Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark one)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2018
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-36446
 
PBF LOGISTICS LP
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
35-2470286
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
One Sylvan Way, Second Floor
Parsippany, New Jersey
 
07054
(Address of principal executive offices)
 
(Zip Code)
(973) 455-7500
(Registrant’s telephone number, including area code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer þ
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of April 30, 2018, there were 41,979,148 common units outstanding.




PBF LOGISTICS LP

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

EXPLANATORY NOTE

PBF Logistics LP (“PBFX” or the “Partnership”) is a Delaware limited partnership formed in February 2013. PBF Logistics GP LLC (“PBF GP” or “our general partner”) serves as the general partner of PBFX. PBF GP is wholly-owned by PBF Energy Company LLC (“PBF LLC”). PBF Energy Inc. (“PBF Energy”) is the sole managing member of PBF LLC and, as of March 31, 2018, owned 97.2% of the total economic interest in PBF LLC. In addition, PBF LLC is the sole managing member of PBF Holding Company LLC (“PBF Holding”), a Delaware limited liability company and affiliate of PBFX. PBF LLC owns 18,459,497 of PBFX’s common units constituting an aggregate 44.1% limited partner interest in PBFX and owns all of PBFX’s incentive distribution rights (“IDRs”), with the remaining 55.9% limited partner interest owned by public unitholders as of March 31, 2018.
 
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to “Predecessor,” and “we,” “our,” “us,” or like terms, when used in the context of periods prior to the completion of certain acquisitions from PBF LLC, refer to PBF MLP Predecessor, our predecessor for accounting purposes (our “Predecessor”), which includes assets, liabilities and results of operations of certain crude oil and refined product transportation, terminaling and storage assets, previously operated and owned by certain of PBF Holding’s currently and previously held subsidiaries. As of March 31, 2018, PBF Holding, together with its subsidiaries, owns and operates five oil refineries and related facilities in North America. PBF Energy, through its ownership of PBF LLC, controls all of the business and affairs of PBFX and PBF Holding.



2


References in this Form 10-Q to “PBF Logistics LP,” “PBFX,” the “Partnership” and “we,” “our,” “us,” or like terms used in the context of periods on or after the completion of certain acquisitions from PBF LLC, refer to PBF Logistics LP and its subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q (including information incorporated by reference) 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, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our expectations, which we refer to as “cautionary statements,” are disclosed under “Item 1A. Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q; in our Annual Report on Form 10-K for the year ended December 31, 2017, which we refer to as our 2017 Form 10-K and in our other filings with the U.S. Securities and Exchange Commission (“SEC”). All forward-looking information in this Form 10-Q 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:
•
our limited operating history as a separate public partnership;
•
changes in general economic conditions;
•
our ability to make, complete and integrate acquisitions from affiliates or third parties;
•
our ability to have sufficient cash from operations to enable us to pay the minimum quarterly distribution;
•
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 on PBF Energy for a substantial majority of our revenues subjects us to the business risks of PBF Energy, which includes the possibility that contracts will not be renewed because they are no longer beneficial for PBF Energy;
•
a substantial majority of our revenue is generated at certain of PBF Energy’s facilities, 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 handling crude oil, petroleum products and natural gas;
•
natural disasters, weather-related delays, casualty losses and other matters beyond our control;
•
interest rates;


3


•
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 trains;
•
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 for PBF Energy’s refined products and natural gas and the differential in the prices of different crude oils;
•
the suspension, reduction or termination of PBF 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;
•
incremental costs as a separate public partnership;
•
our general partner and its affiliates, including PBF 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 for U.S. federal income tax purposes, as well as our 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 with PBF 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-Q.
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-Q 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-Q. Except as required by applicable law, including the securities laws of the United States, 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.



4

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

PBF LOGISTICS LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except unit data)
 
 
March 31,
2018
 
December 31,
2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
22,009

 
$
19,664

Accounts receivable - affiliates
 
32,481

 
40,817

Accounts receivable
 
1,308

 
1,423

Prepaids and other current assets
 
2,391

 
1,793

Total current assets
 
58,189

 
63,697

Property, plant and equipment, net
 
670,261

 
673,823

Other non-current assets
 
30

 
30

Total assets
 
$
728,480

 
$
737,550

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable - affiliates
 
$
5,368

 
$
8,352

Accounts payable and accrued liabilities
 
25,989

 
19,794

Deferred revenue
 
843

 
1,438

Total current liabilities
 
32,200

 
29,584

Long-term debt
 
539,456

 
548,793

Other long-term liabilities
 
2,003

 
2,078

Total liabilities
 
573,659

 
580,455

 
 
 
 
 
Commitments and contingencies (Note 8)
 

 

 
 
 
 
 
Equity:
 
 
 
 
Common unitholders (41,900,708 units issued and outstanding, as of March 31, 2018 and December 31, 2017)
 
(19,063
)
 
(17,544
)
IDR holder - PBF LLC
 
2,959

 
2,736

Total PBF Logistics LP equity
 
(16,104
)
 
(14,808
)
Noncontrolling interest
 
170,925

 
171,903

Total equity
 
154,821

 
157,095

Total liabilities and equity
 
$
728,480

 
$
737,550




See Notes to Condensed Consolidated Financial Statements.
5



PBF LOGISTICS LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except unit and per unit data)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenue:
 
 
 
 
Affiliate
 
$
60,864

 
$
56,202

Third-party
 
3,175


4,275

Total revenue
 
64,039

 
60,477

 
 
 
 
 
Costs and expenses:
 
 
 
 
Operating and maintenance expenses
 
18,048

 
15,769

General and administrative expenses
 
4,291

 
3,315

Depreciation and amortization
 
6,495

 
5,352

Total costs and expenses
 
28,834

 
24,436

 
 
 
 
 
Income from operations
 
35,205

 
36,041

 
 
 
 
 
Other expense:
 
 
 
 
Interest expense, net
 
(9,585
)
 
(7,568
)
Amortization of loan fees and debt premium
 
(363
)
 
(416
)
Net income
 
25,257

 
28,057

Less: Net loss attributable to Predecessor
 
—

 
(150
)
Less: Net income attributable to noncontrolling interest
 
4,022

 
3,599

Net income attributable to the partners
 
21,235

 
24,608

Less: Net income attributable to the IDR holder
 
2,959

 
1,686

Net income attributable to PBF Logistics LP unitholders
 
$
18,276

 
$
22,922

 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
Common units - basic
 
$
0.43

 
$
0.55

Common units - diluted
 
0.43

 
0.55

Subordinated units - basic and diluted
 
—

 
0.55

 
 
 
 
 
Weighted-average limited partner units outstanding:
 
 
 
 
Common units - basic
 
42,129,377

 
26,042,248

Common units - diluted
 
42,236,092

 
26,127,441

Subordinated units - basic and diluted
 
—

 
15,886,553

 
 
 
 
 
Cash distribution declared per unit
 
$
0.49

 
$
0.46



See Notes to Condensed Consolidated Financial Statements.
6



PBF LOGISTICS LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
25,257

 
$
28,057

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
6,495

 
5,352

Amortization of loan fees and debt premium
 
363

 
416

Unit-based compensation expense
 
834

 
680

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable - affiliates
 
8,336

 
7,860

Accounts receivable
 
115

 
2,472

Prepaids and other current assets
 
(598
)
 
