PBF Energy 2012 Annual Report Download - page 43

exchanges of PBF LLC Series A Units would be in addition to these amounts and are expected to be substantial
as well. The foregoing numbers are merely estimates based on assumptions that are subject to change due to
various factors, including, among other factors, the timing when the pre-IPO owners of PBF LLC exchange their
PBF LLC Series A Units for shares of PBF Energy’s Class A common stock as contemplated by the tax
receivable agreement, the price of PBF Energy’s Class A common stock at the time of such exchanges, the extent
to which such exchanges are taxable, and the amount and timing of PBF Energy’s income. The actual payments
could differ materially. It is possible that future transactions or events could increase or decrease the actual tax
benefits realized and the corresponding tax receivable agreement payments. There may be a material negative
effect on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the tax
receivable agreement exceed the actual benefits we realize in respect of the tax attributes subject to the tax
receivable agreement, and/or (ii) distributions to PBF Energy by PBF LLC are not sufficient to permit PBF
Energy to make payments under the tax receivable agreement after it has paid its taxes and other obligations. The
payments under the tax receivable agreement are not conditioned upon any recipient’s continued ownership of
us.
In certain cases, payments by us under the tax receivable agreement may be accelerated and/or significantly
exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement.
These provisions may deter a change in control of our Company.
The tax receivable agreement provides that upon certain changes of control, or if, at any time, PBF Energy
elects an early termination of the tax receivable agreement, PBF Energy’s (or its successor’s) obligations with
respect to exchanged or acquired PBF LLC Series A Units (whether exchanged or acquired before or after such
transaction) would be based on certain assumptions, including (i) that PBF Energy would have sufficient taxable
income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits
related to entering into the tax receivable agreement and (ii) that the subsidiaries of PBF LLC will sell certain
nonamortizable assets (and realize certain related tax benefits) no later than a specified date. Moreover, in each
of these instances, we would be required to make an immediate payment equal to the present value (at a discount
rate equal to LIBOR plus 100 basis points) of the anticipated future tax benefits (based on the foregoing
assumptions). Accordingly, payments under the tax receivable agreement may be made years in advance of the
actual realization, if any, of the anticipated future tax benefits and may be significantly greater than the actual
benefits we realize in respect of the tax attributes subject to the tax receivable agreement. Assuming that the
market value of a share of our Class A common stock equals $29.05 per share of Class A common stock (the
closing price on December 31, 2012) and that LIBOR were to be 1.85%, we estimate as of December 31, 2012
that the aggregate amount of these accelerated payments would have been approximately $716.0 million if
triggered immediately on such date. In these situations, our obligations under the tax receivable agreement could
have a substantial negative impact on our liquidity. We may not be able to finance our obligations under the tax
receivable agreement and our existing indebtedness may limit our subsidiaries’ ability to make distributions to us
to pay these obligations. These provisions may deter a potential sale of our Company to a third party and may
otherwise make it less likely a third party would enter into a change of control transaction with us.
Moreover, payments under the tax receivable agreement will be based on the tax reporting positions that we
determine in accordance with the tax receivable agreement. We will not be reimbursed for any payments
previously made under the tax receivable agreement if the Internal Revenue Service subsequently disallows part
or all of the tax benefits that gave rise to such prior payments. As a result, in certain circumstances, payments
could be made under the tax receivable agreement that are significantly in excess of the benefits that we actually
realize in respect of (i) the increases in tax basis resulting from our purchases or exchanges of PBF LLC Series A
Units and (ii) certain other tax benefits related to our entering into the tax receivable agreement, including tax
benefits attributable to payments under the tax receivable agreement.
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