects," "may," "should," "seeks," "approximately," "intends," "plans," "estimates" or "anticipates" or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time, make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time; 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 on 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," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-K. All forward-looking information in this 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: •changes in general economic conditions, including market and macro-economic disruptions resulting from the COVID-19 pandemic and related governmental and consumer responses; •our ability to make, complete and integrate acquisitions from affiliates or third parties, and to realize the benefits from such acquisitions; •our ability to have sufficient cash from operations to enable us to pay the minimum quarterly distribution; 54 -------------------------------------------------------------------------------- •competitive conditions in our industry; •actions taken by our customers and competitors; •the supply of, and demand for, crude oil, refined products, natural gas and logistics services; •our ability to successfully implement our business plan; •our dependence onPBF Energy for a substantial majority of our revenue subjects us to the business risks ofPBF Energy , which include the possibility that contracts will not be renewed because they are no longer beneficial forPBF Energy ; •a substantial majority of our revenue is generated atPBF Energy's facilities, particularly atPBF Energy's Delaware City ,Toledo andTorrance refineries, and any adverse development at any of these facilities could have a material adverse effect on us; •our ability to complete internal growth projects on time and on budget; •the price and availability of debt and equity financing; •operating hazards and other risks incidental to the processing of crude oil and the receiving, handling, storage and transferring of crude oil, refined products, natural gas and intermediates; •natural disasters, weather-related delays, casualty losses and other matters beyond our control; •the threat of cyber-attacks; •our andPBF Energy's increased dependence on technology; •interest rates; •labor relations; •changes in the availability and cost of capital; •the effects of existing and future laws and governmental regulations, including those related to the shipment of crude oil by rail; •changes in insurance markets impacting costs and the level and types of coverage available; •the timing and extent of changes in commodity prices and demand forPBF Energy's refined products and natural gas and the differential in the prices of different crude oils; •the suspension, reduction or termination ofPBF Energy's obligations under our commercial agreements; •disruptions due to equipment interruption or failure at our facilities,PBF Energy's facilities or third-party facilities on which our business is dependent; •our general partner and its affiliates, includingPBF Energy , have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to the detriment of us and our other common unitholders; •our partnership agreement restricts the remedies available to holders of our common units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty; •holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors; •our tax treatment depends on our status as a partnership forU.S. federal income tax purposes, as well as not being subject to a material amount of entity level taxation by individual states; •changes at any time (including on a retroactive basis) in the tax treatment of publicly traded partnerships, including related impacts on potential dropdown transactions withPBF LLC , or an investment in our common units; •our unitholders will be required to pay taxes on their share of our taxable income even if they do not receive any cash distributions from us; •the effects of future litigation; and •other factors discussed elsewhere in this Form 10-K. 55 -------------------------------------------------------------------------------- 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 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 Form 10-K or as of the date which they are made. Except as required by applicable law, including the securities laws of theU.S. , we undertake no obligation 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.
Overview
We are a fee-based, growth-oriented,Delaware master limited partnership formed inFebruary 2013 by subsidiaries ofPBF Energy to own or lease, operate, develop and acquire crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets. PBF GP is our general partner and is wholly-owned byPBF LLC .PBF Energy is the sole managing member ofPBF LLC and, as ofDecember 31, 2020 , owned 99.2% of the total economic interest inPBF LLC . As ofDecember 31, 2020 ,PBF LLC held a 48.0% limited partner interest in us, with the remaining 52.0% limited partner interest owned by public unitholders. Our business includes the assets, liabilities and results of operations of certain crude oil, refined products, natural gas and intermediates terminaling, pipeline, storage and processing assets, including those previously operated and owned byPBF Holding's subsidiaries andPBF Holding's previously held subsidiaries. Refer to "Item 1. Business" of this Form 10-K for more detailed information regarding our business and assets.
Business Developments
Refer to "Business Developments" included in "Item 1. Business" of this Form 10-K for discussion regarding our business developments during the fiscal year 2020.
Principles of Combination and Consolidation and Basis of Presentation
Our Predecessor did not historically operate its assets for the purpose of generating revenue independent of otherPBF Energy businesses that we support, with the exception of the DCR Products Pipeline and thePaulsboro Lube Oil Terminal . In connection with the closing of the IPO and the Acquisitions from PBF, we entered into commercial and service agreements with subsidiaries ofPBF Energy , under which we operate our assets for the purpose of generating fee-based revenue. We receive, handle and transfer crude oil, refined products and natural gas from sources located throughout theU.S. andCanada and store crude oil, refined products and intermediates forPBF Energy in support of its refineries located inPaulsboro, New Jersey ;Delaware City, Delaware ;Toledo, Ohio ;Chalmette, Louisiana ;Torrance, California ; andMartinez, California . In 2020,PBF Energy reconfigured itsDelaware andPaulsboro refineries, temporarily idling certain of its major processing units at thePaulsboro Refinery , in order to operate the two refineries as one functional unit referred to as the "East Coast Refining System." We acquired various terminal, pipeline and storage assets fromPBF Energy , which are integral components of the crude oil, refined products and natural gas delivery and storage operations atPBF Energy's refineries. In addition, we generate third-party revenue from certain of our assets. The consolidated financial statements presented in this Form 10-K include our consolidated financial results as of and for the period endingDecember 31, 2020 . We have retrospectively adjusted our financial information contained herein to include the historical results of the Acquisitions from PBF prior to the effective date of each transaction including the Development Assets, with the exception of the Delaware Ethanol Storage Facility as it is considered an asset purchase, prior to the acquisition of the Development Assets. 56 --------------------------------------------------------------------------------
Business Strategies
We continue to focus on the following strategic areas:
Maintain Safe, Reliable and •Maintain, emphasize and improve safety, reliability, environmental
Efficient Operations. compliance and efficiency of our operations
•Improve operating performance through preventive maintenance
programs, employee training and development programs
Generate Stable, Fee-Based Cash •Utilize long-term, fee-based logistics contracts that provide
Flows. stable, predictable cash flows
•Leverage PBF Energy for a substantial majority of our revenue and
continue to seek commercial agreements which include minimum
commitments
•Generate third-party revenue fromcertain of our assets and seek
future third-party growth opportunities
Grow Through Acquisitions and •Pursue strategic acquisitions independently and jointly with PBF
Organic Projects. Energy that complement and grow our asset base
•Pursue strategic organic projects that enhance our existing assets
and increase our revenues
•Take advantage of opportunisticdropdown transactions with our
parent sponsor that may arise
Seek to Optimize Our Existing •Enhance profitability by increasing throughput volumes from PBF
Assets and Pursue Third-Party Energy, attracting third-party volumes, improving operating
Volumes. efficiencies and managing costs
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our business and segment performance. These metrics are significant factors in assessing our operating results and profitability and include, but are not limited to, volumes, including terminal and pipeline throughput and storage capacity; operating and maintenance expenses; and EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow. We define EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow below. Volumes. The amount of revenue we generate primarily depends on the volumes of crude oil, refined products and natural gas that we throughput at our terminaling and pipeline operations and our available and utilized storage capacity. These volumes are primarily affected by the supply of and demand for crude oil, refined products and natural gas in the markets served directly or indirectly by our assets. AlthoughPBF Energy has committed to minimum volumes under certain commercial agreements, our results of operations will be impacted by: •PBF Energy's utilization of our assets in excess of MVCs; •our ability to identify and execute accretive acquisitions and organic expansion projects and capture incrementalPBF Energy or third-party volumes; and •our ability to increase throughput volumes at our facilities and provide additional ancillary services at those terminals and pipelines.
