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PBF Finance

Filed: 5 Aug 20, 2:20pm


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: June 30, 2020
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: 333-186007
Commission File Number: 333-186007-07
PBF HOLDING COMPANY LLC
PBF FINANCE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware27-2198168
Delaware45-2685067
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One Sylvan Way, Second Floor
ParsippanyNew Jersey07054
(Address of principal executive offices)(Zip Code)
(973) 455-7500
(Registrant’s telephone number, including area code)
 


Securities registered pursuant to Section 12(b) of the Act.
Title of each classTrading SymbolName of each exchange on which registered
N/AN/AN/A
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.  
PBF Holding Company LLC
o  Yes    x  No
PBF Finance Corporation
o  Yes    x  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
PBF Holding Company LLC
x  Yes    o  No
PBF Finance Corporation
x  Yes    o  No
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
Accelerated filerNon-accelerated filer
(Do not check if a
smaller reporting
company)
Smaller reporting
company
Emerging growth company
PBF Holding Company LLC¨¨x¨o
PBF Finance Corporationooxoo
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.
PBF Holding Company LLC
o  Yes    o  No
PBF Finance Corporation
o  Yes    o  No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
PBF Holding Company LLC
¨  Yes    x  No
PBF Finance Corporation
o  Yes    x  No
PBF Holding Company LLC has no common stock outstanding. As of August 4, 2020, 100% of the membership interests of PBF Holding Company LLC were owned by PBF Energy Company LLC, and PBF Finance Corporation had 100 shares of common stock outstanding, all of which were held by PBF Holding Company LLC.

PBF Finance Corporation meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
 

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PBF HOLDING COMPANY LLC
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
TABLE OF CONTENTS

This combined Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (this “Form 10-Q”) is filed by PBF Holding Company LLC (“PBF Holding”) and PBF Finance Corporation (“PBF Finance”). PBF Holding is a wholly-owned subsidiary of PBF Energy Company LLC (“PBF LLC”) and is the parent company for PBF LLC’s refinery operating subsidiaries. PBF Finance is a wholly-owned subsidiary of PBF Holding. PBF Holding is an indirect subsidiary of PBF Energy Inc. (“PBF Energy”), which is the sole managing member of, and owner of an equity interest representing approximately 99.2% of the outstanding economic interests in PBF LLC as of June 30, 2020. PBF Energy operates and controls all of the business and affairs and consolidates the financial results of PBF LLC and its subsidiaries. PBF Logistics GP LLC is a wholly-owned subsidiary of PBF LLC and the general partner of PBF Logistics LP (“PBFX”), which is an affiliate of PBF Holding. PBF Holding, together with its consolidated subsidiaries, owns and operates oil refineries and related facilities in North America.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This combined Quarterly Report on Form 10-Q contains certain “forward-looking statements” of expected future developments that 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 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q, the Annual Report on Form 10-K for the year ended December 31, 2019 of PBF Holding Company LLC and PBF Finance Corporation, which we refer to as our 2019 Annual Report on Form 10-K, and in our other filings with the U.S. Securities and Exchange Commission (“SEC”). All forward-looking information in this Quarterly Report on 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:
the effect of the recent novel coronavirus (“COVID-19”) pandemic and related governmental and consumer responses on our business, financial condition and results of operations;
supply, demand, prices and other market conditions for our products, including volatility in commodity prices;
 the effects of competition in our markets;
changes in currency exchange rates, interest rates and capital costs;
adverse developments in our relationship with both our key employees and unionized employees;
our ability to operate our businesses efficiently, manage capital expenditures and costs (including general and administrative expenses) and generate earnings and cash flow;
our indebtedness;
our expectations with respect to our capital improvement and turnaround projects;
our supply and inventory intermediation arrangements expose us to counterparty credit and performance risk;
termination of our Inventory Intermediation Agreements (as defined in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) with J. Aron & Company, a subsidiary of The Goldman Sachs Group, Inc. (“J. Aron”), which could have a material adverse effect on our liquidity, as we would be required to finance our crude oil, intermediate and refined products inventory covered by the agreements. Additionally, we are obligated to repurchase from J. Aron certain crude, intermediates and finished products (the “J. Aron Products”) located at the Company’s storage tanks at the Delaware City and Paulsboro refineries (the “East Coast Refineries”) and at PBFX’s assets acquired from
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Crown Point International, LLC in October 2018 (together with the Company’s storage tanks at the East Coast Refineries, the “J. Aron Storage Tanks”) upon termination of these agreements;
restrictive covenants in our indebtedness that may adversely affect our operational flexibility;
our assumptions regarding payments arising under PBF Energy’s tax receivable agreement entered with the PBF LLC Series A and PBF LLC Series B unitholders and other arrangements relating to PBF Energy;
our expectations and timing with respect to our acquisition activity;
the impact of disruptions to crude or feedstock supply to any of our refineries, including disruptions due to problems at PBFX or with third-party logistics infrastructure or operations, including pipeline, marine and rail transportation;
the impact of current and future laws, rulings and governmental regulations, including the implementation of rules and regulations regarding transportation of crude oil by rail;
the threat of cyber-attacks;
our increased dependence on technology;
the effectiveness of our crude oil sourcing strategies, including our crude by rail strategy and related commitments;
adverse impacts related to legislation by the federal government lifting the restrictions on exporting U.S. crude oil;
adverse impacts from changes in our regulatory environment, such as the effects of compliance with the California Global Warming Solutions Act (also referred to as “AB32”), or from actions taken by environmental interest groups;
market risks related to the volatility in the price of Renewable Identification Numbers (“RINs”) required to comply with the Renewable Fuel Standards and greenhouse gas (“GHG”) emission credits required to comply with various GHG emission programs, such as AB32;
our ability to complete the successful integration of the Martinez refinery and any other acquisitions into our business and to realize the benefits from such acquisitions;
unforeseen liabilities associated with the Martinez Acquisition (as defined in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations) and any other acquisitions; and
any decisions we continue to make with respect to our energy-related logistics assets that may be transferred to PBFX.
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 do not intend 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.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions)
June 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$1,203.1  $763.1  
Accounts receivable422.9  826.6  
Accounts receivable - affiliate7.3  6.5  
Inventories1,620.2  2,122.2  
Prepaid and other current assets108.0  48.0  
Total current assets3,361.5  3,766.4  
Property, plant and equipment, net4,147.3  3,168.6  
Lease right of use assets - third party488.7  330.3  
Lease right of use assets - affiliate611.7  650.3  
Deferred charges and other assets, net1,003.4  930.0  
Total assets$9,612.6  $8,845.6  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$419.5  $591.2  
Accounts payable - affiliate55.1  48.1  
Accrued expenses1,426.3  1,791.4  
Current operating lease liabilities - third party148.5  72.0  
Current operating lease liabilities - affiliate82.2  79.2  
Deferred revenue18.1  17.0  
Total current liabilities2,149.7  2,598.9  
Long-term debt3,324.7  1,262.8  
Deferred tax liabilities41.3  31.4  
Long-term operating lease liabilities - third party257.2  232.9  
Long-term operating lease liabilities - affiliate529.4  571.1  
Long-term financing lease liabilities - third party70.0  18.4  
Other long-term liabilities281.3  232.9  
Total liabilities6,653.6  4,948.4  
Commitments and contingencies (Note 8)
Equity:
PBF Holding Company LLC equity
Member’s equity2,777.0  2,739.1  
Retained earnings179.7  1,156.9  
Accumulated other comprehensive loss(8.6) (9.7) 
Total PBF Holding Company LLC equity2,948.1  3,886.3  
Noncontrolling interest10.9  10.9  
Total equity2,959.0  3,897.2  
Total liabilities and equity$9,612.6  $8,845.6  

See notes to condensed consolidated financial statements.
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PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in millions)
 
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues$2,499.1  $6,551.9  $7,759.1  $11,760.6  
Cost and expenses:
Cost of products and other1,820.8  6,025.4  7,854.2  10,301.6  
Operating expenses (excluding depreciation and amortization expense as reflected below)423.7  409.7  931.2  863.1  
Depreciation and amortization expense111.1  95.3  216.5  189.6  
Cost of sales2,355.6  6,530.4  9,001.9  11,354.3  
General and administrative expenses (excluding depreciation and amortization expense as reflected below)53.3  46.6  131.5  97.8  
Depreciation and amortization expense2.8  2.9  5.7  5.7  
Change in fair value of contingent consideration(12.4) —  (65.4) —  
Equity income in investee—  (3.2) —  (7.9) 
(Gain) loss on sale of assets(471.1) 0.8  (471.1) 0.8  
Total cost and expenses1,928.2  6,577.5  8,602.6  11,450.7  
Income (loss) from operations570.9  (25.6) (843.5) 309.9  
Other income (expense):
Interest expense, net(52.8) (29.6) (89.3) (57.0) 
Change in fair value of catalyst obligations(5.1) 0.5  6.6  (2.6) 
Debt extinguishment costs—  —  (22.2) —  
Other non-service components of net periodic benefit cost1.1  —  2.1  (0.1) 
Income (loss) before income taxes514.1  (54.7) (946.3) 250.2  
Income tax (benefit) expense(4.4) 1.8  9.8  (5.4) 
Net income (loss)518.5  (56.5) (956.1) 255.6  
Less: net income attributable to noncontrolling interests—  0.1  —  0.1  
Net income (loss) attributable to PBF Holding Company LLC$518.5  $(56.6) $(956.1) $255.5  

See notes to condensed consolidated financial statements.
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PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in millions)
 

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net income (loss)$518.5  $(56.5) $(956.1) $255.6  
Other comprehensive income:
Unrealized gain on available for sale securities0.1  0.3  0.7  0.3  
Net gain on pension and other post-retirement benefits0.2  0.2  0.4  0.4  
Total other comprehensive income0.3  0.5  1.1  0.7  
Comprehensive income (loss)518.8  (56.0) (955.0) 256.3  
Less: comprehensive income attributable to noncontrolling interests—  0.1  —  0.1  
Comprehensive income (loss) attributable to PBF Holding Company LLC$518.8  $(56.1) $(955.0) $256.2  


See notes to condensed consolidated financial statements.
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PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited, in millions)

 Member’s EquityAccumulated
Other
Comprehensive
Income (Loss)
Retained EarningsNoncontrolling
Interest
Total
Equity
 
Balance, March 31, 2020$2,745.9  $(8.9) $(338.8) $10.9  $2,409.1  
Capital contributions from PBF LLC24.4  —  —  —  24.4  
Stock-based compensation6.7  —  —  —  6.7  
Net income—  —  518.5  —  518.5  
Other comprehensive income—  0.3  —  —  0.3  
Balance, June 30, 2020$2,777.0  $(8.6) $179.7  $10.9  $2,959.0  
Balance, March 31, 2019$2,658.4  $(23.7) $1,179.4  $10.9  $3,825.0  
Member distributions—  —  (36.4) —  (36.4) 
Capital contributions from PBF LLC202.5  —  —  —  202.5  
Distribution of TVPC investment(168.8) —  —  —  (168.8) 
Stock-based compensation7.7  —  —  —  7.7  
Net income (loss)—  —  (56.6) 0.1  (56.5) 
Other comprehensive income—  0.5  —  —  0.5  
Balance, June 30, 2019$2,699.8  $(23.2) $1,086.4  $11.0  $3,774.0  
















See notes to condensed consolidated financial statements.
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PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited, in millions)

Member’s EquityAccumulated
Other
Comprehensive
Income (Loss)
Retained EarningsNoncontrolling
Interest
Total
Equity
Balance, December 31, 2019$2,739.1  $(9.7) $1,156.9  $10.9  $3,897.2  
Members distributions—  —  (21.1) —  (21.1) 
Capital contributions from PBF LLC24.4  —  —  —  24.4  
Stock-based compensation13.5  —  —  —  13.5  
Net income (loss)—  —  (956.1) —  (956.1) 
Other comprehensive income—  1.1  —  —  1.1  
Balance, June 30, 2020$2,777.0  $(8.6) $179.7  $10.9  $2,959.0  
Balance, December 31, 2018$2,652.5  $(23.9) $890.3  $10.9  $3,529.8  
Members distributions—  —  (59.4) —  (59.4) 
Capital contributions from PBF LLC202.5  —  —  —  202.5  
Distribution of TVPC investment(168.8) —  —  —  (168.8) 
Distribution of assets to PBF LLC(0.3) —  —  —  (0.3) 
Stock-based compensation13.9  —  —  —  13.9  
Net income—  —  255.5  0.1  255.6  
Other comprehensive income—  0.7  —  —  0.7  
Balance, June 30, 2019$2,699.8  $(23.2) $1,086.4  $11.0  $3,774.0  






See notes to condensed consolidated financial statements.
9


PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net income (loss)$(956.1) $255.6  
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization229.4  198.4  
Stock-based compensation16.4  15.7  
Change in fair value of catalyst obligations(6.6) 2.6  
Deferred income taxes9.8  (5.3) 
Non-cash change in inventory repurchase obligations(25.7) 35.0  
Non-cash lower of cost or market inventory adjustment701.4  (324.0) 
Change in fair value of contingent consideration(65.4) —  
Debt extinguishment costs22.2  —  
Pension and other post-retirement benefit costs27.3  22.4  
Income from equity method investee—  (7.9) 
Distributions from equity method investee—  7.9  
(Gain) loss on sale of assets(471.1) 0.8  
Changes in operating assets and liabilities:
Accounts receivable403.7  (274.1) 
Due to/from affiliates6.3  12.9  
Inventories24.8  (124.6) 
Prepaid and other current assets(54.6) (34.1) 
Accounts payable(185.9) (34.3) 
Accrued expenses(360.4) 200.0  
Deferred revenue1.1  5.3  
Other assets and liabilities(24.5) (28.3) 
Net cash used in operating activities$(707.9) $(76.0) 
Cash flows from investing activities:
Expenditures for property, plant and equipment(112.6) (190.9) 
Expenditures for deferred turnaround costs(159.2) (261.9) 
Expenditures for other assets(7.2) (33.9) 
Acquisition of Martinez refinery(1,176.2) —  
Proceeds from sale of assets529.4  —  
Equity method investment - return of capital—  0.6  
Net cash used in investing activities$(925.8) $(486.1) 

See notes to condensed consolidated financial statements.
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PBF HOLDING COMPANY LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited, in millions)
Six Months Ended June 30,
20202019
Cash flows from financing activities:
Contributions from PBF LLC$24.4  $202.5  
Distributions to members(21.1) (59.4) 
Proceeds from 2025 9.25% Senior Secured Notes1,000.0  —  
Proceeds from 2028 6.00% Senior Notes1,000.0  —  
Redemption of 2023 7.00% Senior Notes(517.5) —  
Repayments of PBF Rail Term Loan(3.6) (3.5) 
Proceeds from revolver borrowings1,150.0  1,250.0  
Repayments of revolver borrowings(550.0) (1,250.0) 
Settlement of catalyst obligations(8.8) (1.2) 
Payments on financing leases(5.7) —  
Proceeds from insurance premium financing33.8  18.9  
Deferred financing costs and other(27.8) (0.1) 
Net cash provided by financing activities$2,073.7  $157.2  
Net increase (decrease) in cash and cash equivalents440.0  (404.9) 
Cash and cash equivalents, beginning of period763.1  561.7  
Cash and cash equivalents, end of period$1,203.1  $156.8  
Supplemental cash flow disclosures
Non-cash activities:
Accrued and unpaid capital expenditures$29.8  $39.5  
Assets acquired under operating and financing leases224.3  1,014.1  
Fair value of the Martinez Contingent Consideration at acquisition77.3  —  
Distribution of assets to PBF Energy Company LLC—  169.1  
Cash paid during the period for:
Interest (net of capitalized interest of $5.6 and $7.8 in 2020 and 2019, respectively)$49.2  $49.7  
Income taxes0.1  0.7  

See notes to condensed consolidated financial statements.
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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
PBF Holding Company LLC (“PBF Holding”), a Delaware limited liability company, and PBF Finance Corporation (“PBF Finance”), a wholly-owned subsidiary of PBF Holding, together with the Company’s consolidated subsidiaries, owns and operates oil refineries and related facilities in North America. PBF Holding is a wholly-owned subsidiary of PBF Energy Company LLC (“PBF LLC”). PBF Energy Inc. (“PBF Energy”) is the sole managing member of, and owner of an equity interest representing approximately 99.2% of the outstanding economic interest in, PBF LLC as of June 30, 2020. PBF Investments LLC, Toledo Refining Company LLC, Paulsboro Refining Company LLC, Delaware City Refining Company LLC, Chalmette Refining, L.L.C. (“Chalmette Refining”), PBF Energy Western Region LLC, Torrance Refining Company LLC, Torrance Logistics Company LLC and Martinez Refining Company LLC are PBF LLC’s principal operating subsidiaries and are all wholly-owned subsidiaries of PBF Holding. Collectively, PBF Holding and its consolidated subsidiaries are referred to hereinafter as the “Company”.
PBF Logistics GP LLC (“PBF GP”) serves as the general partner of PBF Logistics LP (“PBFX”). PBF GP is wholly-owned by PBF LLC. In a series of transactions, PBF Holding has distributed certain assets to PBF LLC, which in turn contributed those assets to PBFX (as described in “Note 7 - Related Party Transactions”).
Substantially all of the Company’s operations are in the United States. As of June 30, 2020, the Company’s oil refineries are all engaged in the refining of crude oil and other feedstocks into petroleum products, and have been aggregated to form 1 reportable segment. To generate earnings and cash flows from operations, the Company is primarily dependent upon processing crude oil and selling refined petroleum products at margins sufficient to cover fixed and variable costs and other expenses. Crude oil and refined petroleum products are commodities, and factors that are largely out of the Company’s control can cause prices to vary over time. The resulting potential margin volatility can have a material effect on the Company’s financial position, earnings and cash flows.
Basis of Presentation
The unaudited condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, considered necessary for a fair presentation of the financial position and the results of operations and cash flows of the Company for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. These unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim Condensed Consolidated Financial Statements should be read in conjunction with the PBF Holding and PBF Finance financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.
Reclassification
As of June 30, 2020, Financing lease right of use assets - third party, previously included in Deferred charges and other assets, net, in the Condensed Consolidated Balance Sheets, are reflected within Lease right of use assets - third party, which is inclusive of all third party lease right of use assets. Financing lease liabilities - third party, previously included in Other long-term liabilities, in the Condensed Consolidated Balance Sheet, is presented as a separate line item in the Condensed Consolidated Financial Statements. The amounts related to such balance sheet accounts have also been reclassified in their respective footnotes for prior periods to conform to the 2020 presentation.

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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Interim Impairment Assessment
The global crisis resulting from the spread of the recent novel coronavirus (“COVID-19”) pandemic continues to have a substantial impact on the economy and overall consumer demand for energy and hydrocarbon products. As a result of the enduring throughput reductions across the Company’s refineries and continued decrease in demand for the Company’s products during the quarter, the Company determined an impairment triggering event had occurred. As such, the Company performed an interim impairment assessment on certain long-lived assets as of June 30, 2020. As a result of the interim impairment test, the Company concluded that the carrying values of its long-lived assets were not impaired when comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from use of the assets over their remaining estimated useful life.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This guidance amends the guidance on measuring credit losses on financial assets held at amortized cost. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this ASU effective January 1, 2020. The adoption of this ASU does not currently impact the Company’s Condensed Consolidated Financial Statements. Refer to “Note 3 - Current Expected Credit Losses” for further disclosure related to our adoption of this pronouncement.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting”. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference London Interbank Offering Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by topic or industry subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the impact of this new standard on its Condensed Consolidated Financial Statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)”, to improve the effectiveness of benefit plan disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Additionally, the amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this ASU are effective for fiscal years ending after December 15, 2020, for public business entities and early adoption is permitted for all entities. The Company is currently evaluating the impact of this new standard on its Condensed Consolidated Financial Statements and related disclosures.

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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
Martinez Acquisition
On February 1, 2020, the Company acquired from Equilon Enterprises LLC d/b/a Shell Oil Products US (the "Seller"), the Martinez refinery and related logistics assets (collectively, the "Martinez Acquisition"), pursuant to a sale and purchase agreement dated June 11, 2019 (the “Sale and Purchase Agreement”). The Martinez refinery, located in Martinez, California, is a high-conversion, dual-coking facility that is strategically positioned in Northern California and provides for operating and commercial synergies with the Torrance refinery located in Southern California.
In addition to refining assets, the Martinez Acquisition includes a number of onsite logistics assets, including a deep-water marine facility, product distribution terminals and refinery crude and product storage facilities.
The aggregate purchase price for the Martinez Acquisition was $1,253.4 million, including final working capital of $216.1 million and the Martinez Contingent Consideration, as defined below. The transaction was financed through a combination of cash on hand, including proceeds from the 2028 Senior Notes (as defined in “Note 6 - Debt”), and borrowings under PBF Holding’s asset-based revolving credit agreement (the “Revolving Credit Facility”).
The Company accounted for the Martinez Acquisition as a business combination under GAAP whereby it recognizes assets acquired and liabilities assumed in an acquisition at their estimated fair values as of the date of acquisition. The purchase price and fair value allocation may be subject to adjustment pending completion of the final purchase valuation, which was in process as of June 30, 2020.
The total purchase consideration and the fair values of the assets and liabilities at the acquisition date, which may be subject to adjustments as noted above, were as follows:

(in millions)Purchase Price
Gross purchase price$960.0  
Working capital, including post close adjustments216.1  
Contingent consideration (a)77.3  
Total consideration$1,253.4  

(a) The Martinez Acquisition includes an obligation for the Company to make post-closing earn-out payments to the Seller based on certain earnings thresholds of the Martinez refinery (as set forth in the Sale and Purchase Agreement), for a period of up to four years following the acquisition closing date (the “Martinez Contingent Consideration”). The Company recorded the Martinez Contingent Consideration based on its estimated fair value of $77.3 million at the acquisition date, which was recorded within “Other long-term liabilities” within the Condensed Consolidated Balance Sheets.

