6-K
Table of Contents

Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report Of Foreign Private Issuer

Pursuant To Rule 13a-16 Or 15d-16 Of

The Securities Exchange Act Of 1934

For the month of November, 2018

Commission File Number: 001-14950

ULTRAPAR HOLDINGS INC.

(Translation of Registrant’s Name into English)

 

 

Avenida Brigadeiro Luis Antonio, 1343, 9º Andar

São Paulo, SP, Brazil 01317-910

(Address of Principal Executive Offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F         X                              Form 40-F                   

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes                                         No         X        

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes                                     No         X        

 


Table of Contents

ULTRAPAR HOLDINGS INC.

TABLE OF CONTENTS

 

ITEM

    

1.

  

Individual and Consolidated Interim Financial Information for the Nine-Month Period Ended September 30, 2018 Report on Review of Interim Financial Information

2.

  

3Q18 Earnings release

3.

  

Board of Directors Minutes

 


Table of Contents

(Convenience Translation into English from

the Original Previously Issued in Portuguese)

Ultrapar Participações S.A.

Individual and Consolidated

Interim Financial Information

for the Nine-month period

Ended September 30, 2018 and

Report on Review of Interim

Financial Information

KPMG Auditores Independentes

 

 

1


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Individual and Consolidated

Interim Financial Information

for the Nine-month period Ended September 30, 2018

 

Table of Contents

 

Report on the Review of Quarterly Information

     3  

Balance Sheets

     4 – 5  

Income Statements

     6 – 7  

Statements of Comprehensive Income

     8 – 9  

Statements of Changes in Shareholders’ Equity

     10 – 11  

Statements of Cash Flows—Indirect Method

     12 – 13  

Statements of Value Added

     14  

Notes to the Interim Financial Information

     15 – 99  

 

 

2


Table of Contents

(Convenience Translation into English from the Original Previously Issued in Portuguese)

Report on the review of quarterly information—ITR

To the Shareholders, Directors and Management of

Ultrapar Participações S.A.

São Paulo, SP

Introduction

We have reviewed the accompanying individual and consolidated interim financial information of Ultrapar Participações S.A. (“Company”), comprised in the Quarterly Financial Information—ITR Form for the quarter ended September 30, 2018, which comprise the balance sheet as of September 30, 2018 and related statements of income, comprehensive income for the three and nine-month period then ended and changes in shareholders’ equity and cash flows for the nine-month period then ended, including the explanatory notes.

The Company’s Management is responsible for the preparation of the interim financial information in accordance with Technical Pronouncement CPC 21(R1) Interim Financial Information and with International Standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board—IASB, such as for the presentation of these information in a manner consistent with the standards issued by the Brazilian Securities Commission, applicable to the preparation of the Quarterly Financial Information—ITR. Our responsibility is to express a conclusion on these interim financial information based on our review.

Scope of the review

Our review was carried out in accordance with the Brazilian and international review standards for interim information (NBC TR 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion on the interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the individual and consolidated interim financial information included in the quarterly information referred to above was not prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34, issued by the IASB applicable to the preparation of Quarterly Financial Information – ITR and presented in accordance with the standards issued by the Brazilian Securities Commission—CVM.

Other matters

Interim statements of value added

The individual and consolidated statements of value added for the nine-month period ended September 30, 2018, prepared under the responsibility of the Company’s management, and presented as supplementary information for the purposes of IAS 34, were submitted to the same review procedures followed together with the review of the Company’s interim financial information. In order to form our conclusion, we evaluated whether these statements are reconciled to the interim financial information and to the accounting records, as applicable, and whether their form and content are in accordance with the criteria set on Technical Pronouncement CPC 09—Statement of Value Added. Based on our review, nothing has come to our attention that causes us to believe that the accompanying statements of value added are not prepared, in all material respects, in accordance with the individual and consolidated interim financial information taken as a whole.