(297
)
Accounts payable - affiliates
 
(2,984
)
 
721

Accounts payable and accrued liabilities
 
6,908

 
8,121

Deferred revenue
 
(595
)
 
246

Other assets and liabilities
 
(75
)
 
169

Net cash provided by operations
 
44,056

 
53,797

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Expenditures for property, plant and equipment
 
(3,953
)
 
(19,467
)
Purchases of marketable securities
 
—

 
(75,036
)
Maturities of marketable securities
 
—

 
75,006

Net cash used in investing activities
 
(3,953
)
 
(19,497
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Distributions to unitholders
 
(23,058
)
 
(20,059
)
Distributions to TVPC members
 
(5,000
)
 
(3,425
)
Contribution from parent
 
—

 
5,457

Repayment of revolving credit facility
 
(9,700
)
 
—

Repayment of term loan
 
—

 
(39,664
)
Net cash used in financing activities
 
(37,758
)
 
(57,691
)
 
 
 
 
 
Net change in cash and cash equivalents
 
2,345

 
(23,391
)
Cash and cash equivalents at beginning of year
 
19,664

 
64,221

Cash and cash equivalents at end of period
 
$
22,009

 
$
40,830

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
Accrued capital expenditures
 
$
414

 
$
13,625

Issuance of affiliate note payable
 
—

 
11,600



See Notes to Condensed Consolidated Financial Statements.
7

PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

PBF Logistics LP (“PBFX” or the “Partnership”) is a Delaware limited partnership formed in February 2013. PBF Logistics GP LLC (“PBF GP” or “our general partner”) serves as the general partner of PBFX. PBF GP is wholly-owned by PBF Energy Company LLC (“PBF LLC”). PBF Energy Inc. (“PBF Energy”) is the sole managing member of PBF LLC and, as of March 31, 2018, owned 97.2% of the total economic interest in PBF LLC. In addition, PBF LLC is the sole managing member of PBF Holding Company LLC (“PBF Holding”), a Delaware limited liability company and affiliate of PBFX. PBF LLC owns 18,459,497 of PBFX’s common units constituting an aggregate 44.1% limited partner interest in PBFX and owns all of PBFX’s incentive distribution rights (“IDRs”), with the remaining 55.9% limited partner interest owned by public unitholders as of March 31, 2018.

PBFX engages in the receiving, handling, storage and transferring of crude oil, refined products, natural gas and intermediates. The Partnership does not take ownership of or receive any payments based on the value of the crude oil, products, natural gas or intermediates that it handles and does not engage in the trading of any commodities. PBFX’s assets are integral to the operations of PBF Holding’s refineries, and as a result, the Partnership continues to generate a substantial majority of its revenue from transactions with PBF Holding. Additionally, certain of PBFX’s assets also generate revenue from third-party transactions.

Principles of Combination and Consolidation and Basis of Presentation

In connection with, and subsequent to, PBFX’s initial public offering (“IPO”), the Partnership has acquired certain assets from PBF LLC (collectively referred to as the “Contributed Assets”). The acquisitions completed subsequent to the IPO were made through a series of drop-down transactions with PBF LLC (collectively referred to as the “Acquisitions from PBF”). The assets, liabilities and results of operations of the Contributed Assets prior to their acquisition by PBFX are collectively referred to as the “Predecessor.” The transactions through which PBFX acquired the Contributed Assets were transfers of assets between entities under common control. Accordingly, the accompanying condensed consolidated financial statements and related notes present the results of operations and cash flows of our Predecessor for all periods presented prior to the effective date of each transaction. The financial statements of our Predecessor have been prepared from the separate records maintained by PBF Energy and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Predecessor had been operated as an unaffiliated entity. See the Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”) for additional information regarding the Acquisitions from PBF and the commercial agreements and amendments to other agreements with related parties executed in connection with these acquisitions.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, PBFX has included all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and the results of operations and cash flows of PBFX for the periods presented. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full year.

The Predecessor generally did not historically operate its respective assets for the purpose of generating revenues independent of other PBF Energy businesses prior to PBFX’s IPO or for assets acquired in the Acquisitions from PBF, prior to the effective dates of each transaction. All intercompany accounts and transactions have been eliminated.

Recently Adopted Accounting Guidance

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (Topic 606) “Revenue from Contracts with Customers” (“ASC 606”). ASC 606 supersedes


8
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


the revenue recognition requirements in Accounting Standards Codification 605 “Revenue Recognition” (“ASC 605”), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Partnership adopted ASC 606 as of January 1, 2018 using the modified retrospective transition method. See Note 2 “Revenues” of the Notes to Condensed Consolidated Financial Statements for further details.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), to increase the transparency and comparability about leases among entities. Additional ASUs have been issued subsequent to ASU 2016-02 to provide additional clarification and implementation guidance for leases related to ASU 2016-02 including ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”) (collectively, the Partnership refers to ASU 2016-02 and these additional ASUs as the “Updated Lease Guidance”). The Updated Lease Guidance requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and requires a modified retrospective approach to adoption. ASU 2018-01 provides a practical expedient whereby land easements (also known as “rights of way”) that are not accounted for as leases under existing GAAP would not need to be evaluated under ASU 2016-02; however the Updated Lease Guidance would apply prospectively to all new or modified land easements after the effective date of ASU 2016-02. In January 2018, the FASB issued a proposed ASU that would provide an additional transition method for the Updated Lease Guidance for lessees and a practical expedient for lessors. As proposed, this additional transition method would allow lessees to initially apply the requirements of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The proposed practical expedient would allow lessors to not separate non-lease components from the related lease components in certain situations. Assuming the proposed ASU is approved after the comment period, the proposed ASU would have the same effective date as ASU 2016-02. While early adoption is permitted, the Partnership will not early adopt the Updated Lease Guidance. The Partnership has established a working group to study and lead implementation of the Updated Lease Guidance. This working group has instituted a task plan designed to meet the implementation deadline for ASU 2016-02. The Partnership has evaluated and purchased a lease software system and has begun implementation of the selected system. The working group continues to evaluate the impact of the Updated Lease Guidance on the Partnership’s consolidated financial statements and related disclosures and the impact on its business processes and controls. At this time, the Partnership has identified that the most significant impacts of the Updated Lease Guidance will be to bring nearly all leases onto its balance sheet with “right of use assets” and “lease obligation liabilities” as well as accelerating recognition of the interest expense component of financing leases. While the assessment of the impacts arising from this standard is progressing, the Partnership has not fully determined the impacts on its business processes, controls or financial statement disclosures at this time.

2. REVENUES

Adoption of ASC 606

Prior to January 1, 2018, the Partnership recognized revenue from customers when all of the following criteria were met: (i) persuasive evidence of an exchange arrangement existed, (ii) delivery had occurred or services had been rendered, (iii) the buyer’s price was fixed or determinable and (iv) collectability was reasonably assured. Amounts billed in advance of the period in which the service was rendered or product delivered were recorded as deferred revenue. 

Effective January 1, 2018, the Partnership adopted ASC 606. As a result, the Partnership has changed the accounting policy for the recognition of revenue from contracts with customers as detailed below.