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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date:
(in millions)Fair Value Allocation
Inventories$224.1  
Prepaid and other current assets5.4  
Property, plant and equipment987.9  
Operating lease right of use assets (a)7.8  
Financing lease right of use assets (a)63.5  
Deferred charges and other assets, net63.7  
Accrued expenses(1.4) 
Current operating lease liabilities(1.9) 
Current financing lease liabilities (b)(6.0) 
Long-term operating lease liabilities(5.9) 
Long-term financing lease liabilities(57.5) 
Other long-term liabilities - Environmental obligation(26.3) 
Fair value of net assets acquired$1,253.4  
(a) Operating and Financing lease right of use assets are recorded in Lease right of use assets - third party within the Condensed Consolidated Balance Sheet.
(b) Current financing lease liabilities are recorded in Accrued expenses within the Condensed Consolidated Balance Sheet.

The Company’s Condensed Consolidated Financial Statements for the six months ended June 30, 2020 include the results of operations of the Martinez refinery and related logistics assets subsequent to the Martinez Acquisition. The same period in 2019 does not include the results of operations of such assets. On an unaudited pro-forma basis, the revenues and net income (loss) of the Company, assuming the acquisition had occurred on January 1, 2019, are shown below. The unaudited pro-forma information does not purport to present what the Company’s actual results would have been had the Martinez Acquisition occurred on January 1, 2019, nor is the financial information indicative of the results of future operations. The unaudited pro-forma financial information includes the depreciation and amortization expense related to the Martinez Acquisition and interest expense associated with the related financing.
Six Months Ended June 30, 2020Six Months Ended June 30, 2019
(Unaudited, in millions)
Pro-forma revenues$8,122.9  $13,845.8  
Pro-forma net income (loss) attributable to PBF Holding(987.4) 218.4  

Acquisition Expenses
The Company incurred acquisition-related costs of $10.7 million for the six months ended June 30, 2020 consisting primarily of first quarter consulting and legal expenses related to the Martinez Acquisition. There were no material acquisition-related expenses during the three months ended June 30, 2020. There were 0 acquisition-related costs during the three and six months ended June 30, 2019. These costs are included in General and administrative expenses within the Condensed Consolidated Statements of Operations.

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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. CURRENT EXPECTED CREDIT LOSSES
Credit Losses
The Company has exposure to credit losses primarily through its sales of refined products. The Company evaluates creditworthiness on an individual customer basis. The Company utilizes a financial review model for purposes of evaluating creditworthiness which is based on information from financial statements and credit reports. The financial review model enables the Company to assess the customer’s risk profile and determine credit limits on the basis of their financial strength, including but not limited to, their liquidity, leverage, debt serviceability, longevity and how they pay their bills. The Company may require security in the form of letters of credit or cash payments in advance of product delivery for certain customers that are deemed higher risk.
The Company’s payment terms on its trade receivables are relatively short, generally 30 days or less for a substantial majority of its refined products. As a result, the Company’s collection risk is mitigated to a certain extent by the fact that sales are collected in a relatively short period of time, allowing for the ability to reduce exposure on defaults if collection issues are identified. Notwithstanding, the Company reviews each customer’s credit risk profile at least annually or more frequently if warranted. Following the widespread market disruption that has resulted from the COVID-19 pandemic and related governmental responses, the Company has been performing ongoing credit reviews of its customers including monitoring for any negative credit events such as customer bankruptcy or insolvency events. As a result, the Company has adjusted payment terms or limited available trade credit for certain customers, as well as for customers within industries that are deemed to be at higher risk.
The Company performs a quarterly allowance for doubtful accounts analysis to assess whether an allowance needs to be recorded for any outstanding trade receivables. In estimating credit losses, management reviews accounts that are past due, have known disputes or have experienced any negative credit events that may result in future collectability issues. There was 0 allowance for doubtful accounts recorded as of June 30, 2020 and December 31, 2019.
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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
Inventories consisted of the following:
June 30, 2020
(in millions)Titled InventoryInventory Intermediation AgreementsTotal
Crude oil and feedstocks$1,254.0  $—  $1,254.0  
Refined products and blendstocks1,056.3  277.2  1,333.5  
Warehouse stock and other135.7  —  135.7  
$2,446.0  $277.2  $2,723.2  
Lower of cost or market adjustment(965.7) (137.3) (1,103.0) 
Total inventories$1,480.3  $139.9  $1,620.2  

December 31, 2019
(in millions)Titled InventoryInventory Intermediation AgreementsTotal
Crude oil and feedstocks$1,071.4  $2.7  $1,074.1  
Refined products and blendstocks976.0  352.9  1,328.9  
Warehouse stock and other120.8  —  120.8  
$2,168.2  $355.6  $2,523.8  
Lower of cost or market adjustment(324.8) (76.8) (401.6) 
Total inventories$1,843.4  $278.8  $2,122.2  
Inventory under the amended and restated inventory intermediation agreements with J. Aron & Company, a subsidiary of The Goldman Sachs Group, Inc. (“J. Aron”) (as amended and restated from time to time, the “Inventory Intermediation Agreements”), includes crude oil, intermediate and certain finished products (the “J. Aron Products”) purchased or produced by the Paulsboro and Delaware City refineries (the “East Coast Refineries”), and sold to counterparties in connection with such agreements. This inventory is held in the Company’s storage tanks at the East Coast Refineries and at PBFX’s assets acquired from Crown Point International, LLC in October 2018 (the “PBFX East Coast Storage Assets” and together with the Company’s storage tanks at the East Coast Refineries, the “J. Aron Storage Tanks”).
During the three months ended June 30, 2020, the Company recorded an adjustment to value its inventories to the lower of cost or market which increased operating income by $584.2 million, reflecting the net change in the lower of cost or market (“LCM”) inventory reserve from $1,687.2 million at March 31, 2020 to $1,103.0 million at June 30, 2020. During the six months ended June 30, 2020, the Company recorded an adjustment to value its inventories to the lower of cost or market which decreased income from operations by $701.4 million, reflecting the net change in the LCM inventory reserve from $401.6 million at December 31, 2019 to $1,103.0 million at June 30, 2020.
During the three months ended June 30, 2019, the Company recorded an adjustment to value its inventories to the lower of cost or market which decreased operating income by $182.0 million, reflecting the net change in the LCM inventory reserve from $145.8 million at March 31, 2019 to $327.8 million at June 30, 2019. During the six months ended June 30, 2019, the Company recorded an adjustment to value its inventories to the lower of cost or market which increased income from operations by $324.0 million, reflecting the net change in the LCM inventory reserve from $651.8 million at December 31, 2018 to $327.8 million at June 30, 2019.
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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
(in millions)June 30, 2020December 31, 2019
Inventory-related accruals$536.4  $1,103.2  
Inventory intermediation agreements228.7  278.1  
Renewable energy credit and emissions obligations203.1  17.7  
Excise and sales tax payable120.9  98.4  
Accrued transportation costs80.8  88.7  
Accrued refinery maintenance and support costs48.0  16.9  
Accrued interest40.8  6.8  
Accrued utilities39.1  40.1  
Accrued salaries and benefits32.0  77.4  
Environmental liabilities13.2  12.3  
Current finance lease liabilities12.8  6.5  
Accrued capital expenditures10.6  31.0  
Customer deposits8.0  1.8  
Other51.9  12.5  
Total accrued expenses$1,426.3  $1,791.4  
The Company has the obligation to repurchase the J. Aron Products that are held in its J. Aron Storage Tanks in accordance with the Inventory Intermediation Agreements with J. Aron. As of June 30, 2020 and December 31, 2019, a liability is recognized for the Inventory Intermediation Agreements and is recorded at market price for the J. Aron owned inventory held in the Company’s J. Aron Storage Tanks under the Inventory Intermediation Agreements, with any change in the market price being recorded in Cost of products and other.
The Company is subject to obligations to purchase Renewable Identification Numbers (“RINs”) required to comply with the Renewable Fuels Standard. The Company’s overall RINs obligation is based on a percentage of domestic shipments of on-road fuels as established by Environmental Protection Agency. To the degree the Company is unable to blend the required amount of biofuels to satisfy its RINs obligation, RINs must be purchased on the open market to avoid penalties and fines. The Company records its RINs obligation on a net basis in Accrued expenses when its RINs liability is greater than the amount of RINs earned and purchased in a given period and in Prepaid and other current assets when the amount of RINs earned and purchased is greater than the RINs liability. In addition, the Company is subject to obligations to comply with federal and state legislative and regulatory measures, including regulations in the state of California pursuant to Assembly Bill 32, to address environmental compliance and greenhouse gas and other emissions. These requirements include incremental costs to operate and maintain our facilities as well as to implement and manage new emission controls and programs. Renewable energy credit and emissions obligations fluctuate with the volume of applicable product sales and timing of credit purchases.
Severance Costs
During the three months ended June 30, 2020, the Company reduced headcount across its refining operations in response to the current challenging market conditions, which resulted in a severance charge of approximately $12.9 million included within General and administrative expenses. The Company recorded this liability within Accrued salaries and benefits.
18

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. DEBT
Senior Notes
2028 Senior Notes
On January 24, 2020, PBF Holding entered into an indenture among PBF Holding and PBF Holding’s wholly-owned subsidiary, PBF Finance (together with PBF Holding, the “Issuers”), the guarantors named therein (collectively the “Guarantors”), Wilmington Trust, National Association, as Trustee and Deutsche Bank Trust Company Americas, under which the Issuers issued $1.0 billion in aggregate principal amount of 6.00% senior unsecured notes due 2028 (the “2028 Senior Notes”). The Issuers received net proceeds of approximately $987.0 million from the offering after deducting the initial purchasers’ discount and offering expenses. The Company primarily used the net proceeds to fully redeem the 7.00% senior notes due 2023 (the “2023 Senior Notes”), including accrued and unpaid interest, on February 14, 2020, and to fund a portion of the cash consideration for the Martinez Acquisition. The difference between the carrying value of the 2023 Senior Notes on the date they were reacquired and the amount for which they were reacquired has been classified as Debt extinguishment costs in the Condensed Consolidated Statement of Operations.
In connection with the issuance of the 2028 Senior Notes, the Issuers and the Guarantors entered into a registration rights agreement whereby the Company has agreed to file with the SEC and use reasonable efforts to cause to become effective within 365 days of the closing date, a registration statement relating to an offer to exchange the 2028 Senior Notes for an issue of registered notes with terms substantially identical to the 2028 Senior Notes. The Issuers will be obligated to pay additional interest if they fail to comply with their obligations to register the 2028 Senior Notes within the specified time period. The Company fully intends to file a registration statement for the exchange of the 2028 Senior Notes within the 365 day period following the closing of the 2028 Senior Notes. In addition, there are no restrictions or hindrances that the Company is aware of that would prohibit the Issuers from filing such registration statement and maintaining its effectiveness as stipulated in the registration rights agreement. As such, the Company asserts that it is not probable that it will have to transfer any consideration as a result of the registration rights agreement and thus no loss contingency was recorded.
The 2028 Senior Notes are guaranteed on a senior unsecured basis by substantially all of PBF Holding’s subsidiaries. The 2028 Senior Notes and guarantees are senior unsecured obligations and rank equal in right of payment with all of the Issuers’ and the Guarantors’ existing and future indebtedness, including PBF Holding’s Revolving Credit Facility and the Issuers’ 7.25% senior notes due 2025 (the “2025 Senior Notes”). The 2028 Senior Notes and the guarantees rank senior in right of payment to the Issuers’ and the Guarantors’ existing and future indebtedness that is expressly subordinated in right of payment thereto. The 2028 Senior Notes and the guarantees are effectively subordinated to any of the Issuers’ and the Guarantors’ existing or future secured indebtedness (including the Revolving Credit Facility) to the extent of the value of the collateral securing such indebtedness. The 2028 Senior Notes and the guarantees are structurally subordinated to any existing or future indebtedness and other obligations of the Issuers’ non-guarantor subsidiaries. In addition, the 2028 Senior Notes contain customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on the incurrence of additional indebtedness, equity issuances, and payments. Many of these covenants will cease to apply or will be modified if the 2028 Senior Notes are rated investment grade.
At any time prior to February 15, 2023, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2028 Senior Notes in an amount not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 106.000% of the principal amount of the 2028 Senior Notes, plus any accrued and unpaid interest through the date of redemption. On or after February 15, 2023, the Issuers may redeem all or part of the 2028 Senior Notes, in each case at the redemption prices described in the indenture, together with any accrued and unpaid interest through the date of redemption. In addition, prior to February 15, 2023, the Issuers may redeem all or part of the 2028 Senior Notes at a “make-whole” redemption price described in the indenture, together with any accrued and unpaid interest through the date of redemption.
19

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


2025 Senior Secured Notes
On May 13, 2020, PBF Holding entered into an indenture among the Issuers, the Guarantors, and Wilmington Trust, National Association, as Trustee, Paying Agent, Registrar, Transfer Agent, Authenticating Agent and Notes Collateral Agent, under which the Issuers issued $1.0 billion in aggregate principal amount of 9.25% senior secured notes due 2025 (the “2025 Senior Secured Notes”). The Issuers received net proceeds of approximately $984.8 million from the offering after deducting the initial purchasers’ discount and estimated offering expenses.
The 2025 Senior Secured Notes are guaranteed on a senior secured basis by the majority of PBF Holding’s subsidiaries. The 2025 Senior Secured Notes and guarantees are senior obligations and secured, subject to certain exceptions and permitted liens, on a first-priority basis, by substantially all of PBF Holding's and the guarantors’ present and future assets (other than assets securing PBF Holding's Revolving Credit Facility), which may also constitute collateral securing certain hedging obligations and any existing or future indebtedness that is permitted to be secured on a pari passu basis with the 2025 Senior Secured Notes. The 2025 Senior Secured Notes and guarantees are senior secured obligations and rank equal in right of payment with all of the Issuers’ and the Guarantors’ existing and future senior indebtedness, including PBF Holding’s Revolving Credit Facility, the 2028 Senior Notes and the 2025 Senior Notes. The 2025 Senior Secured Notes and guarantees rank effectively senior to all of the Issuers’ and the Guarantors’ existing and future indebtedness that is not secured by the collateral (including the Revolving Credit Facility, the 2028 Senior Notes and the 2025 Senior Notes), subject to permitted liens on such collateral and certain other exceptions, and senior in right of payment to the Issuers’ and the Guarantors’ existing and future indebtedness that is expressly subordinated in right of payment thereto. The 2025 Senior Secured Notes and the guarantees are effectively subordinated to any of the Issuers’ and the Guarantors’ existing or future secured indebtedness that is secured by liens on assets owned by the Company that do not constitute part of the collateral securing the 2025 Senior Secured Notes and the guarantees (including the assets securing the Revolving Credit Facility) to the extent of the value of the collateral securing such indebtedness. The 2025 Senior Secured Notes and the guarantees are structurally subordinated to any existing or future indebtedness and other obligations of the Issuers’ non-guarantor subsidiaries. In addition, the 2025 Senior Secured Notes contain customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on the incurrence of additional indebtedness, equity issuances, and payments. Many of these covenants will cease to apply or will be modified if the 2025 Senior Secured Notes are rated investment grade.
At any time prior to May 15, 2022, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2025 Senior Secured Notes in an amount not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 109.250% of the principal amount of the 2025 Senior Secured Notes, plus any accrued and unpaid interest through the date of redemption. On or after May 15, 2022, the Issuers may redeem all or part of the 2025 Senior Secured Notes, in each case at the redemption prices described in the indenture, together with any accrued and unpaid interest through the date of redemption. In addition, prior to May 15, 2022, the Issuers may redeem all or part of the 2025 Senior Secured Notes at a “make-whole” redemption price described in the indenture, together with any accrued and unpaid interest to the date of redemption.
In addition, the Issuers may redeem in the aggregate up to 35% of the original aggregate principal amount of the 2025 Senior Secured Notes in an amount not to exceed the net cash proceeds of any loan received pursuant to a Regulatory Debt Facility (as defined in the indenture) at a redemption price (expressed as a percentage of principal amount thereof) of 104.625%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, provided, however, that at least 65% of the original aggregate principal amount of 2025 Senior Secured Notes originally issued under the indenture remains outstanding after the occurrence of each such redemption.
20

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PBF Holding Revolving Credit Facility
The Revolving Credit Facility has a maximum commitment of $3.4 billion, a maturity date of May 2023, and a Borrowing Base, as defined in the agreement governing the Revolving Credit Facility (the “Revolving Credit Agreement”) to make funds available for working capital and other general corporate purposes. Borrowings under the Revolving Credit Facility bear interest at the Alternative Base Rate plus the Applicable Margin or at the Adjusted LIBOR plus the Applicable Margin, all as defined in the Revolving Credit Agreement. In addition, an accordion feature allows for commitments of up to $3.5 billion.
The outstanding borrowings under the Revolving Credit Facility as of June 30, 2020 were $600.0 million. There were 0 outstanding borrowings under the Revolving Credit Facility as of December 31, 2019.
On February 18, 2020, in connection with its entry into a $300.0 million uncommitted receivables purchase facility (the “Receivables Facility”), the Company amended the Revolving Credit Agreement and entered into a related intercreditor agreement to allow it to sell certain Eligible Receivables (as defined in the Revolving Credit Agreement) derived from the sale of refined product over truck racks. Under the Receivables Facility, the Company sells such receivables to a bank subject to bank approval and certain conditions. The sales of receivables under the Receivables Facility are absolute and irrevocable but subject to certain repurchase obligations under certain circumstances.
On May 7, 2020, the Company further amended the Revolving Credit Facility, to increase its ability to incur certain secured debt from an amount equal to 10% of its total assets to 20% of its total assets.

21

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. RELATED PARTY TRANSACTIONS
Transactions and Agreements with PBFX
The Company entered into agreements with PBFX that establish fees for certain general and administrative services, and operational and maintenance services provided by the Company to PBFX. In addition, the Company executed terminal, pipeline and storage services agreements with PBFX under which PBFX provides commercial transportation, terminaling, storage and pipeline services to the Company. These agreements with PBFX include:
Contribution Agreements
Immediately prior to the closing of certain contribution agreements, which PBF LLC entered into with PBFX (collectively referred to as the “Contribution Agreements”), the Company contributed certain assets to PBF LLC. PBF LLC in turn contributed those assets to PBFX pursuant to the Contribution Agreements. Certain proceeds received by PBF LLC from PBFX in accordance with the Contribution Agreements were subsequently contributed by PBF LLC to the Company.
Refer to the Company’s 2019 Annual Report on Form 10-K (“Note 9 - Related Party Transactions” of the Notes to Consolidated Financial Statements) for a more complete description of the Contribution Agreements with PBFX that were entered into prior to 2020.
Commercial Agreements
The Company has entered into long-term, fee-based commercial agreements with PBFX relating to assets associated with the Contribution Agreements, the majority of which include a minimum volume commitment (“MVC”) and are supported by contractual fee escalations for inflation adjustments and certain increases in operating costs. Under these agreements, PBFX provides various pipeline, rail and truck terminaling and storage services to the Company and the Company has committed to provide PBFX with minimum fees based on minimum monthly throughput volumes. The Company believes the terms and conditions under these agreements, as well as the Omnibus Agreement and the Services Agreement (each as defined below) with PBFX, are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services.
Refer to the Company’s 2019 Annual Report on Form 10-K (“Note 9 - Related Party Transactions” of the Notes to Consolidated Financial Statements) for a more complete description of the Company’s commercial agreements with PBFX, including those identified as leases, that were entered into prior to 2020. No new material agreements, or amendments, were entered into during the six months ended June 30, 2020.
Other Agreements
In addition to the commercial agreements described above, the Company has entered into an omnibus agreement with PBFX, PBF GP and PBF LLC, which has been amended and restated in connection with certain Contribution Agreements (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. The annual fee was increased to $8.3 million effective as of January 1, 2020.
22

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Additionally, the Company and certain of its subsidiaries have entered into an operation and management services and secondment agreement with PBFX (as amended, the “Services Agreement”), pursuant to which the Company and its subsidiaries provide PBFX with the personnel necessary for PBFX to perform its obligations under its commercial agreements. PBFX reimburses the Company 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 PBFX may terminate any service upon 30-days’ notice.
Refer to the Company’s 2019 Annual Report on Form 10-K (“Note 9 - Related Party Transactions” of the Notes to Consolidated Financial Statements) for a more complete description of the Omnibus Agreement and the Services Agreement.
Summary of Transactions with PBFX
A summary of the Company’s affiliate transactions with PBFX is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in millions)2020201920202019
Reimbursements under affiliate agreements:
Services Agreement$2.1  $2.2  $4.3  $4.3  
Omnibus Agreement1.9  1.7  3.9  3.5  
Total expenses under affiliate agreements72.4  74.7  147.9  146.0  
Total reimbursements under the Omnibus Agreement are included in General and administrative expenses and reimbursements under the Services Agreement and expenses under affiliate agreements are included in Cost of products and other in the Company’s Condensed Consolidated Statements of Operations.