São Paulo, November 7, 2018

KPMG Auditores Independentes

CRC 2SP014428/O-6

Original report in Portuguese signed by

Wagner Bottino

Accountant CRC 1SP196907/O-7

 

 

3


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Balance Sheets

as of September 30, 2018 and December 31, 2017

(In thousands of Brazilian Reais)

 

 

 

 

 

    

 

     Parent      Consolidated  

Assets

   Note      09/30/2018      12/31/2017      09/30/2018      12/31/2017  
                   Restated             Restated  

Current assets

              

Cash and cash equivalents

     4        155,640        93,174        3,751,656        5,002,004  

Financial investments and hedging instruments

     4        551,104        21,657        2,484,873        1,283,498  

Trade receivables and reseller financing, net

     5        —          —          4,796,346        4,147,894  

Inventories, net

     6        —          —          3,163,913        3,513,577  

Recoverable taxes, net

     7        44,369        33,070        948,125        881,584  

Dividends receivable

        2        27,930        —          11,137  

Other receivables

        1,168        2,404        123,601        44,025  

Prepaid expenses, net

     10        1,755        1,597        150,572        150,046  

Contractual assets with customers – exclusive rights, net

     11        —          —          487,206        456,213  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

        754,038        179,832        15,906,292        15,489,978  

Non-current assets

              

Financial investments and hedging instruments

     4        —          —          192,255        84,426  

Trade receivables and reseller financing, net

     5        —          —          377,529        329,991  

Related parties

     8.a        773,301        762,562        490        490  

Deferred income and social contribution taxes

     9.a        —          29,158        745,993        614,061  

Recoverable taxes, net

     7        48,685        48,685        418,764        313,242  

Escrow deposits

     21.a        —          148        868,240        822,660  

Indemnity asset – business combination

     21.c        —          —          202,454        202,352  

Other receivables

        —          —          2,206        7,918  

Prepaid expenses, net

     10        33        —          396,470        346,886  

Contractual assets with customers – exclusive rights, net

     11        —          —          1,012,083        1,046,147  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total long term assets

        822,019        840,553        4,216,484        3,768,173  

Investments

              

In subsidiaries

     12.a        9,181,864        9,268,261        —          —    

In joint-ventures

     12.a; 12.b        23,189        54,739        102,209        122,061  

In associates

     12.c        —          —          24,900        25,341  

Other

        —          —          2,793        2,792  
     

 

 

    

 

 

    

 

 

    

 

 

 
        9,205,053        9,323,000        129,902        150,194  

Property, plant, and equipment, net

     13        —          —          7,193,611        6,634,528  

Intangible assets, net

     14        246,163        246,163        2,359,055        2,162,638  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current assets

        10,273,235        10,409,716        13,899,052        12,715,533  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

        11,027,273        10,589,548        29,805,344        28,205,511  
     

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of the interim financial information.

 

4


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Balance Sheets

as of September 30, 2018 and December 31, 2017

(In thousands of Brazilian Reais)

 

 

 

 

 

            Parent     Consolidated  

Liabilities

   Note      09/30/2018     12/31/2017     09/30/2018     12/31/2017  
                  Restated           Restated  

Current liabilities

           

Loans and hedging instruments

     15        —         —         2,577,717       1,819,766  

Debentures

     15.g        6,468       817,654       1,061,065       1,681,199  

Finance leases

     15.i        —         —         2,815       2,710  

Trade payables

     16        43       461       2,121,333       2,155,498  

Salaries and related charges

     17        228       244       421,264       388,118  

Taxes payable

     18        368       343       253,672       221,529  

Dividends payable

     25.h        14,593       335,930       16,109       338,845  

Income and social contribution taxes payable

        —         —         48,408       86,836  

Post-employment benefits

     19.b        —         —         28,619       30,059  

Provision for asset retirement obligation

     20        —         —         4,411       4,799  

Provision for tax, civil, and labor risks

     21.a        —         —         70,373       64,550  

Trade payables – customers and third parties’ indemnification

     22        —         —         3,501       72,216  

Other payables

        —         7,439       139,448       125,150  

Deferred revenue

     23        —         —         20,102       18,413  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

        21,700       1,162,071       6,768,837       7,009,688  

Non-current liabilities

           