9
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


The Partnership adopted ASC 606 using the modified retrospective method, which has been applied for the three months ended March 31, 2018. The Partnership has applied ASC 606 only to those contracts that were not complete as of January 1, 2018. As such, the financial information for prior periods has not been adjusted and continues to be reported under ASC 605. The Partnership did not record a cumulative effect adjustment upon initially applying ASC 606 as there was not a significant impact upon adoption; however, the details of significant qualitative and quantitative disclosure changes upon implementing ASC 606 are discussed below.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration the Partnership expects to be entitled to in exchange for those goods or services.

As noted in Note 10 “Segment Information” of the Notes to Condensed Consolidated Financial Statements, the Partnership’s business consists of two operating segments, (i) Transportation and Terminaling and (ii) Storage. The following table provides information relating to the Partnership’s revenues for each service category by segment for the periods presented:
 
Three Months Ended March 31,
 
2018
 
2017
Transportation and Terminaling Segment
 
 
 
Terminaling
$
27,051

 
$
30,678

Pipeline
18,489

 
15,898

Other
11,430

 
8,363

Total
56,970

 
54,939

Storage Segment
 
 
 
Storage
7,069

 
5,538

Other
—

 
—

Total
7,069

 
5,538

Total Revenue
$
64,039

 
$
60,477


PBFX recognizes revenue by charging fees for crude oil and refined products terminaling, storing and pipeline services based on the greater of contractual minimum volume commitments (“MVCs”), as applicable, or the delivery of actual volumes transferred or stored based on contractual rates applied to throughput or storage volumes.

Minimum Volume Commitments

Transportation and Terminaling

The Partnership’s Transportation and Terminaling segment consists of product terminals, pipelines, crude unloading facilities, product tanks and marine facilities capable of handling barges and ships. Certain of these commercial agreements contain MVCs. Under these commercial agreements, if the Partnership’s customer fails to transport its minimum throughput volumes during any specified period, the customer will pay the Partnership a deficiency payment equal to the volume of the deficiency multiplied by the contractual rate then in effect. The deficiency payment is initially recorded as deferred revenue on the Partnership’s balance sheets for all contracts in which the MVC deficiency makeup period is longer than a contractual quarter.

Certain of the Partnership’s customers may apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline or terminal system in excess of its MVC during the following


10
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


quarters under the terms of the applicable agreement. The Partnership recognizes operating revenues for the deficiency payments when credits are used for volumes transported in excess of MVCs or at the end of the contractual period. If the Partnership determines, based on all available information, that it is remote that the Partnership’s customer will utilize these deficiency payments, the amount of the expected unused credits will be recognized as operating revenues in the period when that determination is made. The use or recognition of the credits is a reduction to deferred revenue.

Storage

The Partnership earns storage revenue under the crude oil and refined product storage contracts through capacity reservation agreements, where the Partnership collects a fee for reserving storage capacity for customers in its facilities. Customers generally pay reservation fees based on the level of storage capacity reserved rather than the actual volumes stored.

As of March 31, 2018, future fees for MVCs to be received related to noncancelable commercial terminaling, pipeline and storage agreements were as follows:
2018
$
158,461

2019
205,554

2020
205,421

2021
204,901

2022
123,445

Thereafter
447,547

Total MVC payments to be received
$
1,345,329


Leases

Certain of the Partnership’s commercial agreements are considered operating leases. Under these leasing agreements, the Partnership provides access to storage tanks and/or use of throughput assets that convey the right to control the use of an identified asset to the customer. The Partnership accounts for these transactions under ASC 840 “Leases.” These lease arrangements accounted for $29,075 of the Partnership’s revenue for the three months ended March 31, 2018.

Deferred Revenue

The Partnership records deferred revenues when cash payments are received or due in advance of performance, including amounts which are refundable. Deferred revenue was $843 and $1,438 as of March 31, 2018 and December 31, 2017, respectively. The decrease in the deferred revenue balance for the three months ended March 31, 2018 is primarily driven by the timing and extent of cash payments received in advance of satisfying the Partnership’s performance obligations for the comparative periods.

The Partnership’s payment terms vary by the type and location of our customer and the services offered. The period between invoicing and when payment is due is not significant. For certain services and customer types, the Partnership requires payment before the services are performed for the customer.

Significant Judgment and Practical Expedients

For performance obligations, the Partnership determined that customers are able to obtain control of these services over time. The Partnership determined that these performance obligations, which are satisfied over time, are considered a series that generally have the same pattern of transfer to customers. For stand ready performance obligations, the Partnership generally recognizes revenue over time on a straight-line basis under the time-elapsed


11
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


output method as the Partnership believes this is a reasonable basis in determining how customers obtain the benefits of the Partnership’s services. For non-stand ready performance obligations, the Partnership generally recognizes revenue over time based on actual performance (current period volumes multiplied by the applicable rate per unit of volume) as the Partnership believes this accurately depicts the transfer of benefits to customers.
  
The Partnership did not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Partnership recognizes revenue at the amount to which the Partnership has the right to invoice for services performed.

3. ACQUISITIONS

PNGPC Acquisition

On February 28, 2017, the Partnership’s wholly-owned subsidiary, PBFX Operating Company LP (“PBFX Op Co”), acquired from PBF LLC all the issued and outstanding limited liability company interest of Paulsboro Natural Gas Pipeline Company LLC (“PNGPC”) for an aggregate purchase price of $11,600 (the “PNGPC Acquisition”). PNGPC owns and operates an interstate natural gas pipeline which serves PBF Holding’s Paulsboro Refinery. In connection with the PNGPC Acquisition, PBFX constructed a new pipeline, which commenced services in August 2017 (the “Paulsboro Natural Gas Pipeline”).

In consideration for the PNGPC limited liability company interests, the Partnership delivered to PBF LLC (i) an $11,600 intercompany promissory note in favor of Paulsboro Refining Company LLC, a wholly-owned subsidiary of PBF Holding (the “Affiliate Note Payable”), (ii) an expansion rights and right of first refusal agreement in favor of PBF LLC with respect to the Paulsboro Natural Gas Pipeline and (iii) an assignment and assumption agreement with respect to certain outstanding litigation involving PNGPC and the existing pipeline. As the PNGPC Acquisition was considered a transfer of assets between entities under common control, the PNGPC assets and liabilities were transferred at their historical carrying value, whose net value was $11,538 as of February 28, 2017. The financial information contained herein of PBFX has been retrospectively adjusted to include the historical results of PNGPC as if it was owned by the Partnership for all periods presented. Net loss attributable to the PNGPC Acquisition prior to the effective date was allocated entirely to PBF GP as if only PBF GP had rights to that net loss; therefore, there is no retrospective adjustment to net income per unit.

Acquisition Expenses

PBFX incurred acquisition related costs of $483 for the three months ended March 31, 2018 primarily consisting of consulting and legal expenses related to pending and non-consummated acquisitions. PBFX’s acquisition related costs were de minimis for the three months ended March 31, 2017. These costs are included in General and administrative expenses.
