Operating and Maintenance Expenses. Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses are comprised primarily of labor and outside contractor costs, utilities, insurance premiums, repairs and maintenance charges
57
--------------------------------------------------------------------------------
and related property taxes. These expenses generally remain relatively stable
across broad ranges of throughput volumes but can fluctuate from period to
period depending on the mix of activities performed during that period and the
timing of these expenses. We will seek to manage our maintenance expenditures on
our assets by scheduling maintenance over time to avoid significant variability
in our maintenance expenditures and to minimize their impact on our cash flow.
EBITDA, EBITDA Attributable to PBFX, Adjusted EBITDA and Distributable Cash
Flow. We define EBITDA as net income (loss) before net interest expense
(including amortization of loan fees and debt premium and accretion on
discounted liabilities), income tax expense, depreciation, amortization,
impairment expense and change in contingent consideration. We define EBITDA
attributable to PBFX as net income (loss) attributable to PBFX before net
interest expense (including amortization of loan fees and debt premium and
accretion on discounted liabilities), income tax expense, depreciation,
amortization, impairment expense and change in contingent consideration
attributable to PBFX, which excludes the results of Acquisitions from PBF prior
to the effective dates of such transactions and earnings attributable to the CPI
earn-out (the portion of earnings associated with an earn-out provision related
to the purchase of CPI). We define Adjusted EBITDA as EBITDA attributable to
PBFX excluding acquisition and transaction costs, non-cash unit-based
compensation expense and items that meet the conditions of unusual, infrequent
and/or non-recurring charges. We define distributable cash flow as EBITDA
attributable to PBFX plus non-cash unit-based compensation expense, less cash
interest, maintenance capital expenditures attributable to PBFX and income
taxes. Distributable cash flow will not reflect changes in working capital
balances. EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable
cash flow are not presentations made in accordance with GAAP.
EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow
are non-GAAP supplemental financial measures that management and external users
of our consolidated financial statements, such as industry analysts, investors,
lenders and rating agencies, may use to assess:
•our operating performance as compared to other publicly traded partnerships in
the midstream energy industry, without regard to historical cost basis or, in
the case of EBITDA, financing methods;
•the ability of our assets to generate sufficient cash flow to make
distributions to our unitholders;
•our ability to incur and service debt and fund capital expenditures; and
•the viability of acquisitions and other capital expenditure projects and the
economic returns on various investment opportunities.
We believe that the presentation of EBITDA, EBITDA attributable to PBFX and
Adjusted EBITDA provides useful information to investors in assessing our
financial condition and results of operations and assists in evaluating our
ongoing operating performance for current and comparative periods. We believe
that the presentation of distributable cash flow will provide useful information
to investors as it is a widely accepted financial indicator used by investors to
compare partnership performance and provides investors with another perspective
on the operating performance of our assets and the cash our business is
generating. EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and
distributable cash flow should not be considered alternatives to net income,
income from operations, net cash provided by operating activities or any other
measure of financial performance or liquidity presented in accordance with GAAP.
EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow
have important limitations as analytical tools because they exclude some, but
not all, items that affect net income and net cash provided by operating
activities. Additionally, because EBITDA, EBITDA attributable to PBFX, Adjusted
EBITDA and distributable cash flow may be defined differently by other companies
in our industry, our definitions of such measures may not be comparable to
similarly titled measures of other companies, thereby diminishing their utility.
EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow
are reconciled to net income and net cash provided by operating activities in
this Form 10-K in "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Results of Operations."
58
--------------------------------------------------------------------------------Factors Affecting the Comparability of Our Financial Results
Our results of operations may not be comparable to our historical results of operations due to our acquisition activity, which is discussed in Note 4 "Acquisitions" of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K, the IDR Restructuring, certain debt and equity transactions and our annual inflation adjustment to our commercial agreements. Additionally, our results may not be comparative to prior periods due to the impact of the COVID-19 pandemic on our business in 2020, including lower throughput volumes at our terminals, as the industry reacts to the related economic downturn and volatile commodity market. Furthermore, our results of operations may not be comparable to our historical results of operations due to the termination of the CPI Processing Agreement, which resulted in an impairment charge of$7.0 million to write-down the related processing unit assets and customer contract intangible asset of$3.0 million and$4.0 million , respectively. Refer to Note 6 "Property, Plant and Equipment, Net" and Note 7 "Goodwill and Intangibles" of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K for further discussion. Approximately$35.2 million of our revenue for the year endedDecember 31, 2020 was attributable to the CPI Processing Agreement.
Other Factors That Will Significantly Affect Our Results
Supply and Demand for Crude Oil,Refined Products and Natural Gas . We generate revenue by charging fees for receiving, handling, transferring, storing, throughputting and processing crude oil, refined products and natural gas. A majority of our revenue is derived from MVC, fee-based commercial agreements with subsidiaries ofPBF Energy with initial terms ranging from one to fifteen years, which enhance the stability of our cash flows. The volume of crude oil, refined products and natural gas that is throughput depends substantially onPBF Energy's operational needs which are largely impacted by refining margins. Refining margins are greatly dependent upon the price of crude oil or other refinery feedstocks, refined products and natural gas. Factors driving the prices of petroleum-based commodities include supply and demand for crude oil, gasoline and other refined products. Supply and demand for these products depend on numerous factors outside of our control, including changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, logistics constraints, availability of imports, marketing of competitive fuels, crude oil price differentials and government regulation. The impact of the unprecedented global health and economic crisis sparked by the COVID-19 pandemic was amplified late in the first quarter of 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. These factors have resulted in significant demand destruction for refined petroleum products and atypical volatility in oil commodity prices through the end of 2020 and may continue for the foreseeable future. Although the effects may be mitigated by MVC provisions in certain of our commercial contracts, this overall demand destruction and market environment could lead to lower storage or throughput volumes processed at our assets, which could negatively impact our results of operations and cash flows. While it is impossible to estimate the duration or complete financial impact of the COVID-19 pandemic, a significant portion of the negative impacts and risk to us may be mitigated through our MVCs within the commercial agreements withPBF Holding . Refer to "Item 1A. Risk Factors" of this Form 10-K for more information on factors affecting margins and commodity pricing. Acquisition and Organic Growth Opportunities. We may acquire additional logistics assets fromPBF Energy or third parties. Under our Omnibus Agreement, subject to certain exceptions, we have a right of first offer on certain logistics assets owned byPBF Energy to the extentPBF Energy decides to sell, transfer or otherwise dispose of any of those assets. We also have a right of first offer to acquire additional logistics assets thatPBF Energy may construct or acquire in the future. Our commercial agreements provide us with options to 59 -------------------------------------------------------------------------------- purchase certain assets atPBF Holding's refineries related to our business in the eventPBF Energy permanently shuts downPBF Holding's refineries. In addition, our commercial agreements provide us with the right to use certain assets atPBF Holding's refineries in the event of a temporary shutdown. Furthermore, we may pursue strategic asset acquisitions from third parties or organic growth projects to the extent such acquisitions or projects complement our orPBF Energy's existing asset base or provide attractive potential returns. Identifying and executing acquisitions and organic growth projects is a key part of our strategy, and we believe that we are well-positioned to acquire logistics assets fromPBF Energy and third parties should such opportunities arise. However, there is no guarantee that we will be able to identify attractive organic growth projects or acquisitions in the future, or be able to consummate any such opportunities identified. Additionally, if we do not complete acquisitions or organic growth projects on economically acceptable terms, our future growth will be limited, and the acquisitions or projects we do complete may reduce, rather than increase, our cash available for distribution. These acquisitions and organic growth projects could also affect the comparability of our results from period to period. We expect to fund future growth capital expenditures primarily from a combination of cash-on-hand, borrowings under the Revolving Credit Facility and the issuance of additional equity or debt securities. To the extent we issue additional units to fund future acquisitions or expansion capital expenditures, the payments of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. Third-Party Business. As ofDecember 31, 2020 ,PBF Holding accounts for a substantial majority of our revenue, and we continue to expect that a majority of our revenue for the foreseeable future will be derived from operations supportingPBF Holding's refineries. We are examining further diversification of our customer base by potentially developing additional third-party throughput volumes in our existing system and continuing to explore expanding our asset portfolio to service third-party customers. Unless we are successful in attracting additional third-party customers, our ability to increase volumes will be dependent onPBF Holding , which has no obligation under our commercial agreements to supply our facilities with additional volumes in excess of its MVCs. If we are unable to increase throughput or storage volumes, future growth may be limited. 60 --------------------------------------------------------------------------------
Results of Operations
A discussion and analysis of the factors contributing to our results of operations are presented below. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations but should not serve as the only criteria for predicting our future performance.