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PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES
In the ordinary conduct of the Company’s business, the Company is from time to time subject to lawsuits, investigations and claims, including class action proceedings, mass tort actions, tort actions, environmental claims and employee-related matters. The outcome of these matters cannot always be predicted accurately, but the Company accrues liabilities for these matters if the Company has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. For such ongoing matters for which we have not recorded a liability but losses are reasonably possible, we are unable to estimate a range of possible losses at this time due to various reasons that may include but are not limited to, matters being in an early stage and not fully developed through pleadings, discovery or court proceedings, number of potential claimants being unknown or uncertainty regarding a number of different factors underlying the potential claims. However, the ultimate resolution of one or more of these contingencies could result in an adverse outcome that may have a material effect on our financial position, results of operations or cash flows.
Environmental Matters
The Company’s refineries, pipelines and related operations 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 compositions of fuels. Compliance with existing and anticipated laws and regulations can increase the overall cost of operating the refineries, including remediation, operating costs and capital costs to construct, maintain and upgrade equipment and facilities.
These laws and permits raise potential exposure to future claims and lawsuits involving environmental and safety matters which could include soil and water contamination, air pollution, personal injury and property damage allegedly caused by substances which the Company manufactured, handled, used, released or disposed of, transported, or that relate to pre-existing conditions for which the Company has assumed responsibility. The Company believes that its current operations are in substantial compliance with existing environmental and safety requirements. However, there have been and will continue to be ongoing discussions about environmental and safety matters between the Company and federal and state authorities, including notices of violations, citations and other enforcement actions, some of which have resulted or may result in changes to operating procedures and in capital expenditures. While it is often difficult to quantify future environmental or safety related expenditures, the Company anticipates that continuing capital investments and changes in operating procedures will be required for the foreseeable future to comply with existing and new requirements, as well as evolving interpretations and more strict enforcement of existing laws and regulations.
In connection with the acquisition of the Torrance refinery and related logistics assets, the Company assumed certain pre-existing environmental liabilities totaling $118.0 million as of June 30, 2020 ($121.3 million as of December 31, 2019), related to certain environmental remediation obligations to address existing soil and groundwater contamination and monitoring activities and other clean-up activities, which reflects the current estimated cost of the remediation obligations. The current portion of the environmental liability is recorded in Accrued expenses and the non-current portion is recorded in Other long-term liabilities.
The aggregate environmental liability reflected in the Company’s Condensed Consolidated Balance Sheets was $156.7 million and $132.2 million at June 30, 2020 and December 31, 2019, respectively, of which $143.5 million and $119.9 million, respectively, were classified as Other long-term liabilities. These liabilities include remediation and monitoring costs expected to be incurred over an extended period of time. Estimated liabilities could increase in the future when the results of ongoing investigations become known, are considered probable and can be reasonably estimated.



24

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contingent Consideration
In connection with the Martinez Acquisition, the Sale and Purchase Agreement includes an earn-out provision based on certain earning thresholds of the Martinez refinery. Pursuant to the agreement, the Company will make payments to the Seller based on the future earnings of the Martinez refinery in excess of certain thresholds, as defined in the agreement, for a period of up to four years following the acquisition closing date. The Company recorded the acquisition date fair value of the earn-out provision as contingent consideration of $77.3 million within “Other long-term liabilities” within the Company’s Condensed Consolidated Balance Sheets. The Martinez Contingent Consideration was $13.4 million as of June 30, 2020, representing the present value of expected future payments discounted at a blended rate of 13.6%. At June 30, 2020, the estimated undiscounted liability totaled $19.9 million, based on the Company’s anticipated future earn-out payments.

9. LEASES
The Company leases office space, office equipment, refinery support facilities and equipment, railcars and other logistics assets primarily under non-cancelable operating leases, with terms typically ranging from one to twenty years, subject to certain renewal options as applicable. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of lease liabilities and right-of-use assets. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Interest expense for finance leases is incurred based on the carrying value of the lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.
For substantially all classes of underlying assets, the Company has elected the practical expedient not to separate lease and non-lease components, which allows for combining the components if certain criteria are met. For certain leases of refinery support facilities, which have commenced subsequent to the year ended December 31, 2019, the Company accounts for the non-lease service component separately. There are no material residual value guarantees associated with any of the Company’s leases. There are no significant restrictions or covenants included in the Company’s lease agreements other than those that are customary in such arrangements. Certain of the Company’s leases, primarily for the Company’s commercial and logistics asset classes, include provisions for variable payments. These variable payments are typically determined based on a measure of throughput or actual days the asset has operated during the contract term or another measure of usage and are not included in the initial measurement of lease liabilities and right of use assets.
25

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Lease Position as of June 30, 2020 and December 31, 2019
The table below presents the lease related assets and liabilities recorded on the Company’s Condensed Consolidated Balance Sheets for the periods presented:
(in millions)Classification on the Balance SheetJune 30, 2020December 31, 2019
Assets
Operating lease assets - third partyLease right of use assets - third party$407.4  $306.1  
Operating lease assets - affiliateLease right of use assets - affiliate611.7  650.3  
Finance lease assetsLease right of use assets - third party81.3  24.2  
Total lease right of use assets$1,100.4  $980.6  
Liabilities
Current liabilities:
Operating lease liabilities - third partyCurrent operating lease liabilities - third party$148.5  $72.0  
Operating lease liabilities - affiliateCurrent operating lease liabilities - affiliate82.2  79.2  
Finance lease liabilities - third partyAccrued expenses12.8  6.5  
Noncurrent liabilities:
Operating lease liabilities - third partyLong-term operating lease liabilities - third party257.2  232.9  
Operating lease liabilities - affiliateLong-term operating lease liabilities - affiliate529.4  571.1  
Finance lease liabilities - third partyLong-term financing lease liabilities - third party70.0  18.4  
Total lease liabilities$1,100.1  $980.1  
Lease Costs
The table below provides certain information related to costs for the Company’s leases for the periods presented:

Three Months Ended June 30,Six Months Ended June 30,
Lease Costs (in millions)
2020201920202019
Components of total lease costs:
Finance lease cost
Amortization of lease right of use assets$3.6  $0.4  $6.5  $0.4  
Interest on lease liabilities1.1  0.2  2.0  0.2  
Operating lease cost74.2  62.9  134.7  116.2  
Short-term lease cost26.6  25.1  48.6  48.4  
Variable lease cost8.2  4.1  18.8  14.2  
Total lease costs$113.7  $92.7  $210.6  $179.4  
26

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sale-leaseback Transactions
On April 17, 2020, the Company closed on the sale of 5 hydrogen plants to Air Products and Chemicals, Inc. (“Air Products”) in a sale-leaseback transaction for gross cash proceeds of $530.0 million and recognized a gain of $471.1 million. In connection with the sale, the Company entered into a transition services agreement through which Air Products will exclusively supply hydrogen, steam, carbon dioxide and other products (the “Products”) to the Martinez, Torrance and Delaware City refineries for a specified period (not expected to exceed 18 months) until the parties agree on a long-term supply agreement for the Products. The transition services agreement also requires certain maintenance and operating activities to be provided by PBF Holding, for which the Company will be reimbursed, during the term of the agreement.
Other Information
The table below provides supplemental cash flow information related to leases for the periods presented (in millions):
Six Months Ended June 30,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$135.2  $108.4  
Operating cash flows for finance leases2.0  0.2  
Financing cash flows for finance leases5.7  0.2  
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets224.3  160.1  
Lease Term and Discount Rate
The table below presents certain information related to the weighted average remaining lease term and weighted average discount rate for the Company’s leases as of June 30, 2020:
Weighted average remaining lease term - operating leases7.8 years
Weighted average remaining lease term - finance leases7.6 years
Weighted average discount rate - operating leases7.5 %
Weighted average discount rate - finance leases5.3 %
27

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Undiscounted Cash Flows
The table below reconciles the fixed component of the undiscounted cash flows for each of the periods presented to the lease liabilities recorded on the Condensed Consolidated Balance Sheets as of June 30, 2020:
Amounts due within twelve months of June 30, (in millions)
Finance LeasesOperating Leases
2020$16.8  $299.0  
202113.9  210.7  
202211.1  173.3  
202311.1  159.4  
202411.1  142.5  
Thereafter37.0  396.6  
Total minimum lease payments101.0  1,381.5  
Less: effect of discounting18.2  364.2  
Present value of future minimum lease payments82.8  1,017.3  
Less: current obligations under leases12.8  230.7  
Long-term lease obligations$70.0  $786.6  
As of June 30, 2020, the Company entered into certain leases that had not yet commenced. Such leases include a 15-year lease for hydrogen supply, with future payments estimated to total approximately $212.6 million, which commenced in the third quarter of 2020. No other such pending leases, either individually or in the aggregate, are material. There are no material lease arrangements in which the Company is the lessor.
In the normal course of business, the Company enters into certain affiliate lease arrangements with PBFX for the use of certain storage, terminaling and pipeline assets. The Company believes that the terms and conditions under these leases are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. The terms for these affiliate leases generally range from seven to fifteen years. The Company uses the same methodology for discounting the lease payments on affiliate leases as it does for third party leases as described above. For the three and six months ended June 30, 2020, the Company incurred operating lease costs related to affiliate operating leases of $32.2 million and $64.5 million, respectively. For the three and six months ended June 30, 2019, the Company incurred operating lease costs related to affiliate operating leases of $36.7 million and $64.0 million, respectively.

28

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLANS
Effective February 1, 2020, the Company amended the PBF Energy Pension Plan to, among other things, incorporate into the plan all employees who became employed at the Company’s Martinez, California location on February 1, 2020, in connection with the Martinez Acquisition. The components of net periodic benefit cost related to the Company’s defined benefit plans consisted of the following:
(in millions)Three Months Ended June 30,Six Months Ended June 30,
Pension Benefits2020201920202019
Components of net periodic benefit cost:
Service cost$15.1  $10.9  $28.9  $21.8  
Interest cost1.7  2.1  3.5  4.2  
Expected return on plan assets(3.1) (2.4) (6.2) (4.8) 
Amortization of prior service cost and actuarial loss—  —  0.1  0.1  
Net periodic benefit cost$13.7  $10.6  $26.3  $21.3  
(in millions)Three Months Ended June 30,Six Months Ended June 30,
Post-Retirement Medical Plan2020201920202019
Components of net periodic benefit cost:
Service cost$0.2  $0.3  $0.5  $0.5  
Interest cost0.1  0.1  0.2  0.3  
Amortization of prior service cost and actuarial loss0.2  0.2  0.3  0.3  
Net periodic benefit cost$0.5  $0.6  $1.0  $1.1  

29

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. REVENUES
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The following table provides information relating to the Company’s revenues from external customers for each product or group of similar products for the periods presented:
Three Months Ended June 30,
(in millions)20202019
Gasoline and distillates$2,035.9  $5,570.7  
Feedstocks and other215.3  203.9  
Asphalt and blackoils164.1  531.8  
Chemicals45.5  177.6  
Lubricants38.3  67.9  
Total Revenues$2,499.1  $6,551.9  

Six Months Ended June 30,
(in millions)20202019
Gasoline and distillates$6,606.3  $10,003.7  
Feedstocks and other526.6  404.6  
Asphalt and blackoils371.1  884.8  
Chemicals158.3  329.3  
Lubricants96.8  138.2  
Total Revenues$7,759.1  $11,760.6  

The Company’s revenues are generated from the sale of refined petroleum products. These revenues are largely based on the current spot market prices of the products sold, which represent consideration specifically allocable to the products being sold on a given day, and the Company recognizes those revenues upon delivery and transfer of title to the products to our customers. The time at which delivery and transfer of title occurs is the point when the Company’s control of the products is transferred to the Company’s customers and when its performance obligation to its customers is fulfilled. Delivery and transfer of title are specifically agreed to between the Company and customers within the contracts. The Company also has contracts which contain fixed pricing, tiered pricing, minimum volume features with makeup periods, or other factors that have not materially been affected by ASC 606, Revenues from Contracts with Customers.
Deferred Revenues
The Company records deferred revenues when cash payments are received or are due in advance of performance, including amounts which are refundable. Deferred revenue was $18.1 million and $17.0 million as of June 30, 2020 and December 31, 2019, respectively. Fluctuations in the deferred revenue balance are primarily driven by the timing and extent of cash payments received or due in advance of satisfying the Company’s performance obligations.
The Company’s payment terms vary by type and location of customers and the products offered. The period between invoicing and when payment is due is not significant (i.e. generally within two months). For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
30

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES
PBF Holding is a limited liability company treated as a “flow-through” entity for income tax purposes. Accordingly, there is generally no benefit or expense for federal or state income tax in the PBF Holding financial statements apart from the income tax attributable to 2 subsidiaries acquired in connection with the acquisition of Chalmette Refining and the Company’s wholly-owned Canadian subsidiary, PBF Energy Limited, which are treated as C-Corporations for income tax purposes.
The reported income tax provision in the PBF Holding Condensed Consolidated Financial Statements of Operations consists of the following: 
Three Months Ended June 30,Six Months Ended June 30,
(in millions)2020201920202019
Current income tax benefit$—  $(0.1) $—  $(0.1) 
Deferred income tax (benefit) expense(4.4) 1.9  9.8  (5.3) 
Total income tax (benefit) expense$(4.4) $1.8  $9.8  $(5.4) 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act includes several provisions for corporations, including increasing the amount of deductible interest, allowing companies to carryback certain Net Operating Losses (“NOLs”) and increasing the amount of NOLs that corporations can use to offset income. The CARES Act did not materially affect the Company’s income tax provision, deferred tax assets and liabilities, and related taxes payable for the periods presented. The Company is currently assessing the future implications of these provisions, as applicable, within the CARES Act on its Consolidated Financial Statements.
31

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13. FAIR VALUE MEASUREMENTS
The tables below present information about the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis and indicate the fair value hierarchy of the inputs utilized to determine the fair values as of June 30, 2020 and December 31, 2019.
The Company has elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below. The Company has posted cash margin with various counterparties to support hedging and trading activities. The cash margin posted is required by counterparties as collateral deposits and cannot be offset against the fair value of open contracts except in the event of default. The Company has no derivative contracts that are subject to master netting arrangements that are reflected gross on the Condensed Consolidated Balance Sheets.
As of June 30, 2020
Fair Value HierarchyTotal Gross Fair ValueEffect of Counter-party NettingNet Carrying Value on Balance Sheet
(in millions)Level 1Level 2Level 3
Assets:
Money market funds$401.2  $—  $—  $401.2  N/A$401.2  
Commodity contracts0.1  7.0  1.3  8.4  (8.4) —  
Derivatives included with inventory intermediation agreement obligations—  24.4  —  24.4  —  24.4  
Liabilities:
Commodity contracts0.5  13.6  0.3  14.4  (8.4) 6.0  
Catalyst obligations—  32.1  —  32.1  —  32.1  
Contingent consideration obligation—  —  13.4  13.4  —  13.4  

As of December 31, 2019
Fair Value HierarchyTotal Gross Fair ValueEffect of Counter-party NettingNet Carrying Value on Balance Sheet
(in millions)Level 1Level 2Level 3
Assets:
Money market funds$97.9  $—  $—  $97.9  N/A$97.9  
Commodity contracts32.5  1.5  —  34.0  (33.8) 0.2  
Liabilities:
Commodity contracts32.8  1.0  —  33.8  (33.8) —  
Catalyst obligations—  47.6  —  47.6  —  47.6  
Derivatives included with inventory intermediation agreement obligations—  1.3  —  1.3  —  1.3  

32

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The valuation methods used to measure financial instruments at fair value are as follows:
Money market funds categorized in Level 1 of the fair value hierarchy are measured at fair value based on quoted market prices and included within Cash and cash equivalents.
The commodity contracts categorized in Level 1 of the fair value hierarchy are measured at fair value based on quoted prices in an active market. The commodity contracts categorized in Level 2 of the fair value hierarchy are measured at fair value using a market approach based upon future commodity prices for similar instruments quoted in active markets.
The derivatives included with inventory intermediation agreement obligations and the catalyst obligations are categorized in Level 2 of the fair value hierarchy and are measured at fair value using a market approach based upon commodity prices for similar instruments quoted in active markets.
The commodity contracts categorized in Level 3 of the fair value hierarchy consist of commodity price swap contracts that relate to forecasted purchases of crude oil for which quoted forward market prices are not readily available due to market illiquidity. The forward prices used to value these swaps were derived using broker quotes, prices from other third party sources and other available market based data.
The contingent consideration obligation at June 30, 2020 is categorized in Level 3 of the fair value hierarchy and is estimated using discounted cash flow models based on management’s estimate of the future cash flows related to the earn-out periods. The change in fair value of the obligation during the three and six months ended June 30, 2020 was impacted primarily by the change in estimated future earnings related to the Martinez refinery during the earn-out period.

Non-qualified pension plan assets are measured at fair value using a market approach based on published net asset values of mutual funds as a practical expedient. As of June 30, 2020 and December 31, 2019, $11.1 million and $10.3 million, respectively, were included within Deferred charges and other assets, net for these non-qualified pension plan assets.

The table below summarizes the changes in fair value measurements categorized in Level 3 of the fair value hierarchy:
(in millions)Three Months Ended June 30, 2020Six Months Ended June 30, 2020
Balance at beginning of period$24.3  $—  
Additions—  77.3  
Accretion on discounted liabilities1.5  1.5  
Settlements0.4  0.4  
Unrealized gain included in earnings(13.8) (66.8) 
Balance at end of period$12.4  $12.4  

There were 0 transfers between levels during the three and six months ended June 30, 2020 or 2019, respectively.
33

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair value of debt
The table below summarizes the carrying value and fair value of debt as of June 30, 2020 and December 31, 2019.
June 30, 2020December 31, 2019
(in millions)
Carrying
value
Fair
 value
Carrying
 value
Fair
value
2025 Senior Secured Notes (a)$1,000.0  $1,074.3  $—  $—  
2028 Senior Notes (a)1,000.0  835.0  —  —  
2025 Senior Notes (a)725.0  661.8  725.0  776.5  
2023 Senior Notes (b)—  —  500.0  519.7  
Revolving Credit Facility (c)600.0  600.0  —  —  
PBF Rail Term Loan (c)11.0  11.0  14.5  14.5  
Catalyst financing arrangements (d)32.1  32.1  47.6  47.6  
3,368.1  3,214.2  1,287.1  1,358.3  
Less - Unamortized deferred financing costs(43.4) n/a(24.3) n/a
Long-term debt$3,324.7  $3,214.2  $1,262.8  $1,358.3  

(a)The estimated fair value, 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 outstanding senior notes.
(b)As disclosed in “Note 6 - Debt”, the 2023 Senior Notes were redeemed in full on February 14, 2020.
(c)The estimated fair value approximates carrying value, categorized as a Level 2 measurement, as these borrowings bear interest based upon short-term floating market interest rates.
(d)Catalyst financing arrangements are valued using a market approach based upon commodity prices for similar instruments quoted in active markets and are categorized as a Level 2 measurement. The Company has elected the fair value option for accounting for its catalyst repurchase obligations as the Company’s liability is directly impacted by the change in fair value of the underlying catalyst.


34

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. DERIVATIVES
The Company uses derivative instruments to mitigate certain exposures to commodity price risk. The Company entered into the Inventory Intermediation Agreements that contain purchase obligations for certain volumes of crude oil, intermediates and refined products. The purchase obligations related to crude oil, intermediates and refined products under these agreements are derivative instruments that have been designated as fair value hedges in order to hedge the commodity price volatility of certain refinery inventory. The fair value of these purchase obligation derivatives is based on market prices of the underlying crude oil, intermediates and refined products. The level of activity for these derivatives is based on the level of operating inventories.
As of June 30, 2020, there were 0 barrels of crude oil and feedstocks (27,580 barrels at December 31, 2019) outstanding under these derivative instruments designated as fair value hedges. As of June 30, 2020, there were 2,949,375 barrels of intermediates and refined products (3,430,635 barrels at December 31, 2019) outstanding under these derivative instruments designated as fair value hedges. These volumes represent the notional value of the contract.
The Company also enters into economic hedges primarily consisting of commodity derivative contracts that are not designated as hedges and are used to manage price volatility in certain crude oil and feedstock inventories as well as crude oil, feedstock, and refined product sales or purchases. The objective in entering into economic hedges is consistent with the objectives discussed above for fair value hedges. As of June 30, 2020, there were 9,800,000 barrels of crude oil and 771,000 barrels of refined products (5,511,000 and 5,788,000, respectively, as of December 31, 2019), outstanding under short and long term commodity derivative contracts not designated as hedges representing the notional value of the contracts.
The Company also uses derivative instruments to mitigate the risk associated with the price of credits needed to comply with various governmental and regulatory environmental compliance programs. For such contracts that represent derivatives, the Company elects the normal purchase normal sale exception under ASC 815, Derivatives and Hedging, and therefore does not record them at fair value.
The following tables provide information about the fair values of these derivative instruments as of June 30, 2020 and December 31, 2019 and the line items in the Condensed Consolidated Balance Sheets in which the fair values are reflected.
Description
Balance Sheet Location
Fair Value
Asset/(Liability)
(in millions)
Derivatives designated as hedging instruments:
June 30, 2020:
Derivatives included with the inventory intermediation agreement obligationsAccrued expenses$24.4  
December 31, 2019:
Derivatives included with the inventory intermediation agreement obligationsAccrued expenses$(1.3) 
Derivatives not designated as hedging instruments:
June 30, 2020:
Commodity contractsAccrued expenses$(6.0) 
December 31, 2019:
Commodity contractsAccounts receivable$0.2  

35

PBF HOLDING COMPANY LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information about the gains or losses recognized in income on these derivative instruments and the line items in the Condensed Consolidated Statements of Operations in which such gains and losses are reflected.
Description
Location of Gain or (Loss) Recognized in
 Income on Derivatives
Gain or (Loss)
Recognized in
Income on Derivatives
(in millions)
Derivatives designated as hedging instruments:
For the three months ended June 30, 2020:
Derivatives included with the inventory intermediation agreement obligationsCost of products and other$(42.2) 
For the three months ended June 30, 2019:
Derivatives included with the inventory intermediation agreement obligationsCost of products and other$(20.8) 
For the six months ended June 30, 2020:
Derivatives included with the inventory intermediation agreement obligationsCost of products and other$25.7  
For the six months ended June 30, 2019:
Derivatives included with the inventory intermediation agreement obligationsCost of products and other$(35.0) 
Derivatives not designated as hedging instruments:
For the three months ended June 30, 2020:
Commodity contractsCost of products and other$(13.2) 
For the three months ended June 30, 2019:
Commodity contractsCost of products and other$1.0  
For the six months ended June 30, 2020:
Commodity contractsCost of products and other$65.0  
For the six months ended June 30, 2019:
Commodity contractsCost of products and other$32.7  
Hedged items designated in fair value hedges:
For the three months ended June 30, 2020:
Crude oil, intermediate and refined product inventoryCost of products and other$42.2  
For the three months ended June 30, 2019:
Crude oil, intermediate and refined product inventoryCost of products and other$20.8  
For the six months ended June 30, 2020:
Crude oil, intermediate and refined product inventoryCost of products and other$(25.7) 
For the six months ended June 30, 2019:
Crude oil, intermediate and refined product inventoryCost of products and other$35.0  

The Company had 0 ineffectiveness related to the fair value hedges for the three and six months ended June 30, 2020 or 2019, respectively.