12
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:
 
 
March 31,
2018
 
December 31,
2017
Land
 
$
99,707

 
$
99,707

Pipelines
 
333,937

 
333,609

Terminals and equipment
 
200,962

 
200,630

Storage facilities
 
89,836

 
89,417

Construction in progress
 
6,664

 
4,810

 
 
731,106

 
728,173

Accumulated depreciation
 
(60,845
)
 
(54,350
)
Property, plant and equipment, net
 
$
670,261

 
$
673,823


5. DEBT

Total debt was comprised of the following:
 
 
March 31,
2018
 
December 31,
2017
2023 Notes
 
$
525,000

 
$
525,000

Revolving Credit Facility (a)
 
20,000

 
29,700

Total debt outstanding
 
545,000

 
554,700

Unamortized debt issuance costs
 
(8,783
)
 
(9,281
)
Unamortized 2023 Notes premium
 
3,239

 
3,374

Net carrying value of debt
 
$
539,456

 
$
548,793

____________________
(a) PBFX had $4,010 outstanding letters of credit and $335,990 available under its five-year $360,000 revolving credit facility (the “Revolving Credit Facility”) as of March 31, 2018.

Fair Value Measurement

A fair value hierarchy (Level 1, Level 2, or Level 3) is used to categorize fair value amounts based on the quality of inputs used to measure fair value. Accordingly, fair values derived from Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values derived from Level 2 inputs are based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are either directly or indirectly observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The estimated fair value of the Revolving Credit Facility approximates its carrying value, categorized as a Level 2 measurement, as this borrowing bears interest based upon short-term floating market interest rates. The estimated fair value of the Partnership’s 6.875% Senior Notes due 2023 (the “2023 Notes”), categorized as a Level 2 measurement, was calculated based on the present value of future expected payments utilizing implied current market interest rates based on quoted prices of the 2023 Notes and was approximately $534,177 and $544,118 at March 31, 2018 and December 31, 2017, respectively. The carrying value and fair value of PBFX’s debt, exclusive of unamortized debt issuance costs and unamortized premium on the 2023 Notes, was approximately $545,000 and $554,177 as of March 31, 2018 and $554,700 and $573,818 as of December 31, 2017, respectively.






13
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


6. EQUITY

PBFX had 23,441,211 common units held by the public outstanding as of March 31, 2018. PBF LLC owns 18,459,497 of PBFX’s common units constituting an aggregate 44.1% limited partner interest in PBFX as of March 31, 2018.

Share Activity

PBFX’s partnership agreement, as amended, authorizes PBFX to issue an unlimited number of additional partnership interests for the consideration and on the terms and conditions determined by PBFX’s general partner without the approval of the unitholders. It is possible that PBFX will fund future acquisitions through the issuance of additional common units, subordinated units or other partnership interests.

The following table presents changes in PBFX common and subordinated units outstanding:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
 
 
Common Units
 
Common Units
 
Subordinated Units - PBF LLC
Balance at beginning of period
 
41,900,708

 
25,844,118

 
15,886,553

Vesting of phantom units, net of forfeitures
 
—

 
32,354

 
—

Balance at end of period
 
41,900,708

 
25,876,472

 
15,886,553


Additionally, 217,171 of the Partnership’s phantom units issued under the PBFX 2014 Long-Term Incentive Plan (“LTIP”) vested and were converted into common units held by certain directors, officers and current and former employees of our general partner or its affiliates during the year ended December 31, 2017.

Holders of any additional common units PBFX issues will be entitled to share equally with the then-existing common unitholders in PBFX’s distributions of available cash. 

Noncontrolling Interest

PBFX’s wholly-owned subsidiary, PBFX Op Co, holds a 50% controlling interest in Torrance Valley Pipeline Company LLC (“TVPC”), with the other 50% interest in TVPC held by TVP Holding Company LLC (“TVP Holding”), a subsidiary of PBF Holding. PBFX Op Co is the sole managing member of TVPC. PBFX, through its ownership of PBFX Op Co, consolidates the financial results of TVPC, and records a noncontrolling interest for the economic interest in TVPC held by TVP Holding. Noncontrolling interest on the condensed consolidated statements of operations includes the portion of net income or loss attributable to the economic interest in TVPC held by TVP Holding. Noncontrolling interest on the condensed consolidated balance sheets includes the portion of net assets of TVPC attributable to TVP Holding.














14
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


Equity Activity

The following tables summarize the changes in the carrying amount of the Partnership’s equity during the three months ended March 31, 2018 and 2017:
 
 
Common Units
 
IDR Holder
 
Noncontrolling Interest
 
Total
Balance at December 31, 2017
 
$
(17,544
)
 
$
2,736

 
$
171,903

 
$
157,095

Quarterly distributions to unitholders (including IDRs)
 
(20,618
)
 
(2,736
)
 
—

 
(23,354
)
Distributions to TVPC members
 
—

 
—

 
(5,000
)
 
(5,000
)
Net income attributable to the partners
 
18,276

 
2,959

 
4,022

 
25,257

Unit-based compensation expense
 
834

 
—

 
—

 
834

Other
 
(11
)
 
—

 
—

 
(11
)
Balance at March 31, 2018
 
$
(19,063
)
 
$
2,959

 
$
170,925

 
$
154,821

 
 
Net Investment
 
Common Units
 
Subordinated Units - PBF
 
IDR Holder
 
Noncontrolling Interest
 
Total
Balance at December 31, 2016
 
$
6,231

 
$
241,275

 
$
(276,083
)
 
$
1,266

 
$
179,882

 
$
152,571

Net loss attributable to PNGPC
 
(150
)
 
—

 
—

 
—

 
—

 
(150
)
Contributions to PNGPC
 
5,457

 
—

 
—

 
—

 
—

 
5,457

Allocation of PNGPC assets acquired to unitholders
 
(11,538
)
 
11,592

 
(54
)
 
—

 
—

 
—

Distributions to PBF LLC related to the PNGPC Acquisition
 
—

 
(11,600
)
 
—

 
—

 
—

 
(11,600
)
Quarterly distributions to unitholders (including IDRs)
 
—

 
(11,872
)
 
(7,149
)
 
(1,265
)
 
—

 
(20,286
)
Distributions to TVPC members
 
—

 
—

 
—

 
—

 
(3,425
)
 
(3,425
)
Net income attributable to the partners
 
—

 
14,203

 
8,718

 
1,687

 
3,599

 
28,207

Unit-based compensation expense
 
—

 
680

 
—

 
—

 
—

 
680

Other
 
—

 
(4
)
 
(2
)
 
(1
)
 
—

 
(7
)
Balance at March 31, 2017
 
$
—

 
$
244,274

 
$
(274,570
)
 
$
1,687

 
$
180,056

 
$
151,447


Cash Distributions

PBFX’s partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the common and subordinated unitholders and general partner will receive.