Combined Overview. The following tables summarize our results of operations and financial data for the years endedDecember 31, 2020 , 2019 and 2018. The following data should be read in conjunction with our Consolidated Financial Statements and the notes thereto included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
Year Ended
2020 2019 2018
(In thousands)
Revenue:
Affiliate $ 289,406 $ 300,877 $ 259,426
Third-Party 70,849 39,335 24,014
Total revenue 360,255 340,212 283,440
Costs and expenses:
Operating and maintenance expenses 99,852 118,614 88,390
General and administrative expenses 18,748 24,515 21,371
Depreciation and amortization 53,707 38,601 29,809
Impairment expense 7,000 - -
Change in contingent consideration (14,390) (790) -
Total costs and expenses 164,917 180,940 139,570
Income from operations 195,338 159,272 143,870
Other expense:
Interest expense, net (44,377) (46,555) (40,541)
Amortization of loan fees and debt premium (1,741) (1,780) (1,717)
Accretion on discounted liabilities (1,788) (2,768) (775)
Net income 147,432 108,169 100,837
Less: Net loss attributable to Predecessor - - (2,443)
Less: Net income attributable to noncontrolling
interest - 7,881 17,819
Net income attributable to the partners 147,432 100,288 85,461
Less: Net income attributable to the IDR holder - - 10,011
Net income attributable to
$ 100,288 $ 75,450 Other data: EBITDA attributable to PBFX$ 229,995 $ 184,807 $ 152,428 Adjusted EBITDA 237,010 200,988 161,081 Distributable cash flow 181,740 137,050 111,586 Capital expenditures, including acquisitions 12,308 31,746 175,696 Reconciliation of Non-GAAP Financial Measures. As described in "Management's Discussion and Analysis of Financial Condition and Results of Operations-How We Evaluate Our Operations," our management uses EBITDA, EBITDA attributable to PBFX, Adjusted EBITDA and distributable cash flow to 61 --------------------------------------------------------------------------------
analyze our performance. The following table presents a reconciliation of EBITDA, EBITDA attributable to PBFX and distributable cash flow to net income, which is the most directly comparable GAAP financial measure of operating performance on a historical basis, for the periods indicated.
Year Ended
2020 2019 2018
(In thousands)
Net income $ 147,432 $ 108,169 $ 100,837
Interest expense, net 44,377 46,555 40,541
Amortization of loan fees and debt premium 1,741 1,780 1,717
Accretion on discounted liabilities 1,788 2,768 775
Change in contingent consideration (14,390) (790) -
Impairment expense 7,000 - -
Depreciation and amortization 53,707 38,601 29,809
EBITDA 241,655 197,083 173,679
Less: Predecessor EBITDA - - (2,051)
Less: Noncontrolling interest EBITDA - 10,180 23,302
Less: Earnings attributable to the CPI earn-out 11,660 2,096 -
EBITDA attributable to PBFX 229,995 184,807 152,428
Non-cash unit-based compensation expense 4,939 6,765 5,757
Cash interest (45,088) (47,081) (40,685)
Maintenance capital expenditures attributable to PBFX (8,106) (7,441) (5,914)
Distributable cash flow $ 181,740 $ 137,050 $ 111,586
The following table presents a reconciliation of EBITDA, EBITDA attributable to
PBFX and distributable cash flow to net cash provided by operating activities,
which is the most directly comparable GAAP financial measure of liquidity on a
historical basis, for the periods indicated.
Year Ended December 31,
2020 2019 2018
(In thousands)
Net cash provided by operating activities $ 186,642 $ 149,007 $ 133,141
Change in operating assets and liabilities 15,575 8,286 5,754
Interest expense, net 44,377 46,555 40,541
Non-cash unit-based compensation expense (4,939) (6,765) (5,757)
EBITDA 241,655 197,083 173,679
Less: Predecessor EBITDA - - (2,051)
Less: Noncontrolling interest EBITDA - 10,180 23,302
Less: Earnings attributable to the CPI earn-out 11,660 2,096 -
EBITDA attributable to PBFX 229,995 184,807 152,428
Non-cash unit-based compensation expense 4,939 6,765 5,757
Cash interest (45,088) (47,081) (40,685)
Maintenance capital expenditures attributable to PBFX (8,106) (7,441) (5,914)
Distributable cash flow $ 181,740 $ 137,050 $ 111,586
62
--------------------------------------------------------------------------------
The following table presents a reconciliation of EBITDA, EBITDA attributable to
PBFX and Adjusted EBITDA to net income, which is the most directly comparable
GAAP financial measure of operating performance on a historical basis, for the
periods indicated.
Year Ended December 31,
2020 2019 2018
(In thousands)
Net income $ 147,432 $ 108,169 $ 100,837
Interest expense, net 44,377 46,555 40,541
Amortization of loan fees and debt premium 1,741 1,780 1,717
Accretion on discounted liabilities 1,788 2,768 775
Change in contingent consideration (14,390) (790) -
Impairment expense 7,000 - -
Depreciation and amortization 53,707 38,601 29,809
EBITDA 241,655 197,083 173,679
Less: Predecessor EBITDA - - (2,051)
Less: Noncontrolling interest EBITDA - 10,180 23,302
Less: Earnings attributable to the CPI earn-out 11,660 2,096 -
EBITDA attributable to PBFX 229,995 184,807 152,428
Acquisition and transaction costs 1,382 3,842 2,896
Non-cash unit-based compensation expense 4,939 6,765 5,757
East Coast Terminals environmental remediation costs 694 4,692 -
PNGPC tariff true-up adjustment - 882 -
Adjusted EBITDA $ 237,010 $ 200,988 $ 161,081 The following table presents a reconciliation of net income attributable to noncontrolling interest and noncontrolling interest EBITDA, for informational purposes, for the periods indicated.