Loans and hedging instruments

     15        —         —         6,425,805       6,113,545  

Debentures

     15.g        1,722,267       —         5,508,828       3,927,569  

Finance leases

     15.i        —         —         43,901       45,805  

Related parties

     8.a        5,215       4,003       4,092       4,185  

Deferred income and social contribution taxes

     9.a        2,703       —         73,691       38,524  

Post-employment benefits

     19.b        —         —         221,483       207,464  

Provision for asset retirement obligation

     20        —         —         52,110       59,975  

Provision for tax, civil, and labor risks

     21.a; 21.c        982       982       875,264       861,246  

Deferred revenue

     23        —         —         12,596       12,896  

Subscription warrants – indemnification

     24        73,317       171,459       73,317       171,459  

Other payables

        —         —         181,710       162,834  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current liabilities

        1,804,484       176,444       13,472,797       11,605,502  

Shareholders’ equity

           

Share capital

     25.a; 25.f        5,171,752       5,171,752       5,171,752       5,171,752  

Equity instrument granted

     25.b        3,240       536       3,240       536  

Capital reserve

     25.d        545,221       549,778       545,221       549,778  

Treasury shares

     25.c        (484,230     (482,260     (484,230     (482,260

Revaluation reserve on subsidiaries

     25.e        4,761       4,930       4,761       4,930  

Profit reserves

     25.f        3,629,851       3,629,851       3,629,851       3,629,851  

Retained earnings

        338,703       —         338,703       —    

Valuation adjustments

     25.g        (100,428     159,643       (100,428     159,643  

Cumulative translation adjustments

     25.g        92,219       53,061       92,219       53,061  

Additional dividends to the minimum mandatory dividends

     25.h        —         163,742       —         163,742  
     

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ equity attributable to:

           

Shareholders of the Company

        9,201,089       9,251,033       9,201,089       9,251,033  

Non-controlling interests in subsidiaries

        —         —         362,621       339,288  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

        9,201,089       9,251,033       9,563,710       9,590,321  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

        11,027,273       10,589,548       29,805,344       28,205,511  
     

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the interim financial information.

 

5


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Income Statements

For the nine-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais, except earnings per share)

 

 

 

 

 

            Parent     Consolidated  
     Note      01/01/2018
to
09/30/2018
    01/01/2017
to
09/30/2017
    01/01/2018
to
09/30/2018
    01/01/2017
to
09/30/2017
 
                  Restated           Restated  

Net revenue from sales and services

     26        —         —         67,230,939       57,882,418  

Cost of products and services sold

     27        —         —         (62,625,490     (52,887,984
     

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

        —         —         4,605,449       4,994,434  

Operating income (expenses)

           

Selling and marketing

     27        —         —         (2,017,309     (1,857,027

General and administrative

     27        —         —         (1,177,222     (1,160,567

Gain (loss) on disposal of property, plant and equipment and intangibles

     28        —         —         (7,104     (754

Other operating income, net

     29        (271     1       (203,467     78,657  
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before financial income (expenses) and share of profit of subsidiaries, joint ventures and associates

        (271     1       1,200,347       2,054,743  

Financial income

     30        171,549       78,011       449,629       451,265  

Financial expenses

     30        (79,740     (92,096     (679,819     (806,118
     

 

 

   

 

 

   

 

 

   

 

 

 

Financial result, net

        91,809       (14,085     (230,190     (354,853

Share of profit of subsidiaries, joint ventures and associates

     12        583,101       1,143,084       (9,183     16,111  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before income and social contribution taxes

        674,639       1,129,000       960,974       1,716,001  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes

           

Current

     9.b; 9c        —         (2,661     (296,056     (688,489

Deferred

     9.b        (31,861     6,419       (28,180     108,931  
     

 

 

   

 

 

   

 

 

   

 

 

 
        (31,861     3,758       (324,236     (579,558

Net income for the period

        642,778       1,132,758       636,738       1,136,443  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to:

           

Shareholders of the Company

        642,778       1,132,758       642,778       1,132,758  

Non-controlling interests in subsidiaries

        —         —         (6,040     3,685  

Earnings per share (based on weighted average number of shares outstanding) – R$

           

Basic

     31        1.1858       2.0908       1.1858       2.0908  

Diluted

     31        1.1780       2.0756       1.1780       2.0756  

The accompanying notes are an integral part of the interim financial information.