15
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


During the three months ended March 31, 2018, PBFX made a distribution payment related to the fourth quarter of 2017 as follows:
Related Earnings Period:
Q4 2017

Distribution date
March 14, 2018

Record date
February 28, 2018

Per unit
$
0.4850

To public common unitholders
$
11,369

To PBF LLC
11,689

Total distribution
$
23,058


The allocation of total quarterly distributions to general and limited partners for the three months ended March 31, 2018 and 2017, respectively, is shown in the table below. The Partnership’s distributions are declared subsequent to quarter end (distributions of $0.49 and $0.46 per unit declared for the three months ended March 31, 2018 and 2017, respectively); therefore, the table represents total distributions applicable to the period in which the distributions are earned:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
IDR - PBF LLC
 
$
2,959

 
$
1,686

Limited partners’ distributions:
 
 
 
 
Common
 
20,847

 
12,141

Subordinated - PBF LLC
 
—

 
7,308

Total distributions
 
23,806

 
21,135

Total cash distributions (a)
 
$
23,582

 
$
20,950

____________________
(a) Excludes phantom unit distributions which are accrued and paid upon vesting.  

7. NET INCOME PER UNIT

Earnings in excess of distributions are allocated to the limited partners based on their respective percentage interests. Payments made to PBFX’s unitholders are determined in relation to actual distributions declared and are not based on the net income (loss) allocations used in the calculation of net income (loss) per unit.

Diluted net income per unit includes the effects of potentially dilutive units of PBFX’s common units that consist of unvested phantom units. There were no anti-dilutive phantom units for either of the three months ended March 31, 2018 or 2017. Basic and diluted net income per unit applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.

In addition to the common and subordinated units, PBFX has also identified the general partner interest and IDRs as participating securities and uses the two-class method when calculating the net income per unit applicable to limited partners that is based on the weighted-average number of common units outstanding during the period.

On June 1, 2017, following the May 31, 2017 payment of the cash distribution attributable to the second quarter of 2017, the requirements under PBFX’s partnership agreement, as amended, for the conversion of all subordinated units into common units were satisfied and the subordination period for such subordinated units ended. As a result, in the second quarter of 2017, each of the Partnership’s 15,886,553 outstanding subordinated units converted into common units and began participating pro rata with the other common units in distributions of available cash. The conversion did not impact the amount of the cash distribution paid or the total number of the Partnership’s outstanding units representing limited partner interests. The Partnership’s net income was allocated


16
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


to the general partner, the limited partners, including the holders of the subordinated units through May 31, 2017 and IDR holders, in accordance with the partnership agreement.

When calculating basic earnings per unit under the two-class method for a master limited partnership, net income for the current reporting period is reduced by the amount of available cash that has been or will be distributed to the general partner, limited partners, and IDR holders for that reporting period. The following table shows the calculation of earnings less distributions:
 
 
Three Months Ended March 31, 2018
 
 
Limited Partner Common Units
 
IDRs - PBF LLC
 
Total
Net income attributable to the partners:
 
 
 
 
 
 
Distributions declared
 
$
20,847

 
$
2,959

 
$
23,806

Earnings less distributions
 
(2,571
)
 
—

 
(2,571
)
Net income attributable to the partners
 
$
18,276

 
$
2,959

 
$
21,235

 
 
 
 
 
 
 
Weighted-average units outstanding - basic
 
42,129,377

 
 
 
 
Weighted-average units outstanding - diluted
 
42,236,092

 
 
 
 
 
 
 
 
 
 
 
Net income per limited partner unit - basic
 
$
0.43

 
 
 
 
Net income per limited partner unit - diluted
 
$
0.43

 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
Limited Partner Common Units
 
Limited Partner Subordinated Units - PBF LLC
 
IDRs - PBF LLC
 
Total
Net income attributable to the partners:
 
 
 
 
 
 
 
 
Distributions declared
 
$
12,141

 
$
7,308

 
$
1,686

 
$
21,135

Earnings less distributions
 
2,063

 
1,410

 
—

 
3,473

Net income attributable to the partners
 
$
14,204

 
$
8,718

 
$
1,686

 
$
24,608

 
 
 
 
 
 
 
 
 
Weighted-average units outstanding - basic
 
26,042,248

 
15,886,553

 
 
 
 
Weighted-average units outstanding - diluted
 
26,127,441

 
15,886,553

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per limited partner unit - basic
 
$
0.55

 
$
0.55

 
 
 
 
Net income per limited partner unit - diluted
 
$
0.55

 
$
0.55

 
 
 
 

8. COMMITMENTS AND CONTINGENCIES

Certain of PBFX’s assets are collocated with PBF Holding’s Delaware City Refinery, and are located in Delaware’s coastal zone where certain activities are regulated under the Delaware Coastal Zone Act (the “CZA”). Therefore, determinations regarding the CZA that impact the Delaware City Refinery may potentially adversely impact the Partnership’s assets even if the Partnership is not directly involved. The Delaware City Refinery is appealing a Notice of Penalty Assessment and Secretary’s Order issued in March 2017 (the “2017 Secretary’s


17
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


Order”), including a $150 fine, alleging violation of a 2013 Secretary’s Order authorizing crude oil shipment by barge (the “2013 Secretary’s Order”). The Delaware Department of Natural Resources and Environmental Control’s (“DNREC”) determined that the Delaware City Refinery had violated the 2013 Secretary’s Order by failing to make timely and full disclosure to DNREC about the nature and extent of certain shipments and had misrepresented the number of shipments that went to other facilities. The Notice of Penalty Assessment and 2017 Secretary’s Order conclude that the 2013 Secretary’s Order was violated by the Delaware City Refinery by shipping crude oil from the Partnership’s Delaware City assets to three locations other than PBF Holding’s Paulsboro Refinery, on 15 days in 2014, making a total of 17 separate barge shipments containing approximately 35,700,000 gallons of crude oil in total. On April 28, 2017, the Delaware City Refinery appealed the Notice of Penalty Assessment and 2017 Secretary’s Order. On March 5, 2018, the Notice of Penalty Assessment was settled by DNREC, the Delaware Attorney General and the Delaware City Refinery for $100. The Delaware City Refinery made no admissions with respect to the alleged violations and agreed to request a CZA status decision prior to making crude oil shipments to destinations other than Paulsboro.

On December 28, 2016, DNREC issued a CZA permit (the “Ethanol Permit”) to the Delaware City Refinery allowing the utilization of existing tanks and existing marine loading equipment at their existing facilities to enable denatured ethanol to be loaded from storage tanks to marine vessels and shipped to offsite facilities. On January 13, 2017, the issuance of the Ethanol Permit was appealed by two environmental groups. On February 27, 2017, the Coastal Zone Industrial Board (the “Coastal Zone Board”) held a public hearing and dismissed the appeal, determining that the appellants did not have standing. The appellants filed an appeal of the Coastal Zone Board’s decision with the Delaware Superior Court (the “Superior Court”) on March 30, 2017. On January 19, 2018, the Superior Court rendered an Opinion regarding the decision of the Coastal Zone Board to dismiss the appeal of the Ethanol Permit for the ethanol project. The Judge determined that the record created by the Coastal Zone Board was insufficient for the Superior Court to make a decision, and therefore remanded the case back to the Coastal Zone Board to address the deficiency in the record. Specifically, the Superior Court directed the Coastal Zone Board to address any evidence concerning whether the appellants’ claimed injuries would be affected by the increased quantity of ethanol shipments. During the hearing before the Coastal Zone Board on standing, one of the appellants’ witnesses made a reference to the flammability of ethanol, without any indication of the significance of flammability/explosivity to specific concerns. Moreover, the appellants did not introduce at hearing any evidence of the relative flammability of ethanol as compared to other materials shipped to and from the refinery. However, the sole dissenting opinion from the Coastal Zone Board focused on the flammability/explosivity issue, alleging that the appellants’ testimony raised the issue as a distinct basis for potential harms. Once the Coastal Zone Board responds to the remand, it will go back to the Superior Court to complete its analysis and issue a decision.