36


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements of PBF Holding included in the Annual Report on Form 10-K for the year ended December 31, 2019 and the unaudited financial statements and related notes included in this report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Cautionary Note Regarding Forward-Looking Statements.”
Unless the context indicates otherwise, the terms “we,” “us,” and “our” refer to PBF Holding and its consolidated subsidiaries.

Overview
We are one of the largest independent petroleum refiners and suppliers of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products in the United States. We sell our products throughout the Northeast, Midwest, Gulf Coast and West Coast of the United States, as well as in other regions of the United States, Canada and Mexico and are able to ship products to other international destinations. As of June 30, 2020, we own and operate six domestic oil refineries and related assets with a combined processing capacity, known as throughput, of approximately 1,050,000 barrels per day (“bpd”), and a weighted-average Nelson Complexity Index of 12.8. Our six oil refineries are aggregated into one reportable segment.
Our six refineries are located in Delaware City, Delaware, Paulsboro, New Jersey, Toledo, Ohio, Chalmette, Louisiana, Torrance, California and Martinez, California. Each refinery is briefly described in the table below:

RefineryRegionNelson Complexity IndexThroughput Capacity (in bpd)PADD
Crude Processed (1)
Source (1)
Delaware CityEast Coast11.3190,0001light sweet through heavy sourwater, rail
PaulsboroEast Coast13.2180,0001light sweet through heavy sourwater
ToledoMid-Continent9.2170,0002light sweetpipeline, truck, rail
ChalmetteGulf Coast12.7189,0003light sweet through heavy sourwater, pipeline
TorranceWest Coast14.9155,0005medium and heavypipeline, water, truck
MartinezWest Coast16.1157,0005medium and heavypipeline and water
________
(1) Reflects the typical crude and feedstocks and related sources utilized under normal operating conditions and prevailing market environments.
We are a wholly-owned subsidiary of PBF LLC and an indirect subsidiary of PBF Energy. PBF Finance is a wholly-owned subsidiary of PBF Holding. We are the parent company for PBF LLC’s refinery operating subsidiaries.
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Business Developments
Recent significant business developments affecting us are discussed below.
COVID-19
The recent outbreak of the COVID-19 pandemic and certain developments in the global oil markets continue to negatively impact worldwide economic and commercial activity and financial markets, as well as global demand for petroleum and petrochemical products. The COVID-19 pandemic and related governmental responses have also resulted in significant business and operational disruptions, including business and school closures, supply chain disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces and has resulted in significantly lower demand for refined petroleum products. We believe, but cannot guarantee, that demand for refined petroleum products will ultimately rebound as governmental restrictions are lifted. However, the ultimate significance of the COVID-19 pandemic on our business will be dictated by its currently unknowable duration and the rate at which people are willing and able to resume activities even after governmental restrictions are lifted. In addition, recent global geopolitical and macroeconomic events have further contributed to the overall volatility in crude oil and refined product prices and may continue to do so in the future.
The price of refined products we sell and the crude oil we purchase impacts our revenues, income from operations, net income and cash flows. In addition, a decline in the market prices for products and feedstocks held in our inventories below the carrying value of our inventory may result in the adjustment of the value of our inventories to the lower market price and a corresponding loss on the value of our inventories, and any such adjustment is likely to be material.
We are actively responding to the impacts from these matters on our business. In late March and through early April 2020, we started reducing the amount of crude oil processed at our refineries in response to the decreased demand for our products and we temporarily idled various units at certain of our refineries to optimize our production in light of prevailing market conditions. Currently, our refineries are still operating at reduced throughput levels across our refining system as demand for refined products continues to be lower than historical norms due to the COVID-19 pandemic.
As previously announced, we have adjusted our operational plans to the evolving market conditions and taken steps to lower our 2020 operating expenses budget through significant reductions in discretionary activities and third party services. These adjustments have resulted in a reduction in our 2020 operating expense budget of approximately $140.0 million. In addition, we continue to operate our refineries at reduced rates and expect near-term throughput to range from 700,000 to 800,000 barrels across our refining system. As the market conditions develop and the demand outlook becomes clearer, we will continue to adjust our operations in response.
In addition to the steps above with respect to our operations, we also have continued our focus on preserving liquidity and keeping our employees safe. We previously disclosed several transactions and initiatives related to these areas which included raising net proceeds of approximately $984.8 million in conjunction with our May issuance of 9.25% senior secured notes due 2025 (the “2025 Senior Secured Notes”), the sale of five hydrogen plants in April for gross proceeds of $530.0 million, significant reductions of approximately $357.0 million in 2020 planned capital expenditures, minimizing corporate overhead expenses primarily through salary reductions, the suspension of PBF Energy’s quarterly dividend and the establishment of a company wide COVID-19 response team.
We continue to evaluate various other liquidity and cash flow optimization options in addition to safely and responsibly bringing back our workforce to the refineries and corporate office locations. As part of these costs saving initiatives, we reduced our workforce across our refineries in the second quarter in response to current challenging business conditions. This reduction resulted in a $12.9 million charge during the quarter. We have also continued to utilize our COVID-19 response team to implement additional social distancing measures across the workplace in addition to the continued enhancement of personal protective equipment and the cleanliness of our facilities. Through the guidance of our COVID-19 response team, we have started to bring back a portion of our workforce to their primary locations on a phased in approach, and we will continue to rely on our team and the evolution of the COVID-19 pandemic as we evaluate the appropriate time and way in which we will phase in the return of the rest of our workforce.
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Many uncertainties remain with respect to the COVID-19 pandemic, including the extent to which the COVID-19 pandemic will continue to impact our business and operations, the effectiveness of the actions undertaken by national, regional, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. We are unable to predict the ultimate economic impacts from the COVID-19 pandemic, however, we have been and will likely continue to be adversely impacted. There can be no guarantee that measures taken to date to mitigate known impacts of the COVID-19 pandemic will be effective.
Refer to “Liquidity” and “Part II - Other Information, Item 1A. Risk Factors” for further information.

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Factors Affecting Comparability Between Periods
Our results have been affected by the following events, the understanding of which will aid in assessing the comparability of our period to period financial performance and financial condition.
COVID-19
The impact of the unprecedented global health and economic crisis sparked by the COVID-19 pandemic was amplified late in the quarter ended March 31, 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. This combination has resulted in significant demand reduction for our refined products and atypical volatility in oil commodity prices, which may continue for the foreseeable future. Our results for the three and six months ended June 30, 2020 were impacted by the decreased demand for refined products and the significant decline in the price of crude oil, both of which negatively impacted our revenues, cost of products sold and operating income and lowered our liquidity. Throughput rates across our refining system also decreased and we are currently operating our refineries at reduced rates. Refer to “Item 1A. Risk Factors” included in “Part II - Other Information” of this Form 10-Q for further information.
Severance Costs
Following the onset of the COVID-19 pandemic, we have implemented a number of cost reduction initiatives to strengthen our financial flexibility and rationalize overhead expenses, including workforce reduction. During the three months ended June 30, 2020, we reduced headcount across our refineries, which resulted in approximately $12.9 million of severance related costs included in General and administrative expenses. We have recorded this severance liability within Accrued salaries and benefits representing the amount expected to be paid for such termination costs.
Sale of Hydrogen Plants
On April 17, 2020, we closed on the sale of five hydrogen plants to Air Products and Chemicals, Inc. (“Air Products”) in a sale-leaseback transaction for gross cash proceeds of $530.0 million and recognized a gain of $471.1 million. In connection with the sale, we entered into a transition services agreement through which Air Products will exclusively supply hydrogen, steam, carbon dioxide and other products (the “Products”) to the Martinez, Torrance and Delaware City refineries for a specified period (not expected to exceed 18 months) until the parties agree on a long-term supply agreement for the Products. The transition services agreement also requires certain maintenance and operating activities to be provided by us, for which we will be reimbursed, during the term of the agreement.
Debt and Credit Facilities
Senior Notes
On May 13, 2020, we issued $1.0 billion in aggregate principal amount of the 2025 Senior Secured Notes. The net proceeds from this offering were approximately $984.8 million after deducting the initial purchasers’ discount and estimated offering expenses.
On January 24, 2020, we issued $1.0 billion in aggregate principal amount of 6.00% senior unsecured notes due 2028 (the "2028 Senior Notes"). The net proceeds from this offering were approximately $987.0 million after deducting the initial purchasers’ discount and offering expenses. We used the proceeds primarily to fully redeem our 7.00% senior notes due 2023 (the “2023 Senior Notes”) and to fund a portion of the cash consideration for the Martinez Acquisition (as defined below).
On February 14, 2020, we exercised our rights under the indenture governing the 2023 Senior Notes to redeem all of the outstanding 2023 Senior Notes at a price of 103.5% of the aggregate principal amount thereof plus accrued and unpaid interest. The aggregate redemption price for all 2023 Senior Notes approximated $517.5 million plus accrued and unpaid interest. The difference between the carrying value of the 2023 Senior Notes on the date they were redeemed and the amount for which they were redeemed was $22.2 million and has been classified as Debt extinguishment costs in the Condensed Consolidated Statement of Operations as of June 30, 2020.
Refer to “Note 6 - Debt” of our Notes to Condensed Consolidated Financial Statements, for further information.
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Revolving Credit Facility
During the six months ended June 30, 2020, we used advances under our Revolving Credit Facility to fund a portion of the Martinez Acquisition (as defined below) and for other general corporate purposes. We also made repayments of $300.0 million in the second quarter, resulting in outstanding borrowings under the Revolving Credit Facility as of June 30, 2020 of $600.0 million. There were no outstanding borrowings under the Revolving Credit Facility as of December 31, 2019.
Martinez Acquisition
On February 1, 2020, we acquired from Equilon Enterprises LLC d/b/a Shell Oil Products US (the "Seller"), the Martinez refinery and related logistics assets (collectively, the "Martinez Acquisition"), pursuant to a sale and purchase agreement dated June 11, 2019 (the “Sale and Purchase Agreement”). The Martinez refinery is located on an 860-acre site in the City of Martinez, 30 miles northeast of San Francisco, California. The refinery is a high-conversion 157,000 bpd, dual-coking facility with a Nelson Complexity Index of 16.1, making it one of the most complex refineries in the United States. The facility is strategically positioned in Northern California and provides for operating and commercial synergies with the Torrance refinery located in Southern California. The Martinez Acquisition further increased our total throughput capacity to over 1,000,000 bpd.
In addition to refining assets, the Martinez Acquisition includes a number of high-quality onsite logistics assets including a deep-water marine facility, product distribution terminals and refinery crude and product storage facilities with approximately 8.8 million barrels of shell capacity.
The aggregate purchase price for the Martinez Acquisition was $1,253.4 million, including final working capital of $216.1 million and the obligation to make post-closing earn-out payments to the Seller based on certain earnings thresholds of the Martinez refinery (as set forth in the Sale and Purchase Agreement), for a period of up to four years following the closing date (the “Martinez Contingent Consideration”). The transaction was financed through a combination of cash on hand, including proceeds from the 2028 Senior Notes, and borrowings under the Revolving Credit Facility.
Inventory Intermediation Agreements
On August 29, 2019, we and our subsidiaries, Delaware City Refining Company LLC (“DCR”) and Paulsboro Refining Company LLC (“PRC”), entered into amended and restated inventory intermediation agreements with J. Aron (as amended from time to time, the “Inventory Intermediation Agreements”), pursuant to which certain terms of the Inventory Intermediation Agreements were amended and restated, including, among other things, the maturity date. The Inventory Intermediation Agreement by and among J. Aron, us and PRC was extended to December 31, 2021, which term may be further extended by mutual consent of the parties to December 31, 2022 and the Inventory Intermediation Agreement by and among J. Aron, us and DCR was extended to June 30, 2021, which term may be further extended by mutual consent of the parties to June 30, 2022.
Pursuant to each Inventory Intermediation Agreement, J. Aron continues to purchase and hold title to the J. Aron Products, produced by the East Coast Refineries, and delivered into our J. Aron Storage Tanks. Furthermore, J. Aron agrees to sell the J. Aron Products back to the East Coast Refineries as the J. Aron Products are discharged out of our J. Aron Storage Tanks. J. Aron has the right to store the J. Aron Products purchased in tanks under the Inventory Intermediation Agreements and will retain these storage rights for the term of the agreements. We continue to market and sell the J. Aron Products independently to third parties.
Agreements with PBFX
PBFX is a fee-based, growth-oriented, publicly traded Delaware master limited partnership formed by our indirect parent company, PBF Energy, to own or lease, operate, develop and acquire crude oil, refined petroleum products and natural gas terminals, pipelines, storage facilities and similar logistics assets. PBFX engages in the receiving, handling, storage and transferring of crude oil, refined products, natural gas and intermediates from sources located throughout the United States and Canada for PBF Energy in support of certain of our refineries, as well as for third-party customers.
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We have entered into a series of agreements with PBFX, including contribution, commercial and operational agreements. Refer to “Note 7 - Related Party Transactions” of our Notes to Condensed Consolidated Financial Statements for descriptions of these agreements and their impact to our operations. Related party transactions that have an impact on the comparability of our period to period financial performance and financial condition are listed below.
TVPC Contribution Agreement
On April 24, 2019, PBFX entered into a contribution agreement with PBF LLC, pursuant to which we contributed to PBF LLC, which in turn, contributed to PBFX all of the issued and outstanding limited liability company interests of TVP Holding Company LLC (“TVP Holding”) for total consideration of $200.0 million (the “TVPC Acquisition”). Prior to the TVPC Acquisition, TVP Holding owned a 50% membership interest in Torrance Valley Pipeline Company LLC (“TVPC”). Subsequent to the closing of the TVPC Acquisition on May 31, 2019, PBFX owns 100% of the membership interests in TVPC.
Summary of Transactions with PBFX
A summary of transactions with PBFX is as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Reimbursements under affiliate agreements:
Services Agreement$2.1  $2.2  $4.3  $4.3  
Omnibus Agreement1.9  1.7  3.9  3.5  
Total expenses under affiliate agreements72.4  74.7  147.9  146.0  

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Results of Operations
The following tables reflect our financial and operating highlights for the three and six months ended June 30, 2020 and 2019 (amounts in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues$2,499.1  $6,551.9  $7,759.1  $11,760.6  
Cost and expenses:
Cost of products and other1,820.8  6,025.4  7,854.2  10,301.6  
Operating expenses (excluding depreciation and amortization expense as reflected below)423.7  409.7  931.2  863.1  
Depreciation and amortization expense111.1  95.3  216.5  189.6  
Cost of sales2,355.6  6,530.4  9,001.9  11,354.3  
General and administrative expenses (excluding depreciation and amortization expense as reflected below)53.3  46.6  131.5  97.8  
Depreciation and amortization expense2.8  2.9  5.7  5.7  
Change in fair value of contingent consideration(12.4) —  (65.4) —  
Equity income in investee—  (3.2) —  (7.9) 
(Gain) loss on sale of assets(471.1) 0.8  (471.1) 0.8  
Total cost and expenses1,928.2  6,577.5  8,602.6  11,450.7  
Income (loss) from operations570.9  (25.6) (843.5) 309.9  
Other income (expense):
Interest expense, net(52.8) (29.6) (89.3) (57.0) 
Change in fair value of catalyst obligations(5.1) 0.5  6.6  (2.6) 
Debt extinguishment costs—  —  (22.2) —  
Other non-service components of net periodic benefit cost1.1  —  2.1  (0.1) 
Income (loss) before income taxes514.1  (54.7) (946.3) 250.2  
Income tax (benefit) expense(4.4) 1.8  9.8  (5.4) 
Net income (loss)518.5  (56.5) (956.1) 255.6  
Less: net income attributable to noncontrolling interests—  0.1  —  0.1  
Net income (loss) attributable to PBF Holding Company LLC$518.5  $(56.6) $(956.1) $255.5  
Consolidated gross margin$143.5  $21.5  $(1,242.8) $406.3  
Gross refining margin (1)
$678.3  $526.5  $(95.1) $1,459.0  
_____________________

(1) See Non-GAAP Financial Measures.
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Operating HighlightsThree Months Ended June 30,Six Months Ended June 30,
2020201920202019
Key Operating Information
Production (bpd in thousands)676.0  854.2  770.1  796.7  
Crude oil and feedstocks throughput (bpd in thousands)675.1  854.1  764.0  798.9  
Total crude oil and feedstocks throughput (millions of barrels)61.4  77.7  139.0  144.6  
Consolidated gross margin per barrel of throughput$2.34  $0.26  $(8.94) $2.80  
Gross refining margin, excluding special items, per barrel of throughput (1)
$1.54  $9.10  $4.36  $7.85  
Refinery operating expense, per barrel of throughput$6.90  $5.27  $6.70  $5.97  
Crude and feedstocks (% of total throughput) (2)
Heavy44 %30 %44 %31 %
Medium31 %28 %26 %30 %
Light13 %26 %17 %25 %
Other feedstocks and blends12 %16 %13 %14 %
Total throughput100 %100 %100 %100 %
Yield (% of total throughput)
Gasoline and gasoline blendstocks46 %49 %48 %48 %
Distillates and distillate blendstocks32 %31 %32 %32 %
Lubes%%%%
Chemicals%%%%
Other20 %17 %19 %17 %
Total yield100 %100 %101 %100 %
_____________________
(1) See Non-GAAP Financial Measures.
(2) We define heavy crude oil as crude oil with American Petroleum Institute (“API”) gravity less than 24 degrees. We define medium crude oil as crude oil with API gravity between 24 and 35 degrees. We define light crude oil as crude oil with API gravity higher than 35 degrees.

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The table below summarizes certain market indicators relating to our operating results as reported by Platts. 