Year Ended December 31,
2020 2019 2018
(In thousands)
Net income attributable to noncontrolling interest $ -
- 2,299 5,483
Noncontrolling interest EBITDA $ - ____________
(a)Represents 50% of depreciation and amortization forTorrance Valley Pipeline Company LLC ("TVPC") for the five months endedMay 31, 2019 and the year endedDecember 31, 2018 . Subsequent to acquiring the remaining 50% equity interest in TVPC onMay 31, 2019 (the "TVPC Acquisition"), we own 100% of the equity interest in TVPC and no longer record a noncontrolling interest. 63
--------------------------------------------------------------------------------
Summary.
Our net income for the year endedDecember 31, 2020 increased by approximately$39.3 million , or 36.3%, to$147.4 million from$108.2 million for the year endedDecember 31, 2019 , details of which are shown in the following graph and further described below. [[Image Removed: pbfx-20201231_g4.jpg]] The increase in net income was primarily due to the following: •an increase in total revenue of approximately$20.0 million , or 5.9%, primarily attributable to the recommencement of operations of certain assets at ourEast Coast storage facility, operations of recently constructed assets and inflation rate adjustments implemented in accordance with certain of our commercial agreements (the "Inflation Rate Increase") in 2020, offset by lower revenue attributable to certain assets not subject to MVC shortfall payments due to a reduction in throughput volumes as a result of the COVID-19 pandemic, as well as lower pass-through utilities fees; •a decrease in operating and maintenance expenses of approximately$18.8 million , or 15.8%, as a result of decreased discretionary spending, including maintenance and outside service costs, in response to the COVID-19 pandemic, as well as lower environmental clean-up remediation costs, lower utility expenses due to reduced energy usage and no remediation of product contamination costs in 2020 compared to costs incurred in 2019 for product contamination remediation at one of our terminals, offset by expenses related to the recommencement of operations of certain assets at ourEast Coast storage facility; •a decrease in general and administrative expenses of approximately$5.8 million , or 23.5%, as a result of decreased acquisition and transaction costs and unit-based compensation expense; •a decrease in change in contingent consideration of approximately$13.6 million due to the termination of the CPI Processing Agreement in Q4 2020 and the resulting elimination of the projected earn-out liability for future periods, offset by an increase in estimated future payouts for the current annual period of the CPI Processing Agreement; and •a decrease in other expenses of approximately$3.2 million , or 6.3%, related to: •a decrease in interest expense of approximately$2.2 million , or 4.7%, as a result of lower borrowings under our Revolving Credit Facility; and •a decrease in accretion on discounted liabilities of approximately$1.0 million , or 35.4%, due to lower outstanding liability; 64 -------------------------------------------------------------------------------- offset by the following: •an increase in depreciation and amortization of approximately$15.1 million , or 39.1%, resulting from the accelerated depreciation and amortization of certain CPI tangible and intangible assets, which were subject to the termination of the CPI Processing Agreement in Q4 2020, as well as the timing of acquisitions and new assets being placed in service; and •an increase in impairment expense of$7.0 million resulting from an impairment charge to write-down the processing unit assets and customer contract intangible asset in connection with the termination of the CPI Processing Agreement. EBITDA attributable to PBFX for the year endedDecember 31, 2020 increased by approximately$45.2 million to$230.0 million from$184.8 million for the year endedDecember 31, 2019 due to the factors noted above, excluding the impact of depreciation and amortization, impairment expense, interest expense, net, amortization of loan fees and debt premium, accretion on discounted liabilities, change in contingent consideration, noncontrolling interest and earnings attributable to the CPI earn-out.
Adjusted EBITDA for the year ended
Our net income for the year endedDecember 31, 2019 increased by approximately$7.3 million , or 7.3%, to$108.2 million from$100.8 million for the year endedDecember 31, 2018 , details of which are shown in the following graph and further described below. [[Image Removed: pbfx-20201231_g5.jpg]] The increase in net income was primarily due to the following: •an increase in total revenue of approximately$56.8 million , or 20.0%, primarily attributable to operations of recently acquired or constructed assets, including the recommencement of certain of the idled assets acquired in the acquisition of the East Coast Storage Assets (the "East Coast Storage Assets Acquisition"), the 2019 Inflation Rate Increase and higher throughput at certain of our assets, offset by a decrease in revenue at thePaulsboro Natural Gas Pipeline due to a reduction in its pipeline tariff based on the lower than budget Paulsboro Natural Gas Pipeline project costs, which were finalized during the first quarter of 2019 (the "PNGPC Rate Adjustment"); and 65 -------------------------------------------------------------------------------- •an increase in change in contingent consideration of approximately$0.8 million as a result of the change in estimated future payouts associated with the Contingent Consideration; offset by the following: •an increase in operating and maintenance expenses of approximately$30.2 million , or 34.2%, as a result of expenses related to the operations of recently acquired assets, higher environmental clean-up remediation costs, increased maintenance activity, increased utility expenses coinciding with higher throughput at certain of our assets, increased regulatory costs and remediation of product contamination costs at one of our terminals; •an increase in general and administrative expenses of approximately$3.1 million , or 14.7%, as a result of transaction costs related to the IDR Restructuring, higher unit-based compensation expense and higher annual expense associated with the Omnibus Agreement, offset by lower acquisition related costs; •an increase in depreciation and amortization of approximately$8.8 million , or 29.5%, related to the timing of acquisitions and new assets being placed in service; and •an increase in other expense of approximately$8.1 million , or 18.8%, related to: •an increase in interest expense, net of approximately$6.0 million , or 14.8%, attributable to higher borrowings under the Revolving Credit Facility; •an increase in amortization of loan fees and debt premium of approximately$0.1 million , or 3.7%; and •an increase in accretion on discounted liabilities of approximately$2.0 million , or 257.2%, attributable to a full year of accretion on the discounted liabilities recorded in connection with the acquisition of theEast Coast Storage Assets. EBITDA attributable to PBFX for the year endedDecember 31, 2019 increased by approximately$32.4 million to$184.8 million from$152.4 million for the year endedDecember 31, 2018 due to the factors noted above, excluding the impact of depreciation and amortization, interest expense, net, amortization of loan fees and debt premium, accretion on discounted liabilities, change in contingent consideration, noncontrolling interest and earnings attributable to the CPI earn-out. Adjusted EBITDA for the year endedDecember 31, 2019 increased by approximately$39.9 million to$201.0 million from$161.1 million for the year endedDecember 31, 2018 due to the factors noted above, excluding the impact of acquisition and transaction costs, unit-based compensation, certain environmental remediation costs and the PNGPC Rate Adjustment. 66
--------------------------------------------------------------------------------
Segment Information
Our operations are comprised of operating segments, which are strategic business units that offer different services in various geographical locations. We review operations in two reportable segments: (i) Transportation and Terminaling and (ii) Storage. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of our reportable segments based on the segment operating income. Segment operating income is defined as net revenue less operating expenses, depreciation and amortization, impairment expense and change in contingent consideration. General and administrative expenses and interest expenses not included in the Transportation and Terminaling and Storage segments are included in Corporate. Segment reporting is further discussed in Note 14 "Segment Information" of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
Transportation and Terminaling Segment
The following table and discussion provide an explanation of our results of
operations of the Transportation and Terminaling segment for the years
ended
Year Ended December 31,
2020 2019 2018
(in thousands, except for total throughput and lease tank capacity)
Revenue:
Affiliate $ 248,134 $ 261,847 $ 232,316
Third-party 22,889 20,898 18,096
Total revenue 271,023 282,745 250,412
Costs and expenses:
Operating and maintenance expenses 73,451 91,883 76,176
Depreciation and amortization 28,308 27,826 24,899
Total costs and expenses 101,759 119,709 101,075
Transportation and Terminaling Segment Operating Income
Key Operating Information
Transportation and Terminaling Segment
Terminals
Total throughput (bpd)* 230,167 293,504 291,655
Lease tank capacity (average lease capacity barrels per
month)** 2,396,478 2,194,328 2,067,660
Pipelines
Total throughput (bpd)* 149,049 163,608 164,787
Lease tank capacity (average lease capacity barrels per
month)** 1,136,222 1,377,544 1,583,294
____________
(*) Calculated as the sum of the average throughput per day for each asset group
for the period presented.