On October 19, 2017, the Delaware City Refinery received approval from DNREC for the construction and operation of the ethanol marketing project to allow for a combined total loading of up to 10,000 barrels per day, on an annual average basis, of ethanol on to marine vessels at the marine piers and the terminal truck loading rack, subject to certain operational and emissions limitations as well as other conditions. On the same date, Delaware City Logistics Company LLC (“DCLC”) received DNREC approval for the construction of (i) four additional loading arms for each of lanes 4, 10 and 11 for purposes of loading ethanol at its truck loading rack and (ii) a vapor vacuum control system for loading lanes connected to the existing vapor recovery unit located at its terminal in Delaware City. This approval is also subject to certain operational and emission limitations as well as other conditions.

Environmental Matters

PBFX’s assets, along with PBF Energy’s refineries, are subject to extensive and frequently changing federal, state and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise relate to the protection of the environment, waste management and the characteristics and the composition of fuels. Compliance with existing and anticipated laws and regulations can increase the overall cost of operating the Partnership’s assets, including remediation, operating costs and capital costs to construct, maintain and upgrade equipment and facilities.


18
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


In connection with PBF Holding’s acquisition of the DCR assets, Valero Energy Corporation (“Valero”) remains responsible for certain pre-acquisition environmental obligations up to $20,000 and the predecessor to Valero in ownership of the refinery retains other historical obligations.

In connection with its acquisition of the DCR assets and the Paulsboro Refinery, PBF Holding and Valero purchased ten-year, $75,000 environmental insurance policies to insure against unknown environmental liabilities at each site. In connection with PBF Holding’s Toledo Refinery acquisition, Sunoco Inc. (R&M) remains responsible for environmental remediation for conditions that existed on the closing date for twenty years from March 1, 2011, subject to certain limitations.

In connection with its purchase of the four refined product terminals from Plains All American Pipeline, L.P. (“Plains”), the Partnership is responsible for the environmental remediation costs for conditions that existed on the closing date up to a maximum of $250 per year for ten years, with Plains remaining responsible for any and all additional costs above such amounts during such period. The environmental liability of $1,846 recorded as of March 31, 2018 ($1,923 as of December 31, 2017) represents the present value of expected future costs discounted at a rate of 1.83%. At March 31, 2018, the undiscounted liability is $2,002 and the Partnership expects to make aggregate payments for this liability of $1,250 over the next five years. The current portion of the environmental liability is recorded in “Accounts payable and accrued liabilities” and the non-current portion is recorded in “Other long-term liabilities.”

In connection with PBF Holding’s acquisition of the Torrance Refinery and related logistics assets, PBF Holding is responsible for all known and unknown environmental liabilities at each site acquired in connection with the acquisition. The total estimated liability of known environmental obligations associated with the San Joaquin Valley pipeline system, which consists of the M55, M1 and M70 crude pipeline systems including pipeline stations with storage capacity and truck unloading capacity (the “Torrance Valley Pipeline”), was approximately $236 as of March 31, 2018 ($256 as of December 31, 2017). In accordance with the contribution agreement associated with the Partnership’s acquisition of a 50% equity interest in TVPC from PBF LLC (the “TVPC Acquisition”), PBF Holding has indemnified the Partnership 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, which includes the recorded liability of approximately $236. At March 31, 2018, the Partnership expects to make the full aggregate payment for this liability within the next five years. PBFX has recorded a receivable from PBF Holding in “Accounts receivable - affiliates” for such anticipated payments related to the known pre-existing Torrance Valley Pipeline environmental obligations for which PBFX is indemnified.

In connection with the purchase of the Toledo, Ohio refined products terminal assets from Sunoco Logistics Partners L.P. (the “Seller”) by the Partnership’s wholly-owned subsidiary, PBF Logistics Products Terminals LLC (“PLPT”), the Partnership did not assume and is currently not aware of any pre-existing environmental obligations. If pre-acquisition environmental obligations are identified, the Seller is responsible for any liabilities up to $2,000 identified to have occurred since 2002. For liabilities arising prior to 2002, the Seller is indemnified by the prior owner under an agreement between the Seller and the prior owner, and the Partnership is entitled to be reimbursed for all amounts paid related to such liabilities on a full pass-through basis.

9. RELATED PARTY TRANSACTIONS

Commercial Agreements

PBFX currently derives the majority of its revenue from long-term, fee-based, MVC agreements with PBF Holding, supported by contractual fee escalations for inflation adjustments and certain increases in operating costs. PBFX believes the terms and conditions under these agreements, as well as the Omnibus Agreement (as defined below) and the Services Agreement (as defined below) each with PBF Holding, are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. 



19
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


See the 2017 Form 10-K for a more complete description of PBFX’s commercial agreements with PBF Holding, including those identified as leases.

The Delaware City Rail Terminaling Services Agreement and the Delaware West Ladder Rack Terminaling Services Agreement between Delaware City Terminaling Company LLC and PBF Holding were amended effective as of January 1, 2018 (collectively, the “Amended and Restated Rail Agreements”) with the service fees thereunder being adjusted, including the addition of an ancillary fee paid by PBF Holding on an actual cost basis. In determining payments due under the Amended and Restated Rail Agreements, excess volumes throughput under the agreements shall apply against required payments in respect to the minimum throughput commitments on a quarterly basis and, to the extent not previously applied, on an annual basis against the MVCs.

Other Agreements

In addition to the commercial agreements described above, PBFX has entered into an omnibus agreement with PBF GP, PBF LLC and PBF Holding, which has been amended and restated in connection with certain of the Acquisitions from PBF (as amended, the “Omnibus Agreement”). The Omnibus Agreement addresses the payment of an annual fee for the provision of various general and administrative services and reimbursement of salary and benefit costs for certain PBF Energy employees.

Additionally, PBFX has entered into an operation and management services and secondment agreement with PBF Holding and certain of its subsidiaries (the “Services Agreement”), pursuant to which PBF Holding and its subsidiaries provide PBFX with the personnel necessary for the Partnership to perform its obligations under its commercial agreements. PBFX reimburses PBF Holding for the use of such employees and the provision of certain infrastructure-related services to the extent applicable to its operations, including storm water discharge and waste water treatment, steam, potable water, access to certain roads and grounds, sanitary sewer access, electrical power, emergency response, filter press, fuel gas, API solids treatment, fire water and compressed air. The Services Agreement will terminate upon the termination of the Omnibus Agreement, provided that the Partnership may terminate any service on 30-days’ notice.

Summary of Transactions

A summary of revenue and expense transactions with the Partnership’s affiliates, including expenses directly charged and allocated to the Partnership, is as follows:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenues
 
$
60,864

 
$
56,202

Operating and maintenance expenses
 
1,674

 
1,618

General and administrative expenses
 
1,700

 
1,654


10. SEGMENT INFORMATION

The Partnership’s operations are organized into two reportable segments, Transportation and Terminaling and Storage. Operations that are not included in either the Transportation and Terminaling or the Storage segments are included in Corporate.

