PBF Energy 2013 Annual Report Download - page 28

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new companies, and specifically companies in the oil refining industry. If we do not manage these risks successfully,
our business, results of operations and financial condition will be adversely affected.
The price volatility of crude oil, other feedstocks, blendstocks, refined products and fuel and utility services
may have a material adverse effect on our revenues, profitability, cash flows and liquidity.
Our revenues, profitability, cash flows and liquidity from operations depend primarily on the margin above
operating expenses (including the cost of refinery feedstocks, such as crude oil, intermediate partially refined
petroleum products, and natural gas liquids that are processed and blended into refined products) at which we are
able to sell refined products. Refining is primarily a margin-based business and, to increase profitability, it is
important to maximize the yields of high value finished products while minimizing the costs of feedstock and
operating expenses. When the margin between refined product prices and crude oil and other feedstock costs
contracts, our earnings, profitability and cash flows are negatively affected. Refining margins historically have
been volatile, and are likely to continue to be volatile, as a result of a variety of factors, including fluctuations in
the prices of crude oil, other feedstocks, refined products and fuel and utility services. An increase or decrease in
the price of crude oil will likely result in a similar increase or decrease in prices for refined products; however,
there may be a time lag in the realization, or no such realization, of the similar increase or decrease in prices for
refined products. The effect of changes in crude oil prices on our refining margins therefore depends in part on
how quickly and how fully refined product prices adjust to reflect these changes.
In addition, the nature of our business requires us to maintain substantial crude oil, feedstock and refined
product inventories. Because crude oil, feedstock and refined products are commodities, we have no control over
the changing market value of these inventories. Our crude oil, feedstock and refined product inventories are valued
at the lower of cost or market value under the last-in-first-out (“LIFO”) inventory valuation methodology. If the
market value of our crude oil, feedstock and refined product inventories were to decline to an amount less than
our LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of sales.
Prices of crude oil, other feedstocks, blendstocks, and refined products depend on numerous factors beyond
our control, including the supply of and demand for crude oil, other feedstocks, gasoline, diesel, ethanol, asphalt
and other refined products. Such supply and demand are affected by a variety of economic, market, environmental
and political conditions.
Our direct operating expense structure also impacts our profitability. Our major direct operating expenses
include employee and contract labor, maintenance and energy. Our predominant variable direct operating cost is
energy, which is comprised primarily of fuel and other utility services. The volatility in costs of fuel, principally
natural gas, and other utility services, principally electricity, used by our refineries and other operations affect our
operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control,
such as supply and demand for fuel and utility services in both local and regional markets. Natural gas prices have
historically been volatile and, typically, electricity prices fluctuate with natural gas prices. Future increases in fuel
and utility prices may have a negative effect on our revenues, profitability and cash flows.
Our historical financial statements may not be helpful in predicting our future performance.
We have grown rapidly since our inception and have not owned or operated our refineries for a substantial
period of time. Accordingly, our historical financial information may not be useful either as a means of understanding
our current financial situation or as an indicator of our future results. For the period from March 1, 2008 to
December 16, 2010, we were considered to be in the development stage. Our historical financial information for
that period reflects our activities principally in connection with identifying acquisition opportunities; acquiring
the Delaware City refinery assets and commencing a reconfiguration of the refinery; and acquiring the Paulsboro
refinery. As a result of the Paulsboro and Toledo acquisitions, our historical consolidated financial results include
the results of operations for Paulsboro and Toledo from December 17, 2010 and March 1, 2011 forward,
respectively. Certain information in our financial statements and certain other financial data included in this Annual
Report on Form 10-K are based in part on financial data related to, and the operations of, those companies that
previously owned and operated our refineries. For example, at the time of its acquisition, Paulsboro represented
the major portion of our business and assets. As has been the case in our acquisitions to date, it is likely that, when