(**)Lease capacity is based on tanks in service and average lease capacity
available during the period.
67--------------------------------------------------------------------------------
Year Ended
Our Transportation and Terminaling operating income for the year endedDecember 31, 2020 increased by approximately$6.2 million , or 3.8%, to$169.3 million from$163.0 million for the year endedDecember 31, 2019 , details of which are shown in the following graph and further described below. [[Image Removed: pbfx-20201231_g6.jpg]] The increase in operating income was primarily due to the following: •a decrease in operating and maintenance expenses of approximately$18.4 million , or 20.1%, as a result of decreased 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 and no remediation of product contamination costs in 2020 compared to costs incurred in 2019 for product contamination remediation at one of our terminals; offset by the following: •a decrease in revenue of approximately$11.7 million , or 4.1%, primarily attributable to a reduction in throughput volumes as a result of the COVID-19 pandemic, as well as lower pass-through utilities fees, offset by the 2020 Inflation Rate Increase; and •an increase in depreciation and amortization of approximately$0.5 million , or 1.7%, related to the timing of acquisitions and new assets being placed in service. 68
--------------------------------------------------------------------------------
Year Ended
Our Transportation and Terminaling operating income for the year endedDecember 31, 2019 increased by approximately$13.7 million , or 9.2%, to$163.0 million from$149.3 million for the year endedDecember 31, 2018 , details of which are shown in the following graph and further described below. [[Image Removed: pbfx-20201231_g7.jpg]] The increase in operating income was primarily due to the following: •an increase in revenue of approximately$32.3 million , or 12.9%, primarily attributable to operations of recently acquired or constructed assets, higher throughput at certain of our assets and the 2019 Inflation Rate Increase, offset by a decrease in revenue at the Paulsboro Natural Gas Pipeline due to the PNGPC Rate Adjustment; offset by the following: •an increase in operating and maintenance expenses of approximately$15.7 million , or 20.6%, due to expenses related to the operations of recently acquired assets, higher environmental clean-up remediation costs, increased maintenance activity, increased utility expenses coinciding with higher throughput at certain of our assets, remediation of product contamination costs at one of our terminals and increased regulatory costs; and •an increase in depreciation and amortization of approximately$2.9 million , or 11.8%, related to the timing of acquisitions and new assets being placed in service. 69
--------------------------------------------------------------------------------
Storage Segment
The following table and discussion provide an explanation of our results of operations of the Storage segment for the years endedDecember 31, 2020 , 2019 and 2018: Year Ended December 31, 2020 2019 2018 (in thousands, except for storage capacity reserved and total throughput) Revenue: Affiliate$ 41,272 $ 39,030 $ 27,110 Third-party 47,960 18,437 5,918 Total revenue 89,232 57,467 33,028 Costs and expenses: Operating and maintenance expenses 26,401 26,731 12,214 Depreciation and amortization 25,399 10,775 4,910 Impairment expense 7,000 - - Change in contingent consideration (14,390) (790) - Total costs and expenses 44,410 36,716 17,124 Storage Segment Operating Income$ 44,822
Key Operating Information
Storage Segment
Storage capacity reserved (average shell capacity
barrels per month)* 7,630,699 7,891,670 7,550,292
Total throughput (bpd)** 22,958 29,056 -
____________
(*)Storage capacity is based on tanks in service and average shell capacity
available during the period.
(**)Calculated as the sum of the average throughput per day for each asset group
for the period presented.
70--------------------------------------------------------------------------------
Year Ended
Our Storage operating income for the year endedDecember 31, 2020 increased by approximately$24.1 million , or 116.0%, to$44.8 million from$20.8 million for the year endedDecember 31, 2019 , details of which are shown in the following graph and further described below. [[Image Removed: pbfx-20201231_g8.jpg]] The increase in operating income was primarily due to the following: •an increase in revenue of approximately$31.8 million , or 55.3%, primarily attributable to the recommencement of operations of certain assets at ourEast Coast storage facility and the 2020 Inflation Rate Increase; •an increase in change in contingent consideration of approximately$13.6 million due to the termination of the CPI Processing Agreement in Q4 2020 and the resulting elimination of the projected earn-out liability for future periods, offset by the increase in estimated future payouts for the current annual period of the CPI Processing Agreement; and •a decrease in operating and maintenance expenses of approximately$0.3 million , or 1.2%, as a result of decreased spending at our facilities due to cost cutting measures taken as a result of the COVID-19 pandemic, including lower maintenance activity, offset by the recommencement of operations of certain assets at ourEast Coast storage facility; offset by the following: •an increase in depreciation and amortization of approximately$14.6 million , or 135.7%, resulting from the accelerated depreciation and amortization of certain CPI tangible and intangible assets, which were subject to the termination of the CPI Processing Agreement in Q4 2020, as well as the timing of acquisitions and new assets being placed in service; and •an increase in impairment expense of$7.0 million resulting from an impairment charge to write-down the processing unit assets and customer contract intangible asset in connection with the termination of the CPI Processing Agreement. 71 --------------------------------------------------------------------------------
Year Ended
Our Storage operating income for the year endedDecember 31, 2019 increased by approximately$4.8 million , or 30.5%, to$20.8 million from$15.9 million for the year endedDecember 31, 2018 , details of which are shown in the following graph and further described below. [[Image Removed: pbfx-20201231_g9.jpg]] The increase in operating income was primarily due to the following: •an increase in revenue of approximately$24.4 million , or 74.0%, primarily attributable to the East Coast Storage Assets operations, including the recommencement of certain of the idled assets acquired in the East Coast Storage Assets Acquisition, and the 2019 Inflation Rate Increase; and •an increase in change in contingent consideration of approximately$0.8 million , as a result of the change in estimated future payouts associated with the Contingent Consideration; offset by the following: •an increase in operating and maintenance expenses of approximately$14.5 million , or 118.9%, due to expenses associated with the East Coast Storage Assets, as well as increased regulatory costs; and •an increase in depreciation and amortization of approximately$5.9 million , or 119.5%, related to the timing of acquisitions and new assets being placed in service.