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(dollars per barrel, except as noted)
Dated Brent crude oil$29.57  $68.96  $39.55  $66.16  
West Texas Intermediate (WTI) crude oil$27.96  $59.90  $36.69  $57.42  
Light Louisiana Sweet (LLS) crude oil$30.19  $67.04  $38.93  $64.75  
Alaska North Slope (ANS) crude oil$30.28  $68.29  $40.59  $66.37  
Crack Spreads
Dated Brent (NYH) 2-1-1$9.66  $13.54  $9.81  $11.72  
WTI (Chicago) 4-3-1$5.25  $21.10  $6.30  $16.79  
LLS (Gulf Coast) 2-1-1$6.49  $12.65  $8.44  $11.29  
ANS (West Coast-LA) 4-3-1$9.18  $22.96  $11.26  $18.33  
ANS (West Coast-SF) 3-2-1$8.76  $21.72  $9.20  $16.61  
Crude Oil Differentials
Dated Brent (foreign) less WTI$1.61  $9.06  $2.86  $8.74  
Dated Brent less Maya (heavy, sour)$5.34  $7.27  $7.01  $5.69  
Dated Brent less WTS (sour)$1.42  $10.73  $3.04  $10.15  
Dated Brent less ASCI (sour)$0.35  $3.96  $2.30  $3.17  
WTI less WCS (heavy, sour)$5.77  $12.53  $11.21  $11.28  
WTI less Bakken (light, sweet)$3.03  $1.06  $3.25  $0.41  
WTI less Syncrude (light, sweet)$1.22  $(0.05) $1.37  $(0.01) 
WTI less LLS (light, sweet)$(2.23) $(7.14) $(2.24) $(7.33) 
WTI less ANS (light, sweet)$(2.32) $(8.39) $(3.90) $(8.95) 
Natural gas (dollars per MMBTU)$1.75  $2.51  $1.81  $2.69  

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

Overview— Net income was $518.5 million for the three months ended June 30, 2020 compared to net loss of $56.5 million for the three months ended June 30, 2019.
Our results for the three months ended June 30, 2020 were positively impacted by special items consisting of a non-cash lower of cost or market (“LCM”) inventory adjustment of approximately $584.2 million, the change in the fair value of the contingent consideration related to the Martinez Acquisition of $12.4 million and the gain on the sale of hydrogen plants of $471.1 million. These favorable impacts were offset by severance costs related to a reduction in our workforce of $12.9 million. Our results for the three months ended June 30, 2019 were negatively impacted by a non-cash LCM inventory adjustment special item of approximately $182.0 million. The LCM inventory adjustments were recorded due to movements in the price of crude oil and refined products in the periods presented.
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Excluding the impact of these special items, our results were negatively impacted by the ongoing COVID-19 pandemic which has caused a significant decline in the demand for our refined products and a decrease in the prices for crude oil and refined products, both of which have negatively impacted our revenues, cost of products sold and operating income. In addition, during the current quarter we experienced unfavorable movements in certain crude differentials, and overall lower throughput volumes and barrels sold across our refineries. All our operating regions experienced lower refining margins for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Additionally, our results for the three months ended June 30, 2020 were negatively impacted by higher general and administrative expenses associated with severance charges and increased depreciation and amortization expense associated with the Martinez Acquisition and our continued investment in our refining assets.
Revenues— Revenues totaled $2.5 billion for the three months ended June 30, 2020 compared to $6.6 billion for the three months ended June 30, 2019, a decrease of approximately $4.1 billion, or 62.1%. Revenues per barrel were $35.53 and $74.14 for the three months ended June 30, 2020 and 2019, respectively, a decrease of 52.1% directly related to lower hydrocarbon commodity prices. For the three months ended June 30, 2020, the total throughput rates at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 242,300 bpd, 76,900 bpd, 132,300 bpd and 223,600 bpd, respectively. For the three months ended June 30, 2019, the total throughput rates at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 325,800 bpd, 163,200 bpd, 201,400 bpd and 163,700 bpd, respectively. For the three months ended June 30, 2020, the total barrels sold at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 277,900 bpd, 91,900 bpd, 156,200 bpd and 246,900 bpd, respectively. For the three months ended June 30, 2019, the total barrels sold at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 358,700 bpd, 171,800 bpd, 243,800 bpd and 196,800 bpd, respectively.
The throughput rates at the majority of our refineries were lower in the three months ended June 30, 2020 compared to the same period in 2019. We operated our refineries at reduced rates during the second quarter and, based on current market conditions, we plan on continuing to operate our refineries at lower utilization until such time that sustained product demand justifies higher production. Our Martinez refinery was not acquired until the first quarter of 2020. Total refined product barrels sold were higher than throughput rates, reflecting sales from inventory, as well as sales and purchases of refined products outside our refineries.
Consolidated Gross Margin— Consolidated gross margin totaled $143.5 million for the three months ended June 30, 2020 compared to $21.5 million for the three months ended June 30, 2019, an increase of approximately $122.0 million. Gross refining margin (as described below in Non-GAAP Financial Measures) totaled $678.3 million, or $11.05 per barrel of throughput for the three months ended June 30, 2020 compared to $526.5 million, or $6.76 per barrel of throughput for the three months ended June 30, 2019, an increase of approximately $151.8 million. Gross refining margin excluding special items totaled $94.1 million or $1.54 per barrel of throughput for the three months ended June 30, 2020 compared to $708.5 million or $9.10 per barrel of throughput for the three months ended June 30, 2019, a decrease of $614.4 million.
Consolidated gross margin and gross refining margin were positively impacted by a non-cash LCM adjustment of approximately $584.2 million on a net basis, resulting from the increase in crude oil and refined product prices from the first quarter in 2020 to the end of the second quarter of 2020. Gross refining margin excluding the impact of special items decreased due to unfavorable movements in crude differentials and refining margins and decreased throughput rates in the majority of our refineries. For the three months ended June 30, 2019, special items impacting our margin calculations included a non-cash LCM inventory adjustment of approximately $182.0 million on a net basis, resulting from a decrease in crude oil and refined product prices.
Additionally, our results continue to be impacted by significant costs to comply with the Renewable Fuel Standard (“RFS”). Total RFS costs were $60.0 million for the three months ended June 30, 2020 in comparison to $30.9 million for the three months ended June 30, 2019.
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Average industry margins and crude oil differentials were generally lower during the three months ended June 30, 2020 in comparison to the same period in 2019, primarily due to the extent of the impacts of the COVID-19 pandemic on regional demand and commodity prices.
On the East Coast, the Dated Brent (NYH) 2-1-1 industry crack spread was approximately $9.66 per barrel, or 28.7% lower, in the three months ended June 30, 2020, as compared to $13.54 per barrel in the same period in 2019. Our margins were negatively impacted from our refinery specific slate on the East Coast by tightening in the Dated Brent/Maya differentials, which decreased by $1.93 per barrel, offset by an increase in the WTI/Bakken differentials of $1.97 per barrel, in comparison to the same period in 2019. In addition, the WTI/WCS differential decreased significantly to $5.77 per barrel in the three months ended June 30, 2020 compared to $12.53 in the same period in 2019, which unfavorably impacted the cost of heavy Canadian crude.
Across the Mid-Continent, the WTI (Chicago) 4-3-1 industry crack spread was $5.25 per barrel, or 75.1% lower, in the three months ended June 30, 2020 as compared to $21.10 per barrel in the same period in 2019. Our margins were positively impacted from our refinery specific slate in the Mid-Continent by an increasing WTI/Bakken differential, which averaged $3.03 per barrel in the three months ended June 30, 2020, as compared to $1.06 per barrel in the same period in 2019. Additionally, the WTI/Syncrude differential averaged a discount of $1.22 per barrel during the three months ended June 30, 2020 as compared to a premium of $0.05 per barrel in the same period of 2019.
On the Gulf Coast, the LLS (Gulf Coast) 2-1-1 industry crack spread was $6.49 per barrel, or 48.7% lower, in the three months ended June 30, 2020 as compared to $12.65 per barrel in the same period in 2019. Margins on the Gulf Coast were positively impacted from our refinery specific slate by an increasing WTI/LLS differential, which averaged a premium of $2.23 per barrel during the three months ended June 30, 2020 as compared to a premium of $7.14 per barrel in the same period of 2019.
On the West Coast, the ANS (West Coast) 4-3-1 industry crack spread was $9.18 per barrel, or 60.0% lower, in the three months ended June 30, 2020 as compared to $22.96 per barrel in the same period in 2019. Margins on the West Coast were positively impacted from our refinery specific slate by a strengthening WTI/ANS differential, which averaged a premium of $2.32 per barrel during the three months ended June 30, 2020 as compared to a premium of $8.39 per barrel in the same period of 2019.
Favorable movements in these benchmark crude differentials typically result in lower crude costs and positively impact our earnings while reductions in these benchmark crude differentials typically result in higher crude costs and negatively impact our earnings.
Operating Expenses— Operating expenses totaled $423.7 million, or $6.90 per barrel of throughput, for the three months ended June 30, 2020 compared to $409.7 million, or $5.27 per barrel of throughput, for the three months ended June 30, 2019, an increase of $14.0 million, or 3.4%. Increases in operating expenses were mainly attributed to costs associated with the Martinez refinery and related logistic assets which totaled approximately $98.7 million for the three months ended June 30, 2020. Total operating expenses for the three months ended June 30, 2020, excluding our Martinez refinery, decreased due to our cost reduction initiatives taken to strengthen our financial flexibility and offset the negative impact of COVID-19, such as significant reductions in discretionary activities and third party services.
General and Administrative Expenses— General and administrative expenses totaled $53.3 million for the three months ended June 30, 2020 compared to $46.6 million for the three months ended June 30, 2019, an increase of approximately $6.7 million or 14.4%. The increase in general and administrative expenses for the three months ended June 30, 2020 in comparison to the three months ended June 30, 2019 primarily related to headcount reduction severance costs across the refineries and integration costs pertaining to the Martinez Acquisition. These cost increases were offset by a reduction in overhead expenses through salary reductions to a large portion of our workforce. Our general and administrative expenses are comprised of personnel, facilities and other infrastructure costs necessary to support our refineries.
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Gain/Loss on Sale of Assets— There was a gain of $471.1 million for the three months ended June 30, 2020 related to the sale of five hydrogen plants. There was a loss of $0.8 million on the sale of assets for the three months ended June 30, 2019 related to the sale of non-operating refinery assets.
Depreciation and Amortization Expense— Depreciation and amortization expense totaled $113.9 million for the three months ended June 30, 2020 (including $111.1 million recorded within Cost of sales) compared to $98.2 million for the three months ended June 30, 2019 (including $95.3 million recorded within Cost of sales), an increase of $15.7 million. The increase was a result of additional depreciation expense associated with the assets acquired in the Martinez Acquisition and a general increase in our fixed asset base due to capital projects and turnarounds completed since the second quarter of 2019.
Change in Fair Value of Contingent Consideration— Change in the fair value of contingent consideration was a gain of $12.4 million for the three months ended June 30, 2020. This change represents the decrease in the estimated fair value of the total Martinez Contingent Consideration we expect to pay in connection with our acquisition of the Martinez refinery. There were no such costs in the same period of 2019.
Change in Fair Value of Catalyst Obligations— Change in the fair value of catalyst obligations represented a loss of $5.1 million for the three months ended June 30, 2020 compared to a gain of $0.5 million for the three months ended June 30, 2019. These gains and losses relate to the change in value of the precious metals underlying the sale and leaseback of our refineries’ precious metal catalysts, which we are obligated to repurchase at fair market value on the lease termination dates.
Interest Expense, net— Interest expense totaled $52.8 million for the three months ended June 30, 2020 compared to $29.6 million for the three months ended June 30, 2019, an increase of approximately $23.2 million. This net increase is mainly attributable to higher interest costs associated with the issuance of the 2028 Senior Notes in February 2020, the 2025 Senior Secured Notes in May 2020 and higher outstanding borrowings on our Revolving Credit Facility. Interest expense includes interest on long-term debt, costs related to the sale and leaseback of our precious metal catalysts, financing costs associated with the Inventory Intermediation Agreements with J. Aron, letter of credit fees associated with the purchase of certain crude oils and the amortization of deferred financing costs.
Income Tax Expense— As we are a limited liability company treated as a “flow-through” entity for income tax purposes, our Condensed Consolidated Financial Statements generally do not include a benefit or expense for income taxes for the three months ended June 30, 2020 and June 30, 2019, respectively, apart from the income tax attributable to two subsidiaries acquired in connection with the Chalmette Acquisition in the fourth quarter of 2015 and our wholly-owned Canadian subsidiary, PBF Energy Limited (“PBF Ltd.”). These subsidiaries are treated as C-Corporations for income tax purposes. An income tax benefit of $4.4 million was recorded for the three months ended June 30, 2020 in comparison to an income tax expense of $1.8 million recorded for the three months ended June 30, 2019, primarily attributable to the results of PBF Ltd.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
Overview— Net loss was $956.1 million for the six months ended June 30, 2020 compared to net income of $255.6 million for the six months ended June 30, 2019.
Our results for the six months ended June 30, 2020 were negatively impacted by special items consisting of a non-cash LCM inventory adjustment of approximately $701.4 million, debt extinguishment costs of $22.2 million associated with the early redemption of our 2023 Senior Notes and severance costs related to reductions in workforce of $12.9 million. These unfavorable impacts were partially offset by the gain on the sale of hydrogen plants of $471.1 million and the change in the fair value of the Martinez Contingent Consideration of $65.4 million. Our results for the six months ended June 30, 2019 were positively impacted by a non-cash LCM inventory adjustment of approximately $324.0 million. The LCM inventory adjustments were recorded due to movements in the price of crude oil and refined products in the periods presented.
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Excluding the impact of these special items, our results were negatively impacted by the ongoing COVID-19 pandemic which has caused a significant decline in the demand for our refined products and a decrease in the prices for crude oil and refined products, both of which have negatively impacted our revenues, cost of products sold and operating income. In addition, during the six months ended June 30, 2020 we experienced unfavorable movements in certain crude differentials and overall lower throughput volumes and barrels sold across our refineries, as well as lower refining margins. Refining margins for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 were mixed with stronger refining margins on the East Coast and Gulf Coast offset by weaker refining margins in the Mid-Continent and West Coast. Our results for the six months ended June 30, 2020 were negatively impacted by higher general and administrative expenses associated with severance charges and integration costs associated with the Martinez Acquisition and increased depreciation and amortization expense associated with the Martinez Acquisition and our continued investment in our refining assets.
Revenues— Revenues totaled $7.8 billion for the six months ended June 30, 2020 compared to $11.8 billion for the six months ended June 30, 2019, a decrease of approximately $4.0 billion, or 33.9%. Revenues per barrel were $48.04 and $70.35 for the six months ended June 30, 2020 and 2019, respectively, a decrease of 31.7% directly related to lower hydrocarbon commodity prices. For the six months ended June 30, 2020, the total throughput rates at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 285,800 bpd, 83,500 bpd, 153,400 bpd and 241,300 bpd, respectively. For the six months ended June 30, 2019, the total throughput rates at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 315,500 bpd, 155,600 bpd, 183,100 bpd and 144,700 bpd, respectively. For six months ended June 30, 2020, the total barrels sold at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 321,600 bpd, 111,600 bpd, 185,000 bpd and 269,200 bpd, respectively. For the six months ended June 30, 2019, the total barrels sold at our East Coast, Mid-Continent, Gulf Coast and West Coast refineries averaged approximately 353,900 bpd, 164,900 bpd, 229,800 bpd and 174,900 bpd, respectively.
The throughput rates at the majority of our refineries were lower in the six months ended June 30, 2020 compared to the same period in 2019. We operated our refineries at reduced rates beginning in March of 2020 and, based on current market conditions, we plan on continuing to operate our refineries at lower utilization until such time that sustained product demand justifies higher production. Our Martinez refinery was not acquired until the first quarter of 2020. Total refined product barrels sold were higher than throughput rates, reflecting sales from inventory as well as sales and purchases of refined products outside our refineries.
Consolidated Gross Margin— Consolidated gross margin totaled $(1,242.8) million for the six months ended June 30, 2020, compared to $406.3 million for the six months ended June 30, 2019, a decrease of approximately $1,649.1 million. Gross refining margin (as described below in Non-GAAP Financial Measures) totaled $(95.1) million, or $(0.68) per barrel of throughput for the six months ended June 30, 2020 compared to $1,459.0 million, or $10.08 per barrel of throughput for the six months ended June 30, 2019, a decrease of approximately $1,554.1 million. Gross refining margin excluding special items totaled $606.3 million or $4.36 per barrel of throughput for the six months ended June 30, 2020 compared to $1,135.0 million or $7.85 per barrel of throughput for the six months ended June 30, 2019, a decrease of $528.7 million.
Consolidated gross margin and gross refining margin were negatively impacted by a non-cash LCM adjustment of approximately $701.4 million on a net basis resulting from the decrease in crude oil and refined product prices from the year ended 2019 to the end of the second quarter of 2020. Gross refining margin excluding the impact of special items decreased due to unfavorable movements in certain crude differentials, an overall decrease in throughput rates and lower refining margins in our Mid-Continent and West Coast refineries. The decrease was partially offset by stronger margins in the East Coast and Gulf Coast refineries due to improved crude differentials and 2019 planned and unplanned downtime at our Delaware City refinery. For the six months ended June 30, 2019, special items impacting our margin calculations included a non-cash LCM inventory adjustment of approximately $324.0 million on a net basis, resulting from an increase in crude oil and refined product prices.
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Additionally, our results continue to be impacted by significant costs to comply with the RFS. Total RFS costs were $96.8 million for the six months ended June 30, 2020 in comparison to $60.4 million for the six months ended June 30, 2019.
Average industry margins were mixed during the six months ended June 30, 2020 in comparison to the same period in 2019, primarily due to varying timing and extent of the impacts of the COVID-19 pandemic on regional demand and commodity prices in the first half of 2020 and 2019 planned turnarounds, all of which were completed in the first half of the prior year.
On the East Coast, the Dated Brent (NYH) 2-1-1 industry crack spread was approximately $9.81 per barrel, or 16.3% lower, in the six months ended June 30, 2020, as compared to $11.72 per barrel in the same period in 2019. Our margins were positively impacted from our refinery specific slate on the East Coast by stronger Dated Brent/Maya and WTI/Bakken differentials, which increased by $1.32 per barrel and $2.84 per barrel, respectively, in comparison to the same period in 2019. The WTI/WCS differential slightly decreased to $11.21 per barrel in 2020 compared to $11.28 in 2019, which unfavorably impacted our cost of heavy Canadian crude.
Across the Mid-Continent, the WTI (Chicago) 4-3-1 industry crack spread was $6.30 per barrel, or 62.5% lower, in the six months ended June 30, 2020 as compared to $16.79 per barrel in the same period in 2019. Our margins were positively impacted from our refinery specific slate in the Mid-Continent by an increasing WTI/Bakken differential, which averaged a discount of $3.25 per barrel in the six months ended June 30, 2020, as compared to a discount of $0.41 per barrel in the same period in 2019. Additionally, the WTI/Syncrude differential averaged a discount of $1.37 per barrel during the six months ended June 30, 2020 as compared to a premium of $0.01 per barrel in the same period of 2019.
On the Gulf Coast, the LLS (Gulf Coast) 2-1-1 industry crack spread was $8.44 per barrel, or 25.2% lower, in the six months ended June 30, 2020 as compared to $11.29 per barrel in the same period in 2019. Margins on the Gulf Coast were positively impacted from our refinery specific slate by a strengthening WTI/LLS differential, which averaged a premium of $2.24 per barrel during the six months ended June 30, 2020 as compared to a premium of $7.33 per barrel in the same period of 2019.
On the West Coast, the ANS (West Coast) 4-3-1 industry crack spread was $11.26 per barrel, or 38.6% lower, in the six months ended June 30, 2020 as compared to $18.33 per barrel in the same period in 2019. Additionally, margins on the West Coast were positively impacted from our refinery specific slate by a strengthening WTI/ANS differential, which averaged a premium of $3.90 per barrel during the six months ended June 30, 2020 as compared to a premium of $8.95 per barrel in the same period of 2019.
Favorable movements in these benchmark crude differentials typically result in lower crude costs and positively impact our earnings while reductions in these benchmark crude differentials typically result in higher crude costs and negatively impact our earnings.
Operating Expenses— Operating expenses totaled $931.2 million, or $6.70 per barrel of throughput, for the six months ended June 30, 2020 compared to $863.1 million, or $5.97 per barrel of throughput, for the six months ended June 30, 2019, an increase of approximately $68.1 million, or 7.9%. Increases in operating expenses were mainly attributed to costs associated with the Martinez refinery and related logistic assets which totaled approximately $168.2 million for the six months ended June 30, 2020. Total operating expenses for the six months ended June 30, 2020, excluding our Martinez refinery, decreased due to our cost reduction initiatives taken to strengthen our financial flexibility and offset the negative impact of COVID-19, such as significant reductions in discretionary activities and third party services.

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General and Administrative Expenses— General and administrative expenses totaled $131.5 million for the six months ended June 30, 2020 compared to $97.8 million for the six months ended June 30, 2019, an increase of approximately $33.7 million or 34.5%. The increase in general and administrative expenses for the six months ended June 30, 2020 in comparison to the six months ended June 30, 2019 primarily related to headcount reduction severance costs across the refineries as well as integration costs pertaining to the Martinez Acquisition. These costs increases were offset by a reduction in overhead expenses through salary reductions to a large portion of our workforce. Our general and administrative expenses are comprised of personnel, facilities and other infrastructure costs necessary to support our refineries.
Gain/Loss on Sale of Assets— There was a gain of $471.1 million for the six months ended June 30, 2020 related to the sale of five hydrogen plants. There was a loss of $0.8 million on the sale of assets for the six months ended June 30, 2019 related to the sale of non-operating refinery assets.
Depreciation and Amortization Expense— Depreciation and amortization expense totaled $222.2 million for the six months ended June 30, 2020 (including $216.5 million recorded within Cost of sales) compared to $195.3 million for the six months ended June 30, 2019 (including $189.6 million recorded within Cost of sales), an increase of approximately $26.9 million. The increase was a result of additional depreciation expense associated with the assets acquired in the Martinez Acquisition and a general increase in our fixed asset base due to capital projects and turnarounds completed since the second quarter of 2019.
Change in Fair Value of Contingent Consideration— Change in the fair value of contingent consideration was a gain of $65.4 million for the six months ended June 30, 2020. This change represents the decrease in the estimated fair value of the total Martinez Contingent Consideration we expect to pay in connection with our acquisition of the Martinez refinery. There were no such costs in the same period of 2019.
Change in Fair Value of Catalyst Obligations— Change in the fair value of catalyst obligations represented a gain of $6.6 million for the six months ended June 30, 2020 compared to a loss of $2.6 million for the six months ended June 30, 2019. These gains and losses relate to the change in value of the precious metals underlying the sale and leaseback of our refineries’ precious metal catalysts, which we are obligated to repurchase at fair market value on the lease termination dates.
Debt Extinguishment Costs— Debt extinguishment costs of $22.2 million incurred in the six months ended June 30, 2020 relate to the early redemption of our 2023 Senior Notes. There were no such costs in the same period of 2019.
Interest Expense, net— Interest expense totaled $89.3 million for the six months ended June 30, 2020 compared to $57.0 million for the six months ended June 30, 2019, an increase of approximately $32.3 million. This net increase is mainly attributable to higher interest costs associated with the issuance of the 2028 Senior Notes in February 2020, the issuance of the 2025 Senior Secured Notes in May 2020 and higher outstanding borrowings on our Revolving Credit Facility. Interest expense includes interest on long-term debt, costs related to the sale and leaseback of our precious metal catalysts, financing costs associated with the Inventory Intermediation Agreements with J. Aron, letter of credit fees associated with the purchase of certain crude oils and the amortization of deferred financing costs.
Income Tax Expense— As PBF Holding is a limited liability company treated as a “flow-through” entity for income tax purposes, our Condensed Consolidated Financial Statements generally do not include a benefit or expense for income taxes for the six months ended June 30, 2020 and June 30, 2019, respectively, apart from the income tax attributable to two subsidiaries acquired in connection with the acquisition of the Chalmette refinery in the fourth quarter of 2015 and PBF Ltd. These subsidiaries are treated as C-Corporations for income tax purposes. An income tax expense of $9.8 million was recorded for the six months ended June 30, 2020 in comparison to an income tax benefit of $5.4 million recorded for the six months ended June 30, 2019, primarily attributable to the results of PBF Ltd.