The Partnership’s Transportation and Terminaling segment consists of product terminals, pipelines, crude unloading facilities, product tanks and marine facilities capable of processing crude oil, natural gas and refined products. The Partnership’s Storage segment consists of storage facilities capable of handling crude oil, refined products and intermediates.



20
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


Revenues are generated from third-party transactions as well as commercial agreements entered into with PBF Holding under which the Partnership receives fees for transportation, terminaling and storage of crude oil, refined products and natural gas. The Partnership does not have any foreign operations.

The operating segments adhere to the accounting polices used for the consolidated financial statements, as described in Note 2 “Summary of Accounting Policies” of the Notes to Consolidated Financial Statements in the 2017 Form 10-K. The Partnership’s operating segments are strategic business units that offer different services in different geographical locations. PBFX has evaluated the performance of each operating segment based on its respective operating income. Certain general and administrative expenses and interest and financing costs are included in Corporate as they are not directly attributable to a specific operating segment. Identifiable assets are those used by the operating segment, whereas assets included in Corporate are principally cash, deposits and other assets that are not associated with a specific operating segment.
 
 
Three Months Ended March 31, 2018
 
 
Transportation and Terminaling
 
Storage
 
Corporate
 
Consolidated Total
Total revenue
 
$
56,970

 
$
7,069

 
$
—

 
$
64,039

Depreciation and amortization expense
 
5,570

 
925

 
—

 
6,495

Income (loss) from operations
 
35,505

 
3,991

 
(4,291
)
 
35,205

Interest expense, net and amortization of loan fees and debt premium
 
—

 
—

 
9,948

 
9,948

Capital expenditures
 
3,867

 
86

 
—

 
3,953

 
 
Three Months Ended March 31, 2017
 
 
Transportation and Terminaling
 
Storage
 
Corporate
 
Consolidated Total
Total revenue
 
$
54,939

 
$
5,538

 
$
—

 
$
60,477

Depreciation and amortization expense
 
4,751

 
601

 
—

 
5,352

Income (loss) from operations
 
36,106

 
3,250

 
(3,315
)
 
36,041

Interest expense, net and amortization of loan fees and debt premium
 
—

 
—

 
7,984

 
7,984

Capital expenditures
 
15,293

 
4,174

 
—

 
19,467

 
 
Balance at March 31, 2018
 
 
Transportation and Terminaling
 
Storage
 
Corporate
 
Consolidated Total
Total assets
 
$
640,095

 
$
85,220

 
$
3,165

 
$
728,480

 
 
Balance at December 31, 2017
 
 
Transportation and Terminaling
 
Storage
 
Corporate
 
Consolidated Total
Total assets
 
$
639,310

 
$
86,760

 
$
11,480

 
$
737,550






21
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


11. SUBSEQUENT EVENTS

Cash distribution

On May 3, 2018, PBF GP’s board of directors announced a cash distribution, based on the results of the first quarter of 2018, of $0.49 per unit. The distribution is payable on May 30, 2018 to PBFX unitholders of record at the close of business on May 15, 2018.

Cummins Terminals Purchase

On April 16, 2018, the Partnership’s wholly-owned subsidiary, PLPT, completed the purchase of two refined product terminals located in Knoxville, Tennessee, which include product tanks, pipeline connections to the Colonial and Plantation pipeline systems and truck loading facilities (the “Cummins Terminals”) from Cummins Terminals, Inc. for total cash consideration of approximately $58,000 (the “Cummins Terminals Purchase”). The transaction was financed through a combination of cash on hand and borrowings under the Partnership’s Revolving Credit Facility.

Drop-down Transactions

On April 16, 2018, the Partnership announced the entry into a letter of intent to acquire several development assets from subsidiaries of PBF Energy. The letter of intent is subject to the execution of definitive agreements and the execution and closing of such definitive agreements are expected in the second quarter of 2018.






22
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF LOGISTICS

DCLC, Delaware Pipeline Company LLC, Delaware City Terminaling Company LLC, Toledo Terminaling Company LLC, PLPT, PBFX Op Co, TVPC and PNGPC serve as guarantors of the obligations under the 2023 Notes. These guarantees are full and unconditional and joint and several. For purposes of the following footnote, the Partnership is referred to as “Issuer.” The indenture dated May 12, 2015, among the Partnership, PBF Logistics Finance Corporation (“PBF Logistics Finance”), the guarantors party thereto and Deutsche Bank Trust Company Americas, as Trustee, governs subsidiaries designated as “Guarantor 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. Refer to PBF LLC’s Quarterly Report on Form 10-Q for its condensed consolidated financial statements.

The 2023 Notes were co-issued by PBF Logistics Finance. For purposes of the following footnote, PBF Logistics Finance is referred to as “Co-Issuer.” The Co-Issuer has no independent assets or operations.

The following supplemental combining and condensed consolidating financial information reflects the Issuer’s separate accounts, the combined accounts of the Guarantor Subsidiaries, the combining and consolidating adjustments and eliminations and the Issuer’s consolidated accounts for the dates and periods indicated. For purposes of the following combining and consolidating information, the Issuer’s investment in its subsidiaries and the Guarantor Subsidiaries’ investment in its subsidiaries are accounted for under the equity method of accounting.




23
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF LOGISTICS CONDENSED CONSOLIDATING BALANCE SHEET
 
March 31, 2018
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidating Adjustments
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,599

 
$
19,410

 
$
—

 
$
—

 
$
22,009

Accounts receivable - affiliates
24

 
32,457

 
—

 
—

 
32,481

Accounts receivable
—

 
1,308

 
—

 
—

 
1,308

Prepaids and other current assets
541

 
1,850

 
—

 
—

 
2,391

Due from related parties
69,403

 
423,221

 
—

 
(492,624
)
 
—

Total current assets
72,567

 
478,246

 
—

 
(492,624
)
 
58,189

Property, plant and equipment, net
—

 
670,261

 
—

 
—

 
670,261

Other non-current assets
—

 
30

 
—

 
—

 
30

Investment in subsidiaries
892,182

 
—

 
—

 
(892,182
)
 
—

Total assets
$
964,749

 
$
1,148,537

 
$
—

 
$
(1,384,806
)
 
$
728,480

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable - affiliates
$
552

 
$
4,816

 
$
—

 
$
—

 
$
5,368

Accounts payable and accrued liabilities
17,624

 
8,365

 
—

 
—

 
25,989

Deferred revenue
—

 
843

 
—

 
—

 
843

Due to related parties
423,221

 
69,403

 
—

 
(492,624
)
 
—

Total current liabilities
441,397

 
83,427

 
—

 
(492,624
)
 
32,200

Long-term debt
539,456

 
—

 
—

 
—

 
539,456

Other long-term liabilities
—

 
2,003

 
—

 
—

 
2,003

Total liabilities
980,853

 
85,430

 
—

 
(492,624
)
 
573,659

 
 
 
 
 
 
 
 
 
 