Liquidity and Capital Resources
Due to the COVID-19 pandemic and the current challenging and volatile market
conditions, our business and operating results have been impacted by demand
destruction for refined petroleum products as a result of the worldwide economic
slowdown and governmental and consumer responses, including travel restrictions
and stay-at-home orders. Such conditions continue to affect our operations and
financial condition due to changes in the usage and level of demand for our
services, including a reduction in third-party and incremental affiliate
revenue. We expect our ongoing sources of liquidity to include cash generated
from operations (a significant portion of which are supported by MVCs in our
commercial agreements), borrowings under the Revolving Credit Facility and
issuances of additional debt and equity securities as appropriate given market
conditions. Additionally, we remain focused on opportunities to support our
financial position in the current environment, including limiting capital
expenditures, reducing discretionary activities and third-party services and
continually assessing our quarterly distribution level. While it is impossible
to estimate the duration or complete financial
72
--------------------------------------------------------------------------------
impact of the COVID-19 pandemic and volatile market conditions, we expect that
these sources of funds will be adequate to provide for our short-term and
long-term liquidity needs, including our debt service, capital expenditures and
distributions on our units. We may also pursue other strategic initiatives to
strengthen our financial position, including debt and/or equity securities
repurchases, to the extent such initiatives can be funded without impairing our
liquidity. Refer to "Item 1A. Risk Factors" of this Form 10-K for further
information.
Our largest customer is our affiliate, PBF Holding , a subsidiary of our parent
sponsor. PBF Energy has initiated several steps as part of a strategic plan to
navigate current volatile markets and preserve or enhance its liquidity,
including asset sales, new debt issuances, temporarily idling various units at
certain refineries to optimize production, reductions in capital and operating
expenditures, suspension of its dividend and exploring other potential
opportunistic financing activities. We believe such actions will allow PBF
Energy to continue to honor its commercial agreements with us.
In response to the impacts of the COVID-19 pandemic, we reduced our quarterly
distribution to our minimum quarterly distribution of $0.30 per unit effective
with the distribution for the first quarter of 2020. This reduction represents a
strategic shift to build our cash flow coverage, de-lever our business and
increase our financial resources as we continue to pursue potential organic
growth projects or strategic acquisition opportunities. However, we intend to
continue to pay at least the minimum quarterly distribution of $0.30 per unit
per quarter, or $1.20 per unit on an annualized basis, which aggregates
to approximately $18.9 million per quarter and approximately $75.6 million on an
annualized basis based on the number of common units outstanding as of
December 31, 2020 .
As of
The tables below summarize our 2020 and 2019 quarterly distributions related to our quarterly financial results:
Quarterly Quarterly Distribution Total Cash
Distribution per per Common Unit, Distributions (in
Quarter Ended Declaration Date Common Unit Annualized thousands) (a)
December 31, 2020 February 11, 2021 $ 0.3000 $ 1.2000 $ 18,709
September 30, 2020 October 29, 2020 0.3000 1.2000 18,708
June 30, 2020 July 31, 2020 0.3000 1.2000 18,706
March 31, 2020 May 15, 2020 0.3000 1.2000 18,705
December 31, 2019 February 13, 2020 0.5200 2.0800 32,308
September 30, 2019 October 31, 2019 0.5200 2.0800 32,298
June 30, 2019 August 1, 2019 0.5150 2.0600 31,986
March 31, 2019 May 1, 2019 0.5100 2.0400 31,674
____________
(a)Cash distributions are paid in the quarter subsequent to the period in which
the distributions are earned. For the quarter ended December 31, 2020 , the total
cash distribution was estimated based on vested shares anticipated to be
outstanding as of the record date. We do not expect the actual distribution to
be materially different.
73--------------------------------------------------------------------------------
Credit Facilities
Revolving Credit Facility
The maximum amount available under the Revolving Credit Facility was increased to$500.0 million inJuly 2018 . We have the ability to further increase the maximum amount of the Revolving Credit Facility by an additional$250.0 million , to a total facility size of$750.0 million , subject to receiving increased commitments from its lenders or other financial institutions and satisfaction of certain conditions. Refer to Note 8 "Debt" of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K for further information regarding the Revolving Credit Facility, as well as information pertaining to corresponding financial and other covenants. We are in compliance with the financial and other covenants as ofDecember 31, 2020 .
During the year ended
Senior Notes
During 2015 and 2017, we and our wholly-owned subsidiary, PBF Finance, issued a combined$525.0 million aggregate principal amount of the 2023 Notes. The 2023 Notes are guaranteed on a senior unsecured basis by all of our subsidiaries. In addition,PBF LLC provides a limited guarantee of collection of the principal amount of the 2023 Notes, but is not otherwise subject to the covenants of the indenture governing the 2023 Notes. We have the option to repurchase all or a portion of the 2023 Notes at varying prices no less than 100% of the principal amounts of the notes plus accrued and unpaid interest. The holders of the 2023 Notes have the option to require that we repurchase the principal amounts of the 2023 Notes together with any accrued and unpaid interest to the date of redemption only upon a change in control, certain asset sale transactions, or in the event of a default as defined in the indenture governing the 2023 Notes. In addition, the 2023 Notes contain covenants limiting our and our restricted subsidiaries' ability to make certain types of investments, incur additional debt, issue preferred equity, create liens, make certain payments, sell assets, merge or consolidate with other entities, and enter into transactions with affiliates. We are in compliance with the covenants as ofDecember 31, 2020 .
Cash Flows
The following table sets forth our cash flows for the periods indicated:
Year Ended December 31,
2020 2019 2018
(In thousands)
Net cash provided by operating activities $ 186,642 $ 149,007 $ 133,141
Net cash used in investing activities (12,308) (31,746) (175,696)
Net cash (used in) provided by financing activities (173,016) (102,203) 42,799
Net change in cash and cash equivalents $ 1,318 $
15,058
Cash Flows from Operating Activities
Net cash provided by operating activities increased by approximately$37.6 million to$186.6 million for the year endedDecember 31, 2020 compared to$149.0 million for the year endedDecember 31, 2019 . The increase in net cash provided by operating activities was the result of an increase in net income of approximately$39.3 million and a net increase in non-cash charges relating to depreciation and amortization, impairment expense, amortization of loan fees and debt premium, accretion on discounted liabilities, unit-based compensation and change in contingent consideration of approximately$5.7 million , offset by a decrease in the 74 --------------------------------------------------------------------------------
net changes in operating assets and liabilities of approximately
Net cash provided by operating activities increased by approximately$15.9 million to$149.0 million for the year endedDecember 31, 2019 compared to$133.1 million for the year endedDecember 31, 2018 . The increase in net cash provided by operating activities was the result of a net increase in non-cash charges relating to depreciation and amortization, amortization of loan fees and debt premium, accretion on discounted liabilities, unit-based compensation and change in contingent consideration of approximately$11.1 million and an increase in net income of approximately$7.3 million , offset by a decrease in the net changes in operating assets and liabilities of approximately$2.5 million primarily driven by the timing of collection of accounts receivables and liability payments.