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Non-GAAP Financial Measures
Management uses certain financial measures to evaluate our operating performance that are calculated and presented on the basis of methodologies other than in accordance with GAAP (“Non-GAAP”). These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and our calculations thereof may not be comparable to similarly entitled measures reported by other companies.
Special Items
The Non-GAAP measures presented include EBITDA excluding special items and gross refining margin excluding special items. Special items for the periods presented relate to LCM inventory adjustments, debt extinguishment costs, changes in the fair value of contingent consideration, gain on sale of hydrogen plants and severance costs related to a reduction in workforce. See “Notes to Non-GAAP Financial Measures” below for more details on all special items disclosed. Although we believe that Non-GAAP financial measures, excluding the impact of special items, provide useful supplemental information to investors regarding the results and performance of our business and allow for helpful period-over-period comparisons, such Non-GAAP measures should only be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with GAAP.
Gross Refining Margin and Gross Refining Margin Excluding Special Items
Gross refining margin is defined as consolidated gross margin excluding refinery depreciation and operating expenses. We believe both gross refining margin and gross refining margin excluding special items are important measures of operating performance and provide useful information to investors because they are helpful metric comparisons to the industry refining margin benchmarks, as the refining margin benchmarks do not include a charge for refinery operating expenses and depreciation. In order to assess our operating performance, we compare our gross refining margin (revenues less cost of products and other) to industry refining margin benchmarks and crude oil prices as defined in the table below.
Neither gross refining margin nor gross refining margin excluding special items should be considered an alternative to consolidated gross margin, income from operations, net cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Gross refining margin and gross refining margin excluding special items presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
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The following table presents our GAAP calculation of gross margin and a reconciliation of gross refining margin to the most directly comparable GAAP financial measure, consolidated gross margin, on a historical basis, as applicable, for each of the periods indicated (in millions, except per barrel amounts):



Three Months Ended June 30,
20202019
$per barrel of throughput$per barrel of throughput
Calculation of consolidated gross margin:
Revenues$2,499.1  $40.68  $6,551.9  $84.29  
Less: Cost of sales2,355.6  38.34  6,530.4  84.03  
Consolidated gross margin$143.5  $2.34  $21.5  $0.26  
Reconciliation of consolidated gross margin to gross refining margin and gross refining margin excluding special items:
Consolidated gross margin$143.5  $2.34  $21.5  $0.26  
Add: Refinery operating expense423.7  6.90  409.7  5.27  
Add: Refinery depreciation expense111.1  1.81  95.3  1.23  
Gross refining margin$678.3  $11.05  $526.5  $6.76  
Special items:(1)
Add: Non-cash LCM inventory adjustment(584.2) (9.51) 182.0  2.34  
Gross refining margin excluding special items$94.1  $1.54  $708.5  $9.10  
Six Months Ended June 30,
20202019
$per barrel of throughput$per barrel of throughput
Calculation of consolidated gross margin:
Revenues$7,759.1  $55.80  $11,760.6  $81.33  
Less: Cost of sales9,001.9  64.74  11,354.3  78.53  
Consolidated gross margin$(1,242.8) $(8.94) $406.3  $2.80  
Reconciliation of consolidated gross margin to gross refining margin and gross refining margin excluding special items:
Consolidated gross margin$(1,242.8) $(8.94) $406.3  $2.80  
Add: Refinery operating expense931.2  6.70  863.1  5.97  
Add: Refinery depreciation expense216.5  1.56  189.6  1.31  
Gross refining margin$(95.1) $(0.68) $1,459.0  $10.08  
Special items:(1)
Add: Non-cash LCM inventory adjustment701.4  5.04  (324.0) (2.23) 
Gross refining margin excluding special items$606.3  $4.36  $1,135.0  $7.85  
——————————
See Notes to Non-GAAP Financial Measures.
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EBITDA, EBITDA Excluding Special Items and Adjusted EBITDA
Our management uses EBITDA (earnings before interest, income taxes, depreciation and amortization), EBITDA excluding special items and Adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations, and in communications with our board of directors, creditors, analysts and investors concerning our financial performance. Our outstanding indebtedness for borrowed money and other contractual obligations also include similar measures as a basis for certain covenants under those agreements which may differ from the Adjusted EBITDA definition described below.
EBITDA, EBITDA excluding special items and Adjusted EBITDA are not presentations made in accordance with GAAP and our computation of EBITDA, EBITDA excluding special items and Adjusted EBITDA may vary from others in our industry. In addition, Adjusted EBITDA contains some, but not all, adjustments that are taken into account in the calculation of the components of various covenants in the agreements governing our senior notes and other credit facilities. EBITDA, EBITDA excluding special items and Adjusted EBITDA should not be considered as alternatives to income from operations or net income as measures of operating performance. In addition, EBITDA, EBITDA excluding special items and Adjusted EBITDA are not presented as, and should not be considered, an alternative to cash flows from operations as a measure of liquidity. Adjusted EBITDA is defined as EBITDA before adjustments for items such as stock-based compensation expense, the non-cash change in the fair value of catalyst obligations, gain on sale of hydrogen plants, the write down of inventory to the LCM, debt extinguishment costs related to refinancing activities, change in the fair value of contingent consideration and certain other non-cash items. Other companies, including other companies in our industry, may calculate EBITDA, EBITDA excluding special items and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures. EBITDA, EBITDA excluding special items and Adjusted EBITDA also have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include that EBITDA, EBITDA excluding special items and Adjusted EBITDA:
do not reflect depreciation expense or our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
do not reflect changes in, or cash requirements for, our working capital needs;
do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
do not reflect realized and unrealized gains and losses from certain hedging activities, which may have a substantial impact on our cash flow;
do not reflect certain other non-cash income and expenses; and
exclude income taxes that may represent a reduction in available cash.
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The following tables reconcile net income (loss) as reflected in our results of operations to EBITDA, EBITDA excluding special items and Adjusted EBITDA for the periods presented (in millions):

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Reconciliation of net income (loss) to EBITDA and EBITDA excluding special items:
Net income (loss)$518.5  $(56.5) $(956.1) $255.6  
Add: Depreciation and amortization expense113.9  98.2  222.2  195.3  
Add: Interest expense, net52.8  29.6  89.3  57.0  
Add: Income tax (benefit) expense(4.4) 1.8  9.8  (5.4) 
EBITDA$680.8  $73.1  $(634.8) $502.5  
  Special Items:(1)
Add: Non-cash LCM inventory adjustment(584.2) 182.0  701.4  (324.0) 
Add: Debt extinguishment costs—  —  22.2  —  
Add: Change in fair value of contingent consideration(12.4) —  (65.4) —  
Add: Gain on sale of hydrogen plants(471.1) —  (471.1) —  
Add: Severance costs12.9  —  12.9  —  
EBITDA excluding special items$(374.0) $255.1  $(434.8) $178.5  
Reconciliation of EBITDA to Adjusted EBITDA:
EBITDA$680.8  $73.1  $(634.8) $502.5  
Add: Stock-based compensation8.1  8.6  16.4  15.7  
Add: Change in fair value of catalyst obligations5.1  (0.5) (6.6) 2.6  
Add: Change in fair value of contingent consideration (1)
(12.4) —  (65.4) —  
Add: Non-cash LCM inventory adjustment (1)
(584.2) 182.0  701.4  (324.0) 
Add: Gain on sale of hydrogen plants (1)
(471.1) —  (471.1) —  
Add: Debt extinguishment costs (1)
—  —  22.2  —  
Add: Severance costs (1)
12.9  —  12.9  —  
Adjusted EBITDA$(360.8) $263.2  $(425.0) $196.8  
——————————
See Notes to Non-GAAP Financial Measures.
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Notes to Non-GAAP Financial Measures
The following notes are applicable to the Non-GAAP Financial Measures above: 
(1) Special items:
        LCM inventory adjustment - LCM is a GAAP requirement related to inventory valuation that mandates inventory to be stated at the lower of cost or market. Our inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (“LIFO”) inventory valuation methodology, in which the most recently incurred costs are charged to cost of sales and inventories are valued at base layer acquisition costs. Market is determined based on an assessment of the current estimated replacement cost and net realizable selling price of the inventory. In periods where the market price of our inventory declines substantially, cost values of inventory may exceed market values. In such instances, we record an adjustment to write down the value of inventory to market value in accordance with GAAP. In subsequent periods, the value of inventory is reassessed and an LCM inventory adjustment is recorded to reflect the net change in the LCM inventory reserve between the prior period and the current period. The net impact of these LCM inventory adjustments are included in income from operations, but are excluded from the operating results presented, as applicable, in order to make such information comparable between periods.
        The following table includes the LCM inventory reserve as of each date presented (in millions):

20202019
January 1,$401.6  $651.8  
March 31,1,687.2  145.8  
June 30,1,103.0  327.8  

        The following table includes the corresponding impact of changes in the LCM inventory reserve on both income (loss) from operations and net income (loss) for the periods presented (in millions):

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net LCM inventory adjustment benefit (charge) in both income (loss) from operations and net income (loss)$584.2  $(182.0) $(701.4) $324.0  

Debt Extinguishment Costs - During the six months ended June 30, 2020, we recorded debt extinguishment costs of $22.2 million related to the redemption of the 2023 Senior Notes. There were no such costs in any of the other periods presented.
Change in Fair Value of Contingent Consideration - During the three months ended June 30, 2020 we recorded a change in the fair value of the contingent consideration related to the Martinez Contingent Consideration which increased income from operations and net income by $12.4 million, respectively. During the six months ended June 30, 2020, we recorded a change in the fair value of the contingent consideration related to the Martinez Contingent Consideration which increased income from operations and net income by $65.4 million, respectively. There were no such changes during the three and six months ended June 30, 2019.
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Gain on sale of Hydrogen Plants - During the three and six months ended June 30, 2020, we recorded a gain on the sale of five hydrogen plants. The gain increased income from operations and net income by $471.1 million. There was no such gain during the three and six months ended June 30, 2019.
Severance Costs - During the three and six months ended June 30, 2020, we recorded a severance charge related to a reduction in our workforce that decreased income (loss) from operations and net income (loss) by $12.9 million. There were no such costs during the three and six months ended June 30, 2019.
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Liquidity and Capital Resources
Overview
Typically our primary sources of liquidity are our cash flows from operations, cash and cash equivalents and borrowing availability under our Revolving Credit Facility, however, due to the COVID-19 pandemic and the current extraordinary and volatile market conditions, our business and results of operations are being negatively impacted. The demand destruction as a result of the worldwide economic slowdown and governmental responses, including travel restrictions and stay-at-home orders, has resulted in a significant decrease in the demand for and market prices for our products. In addition, recent global geopolitical and macroeconomic events have further contributed to the overall volatility in crude oil and refined product prices, contributing to an adverse impact on our liquidity. We are focused on assessing and adapting to the challenging operating environment and continually evaluating our strategic measures to preserve liquidity and strengthen our balance sheet. Our response to the current economic environment and its impact on our liquidity is more fully described in the “Liquidity” section below.
Cash Flow Analysis
Cash Flows from Operating Activities
Net cash used in operating activities was $707.9 million for the six months ended June 30, 2020 compared to net cash used in operating activities of $76.0 million for the six months ended June 30, 2019. Our operating cash flows for the six months ended June 30, 2020 included our net loss of $956.1 million, gain on sale of assets mainly related to the sale of the hydrogen plants of $471.1 million, net non-cash impact relating to the change in the fair value of our inventory repurchase obligations of $25.7 million, change in the fair value of the contingent consideration associated with the Martinez Acquisition of $65.4 million, and a change in the fair value of our catalyst obligations of $6.6 million, partially offset by depreciation and amortization of $229.4 million, a non-cash charge of $701.4 million relating to an LCM inventory adjustment, pension and other post-retirement benefits costs of $27.3 million, stock-based compensation of $16.4 million, deferred income taxes of $9.8 million and debt extinguishment costs related to the early redemption of our 2023 Senior Notes of $22.2 million. In addition, net changes in operating assets and liabilities reflects cash uses of $189.5 million driven by the timing of inventory purchases, payments for accrued expenses and accounts payables and collections of accounts receivables. Our operating cash flows for the six months ended June 30, 2019 included our net income of $255.6 million, depreciation and amortization of $198.4 million, net non-cash change in the fair value of our inventory repurchase obligations of $35.0 million, pension and other post-retirement benefits costs of $22.4 million, stock-based compensation of $15.7 million, a change in the fair value of our catalyst obligations of $2.6 million, distributions from our former equity method investment in TVPC of $7.9 million, and loss on sale of assets of $0.8 million, offset by a non-cash benefit of $324.0 million relating to an LCM inventory adjustment, income from our former equity method investment in TVPC of $7.9 million and deferred income taxes of $5.3 million. In addition, net changes in operating assets and liabilities reflects cash uses of $277.2 million driven by the timing of inventory purchases, payments for accrued expenses and accounts payables and collections of accounts receivables.
Cash Flows from Investing Activities
Net cash used in investing activities was $925.8 million for the six months ended June 30, 2020 compared to net cash used in investing activities of $486.1 million for the six months ended June 30, 2019. The net cash flows used in investing activities for the six months ended June 30, 2020 was comprised of cash outflows of $1,176.2 million used to fund the Martinez Acquisition, capital expenditures totaling $112.6 million, expenditures for refinery turnarounds of $159.2 million, and expenditures for other assets of $7.2 million, partially offset by proceeds from sale of assets of $529.4 million. Net cash used in investing activities for the six months ended June 30, 2019 was comprised of capital expenditures totaling $190.9 million, expenditures for refinery turnarounds of $261.9 million and expenditures for other assets of $33.9 million, partially offset by return of capital related to our equity method investment in TVPC of $0.6 million.
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Cash Flows from Financing Activities
Net cash provided by financing activities was $2,073.7 million for the six months ended June 30, 2020 compared to net cash provided by financing activities of $157.2 million for the six months ended June 30, 2019. For the six months ended June 30, 2020, net cash provided by financing activities consisted primarily of cash proceeds of $984.8 million from the issuance of the 2025 Senior Secured Notes net of related issuance costs, cash proceeds of $469.9 million from the issuance of the 2028 Senior Notes net of cash paid to redeem the 2023 Senior Notes and related issuance costs, proceeds from contributions from PBF LLC of $24.4 million, net borrowings under our Revolving Credit Facility of $600.0 million and proceeds from insurance premium financing of $33.8 million, partially offset by distributions to members of $21.1 million, net settlements of precious metal catalyst obligations of $8.8 million, principal amortization payments of the PBF Rail Term Loan of $3.6 million, and payments on finance leases of $5.7 million. For the six months ended June 30, 2019, net cash provided by financing activities consisted primarily of proceeds from contributions from PBF LLC of $202.5 million and insurance premium financing of $18.9 million, partially offset by distributions to members of $59.4 million, principal amortization payments of the PBF Rail Term Loan of $3.5 million, net settlements of precious metal catalyst obligations of $1.2 million and deferred financing costs and other of $0.1 million. Additionally, during the six months ended June 30, 2019, we borrowed and repaid $1,250.0 million under our Revolving Credit Facility resulting in no net change to amounts outstanding for the six months ended June 30, 2019.
Debt and Credit Facility
Revolving Credit Facility
The Revolving Credit Facility has a maximum commitment available to us of $3.4 billion and matures in May 2023. Borrowings under the Revolving Credit Facility bear interest at the Alternative Base Rate plus the Applicable Margin or at the Adjusted London Inter-Bank Offered Rate (“LIBOR”) plus the Applicable Margin, all as defined in the Revolving Credit Agreement. In addition, an accordion feature allows for commitments of up to $3.5 billion.
On February 18, 2020, in connection with the entry into a $300.0 million uncommitted receivables purchase facility (the “Receivables Facility”), we amended the Revolving Credit Facility and entered into a related intercreditor agreement to allow us to sell certain Eligible Receivables (as defined in the Revolving Credit Agreement) derived from the sale of refined products over truck racks. Under the Receivables Facility, we sell such receivables to a bank subject to bank approval and certain conditions. The sales of receivables under the Receivables Facility are absolute and irrevocable but subject to certain repurchase obligations under certain circumstances.
On May 7, 2020, we further amended the Revolving Credit Facility, to increase our ability to incur certain secured debt from an amount equal to 10% of our total assets to 20% of our total assets.
Senior Notes
On January 24, 2020, we entered into an indenture among our wholly-owned subsidiary, PBF Finance (together with us, the “Issuers”), the guarantors named therein (collectively the “Guarantors”), Wilmington Trust, National Association, as Trustee and Deutsche Bank Trust Company Americas, under which the Issuers issued $1.0 billion in aggregate principal amount of the 2028 Senior Notes. The Issuers received net proceeds of approximately $987.0 million from the offering after deducting the initial purchasers’ discount and offering expenses. We used the net proceeds primarily to fully redeem the 2023 Senior Notes, including accrued and unpaid interest, on February 14, 2020, and to fund a portion of the cash consideration for the Martinez Acquisition.
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On May 13, 2020, we entered into an indenture among the Issuers, the Guarantors, and Wilmington Trust, National Association, as Trustee, Paying Agent, Registrar, Transfer Agent, Authenticating Agent and Notes Collateral Agent, under which the Issuers issued $1.0 billion in aggregate principal amount of the 2025 Senior Secured Notes. The Issuers received net proceeds of approximately $984.8 million from the offering after deducting the initial purchasers’ discount and estimated offering expenses. We expect to use the net proceeds for general corporate purposes.
Refer to “Note 6 - Debt” of our Notes to Condensed Consolidated Financial Statements, for further information.
We are in compliance as of June 30, 2020 with all covenants, including financial covenants, in all of our debt agreements.
Liquidity
The recent outbreak of the COVID-19 pandemic and certain developments in the global oil markets began negatively impacting our liquidity beginning towards the end of the first quarter of 2020.
As of July 2020, our liquidity was approximately $1.9 billion based on our estimated $1.2 billion of cash, and more than $700.0 million of availability under our asset-backed revolving credit facility. Our total liquidity includes the amount of excess availability under our Revolving Credit Facility, which includes our cash on hand.
Due to the unprecedented events caused by the COVID-19 pandemic and the negative impact it has caused to our liquidity, we have taken the following measures to strengthen our balance sheet and increase our flexibility and responsiveness:
Implemented cost reduction and cash preservation initiatives, including a significant decrease in 2020 planned capital expenditures, lowering 2020 operating expenses driven by minimizing discretionary activities and third party services, headcount reductions, and cutting corporate overhead expenses through salary reductions to a significant portion of our workforce;
Suspended PBF Energy’s quarterly dividend of $0.30 per share, anticipated to preserve approximately $35.0 million of cash each quarter to support the balance sheet;
Closed on the sale of five hydrogen facilities for gross cash proceeds of $530.0 million on April 17, 2020; and
Issued $1.0 billion in aggregate principal amount of the 2025 Senior Secured Notes for net proceeds of approximately $984.8 million. See “Note 6 - Debt” of our Notes to Condensed Consolidated Financial Statements for additional details related to the notes offering.
We are actively responding to the impacts of the COVID-19 pandemic and ongoing rebalancing in the global oil markets. In late March and through the second quarter of 2020, we reduced the amount of crude oil processed at our refineries in response to the decreased demand for our products and temporarily idled units at certain of our refineries to optimize our production in light of prevailing market conditions. We are progressing towards our goal of reducing operating expense by approximately $140.0 million in 2020. A certain portion of the reductions are related to running at lower rates but the majority are purposeful operating expense reductions that we expect to translate into durable, long-term savings.
Our refining capital spending program is on track to meet our revised guidance of approximately $360.0 million for 2020, with the bulk of the spending having occurred in the first and second quarters. For the remainder of 2020, we expect to incur approximately $90.0 million to $100.0 million in refining capital expenditures.
We have no expected debt maturities due in 2020.
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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. Based on our preliminary analysis of the CARES Act, we are exploring the following opportunities:
Deferral of social security payroll tax matches that would otherwise be required in 2020;
Receipt of a payroll tax credit in 2020, to the extent allowable, for expenses related to paying wages and health benefits to employees who are not working as a result of closures and reduced receipts associated with the COVID-19 pandemic; and
Carryforward of tax loss incurred in 2020, as applicable, to utilize in future years when our 2020 tax return is filed.
We intend to explore any available potential benefits under the CARES Act, including loans, investments or guarantees, and any other such current or future government programs for which we qualify, including those described above. We cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all.
While it is impossible to estimate the duration or complete financial impact of the COVID-19 pandemic, we believe that these strategic actions plus our cash flows from operations and available capital resources will be sufficient to meet our and our subsidiaries’ capital expenditures, working capital needs, and debt service requirements, for the next twelve months. We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because the impact that the COVID-19 pandemic is having on us and our industry is ongoing and unprecedented. The extent of the impact of the COVID-19 pandemic on our business, financial condition, results of operation and liquidity will depend largely on future developments, including the duration of the outbreak, particularly within the geographic areas where we operate, and the related impact on overall economic activity, all of which are uncertain and cannot be predicted with certainty at this time. As a result, we may require additional capital, and, from time to time, may pursue funding strategies in the capital markets or through private transactions to strengthen our liquidity and/or fund strategic initiatives. Such additional financing may not be available on favorable terms or at all.
Refer to “Business Developments” and “Part II - Other Information, Item 1A. Risk Factors” for further information.
Working Capital
Our working capital at June 30, 2020 was $1,211.8 million, consisting of $3,361.5 million in total current assets and $2,149.7 million in total current liabilities. Our working capital at December 31, 2019 was $1,167.5 million, consisting of $3,766.4 million in total current assets and $2,598.9 million in total current liabilities.
Working capital has increased during the six months ended June 30, 2020 primarily as a result of proceeds from financing activities partially offset by operating losses.
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Capital Spending
Capital spending, excluding $1,176.2 million attributed to the Martinez Acquisition, was $279.0 million for the six months ended June 30, 2020, which primarily included costs for the construction of the Delaware City refinery hydrogen plant, turnaround costs at our Toledo refinery, safety related enhancements and facility improvements at our refineries. Due to current challenging market conditions, we have taken strategic steps to increase our flexibility and responsiveness, one of which is the reduction of over $350.0 million in 2020 planned capital expenses. We currently expect to spend an aggregate of approximately $360.0 million in net refining capital expenditures during 2020, for facility improvements, maintenance and turnarounds with the intention of satisfying all required safety, environmental and regulatory capital commitments.
On February 1, 2020 we acquired the Martinez refinery and related logistic assets. The purchase price for the Martinez Acquisition was $960.0 million in cash, plus final working capital of $216.1 million and $77.3 million in the Martinez Contingent Consideration. The transaction was financed through a combination of cash on hand, including proceeds from our 2028 Senior Notes, and borrowings under our Revolving Credit Facility.
Contractual Obligations and Commitments
In connection with the Martinez Acquisition and additional financing transactions, including the 2028 Senior Notes and the 2025 Senior Secured Notes offerings, and the redemption of the 2023 Senior Notes, we entered into or assumed certain contractual obligations and commitments, as described below, not previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
In connection with the issuance of the 2028 Senior Notes and 2025 Senior Secured Notes, and the redemption of the 2023 Senior Notes during the six months ended June 30, 2020, our long-term debt obligations were reduced in 2023 for the $500.0 million redemption of the 2023 Senior Notes and increased in 2025 and 2028 by $1.0 billion for the issuance of the 2028 Senior Notes and 2025 Senior Secured Notes. The 2028 Senior Notes pay interest semi-annually in cash in arrears on February 15 and August 15 each year, beginning on August 15, 2020 and will mature on February 15, 2028. The 2025 Senior Secured Notes pay interest semi-annually in cash in arrears on May 15 and November 15 of each year, beginning on November 15, 2020 and will mature on May 15, 2025. During the six months ended June 30, 2020, we also incurred borrowings under the Revolving Credit Facility to fund a portion of the Martinez Acquisition and for other general corporate purposes. At June 30, 2020, we had outstanding borrowings under the Revolving Credit Facility of $600.0 million that are currently due in May 2023. As a result of this debt activity, our obligation to make interest payments on outstanding debt are expected to increase as follows: $64.8 million in the remainder of 2020, $129.5 million in 2021 and 2022, $122.5 million in 2023, $152.5 million in 2024, and a $256.3 million thereafter.
Refer to “Note 6 - Debt” of our Notes to Condensed Consolidated Financial Statements, for further information.
We have entered into certain leases and other rental-related agreements in connection with the Martinez Acquisition that resulted in additional contractual obligations as follows: $11.3 million in 2020, $20.2 million in aggregate in 2021 and 2022, $18.9 million in aggregate in 2023 and 2024 and $37.4 million thereafter.
In connection with our sale of five hydrogen facilities to Air Products, we have entered into off-take arrangements covering hydrogen produced at each of the five plants on terms in line with similar arrangements in place elsewhere in our refining system that resulted in additional contractual obligations as follows: $76.9 million in 2020 and $87.3 million in 2021.
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We have also entered into a 15-year lease for hydrogen supply in connection with the completion of a new hydrogen generation facility constructed on site at our Delaware City refinery that commenced in the third quarter of 2020, which will result in additional contractual obligations of $7.1 million in 2020 and $14.2 million annually thereafter until the maturity of the lease.
In connection with the Martinez Acquisition, we entered into various five-year crude supply agreements for approximately 145,000 bpd, which are subject to certain volume reductions at our discretion. Following the COVID-19 pandemic and extraordinary market disruption and volatility that it has caused, there has been a significant decrease in the market price of crude oil. While the extent of this market disruption and duration of significantly lower crude oil prices is uncertain, if it does persist for an extended period of time, our obligations for our crude and feedstock supply agreements would be significantly less than the amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
Crude and Feedstock Supply Agreements
Certain of our purchases of crude oil under our agreements with foreign national oil companies require that we post letters of credit, if open credit terms are exceeded, and arrange for shipment. We pay for the crude when invoiced, at which time any applicable letters of credit are lifted. We have a contract with Saudi Arabian Oil Company (“Saudi Aramco”) pursuant to which we have been purchasing up to approximately 100,000 bpd of crude oil from Saudi Aramco that is processed at our Paulsboro refinery. In connection with the acquisition of the Chalmette refinery we entered into a contract with Petróleos de Venezuela S.A. (“PDVSA”) for the supply of 40,000 to 60,000 bpd of crude oil that can be processed at any of our East or Gulf Coast refineries. We have not sourced crude oil under this agreement since 2017 when PDVSA suspended deliveries due to the parties’ inability to agree to mutually acceptable payment terms and because of U.S. government sanctions against PDVSA. Notwithstanding the suspension, the recent U. S. sanctions imposed against PDVSA and Venezuela would prevent us from purchasing crude oil under this agreement. In connection with the closing of the acquisition of the Torrance refinery, we entered into a crude supply agreement with Exxon Mobil Oil Corporation (“ExxonMobil”) for approximately 60,000 bpd of crude oil that can be processed at our Torrance refinery. We currently purchase all of our crude and feedstock needs independently from a variety of suppliers on the spot market or through term agreements for our Delaware City and Toledo refineries.
We have entered into various five-year crude supply agreements with Shell Oil Products for approximately 145,000 bpd, in the aggregate, to support our West Coast and Mid-Continent refinery operations. In addition, we have entered into certain offtake agreements for our West Coast system with the same counterparty for clean products with varying terms up to 15 years.
Inventory Intermediation Agreements
We entered into Inventory Intermediation Agreements with J. Aron, to support the operations of the East Coast Refineries. The Inventory Intermediation Agreement by and among J. Aron, PBF Holding and DCR expires on June 30, 2021, which term may be further extended by mutual consent of the parties to June 30, 2022. The Inventory Intermediation Agreement by and among J. Aron, PBF Holding and PRC expires on December 31, 2021, which term may be further extended by mutual consent of the parties to December 31, 2022. If not extended, at expiration, we will be required to repurchase the inventories outstanding under the Inventory Intermediation Agreement at that time.
At June 30, 2020, the LIFO value of crude oil, intermediates and finished products owned by J. Aron included within Inventory in our Condensed Consolidated Balance Sheets was $277.2 million. We accrue a corresponding liability for such crude oil, intermediates and finished products.
Off-Balance Sheet Arrangements and Contractual Obligations and Commitments
We have no off-balance sheet arrangements as of June 30, 2020, other than outstanding letters of credit of approximately $143.7 million.
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Distribution Policy
In cases when there is sufficient cash and cash equivalents and borrowing capacity, we are permitted under our debt agreements to make distributions; however, our ability to continue to comply with our debt covenants is, to a significant degree, subject to our operating results, which are dependent on a number of factors outside of our control.
We make, from time to time, distributions to PBF LLC, if necessary, in order for PBF LLC to make pro rata distributions to its members, including PBF Energy, necessary to fund in excess of one year’s cash dividend payments by PBF Energy. In response to the adverse impact caused by the COVID-19 pandemic, PBF Energy, among other things, suspended its quarterly dividend of $0.30 per share, anticipated to preserve approximately $35.0 million of cash each quarter to support its balance sheet. While it is impossible to estimate the duration or ultimate financial impact of the COVID-19 pandemic on our business, we will continue to monitor and evaluate our distribution policy as market conditions develop and our business outlook becomes clearer.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates. Our critical accounting estimates are included in our annual report on Form 10-K for the year ended December 31, 2019. As of June 30, 2020, the following accounting policy is included as it involves estimates that are considered critical due to the level of subjectivity and judgment involved, as well as the impact on our financial position and results of operations. We believe that all of our estimates are reasonable. Estimates of the sensitivity to earnings that would result from changes in the assumptions used in determining our estimates are not practicable due to the number of assumptions and contingencies involved, and the wide range of possible outcomes.