 

6


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Income Statements

For the three-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais, except earnings per share)

 

 

 

 

 

            Parent     Consolidated  
     Note      07/01/2018
to
09/30/2018
    07/01/2017
to
09/30/2017
    07/01/2018
to
09/30/2018
    07/01/2017
to
09/30/2017
 
                  Restated           Restated  

Net revenue from sales and services

     26        —         —         23,834,232       20,341,648  

Cost of products and services sold

     27        —         —         (22,209,129     (18,364,200
     

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

        —         —         1,625,103       1,977,448  

Operating income (expenses)

           

Selling and marketing

     27        —         —         (683,390     (644,709

General and administrative

     27        —         —         (407,093     (408,747

Gain (loss) on disposal of property, plant and equipment and intangibles

     28        —         —         (2,520     (604

Other operating income, net

     29        (16     1       24,386       15,746  
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before financial income (expenses) and share of profit of subsidiaries, joint ventures and associates

        (16     1       556,486       939,134  

Financial income

     30        52,412       22,595       145,030       149,966  

Financial expenses

     30        (30,465     (15,729     (203,836     (270,799
     

 

 

   

 

 

   

 

 

   

 

 

 

Financial result, net

        21,947       6,866       (58,806     (120,833

Share of profit of subsidiaries, joint ventures and associates

     12        312,942       540,164       (2,806     4,024  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before income and social contribution taxes

        334,873       547,031       494,874       822,325  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes

           

Current

     9.b; 9c        345       (474     (155,786     (380,073

Deferred

     9.b        (7,884     (1,903     (15,870     102,881  
     

 

 

   

 

 

   

 

 

   

 

 

 
        (7,539     (2,377     (171,656     (277,192

Net income for the period

        327,334       544,654       323,218       545,133  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to:

           

Shareholders of the Company

        327,334       544,654       327,334       544,654  

Non-controlling interests in subsidiaries

        —         —         (4,116     479  

Earnings per share (based on weighted average number of shares outstanding) – R$

           

Basic

     31        0.6039       1.0053       0.6039       1.0053  

Diluted

     31        0.6001       0.9980       0.6001       0.9980  

The accompanying notes are an integral part of the interim financial information.

 

7


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Statements of Comprehensive Income

For the nine-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais)

 

 

 

 

            Parent     Consolidated  
     Note      01/01/2018
to
09/30/2018
    01/01/2017
to
09/30/2017
    01/01/2018
to
09/30/2018
    01/01/2017
to
09/30/2017
 
                  Restated           Restated  

Net income for the period attributable to shareholders of the Company

        642,778       1,132,758       642,778       1,132,758  

Net income for the period attributable to non-controlling interests in subsidiaries

        —         —         (6,040     3,685  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

        642,778       1,132,758       636,738       1,136,443  
     

 

 

   

 

 

   

 

 

   

 

 

 

Items that are subsequently reclassified to profit or loss:

           

Fair value adjustments of financial instruments of subsidiaries, net

     25.g        (262,195     49,782       (262,195     49,782  

Fair value adjustments of financial instruments of joint ventures, net

     25.g        (1,641     915       (1,641     915  

Cumulative translation adjustments, net of hedge of net investments in foreign operations and income and social contribution taxes

     25.g        39,158       1,566       39,158       1,566  

Items that are not subsequently reclassified to profit or loss:

           

Losses of post-employment benefits of subsidiaries, net

     25.g        (299     (24     (299     (24
     

 

 

   

 

 

   

 

 

   

 

 

 
           

Total comprehensive income for the period

        417,801       1,184,997       411,761       1,188,682  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period attributable to shareholders of the Company

        417,801       1,184,997       417,801       1,184,997  

Total comprehensive income for the period attributable to non-controlling interest in subsidiaries

        —         —         (6,040     3,685  

The accompanying notes are an integral part of the interim financial information.