Cash Flows from Investing Activities
Net cash used in investing activities decreased by approximately$19.4 million to$12.3 million for the year endedDecember 31, 2020 compared to$31.7 million for the year endedDecember 31, 2019 . The decrease in net cash used in investing activities was due to a decrease in capital expenditures of approximately$19.4 million primarily related to a reduction in capital spending in the current year in response to the COVID-19 pandemic and higher capital spend on organic growth projects in 2019 compared to 2020. Net cash used in investing activities decreased by approximately$144.0 million to$31.7 million for the year endedDecember 31, 2019 compared to$175.7 million for the year endedDecember 31, 2018 . The decrease in net cash used in investing activities was due to the acquisitions of the East Coast Storage Assets for$75.0 million and the Knoxville Terminals for$58.4 million , both of which occurred in 2018, and a decrease in capital expenditures of approximately$10.6 million primarily related to higher capital spend on organic growth projects in 2018 compared to 2019.
Cash Flows from Financing Activities
Net cash used in financing activities increased by approximately$70.8 million to$173.0 million for the year endedDecember 31, 2020 compared to net cash used in financing activities of$102.2 million for the year endedDecember 31, 2019 . Net cash used in financing activities for the year endedDecember 31, 2020 consisted of distributions to unitholders of$88.4 million , net repayments of$83.0 million under the Revolving Credit Facility and deferred financing costs and other of$1.6 million . Net cash used in financing activities for the year endedDecember 31, 2019 consisted of the acquisition of the TVPC noncontrolling interest for$200.0 million , distributions to unitholders of$123.9 million , the deferred payment for the East Coast Storage Assets Acquisition of$32.0 million and distributions to TVPC members of$8.5 million , offset by proceeds from issuance of common units of$132.5 million , net borrowings under the Revolving Credit Facility of$127.0 million and deferred financing costs and other of$2.7 million . Net cash used in financing activities changed by approximately$145.0 million to$102.2 million for the year endedDecember 31, 2019 compared to net cash provided by financing activities of$42.8 million for the year endedDecember 31, 2018 . Net cash used in financing activities for the year endedDecember 31, 2019 consisted of the acquisition of the TVPC noncontrolling interest for$200.0 million , distributions to unitholders of$123.9 million , the deferred payment for the East Coast Storage Assets Acquisition of$32.0 million and distributions to TVPC members of$8.5 million , offset by proceeds from issuance of common units of$132.5 million , net borrowings under the Revolving Credit Facility of$127.0 million and deferred financing costs and other of$2.7 million . Net cash provided by financing activities for the year endedDecember 31, 2018 consisted of net borrowings under the Revolving Credit Facility of$126.3 million , proceeds from issuance of common units of$34.8 million and a contribution fromPBF LLC of$4.2 million related to the 2018 pre-acquisition activities of the Development Assets, offset by distributions to unitholders of$98.8 million , distributions to TVPC members of$20.3 million and deferred financing costs and other of$3.5 million . 75 --------------------------------------------------------------------------------
Capital Expenditures
Our capital requirements have consisted of, and are expected to continue to consist of: expansion, maintenance and regulatory capital expenditures. Expansion capital expenditures are expenditures incurred for acquisitions or capital improvements that we expect will increase our operating income or operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of assets, the construction, development or acquisition of equipment at our facilities or projects that provide additional throughput or storage capacity to the extent such capital expenditures are expected to expand our operating capacity or increase our operating income. Maintenance capital expenditures are expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity. Examples of maintenance capital expenditures are expenditures for the refurbishment and replacement of our transportation, terminaling, storage and processing assets and to maintain equipment reliability, integrity and safety. Regulatory capital expenditures are expenditures made to attain or maintain compliance with regulatory standards. Examples of regulatory capital expenditures are expenditures incurred to address environmental laws or regulations.
Capital expenditures for the periods presented were as follows:
Year Ended December 31,
2020 2019 2018
(In thousands)
Expansion* $ 2,756 $ 23,632 $ 169,023
Maintenance 8,106 7,820 6,168
Regulatory 1,446 294 505
Total capital expenditures $ 12,308 $ 31,746 $ 175,696 ____________
(*)Expansion capital expenditures include our acquisitions for the periods presented.
For the year endedDecember 31, 2020 , our capital expenditures were primarily incurred for maintenance of the East Coast Terminals, the Toledo Storage Facility and the Torrance Valley Pipeline, as well as growth projects associated with the East Coast Storage Assets. For the year endedDecember 31, 2019 , our capital expenditures were primarily incurred for growth projects associated with the East Coast Storage Assets and the Development Assets and maintenance of the Toledo Storage Facility, the East Coast Terminals and the Torrance Valley Pipeline. For the year endedDecember 31, 2018 , our capital expenditures were primarily incurred for the acquisition of the East Coast Storage Assets and the Knoxville Terminals, organic growth projects associated with the Development Assets and maintenance of the Toledo Storage Facility, the East Coast Terminals and the Torrance Valley Pipeline. We currently expect to spend an aggregate of between approximately$10.0 million and$20.0 million during 2021 for capital expenditures, of which between approximately$10.0 million and$14.0 million relate to maintenance capital expenditures. We anticipate the forecasted maintenance capital expenditures will be funded primarily with cash from operations and through borrowings under the Revolving Credit Facility as needed. We currently have not included any potential future acquisitions in our budgeted capital expenditures for the twelve months endingDecember 31, 2021 . We may rely on external sources including other borrowings under the Revolving Credit Facility, and issuances of equity and debt securities to fund any significant future expansion. 76
--------------------------------------------------------------------------------
Contractual Obligations
Information regarding our contractual obligations as ofDecember 31, 2020 is set forth in the following table: Payments Due by Period 2026 and Totals 2021 2022 and 2023 2024 and 2025 Beyond (In thousands)
Long-term debt obligations (1)
725,000 $ - $ -
Interest (2) 105,988 42,192 63,796 - -
Affiliate - services agreements
(3) 195,318 16,862 33,724 33,724 111,008
Environmental obligations (4) 1,760 402 750 495 113
Construction obligations 962 962 - - -
Contingent Consideration (5) 12,120 12,120 - - -
Operating leases and other (6) 9,918 2,107 1,265 1,150 5,396
Total obligations $ 1,051,066 $ 74,645 $ 824,535 $ 35,369 $ 116,517
____________________
(1)No principal amounts are due under the 2023 Notes and Revolving Credit
Facility until May 2023 and July 2023 , respectively.
(2)Includes interest on the 2023 Notes and Revolving Credit Facility based on
outstanding indebtedness as of December 31, 2020 . Includes commitment fees on
the Revolving Credit Facility through July 2023 using rates in effect at
December 31, 2020 .
(3)Includes annual fixed payments under the Omnibus Agreement and the Services
Agreement, as well as estimated obligations under the Omnibus Agreement to
reimburse PBF LLC for certain compensation and benefit costs of employees who
devote more than 50% of their time to us. Obligations under these agreements are
expected to continue through the terms of our existing commercial agreements.