Impairment of Long-Lived Assets

Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognized for the amount by which the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based on discounted estimated net cash flows or other appropriate methods.

The global crisis resulting from the COVID-19 pandemic has had a substantial impact on the economy and overall consumer demand for energy and hydrocarbon products. As a result of enduring throughput reductions across our refineries and noticeable decrease in demand for our products, we determined that an impairment triggering event had occurred. Therefore, we performed an interim impairment assessment on certain long-lived assets as of June 30, 2020. As a result of the interim impairment test, we determined that our long-lived assets were not impaired when comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from use of the assets over their remaining estimated useful life. If adverse market conditions persist or there is further deterioration in the general economic environment due to the COVID-19 pandemic, there could be additional indicators that our assets are impaired requiring evaluation that may result in future impairment charges to earnings. Refer to “Note 1 - Description of the Business and Basis of Presentation” of our Notes to Condensed Consolidated Financial Statements.
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Supplemental Guarantor Financial Information
As of June 30, 2020, PBF Services Company, DCR, PBF Power Marketing LLC, PRC, Toledo Refining Company LLC, Chalmette Refining, L.L.C. (“Chalmette Refining”), PBF Western Region LLC, Torrance Refining Company LLC (“Torrance Refining”), Martinez Refining Company LLC (“Martinez Refining”), PBF International Inc. and PBF Investments LLC (“PBF Investments”) are 100% owned subsidiaries of PBF Holding and serve as guarantors of the obligations under the 2025 Senior Secured Notes, 2025 Senior Notes and 2028 Senior Notes. These guarantees are full and unconditional and joint and several. PBF Holding serves as the “Issuer”. The indentures dated May 30, 2017 and January 24, 2020, among PBF Holding, PBF Finance, the guarantors party thereto, Wilmington Trust, National Association, as trustee and Deutsche Bank Trust Company Americans, and the indenture date May 13, 2020, among PBF Holding, PBF Finance, the guarantors party thereto and Wilmington Trust, National Association, govern subsidiaries designated as “Guarantor Subsidiaries”. PBF Ltd, PBF Transportation Company LLC, PBF Rail Logistics Company LLC, MOEM Pipeline LLC, Collins Pipeline Company, T&M Terminal Company, Torrance Basin Pipeline Company LLC, Torrance Logistics Company LLC, Torrance Pipeline Company LLC, Martinez Terminal Company LLC, Martinez Pipeline Company LLC and PBFWR Logistics Holdings LLC are consolidated subsidiaries of the Company that are not guarantors of the 2025 Senior Secured Notes, 2025 Senior Notes and 2028 Senior Notes. The 2025 Senior Secured Notes, 2025 Senior Notes and 2028 Senior Notes were co-issued by PBF Finance. For purposes of the following information, PBF Finance is referred to as “Co-Issuer.” The Co-Issuer has no independent assets or operations.
The following tables present summarized information for the Issuer and the Guarantor Subsidiaries on a combined basis after elimination of (i) intercompany transactions and balances among the Issuer and the Guarantor Subsidiaries and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor.
Summarized Balance Sheet (in millions)June 30,
2020
December 31,
2019
ASSETS
Current Assets (1)
$3,078.7  $3,500.0  
Non-Current Assets5,857.1  4,842.5  
Due from non-guarantor subsidiaries12,971.0  12,311.4  
LIABILITIES AND EQUITY
Current liabilities (1)
$1,975.0  $2,364.8  
Long-term liabilities4,352.2  2,300.6  
Due to non-guarantor subsidiaries13,045.8  12,295.9  
(1) Includes $7.3 million and $55.1 million of accounts receivables and accounts payables, respectively, related to transactions with PBFX as of June 30, 2020. Includes $6.5 million and $48.1 million of accounts receivables and accounts payables, respectively, related to transactions with PBFX as of December 31, 2019. Refer to the Company’s 2019 Annual Report on Form 10-K (“Note 9 - Related Party Transactions” of the Notes to Consolidated Financial Statements) for further disclosures.
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Summarized Statement of Operations (in millions)Three Months Ended June 30, 2020Six Months Ended June 30, 2020
Revenues$2,427.2  $7,570.5  
Cost of sales2,123.8  8,295.6  
Gross margin303.4  (725.1) 
Income (loss) from operations729.0  (322.6) 
Net income (loss)652.0  (407.4) 
Net income (loss) attributable to PBF Holding Company LLC652.1  (407.4) 
Non-guarantor intercompany sales with the Issuer and Guarantor subsidiaries$137.0  $556.5  
Non-guarantor intercompany cost of sales with the Issuer and Guarantor subsidiaries3.3  7.7  
Affiliate revenues related to transactions with PBFX (1)
4.0  8.2  
Affiliate expenses related to transactions with PBFX (1)
72.4  147.9  
(1) Refer to “Note 7 - Related Party Transactions” of our Notes to Condensed Consolidated Financial Statements for further information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, including changes in commodity prices and interest rates. Our primary commodity price risk is associated with the difference between the prices we sell our refined products and the prices we pay for crude oil and other feedstocks. We may use derivative instruments to manage the risks from changes in the prices of crude oil and refined products, natural gas, interest rates, or to capture market opportunities.
Commodity Price Risk
Our earnings, cash flow and liquidity are significantly affected by a variety of factors beyond our control, including the supply of, and demand for, crude oil, other feedstocks, refined products and natural gas. The supply of and demand for these commodities depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, planned and unplanned downtime in refineries, pipelines and production facilities, production levels, the availability of imports, the marketing of competitive and alternative fuels, and the extent of government regulation. As a result, the prices of these commodities can be volatile. Our revenues fluctuate significantly with movements in industry refined product prices, our cost of sales fluctuates significantly with movements in crude oil and feedstock prices and our operating expenses fluctuate with movements in the price of natural gas. We manage our exposure to these commodity price risks through our supply and offtake agreements as well as through the use of various commodity derivative instruments.
We may use non-trading derivative instruments to manage exposure to commodity price risks associated with the purchase or sale of crude oil and feedstocks, finished products and natural gas outside of our supply and offtake agreements. The derivative instruments we use include physical commodity contracts and exchange-traded and over-the-counter financial instruments. We mark-to-market our commodity derivative instruments and recognize the changes in their fair value in our statements of operations.
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The negative impact of the unprecedented global health and economic crisis sparked by the COVID-19 pandemic, combined with uncertainty around future output levels of the world’s largest oil producers has increased unpredictability in oil supply and demand resulting in an economic challenge to our industry which has not occurred since our formation. This combination has resulted in significant demand reduction for our refined products and abnormal volatility in oil commodity prices, which may continue for the foreseeable future.
At June 30, 2020 and December 31, 2019, we had gross open commodity derivative contracts representing 10.6 million barrels and 11.3 million barrels, respectively, with an unrealized net loss of $6.0 million and unrealized net gain of $0.2 million, respectively. The open commodity derivative contracts as of June 30, 2020 expire at various times during 2020.
We carry inventories of crude oil, intermediates and refined products (“hydrocarbon inventories”) on our Condensed Consolidated Balance Sheets, the values of which are subject to fluctuations in market prices. Our hydrocarbon inventories totaled approximately 34.0 million barrels and 30.2 million barrels at June 30, 2020 and December 31, 2019, respectively. The average cost of our hydrocarbon inventories was approximately $76.11 and $79.63 per barrel on a LIFO basis at June 30, 2020 and December 31, 2019, respectively, excluding the net impact of LCM inventory adjustments of approximately $1,103.0 million and $401.6 million, respectively. If market prices of our inventory decline to a level below our average cost, we may be required to write down the carrying value of our hydrocarbon inventories to market.
Our predominant variable operating cost is energy, which is comprised primarily of natural gas and electricity. We are therefore sensitive to movements in natural gas prices. Assuming normal operating conditions, we expect our annual consumption to range from 75 million to 86 million MMBTUs of natural gas in total across our six refineries. Accordingly, a $1.00 per MMBTU change in natural gas prices would increase or decrease our natural gas costs by approximately $75.0 million to $86.0 million.
Compliance Program Price Risk
We are exposed to market risks related to the volatility in the price of credits needed to comply with various governmental and regulatory compliance programs, which includes RINs, required to comply with RFS. Our overall RINs obligation is based on a percentage of our domestic shipments of on-road fuels as established by Environmental Protection Agency (“EPA”). To the degree we are unable to blend the required amount of biofuels to satisfy our RINs obligation, we must purchase RINs on the open market. To mitigate the impact of this risk on our results of operations and cash flows we may purchase RINs or other environmental credits when the price of these instruments is deemed favorable.
In addition, we are exposed to risks associated with complying with federal and state legislative and regulatory measures to address greenhouse gas and other emissions. Requirements to reduce emissions could result in increased costs to operate and maintain our facilities as well as implement and manage new emission controls and programs put in place. For example, AB32 in California requires the state to reduce its GHG emissions to 1990 levels by 2020. Compliance with such emission standards may require the purchase of emission credits or similar instruments.
Certain of these compliance contracts or instruments qualify as derivative instruments. We generally elect the normal purchase normal sale exception under ASC 815, Derivatives and Hedging, for such instruments, and therefore do not record these contracts at their fair value.
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Interest Rate Risk
The maximum commitment under our Revolving Credit Facility is $3.4 billion. Borrowings under the Revolving Credit Facility bear interest either at the Alternative Base Rate plus the Applicable Margin or at Adjusted LIBOR plus the Applicable Margin, all as defined in the Revolving Credit Agreement. If this facility was fully drawn, a 1.0% change in the interest rate would increase or decrease our interest expense by approximately $24.3 million annually.
In addition, the PBF Rail Term Loan, which bears interest at a variable rate, had an outstanding principal balance of $11.0 million at June 30, 2020. A 1.0% change in the interest rate would increase or decrease our interest expense by approximately $0.1 million annually, assuming the current outstanding principal balance on the PBF Rail Term Loan remained outstanding.
We also have interest rate exposure in connection with our Inventory Intermediation Agreements under which we pay a time value of money charge based on LIBOR.
Credit Risk
We are subject to risk of losses resulting from nonpayment or nonperformance by our counterparties. We continue to closely monitor the creditworthiness of customers to whom we grant credit and establish credit limits in accordance with our credit policy.
We continually monitor our market risk exposure, including the impact and developments related to the COVID-19 pandemic combined with the output policies of the world’s largest oil producers which have introduced significant volatility in the financial markets subsequent to our year ended December 31, 2019.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted evaluations under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”)) as of June 30, 2020. Based upon these evaluations, as required by Exchange Act Rule 13a-15(b), the principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective as of June 30, 2020.
Changes in Internal Control Over Financial Reporting
On February 1, 2020, we completed the Martinez Acquisition. We are in the process of integrating Martinez Refining’s operations, including internal controls over financial reporting and, therefore, management's evaluation and conclusion as to the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q excludes any evaluation of the internal controls over financial reporting of Martinez Refining. We expect the integration of Martinez Refining's operations, including internal controls over financial reporting to be complete within one year of its acquisition. Martinez Refining accounts for approximately 9% of our total assets and approximately 11% of our total revenues as of and for the six months ended June 30, 2020.
Management has not identified any other changes in our internal controls over financial reporting during the three months ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On December 28, 2016, the Delaware Department of Natural Resources and Environmental Control issued the Coastal Zone Act permit for ethanol (the “Ethanol Permit”) to DCR 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. On remand, the Coastal Zone Board met on January 28, 2019 and reversed its previous decision on standing ruling that the appellants have standing to appeal the issuance of the Ethanol Permit. The parties to the action filed a joint motion with the Coastal Zone Board, requesting that the Board concur with the parties’ proposal to secure from the Superior Court confirmation that all rights and claims are preserved for any subsequent appeal to the Superior Court, and that the matter then be scheduled for a hearing on the merits before the Coastal Zone Board. The Coastal Zone Board notified the parties in January of 2020 that it concurred with the parties proposed course of action. The appellants and DCR subsequently filed a motion with the Superior Court requesting relief consistent with what was described to the Coastal Zone Board. In February of 2020, the Superior Court scheduled a conference with counsel for April 3, 2020 to discuss the issues. In addition, the Superior Court issued to the parties a letter, dated March 4, 2020, reporting that the Court would not retain jurisdiction and that the case could proceed to a merits hearing before the Coastal Zone Board. The parties must, therefore, submit to the Coastal Zone Board a joint proposed schedule to govern future proceedings related to the merits hearing.
In connection with the acquisition of the Torrance refinery and related logistics assets, we assumed certain pre-existing environmental liabilities related to certain environmental remediation obligations to address existing soil and groundwater contamination and monitoring activities, which reflect the estimated cost of the remediation obligations. In addition, in connection with the acquisition of the Torrance refinery and related logistics assets, we purchased a ten year, $100.0 million environmental insurance policy to insure against unknown environmental liabilities. Furthermore, in connection with the acquisition, we assumed responsibility for certain specified environmental matters that occurred prior to our ownership of the refinery and logistics assets, including specified incidents and/or Notices of Violation (“NOV”) issued by regulatory agencies in various years before our ownership, including the Southern California Air Quality Management District (“SCAQMD”) and the Division of Occupational Safety and Health of the State of California (“Cal/OSHA”).
Subsequent to the acquisition, further NOVs were issued by the SCAQMD, Cal/OSHA, the City of Torrance, the City of Torrance Fire Department, and the Los Angeles County Sanitation District related to alleged operational violations, emission discharges and/or flaring incidents at the refinery and the logistics assets both before and after our acquisition. EPA in November 2016 conducted a Risk Management Plan (“RMP”) inspection following the acquisition related to Torrance operations and issued preliminary findings in March 2017 concerning RMP potential operational violations. Since EPA’s issuance of the preliminary findings in March 2017, we have been in substantive discussions to resolve the preliminary findings. Effective January 9, 2020, we and EPA entered into a Consent Agreement and Final Order (“CAFO”), effective as of January 9, 2020, which contains no admission by us for any alleged violations in the CAFO, includes a release from all alleged violations in the CAFO, requires payment of a penalty of $125,000 and the implementation of a supplemental environmental project (“SEP”) of at least $219,000 that must be completed by December 15,
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2021. The SEP will consist of configuring the northeast fire water monitor to automatically deploy water upon detection of a release.
EPA and the California Department of Toxic Substances Control (“DTSC”) in December 2016 conducted a Resource Conservation and Recovery Act (“RCRA”) inspection following the acquisition related to Torrance operations and also issued in March 2017 preliminary findings concerning RCRA potential operational violations. On June 14, 2018, the Torrance refinery and DTSC reached settlement regarding the oil bearing materials. Following this settlement, in June 2018, DTSC referred the remaining alleged RCRA violations from EPA’s and DTSC’s December 2016 inspection to the California Attorney General for final resolution. The Torrance refinery and the California Attorney General are in discussions to resolve these alleged remaining RCRA violations.
On September 3, 2019, we received a letter from the SCAQMD proposing to settle a NOV relating to Title V deviations alleged to have occurred in the second half of 2016 for $465,000. On April 3, 2020, we settled this NOV for $350,000.
On May 8, 2020, we received a letter from the SCAQMD proposing to settle a NOV relating to Title V deviations alleged to have occurred in the first half of 2017 for $878,450. We are evaluating the allegations and will be communicating with the SCAQMD regarding the allegations and the settlement offer upon the completion of our review.
As the ultimate outcomes of the matters discussed above are uncertain, we cannot currently estimate the final amount or timing of their resolution but any such amount is not expected to have a material impact on our financial position, results of operations or cash flows, individually or in the aggregate.
On December 5, 1990, prior to our ownership of the Chalmette refinery, the plaintiff in Adam Thomas, et al. v. Exxon Mobil Corporation and Chalmette Refining, filed an action on behalf of himself and potentially thousands of other individuals in St. Bernard Parish and Orleans Parish who were allegedly exposed to hydrogen sulfide and sulfur dioxide as a result of more than 100 separate flaring events that occurred between 1989 and 2010. This litigation is proceeding as a mass action with individually named plaintiffs as a result of a 2008 trial court decision, affirmed by the court of appeals that denied class certification. The plaintiffs claim to have suffered physical injuries, property damage, and other damages as a result of the releases. Plaintiffs seek to recover unspecified compensatory and punitive damages, interest, and costs. The court had scheduled an October 2019 mini-trial of up to 10 plaintiffs, relating to as many as 5 separate flaring events that occurred between 2002 and 2007. However, on October 9, 2019, the parties reached an agreement in principle to settle this matter. On June 18, 2020, plaintiffs and defendants entered into a settlement agreement and release, the terms and conditions of which are confidential. On that same date, the court entered a final judgement that dismissed with prejudice all claims asserted against defendants in this matter. We presently believe the outcome will not have a material impact on our financial position, results of operations, or cash flows.
