PBF Energy 2015 Annual Report Download - page 131

PBF ENERGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT, PER SHARE, PER UNIT AND BARREL DATA)
F- 14
Tax Receivable Agreement
PBF LLC intends to make an election under Section 754 of the Internal Revenue Code (the “Code”) effective for
each taxable year in which an exchange of PBF LLC Series A Units for PBF Energy Class A common stock as
described above occurs, which may result in an adjustment to the tax basis of the assets of PBF LLC at the time
of an exchange of PBF LLC Series A Units. As a result of both the initial purchase of PBF LLC Series A Units
from the PBF LLC Series A Unit holders in connection with the IPO and subsequent exchanges, PBF Energy will
become entitled to a proportionate share of the existing tax basis of the assets of PBF LLC. In addition, the purchase
of PBF LLC Series A Units and subsequent exchanges have resulted in and are expected to continue to result in
increases in the tax basis of the assets of PBF LLC that otherwise would not have been available. Both this
proportionate share and these increases in tax basis may reduce the amount of tax that PBF Energy would otherwise
be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future
dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
PBF Energy entered into a tax receivable agreement with the PBF LLC Series A and PBF LLC Series B Unit
holders (the “Tax Receivable Agreement”) that provides for the payment by PBF Energy to such persons of an
amount equal to 85% of the amount of the benefits, if any, that PBF Energy is deemed to realize as a result of
(i) increases in tax basis, as described below, 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. For
purposes of the Tax Receivable Agreement, the benefits deemed realized by PBF Energy will be computed by
comparing the actual income tax liability of PBF Energy (calculated with certain assumptions) to the amount of
such taxes that PBF Energy would have been required to pay had there been no increase to the tax basis of the
assets of PBF LLC as a result of purchases or exchanges of PBF LLC Series A Units for shares of PBF Energy's
Class A common stock and had PBF Energy not entered into the Tax Receivable Agreement. The term of the Tax
Receivable Agreement will continue until all such tax benefits have been utilized or expired unless: (i) PBF Energy
exercises its right to terminate the Tax Receivable Agreement, (ii) PBF Energy breaches any of its material
obligations under the Tax Receivable Agreement or (iii) certain changes of control occur, in which case all
obligations under the Tax Receivable Agreement will generally be accelerated and due as calculated under certain
assumptions.
The payment obligations under the Tax Receivable Agreement are obligations of PBF Energy and not of PBF LLC,
PBF Holding or PBFX. In general, PBF Energy expects to obtain funding for these annual payments from PBF
LLC, primarily through tax distributions, which PBF LLC makes on a pro-rata basis to its owners, including PBF
Energy. PBF LLC obtains funding to pay its tax distributions by causing PBF Holding to distribute cash to PBF
LLC and from distributions it receives from PBFX.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
These consolidated financial statements include the accounts of PBF Energy and subsidiaries in which PBF Energy
has a controlling interest. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassification
Certain amounts previously reported in the Company's consolidated financial statements for prior periods have
been reclassified to conform to the 2015 presentation. These reclassifications include presentation of deferred
financing costs and debt due to the adoption of a recently adopted accounting pronouncement (as discussed below),
reallocation of certain assets and related results of operations between segments arising from retrospective
adjustments attributable to the drop-down transactions with PBFX (see Note 3 “PBF Logistics LP”) and the
presentation of changes in the tax receivable agreement liability a separate line item in the statement of operations.