Commitments and contingencies (Note 8)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Net Investment - Predecessor
—

 
892,182

 
—

 
(892,182
)
 
—

Common unitholders
(19,063
)
 
—

 
—

 
—

 
(19,063
)
IDR holder - PBF LLC
2,959

 
—

 
—

 
—

 
2,959

Total PBF Logistics LP equity
(16,104
)
 
892,182

 
—

 
(892,182
)
 
(16,104
)
Noncontrolling interest
—

 
170,925

 
—

 
—

 
170,925

Total equity
(16,104
)
 
1,063,107

 
—

 
(892,182
)
 
154,821

Total liabilities and equity
$
964,749

 
$
1,148,537

 
$
—

 
$
(1,384,806
)
 
$
728,480






24
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF LOGISTICS
CONDENSED CONSOLIDATING BALANCE SHEET
 
December 31, 2017
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidating Adjustments
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
10,909

 
$
8,755

 
$
—

 
$
—

 
$
19,664

Accounts receivable - affiliates
1

 
40,816

 
—

 
—

 
40,817

Accounts receivable
—

 
1,423

 
—

 
—

 
1,423

Prepaids and other current assets
571

 
1,222

 
—

 
—

 
1,793

Due from related parties
64,162

 
388,737

 
—

 
(452,899
)
 
—

Total current assets
75,643

 
440,953

 
—

 
(452,899
)
 
63,697

Property, plant and equipment, net
—

 
673,823

 
—

 
—

 
673,823

Other non-current assets
—

 
30

 
—

 
—

 
30

Investment in subsidiaries
856,257

 
—

 
—

 
(856,257
)
 
—

Total assets
$
931,900

 
$
1,114,806

 
$
—

 
$
(1,309,156
)
 
$
737,550

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable - affiliates
$
2,022

 
$
6,330

 
$
—

 
$
—

 
$
8,352

Accounts payable and accrued liabilities
7,156

 
12,638

 
—

 
—

 
19,794

Deferred revenue
—

 
1,438

 
—

 
—

 
1,438

Due to related parties
388,737

 
64,162

 
—

 
(452,899
)
 
—

Total current liabilities
397,915

 
84,568

 
—

 
(452,899
)
 
29,584

Long-term debt
548,793

 
—

 
—

 
—

 
548,793

Other long-term liabilities
—

 
2,078

 
—

 
—

 
2,078

Total liabilities
946,708

 
86,646

 
—

 
(452,899
)
 
580,455

 
 
 
 
 
 
 
 
 
 
Commitments and contingencies (Note 8)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Net Investment - Predecessor
—

 
856,257

 
—

 
(856,257
)
 
—

Common unitholders
(17,544
)
 
—

 
—

 
—

 
(17,544
)
IDR holder - PBF LLC
2,736

 
—

 
—

 
—

 
2,736

Total PBF Logistics LP equity
(14,808
)
 
856,257

 
—

 
(856,257
)
 
(14,808
)
Noncontrolling interest
—

 
171,903

 
—

 
—

 
171,903

Total equity
(14,808
)
 
1,028,160

 
—

 
(856,257
)
 
157,095

Total liabilities and equity
$
931,900

 
$
1,114,806

 
$
—

 
$
(1,309,156
)
 
$
737,550





25
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF LOGISTICS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 
Three Months Ended March 31, 2018
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidating Adjustments
 
Total
Revenue:
 
 
 
 
 
 
 
 
 
Affiliate
$
—

 
$
60,864

 
$
—

 
$
—

 
$
60,864

Third-party
—

 
3,175

 
—

 
—

 
3,175

Total revenue
—

 
64,039

 
—

 
—

 
64,039

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating and maintenance expenses
—

 
18,048

 
—

 
—

 
18,048

General and administrative expenses
4,291

 
—

 
—

 
—

 
4,291

Depreciation and amortization
—

 
6,495

 
—

 
—

 
6,495

Total costs and expenses
4,291

 
24,543

 
—

 
—

 
28,834

 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
(4,291
)
 
39,496

 
—

 
—

 
35,205

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
39,496

 
—

 
—

 
(39,496
)
 
—

Interest expense, net
(9,585
)
 
—

 
—

 
—

 
(9,585
)
Amortization of loan fees and debt premium
(363
)
 
—

 
—

 
—

 
(363
)
Net income
25,257

 
39,496

 
—

 
(39,496
)
 
25,257

Less: Net income attributable to noncontrolling interest
—

 
4,022

 
—

 
—

 
4,022

Net income attributable to the partners
25,257

 
35,474

 
—

 
(39,496
)
 
21,235

Less: Net income attributable to the IDR holder
2,959

 
—

 
—

 
—

 
2,959

Net income attributable to PBF Logistics LP unitholders
$
22,298

 
$
35,474

 
$
—

 
$
(39,496
)
 
$
18,276
















26
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF LOGISTICS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 
Three Months Ended March 31, 2017
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidating Adjustments
 
Total
Revenue:
 
 
 
 
 
 
 
 
 
Affiliate
$
—

 
$
56,202

 
$
—

 
$
—

 
$
56,202

Third-party
—

 
4,275

 
—

 
—

 
4,275

Total revenue
—

 
60,477

 
—

 
—

 
60,477

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating and maintenance expenses
—

 
15,769

 
—

 
—

 
15,769

General and administrative expenses
3,315

 
—

 
—

 
—

 
3,315

Depreciation and amortization
—

 
5,352

 
—

 
—

 
5,352

Total costs and expenses
3,315

 
21,121

 
—

 
—

 
24,436

 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
(3,315
)
 
39,356

 
—

 
—

 
36,041

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
39,356

 
—

 
—

 
(39,356
)
 
—

Interest expense, net
(7,568
)
 
—

 
—

 
—

 
(7,568
)
Amortization of loan fees
(416
)
 
—

 
—

 
—

 
(416
)
Net income
28,057

 
39,356

 
—

 
(39,356
)
 
28,057

Less: Net loss attributable to Predecessor
—

 
(150
)
 
—

 
—

 
(150
)
Less: Net income attributable to noncontrolling interest
—

 
3,599

 
—

 
—

 
3,599

Net income attributable to the partners
28,057

 
35,907

 
—

 
(39,356
)
 
24,608

Less: Net income attributable to the IDR holder
1,686

 
—

 
—

 
—

 
1,686

Net income attributable to PBF Logistics LP unitholders
$
26,371

 
$
35,907

 
$
—

 
$
(39,356
)
 
$
22,922




27
PBF LOGISTICS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT BARREL, UNIT AND PER UNIT DATA)


12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PBF LOGISTICS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
 
Three Months Ended March 31, 2018
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Combining and Consolidating Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
25,257

 
$
39,496

 
$
—

 
$
(39,496
)
 
$
25,257

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
—

 
6,495

 
—

 
—

 
6,495

Amortization of loan fees and debt premium
363

 
—

 
—

 
—

 
363

Unit-based compensation expense
834

 
—

 
—

 
—

 
834

Equity in earnings of subsidiaries
(39,496
)
 
—

 
—

 
39,496

 
—

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Accounts receivable - affiliates
(23
)
 
8,359

 
—

 
—

 
8,336

Accounts receivable
—

 
115