On February 17, 2017, in Arnold Goldstein, et al. v. Exxon Mobil Corporation, et al., we and PBF LLC, and our subsidiaries, PBF Western Region LLC and Torrance Refining and the manager of our Torrance refinery along with ExxonMobil were named as defendants in a class action and representative action complaint filed on behalf of Arnold Goldstein, John Covas, Gisela Janette La Bella and others similarly situated. The complaint was filed in the Superior Court of the State of California, County of Los Angeles (the “Court”) and alleges negligence, strict liability, ultrahazardous activity, a continuing private nuisance, a permanent private nuisance, a continuing public nuisance, a permanent public nuisance and trespass resulting from the February 18, 2015 electrostatic precipitator (“ESP”) explosion at the Torrance refinery which was then owned and operated by ExxonMobil. The operation of the Torrance refinery by the PBF entities subsequent to our acquisition in July 2016 is also referenced in the complaint. To the extent that plaintiffs’ claims relate to the ESP explosion, ExxonMobil has retained responsibility for any liabilities that would arise from the lawsuit pursuant to the agreement relating to the acquisition of the Torrance refinery. On July 2, 2018, the Court granted leave to plaintiffs’ to file a Second Amended Complaint alleging groundwater contamination. With the filing of
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the Second Amended Complaint, Plaintiffs’ added an additional plaintiff. On March 18, 2019, the class certification hearing was held and the judge took the matter under submission. On April 1, 2019, the judge issued an order denying class certification. On April 15, 2019, Plaintiffs filed a Petition with the Ninth Circuit for Permission to Appeal the Order Denying Motion for Class Certification. The appeal is currently pending with the Ninth Circuit. On May 3, 2019, Plaintiffs filed a Motion with the Central District Court for Leave to File a Renewed Motion for Class Certification. On May 22, 2019, the judge granted Plaintiffs’ motion. We filed our opposition to the motion on July 29, 2019. The Plaintiffs’ motion was heard on September 23, 2019. On October 15, 2019, the judge granted certification to two limited classes of property owners, rejecting two other proposed subclasses based on negligence and on strict liability for ultrahazardous activities. The certified subclasses relate to trespass claims for ground contamination and nuisance for air emissions. Trial currently is scheduled to commence on July 27, 2021. We presently believe the outcome will not have a material impact on our financial position, results of operations or cash flows.
On September 18, 2018, in Michelle Kendig and Jim Kendig, et al. v. ExxonMobil Oil Corporation, et al., PBF Energy Limited and Torrance Refining along with ExxonMobil Oil Corporation and ExxonMobil Pipeline Company were named as defendants in a class action and representative action complaint filed on behalf of Michelle Kendig, Jim Kendig and others similarly situated. The complaint was filed in the Superior Court of the State of California, County of Los Angeles and alleges failure to authorize and permit uninterrupted rest and meal periods, failure to furnish accurate wage statements, violation of the Private Attorneys General Act and violation of the California Unfair Business and Competition Law. Plaintiffs seek to recover unspecified economic damages, statutory damages, civil penalties provided by statute, disgorgement of profits, injunctive relief, declaratory relief, interest, attorney’s fees and costs. To the extent that plaintiffs’ claims accrued prior to July 1, 2016, ExxonMobil has retained responsibility for any liabilities that would arise from the lawsuit pursuant to the agreement relating to the acquisition of the Torrance refinery and logistics assets. On October 26, 2018, the matter was removed to the Federal Court, California Central District. A mediation hearing between the parties was held on August 23, 2019. From the mediation hearing, the parties have reached a tentative agreement in principle to settle. On March 17, 2019, plaintiffs filed with the court a Notice of Motion and Motion for Preliminary Approval of Settlement Agreement for the Court’s approval of the proposed settlement pursuant to which Torrance Refining would pay $2.9 million to resolve the matter and receive a full release and discharge from any and all claims and make no admission of any wrongdoing or liability. On May 1, 2020 the court entered an order preliminarily approving the proposed settlement. The court has scheduled a hearing on August 17, 2020 to consider whether to grant approval of the settlement. We presently believe the outcome will not have a material impact on our financial position, results of operations or cash flows.
On September 7, 2018, in Jeprece Roussell, et al. v. PBF Consultants, LLC, et al., the Plaintiff filed an action in the 19th Judicial District Court for the Parish of East Baton Rouge, alleges numerous causes of action, including wrongful death, premises liability, negligence, and gross negligence against PBF Holding, PBFX Operating Company LLC, Chalmette Refining, two individual employees of the Chalmette refinery (the “PBF Defendants”), two entities, PBF Consultants, LLC (“PBF Consultants”) and PBF Investments LLC that are Louisiana companies that are not associated with our companies, as well as Clean Harbors, Inc. and Clean Harbors Environmental Services, Inc. (collectively, “Clean Harbors”), Mr. Roussell’s employer. Mr. Roussell was fatally injured on March 31, 2018 while employed by Clean Harbors and performing clay removal work activities inside a clay treating vessel located at the Chalmette refinery. Plaintiff seeks unspecified compensatory damages for pain and suffering, past and future mental anguish, impairment, past and future economic loss, attorney’s fees and court costs. On September 25, 2018, the PBF Defendants filed an answer in the state court action denying the allegations. On October 10, 2018, the PBF Defendants filed to remove the case to the United States District Court for the Middle District of Louisiana. On November 9, 2018, Plaintiff filed a motion to remand the matter back to state court and the PBF Defendants filed a response on November 30, 2018. On December 21, 2018, Plaintiff filed a motion for leave to file a reply memorandum and the reply memorandum was filed December 27, 2018. On April 15, 2019 the Federal Magistrate Judge filed a Report and Recommendation denying Plaintiff’s motion to remand and dismissing without prejudice the claims against John Sprafka, Wayne LaCombe, PBF Consultants and PBF Investments. On June 24, 2019, the Federal Judge
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adopted the Magistrate Judge’s Report and Recommendation denying Plaintiff’s motion to remand and dismissing without prejudice the claims against John Sprafka, Wayne LaCombe, PBF Consultants and PBF Investments. Discovery has been served by the parties. We cannot currently estimate the amount or the timing of the resolution of this matter. The PBF Defendants previously issued a tender of defense and indemnity to Clean Harbors and its insurer pursuant to indemnity obligations contained in the associated services agreement. Clean Harbors has accepted the tender of defense and indemnity, and Clean Harbors’ insurer has accepted the tender of defense and indemnity subject to a reservation of rights. We presently believe the outcome will not have a material impact on our financial position, results of operations or cash flows.
In Varga, Sabrina, et al., v. CRU Railcar Services, LLC, et al., we and other of our entities were named as defendants along with CRU Railcar Services, LLC (“CRU”) in a lawsuit arising from a railcar explosion that occurred while CRU employees were cleaning a railcar owned by us. The initial lawsuit alleged that an employee of CRU was fatally injured as a result of the explosion. On July 5, 2019, a petition for intervention was filed alleging that another CRU employee was fatally injured in the same explosion. On October 7, 2019, a third CRU employee joined the lawsuit alleging severe injuries from the incident. We have issued a tender of defense and indemnity to CRU and its insurer pursuant to indemnity obligations contained in the associated services agreement which have not been accepted at this time. Discovery has been served by the parties. We cannot currently estimate the amount or the timing of the resolution of this matter. We presently believe the outcome will not have a material impact on our financial position, results of operations or cash flows.
We are subject to obligations to purchase RINs. On February 15, 2017, we received notification that EPA records indicated that PBF Holding used potentially invalid RINs that were in fact verified under EPA’s RIN Quality Assurance Program (“QAP”) by an independent auditor as QAP A RINs. Under the regulations use of potentially invalid QAP A RINs provided the user with an affirmative defense from civil penalties provided certain conditions are met. We have asserted the affirmative defense and if accepted by EPA will not be required to replace these RINs and will not be subject to civil penalties under the program. It is reasonably possible that EPA will not accept our defense and may assess penalties in these matters but any such amount is not expected to have a material impact on our financial position, results of operations or cash flows.
The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as “Superfund,” imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the current or former owner or operator of the disposal site or sites where the release occurred and companies that disposed of or arranged for the disposal of the hazardous substances. Under CERCLA, such persons may be subject to joint and several liability for investigation and the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. As discussed more fully above, certain of our sites are subject to these laws and we may be held liable for investigation and remediation costs or claims for natural resource damages. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. Analogous state laws impose similar responsibilities and liabilities on responsible parties. In our current normal operations, we have generated waste, some of which falls within the statutory definition of a “hazardous substance” and some of which may have been disposed of at sites that may require cleanup under Superfund.

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Item 1A. Risk Factors

The following risk factors supplement and/or update the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019:
Risks Relating to Our Business and Industry
The recent outbreak of the COVID-19 pandemic and certain developments in the global oil markets are significantly affecting our business, financial condition and results of operations and may continue to do so, and our liquidity could also be negatively impacted, particularly if the U.S. economy remains unstable for a significant amount of time.
The recent outbreak of the COVID-19 pandemic and certain developments in the global oil markets are negatively impacting worldwide economic and commercial activity and financial markets, as well as global demand for petroleum and petrochemical products. The COVID-19 pandemic and related governmental responses have also resulted in significant business and operational disruptions, including business closures, supply chain disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces. In addition, movements made by the world’s largest oil producers to increase market share in the current environment, combined with the impact of the COVID-19 pandemic, has created simultaneous shocks in oil supply and demand resulting in an economic challenge to our industry which has not occurred since our formation. This combination has resulted in significant demand reduction for our refined products and abnormal volatility in oil commodity prices, which may continue for the foreseeable future. The full impact of the COVID-19 pandemic and these market developments is unknown and is rapidly evolving. The full extent to which the COVID-19 pandemic and these market developments negatively impact our business and operations will depend on the severity, location and duration of the effects and spread of COVID-19, the actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.
We are working with federal, state and local health authorities to respond to COVID-19 cases in the regions we operate and are taking or supporting measures to try to limit the spread of the virus and to mitigate the burden on the healthcare system. Many of these measures will have an adverse impact on our business and financial results that we are not currently able to fully quantify. For example, we are limiting onsite staff at all of our facilities to essential operational personnel. As a result, we are carefully evaluating projects at our refineries and limiting or postponing projects and other non-essential work. Based on market conditions, our refineries are currently operating at reduced rates. We plan to significantly reduce capital expenditures in the near term, while intending to satisfy and comply with all required safety, environmental and planned regulatory capital commitments and other regulatory requirements, although there are no assurances that we will be able to do so. Non-compliance with applicable environmental and safety requirements, including as a result of reduced staff due to an outbreak at one of our refineries, may subject us to fines or penalties assessed by governmental authorities or may result in an environmental or safety incident. We may also be subject to liability as a result of claims by impacted workers.
If we continue to experience low crude oil prices and deteriorating market conditions, our borrowing capacity under our Revolving Credit Facility may be reduced. As a result, we may require additional capital, and such additional financing may not be available on favorable terms or at all.
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Broad economic factors resulting from the current COVID-19 pandemic, including increasing unemployment rates, substantially reduced travel and reduced business and consumer spending, also affect our business. Business closings and layoffs in the markets we operate may adversely affect demand for our refined products. Sustained deterioration of general economic conditions or weak demand levels persisting longer than currently anticipated could require additional actions on our part to lower our operating costs, including temporarily or permanently ceasing to operate units at our facilities. There may be significant incremental costs associated with such actions. Continued or further deterioration of economic conditions may harm our liquidity and ability to repay our outstanding debt.
In addition, our results and financial condition may be adversely affected by federal or state laws, regulations, orders, or other governmental or regulatory actions addressing the current COVID-19 pandemic or the U.S. refining industry, which, if adopted, could result in direct or indirect restrictions to our business, financial condition, results of operations and cash flow.
Furthermore, the current COVID-19 pandemic has caused disruption in the financial markets and the businesses of financial institutions. These factors have caused a slowdown in the decision-making of these institutions, which may affect the timing on which we may obtain any additional funding. There can be no assurance that we will be able to raise additional funds on terms acceptable to us, if at all.
The foregoing and other continued disruptions to our business as a result of the COVID-19 pandemic could result in a material adverse effect on our business, result of operations, financial condition, cash flows and our ability to service our indebtedness and other obligations.
To the extent the COVID-19 pandemic adversely affects our business, financial condition, results of operations and liquidity, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in this Form 10-Q, as those risk factors are amended or supplemented by subsequent Quarterly Reports on Form 10-Q and other reports and documents we file with the SEC after the date of this Form 10-Q.
Our working capital, cash flows and liquidity can be significantly impacted by volatility in commodity prices and refined product demand.
Payment terms for our crude oil purchases are typically longer than those terms we extend to our customers for sales of refined products. Additionally, reductions in crude oil purchases tend to lag demand decreases for our refined products. As a result of this timing differential, the payables for our crude oil purchases are generally proportionally larger than the receivables for our refined product sales. As we are normally in a net payables position, a decrease in commodity prices generally results in a use of working capital. Given we process a significant volume of crude oil, the impact can materially affect our working capital, cash flows and liquidity.
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Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.
Our indebtedness may significantly affect our financial flexibility in the future. As of June 30, 2020, we have total debt of $3,368.1 million, excluding unamortized deferred debt issuance costs of $43.4 million, and we could incur additional borrowings under our revolving credit facility. As disclosed in this Form 10-Q, on May 13, 2020, we issued $1.0 billion in aggregate principal amount of 2025 Senior Secured Notes and on January 24, 2020, we issued $1.0 billion in aggregate principal amount of 2028 Senior Notes (the proceeds of which were used primarily to fully redeem the 2023 Senior Notes and to fund a portion of the cash consideration for the Martinez Acquisition). Additionally, during the six months ended June 30, 2020, we used advances under our Revolving Credit Facility to fund a portion of the Martinez Acquisition and for other general corporate purposes. We may incur additional indebtedness in the future. The amounts set forth above do not include any post-closing payments in connection with the Martinez Acquisition to the seller if certain conditions are met, including earn-out payments based on certain earnings thresholds of the Martinez refinery (as set forth in the sale and purchase agreement, for a period of up to four years following the closing date).
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Item 6. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report and such Exhibit Index is incorporated herein by reference.

EXHIBIT INDEX
Exhibit
Number
Description
Indenture dated as of May 13, 2020, among PBF Holding Company LLC, PBF Finance Corporation, the Guarantors named on the signature pages thereto, Wilmington Trust, National Association, as Trustee, Paying Agent, Registrar, Transfer Agent, Authenticating Agent and Notes Collateral Agent (incorporated by reference to Exhibit 4.1 filed with PBF Energy Inc.’s Current Report on Form 8-K dated May 13, 2020 (File No. 001-35764)).
Form of 9.25% Senior Secured Note (included as Exhibit A in Exhibit 4.1) (incorporated by reference to Exhibit 4.2 filed with PBF Energy Inc.’s Current Report on Form 8-K dated May 13, 2020 (File No. 001-35764)).
Asset Purchase Agreement dated as of April 17, 2020, among PBF Holding Company LLC, Torrance Refining Company LLC, Martinez Refining Company LLC, Delaware City Refining Company LLC and Air Products and Chemicals Inc. (incorporated by reference to Exhibit 10.1 filed with PBF Energy Inc.’s Current Report on Form 8-K dated April 22, 2020 (File No. 001-35764)).
Transition Services Agreement dated as of April 17, 2020, among PBF Holding Company LLC, Torrance Refining Company LLC, Martinez Refining Company LLC, Delaware City Refining Company LLC and Air Products and Chemicals Inc. and Air Products West Coast Hydrogen LLC (incorporated by reference to Exhibit 10.2 filed with PBF Energy Inc.’s Current Report on Form 8-K dated April 22, 2020 (File No. 001-35764).
Guarantee Agreement dated as of April 17, 2020 among PBF Energy Inc. PBF Energy Company LLC and Air Products and Chemicals Inc. (incorporated by reference to Exhibit 10.3 filed with PBF Energy Inc.’s Current Report on Form 8-K dated April 22, 2020 (File No. 001-35764).
Second Amendment dated as of May 7, 2020 to Senior Secured Revolving Credit Agreement dated as of May 2, 2018, as amended (incorporated by reference to Exhibit 10.1 filed with PBF Energy Inc.’s Current Report on Form 8-K dated May 7, 2020 (File No. 001-35764)).
List of Guarantor Subsidiaries
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Holding Company LLC pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Erik Young, Chief Financial Officer of PBF Holding Company LLC pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* (1)
Certification of Thomas J. Nimbley, Chief Executive Officer of PBF Holding Company LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* (1)
Certification of Erik Young, Chief Financial Officer of PBF Holding Company LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
 ——————————
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*Filed herewith.
Portions of the exhibits have been omitted because such information is both (i) not material and (ii) could be competitively harmful if publicly disclosed.
(1)This exhibit should not be deemed to be “filed” for purposes of Section 18 of the Exchange Act.

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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PBF Holding Company LLC
Date:August 5, 2020By:/s/ Erik Young
Erik Young
Senior Vice President, Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
PBF Finance Corporation
Date:August 5, 2020By:/s/ Erik Young
Erik Young
Senior Vice President, Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)

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