(4)Includes environmental liabilities associated with the East Coast Terminals,
the Torrance Valley Pipeline and the East Coast Storage Assets. In accordance
with the Contribution Agreement for TVPC, PBF Holding has indemnified us for any
and all costs associated with environmental remediation for obligations that
existed on or before August 31, 2016 , including all known or unknown events.
(5)Includes the estimated Contingent Consideration amount payable to Crown Point
International, LLC related to the acquisition of the East Coast Storage Assets
and related earn-out payments.
(6)Includes operating leases and rental and franchise payments to secure right
of way access across certain East Coast Terminals and Torrance Valley Pipeline
assets with various terms and tenures.
Effects of Inflation
Inflation in theU.S. has been relatively low in recent years and did not have a material impact on our results of operations for the years endedDecember 31, 2020 , 2019 and 2018, respectively, except as noted above for the Inflation Rate Increases.
Off-Balance Sheet Arrangements
We have not entered into any transactions, agreements or other contractual
arrangements that would result in off-balance sheet liabilities, other than
outstanding letters of credit in the amount of
Environmental and Other Matters
Environmental Regulations
Our operations are subject to extensive and frequently changing federal, state
and local laws, regulations and ordinances relating to the protection of the
environment. Among other things, these laws and regulations govern the emission
or discharge of pollutants into or onto the land, air and water, the handling
and disposal of solid and hazardous wastes and the remediation of contamination.
As with the industry generally, compliance
77
--------------------------------------------------------------------------------
with existing and anticipated environmental laws and regulations increases our
overall cost of business, including our capital costs to develop, maintain,
operate and upgrade equipment and facilities. While these laws and regulations
affect our maintenance and regulatory capital expenditures and net income, we
believe they do not necessarily affect our competitive position, as the
operations of our competitors are similarly affected. We believe our facilities
are in substantial compliance with applicable environmental laws and
regulations. However, these laws and regulations, as well as the interpretation
of such laws and regulations, are subject to changes by regulatory authorities,
and continued and future compliance with such laws and regulations may require
us to incur significant expenditures. Additionally, violation of environmental
laws, regulations and permits can result in the imposition of significant
administrative, civil and criminal penalties, injunctions limiting our
operations, investigatory or remedial liabilities or construction bans or delays
in the development of additional facilities or equipment. Furthermore, a release
of hydrocarbons or hazardous substances into the environment could, to the
extent the event is not insured, subject us to substantial expenses, including
costs to comply with applicable laws and regulations and to resolve claims by
third parties for personal injury or property damage or by the U.S. federal
government or state governments for natural resources damages. These impacts
could directly and indirectly affect our business and have an adverse impact on
our financial position, results of operations and liquidity. We cannot currently
determine the amounts of such future impacts.
Environmental Liabilities
Contaminations resulting from spills of crude oil or petroleum products are not unusual within the petroleum terminaling or transportation industries, and, historically, spills at truck and rail racks and terminals have resulted in contamination of the environment, including soils and groundwater.
Pursuant to the Contribution Agreements entered into in connection with the IPO and the Acquisitions from PBF,PBF Energy has agreed to indemnify us for certain known and unknown environmental liabilities that are based on conditions in existence at our Predecessor's properties and associated with the ownership or operation of the Contributed Assets and arising from the conditions that existed prior to the closings of the IPO and the Acquisitions from PBF. In addition, we have agreed to indemnifyPBF Energy for (i) certain events and conditions associated with the ownership or operation of our assets that occur, as applicable, after the closing of each Acquisition from PBF (including the IPO) and (ii) environmental liabilities related to our assets if the environmental liability is the result of the negligence, willful misconduct or criminal conduct of us or our employees, including those seconded to us. As a result, we may incur environmental expenses in the future, which may be substantial. As ofDecember 31, 2020 , we have recorded a total liability related to environmental remediation costs of$1.8 million related to existing environmental liabilities. Refer to Note 12 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K for additional information.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 "Summary of
Accounting Policies" of the Notes to Consolidated Financial Statements included
in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. We
prepare our Consolidated Financial Statements in conformity with GAAP, and, in
the process of applying these principles, we must make judgments, assumptions
and estimates based on the best available information at the time. To aid a
reader's understanding, management has identified our critical accounting
policies. These policies are considered critical because they are both most
important to the portrayal of our financial condition and results and require
our most difficult, subjective or complex judgments. Often they require
judgments and estimation about matters which are inherently uncertain and
involve measuring, at a specific point in time, events which are continuous in
nature. Actual results may differ based on the accuracy of the information
utilized and subsequent events, some of which we may have little or no control
over. The following accounting policies involve estimates that are considered
critical due to the level of subjectivity and
78
--------------------------------------------------------------------------------
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.
Business Combinations
We use the acquisition method of accounting for third-party acquisitions 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 our
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 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
obligation could materially differ.
The Acquisitions from PBF were transfers between entities under common control.
Accordingly, we record the net assets that were acquired from PBF Energy on its
consolidated balance sheets at PBF Energy's historical carrying value rather
than fair value.
Environmental Matters
Liabilities for future remediation costs are recorded when environmental
assessments and/or remediation 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 the impact that current regulations may have on our remediation
plans. 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.
Supplemental Guarantor Financial Information
The following consolidated subsidiaries serve as guarantors of the obligations
under the 2023 Notes:
•Delaware City Logistics Company LLC;
•Delaware Pipeline Company LLC;
•Delaware City Terminaling Company LLC;
79
--------------------------------------------------------------------------------
•Toledo Terminaling Company LLC;
•PBF Logistics Products Terminals LLC;
•PBFX Operating Company LLC;
•Torrance Valley Pipeline Company LLC;
•Paulsboro Natural Gas Pipeline Company LLC;
•Toledo Rail Logistics Company LLC;
•Chalmette Logistics Company LLC;
•Paulsboro Terminaling Company LLC;
•DCR Storage and Loading Company LLC;
•CPI Operations LLC; and
•PBFX Ace Holdings LLC.
These guarantees are full and unconditional and joint and several.
In addition,PBF LLC provides a limited guarantee of collection of the principal amount of the 2023 Notes but is not otherwise subject to restrictions included in the indenture. Refer toPBF LLC's consolidated financial statements, which are included in its Annual Report on Form 10-K for the period endedDecember 31, 2020 . The Co-Issuer has no independent assets or operations and we do not have any subsidiaries designated as "Non-Guarantor Subsidiaries." As such, the consolidated results of the Issuer and Guarantor Subsidiaries are reflected in our Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
Recently Issued Accounting Pronouncements
InMarch 2020 , the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). The amendments in ASU 2020-04 provide optional guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions affected by the expected market transition from LIBOR and other interbank rates if certain criteria are met. The amendments in ASU 2020-04 are effective for all entities at any time beginning onMarch 12, 2020 throughDecember 31, 2022 and may be applied from the beginning of an interim period that includes the issuance date of ASU 2020-04. We are currently evaluating the impact of this new standard on our consolidated financial statements and related disclosures. Refer to Note 2 "Summary of Accounting Policies" of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K for additional Recently Adopted Accounting Guidance and Recently Issued Accounting Pronouncements.
© Edgar Online, source