 

8


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Statements of Comprehensive Income

For the three-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais)

 

 

 

 

            Parent     Consolidated  
     Note      07/01/2018
to
09/30/2018
    07/01/2017
to
09/30/2017
    07/01/2018
to
09/30/2018
    07/01/2017
to
09/30/2017
 
                  Restated           Restated  

Net income for the period attributable to shareholders of the Company

        327,334       544,654       327,334       544,654  

Net income for the period attributable to non-controlling interests in subsidiaries

        —         —         (4,116     479  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

        327,334       544,654       323,218       545,133  
     

 

 

   

 

 

   

 

 

   

 

 

 

Items that are subsequently reclassified to profit or loss:

           

Fair value adjustments of financial instruments of subsidiaries, net

     25.g        (51,663     54,940       (51,663     54,940  

Fair value adjustments of financial instruments of joint ventures, net

     25.g        (4,188     (2,847     (4,188     (2,847

Cumulative translation adjustments, net of hedge of net investments in foreign operations and income and social contribution taxes

     25.g        (5,230     (2,378     (5,230     (2,378

Items that are not subsequently reclassified to profit or loss:

           

Losses of post-employment benefits of subsidiaries, net

     25.g        —         —         —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
           

Total comprehensive income for the period

        266,253       594,369       262,137       594,848  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period attributable to shareholders of the Company

        266,253       594,369       266,253       594,369  

Total comprehensive income for the period attributable to non-controlling interest in subsidiaries

        —         —         (4,116     479  

The accompanying notes are an integral part of the interim financial information.

 

9


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Statements of Changes in Shareholders’ Equity

For the nine-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais)

 

 

 

 

 

                                          Profit reserve                              Shareholders’ equity
attributable to:
       
     Note    Share
capital
     Equity
instrument
granted
     Capital
reserve
    Treasury
shares
    Revaluation
reserve on
subsidiaries
    Legal
reserve
     Investments
statutory
reserve
    Valuation
adjustments
    Cumulative
translation
adjustments
     Retained
earnings
    Additional
dividends
to the
minimum
mandatory
dividends
    Shareholders
of the
Company
    Non-controlling
interests in
subsidiaries
    Consolidated
shareholders’
equity
 

Balance as of December 31, 2017

        5,171,752        536        549,778       (482,260     4,930       629,144        3,130,935       159,643       53,061        —         163,742       9,381,261       339,571       9,720,832  

Effects of IFRS adoption

   2.y      —          —          —         —         —         —          (130,228     —         —          —         —         (130,228     (283     (130,511
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2017—Restated

        5,171,752        536        549,778       (482,260     4,930       629,144        3,000,707       159,643       53,061        —         163,742       9,251,033       339,288       9,590,321  

Net income for the period

        —          —          —         —         —         —          —         —         —          642,778       —         642,778       (6,040     636,738  

Other comprehensive income:

                                   

Fair value adjustments of available for sale, net of income taxes

   25.g      —          —          —         —         —         —          —         (263,836     —          —         —         (263,836     —         (263,836

Actuarial losses of post-employment benefits, net of income taxes

   25.g      —          —          —         —         —         —          —         (299     —          —         —         (299     —         (299

Currency translation of foreign subsidiaries, including the effect of net investments hedge

   25.g      —          —          —         —         —         —          —         —         39,158        —         —         39,158       —         39,158  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

        —          —          —         —         —         —          —         (264,135     39,158        642,778       —         417,801       (6,040     411,761  

Equity instrument granted

   25.b      —          2,704        —         —         —         —          —         —         —          —         —         2,704       —         2,704  

Stock plan

   8.c; 25.c      —          —          (4,557     (1,970     —         —          —         —         —          —         —         (6,527     —         (6,527

Realization of revaluation reserve of subsidiaries

   25.e      —          —          —         —         (169     —          —         —         —          169       —         —         —         —    

Income and social contribution taxes on realization of revaluation reserve of subsidiaries

   25.e      —          —          —         —         —         —          —         —         —          (3     —         (3     —         (3

Non-controlling interests changes—CBLSA

        —          —          —         —         —         —          —         4,064       —          —         —         4,064       33,371       37,435  

Interim dividends (R$ 0.56 per share of the Company)

   25.h      —          —          —         —         —         —          —         —         —          (304,241     —         (304,241     —         (304,241

Additional dividends attributable to non-controlling interests

        —          —          —         —         —         —          —         —         —          —         —         —         (3,998     (3,998

Approval of additional dividends by the Shareholders’ Meeting

   25.h      —          —          —         —         —         —          —         —         —          —         (163,742     (163,742     —         (163,742
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2018

        5,171,752        3,240        545,221       (484,230     4,761       629,144        3,000,707       (100,428     92,219        338,703       —         9,201,089       362,621       9,563,710  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the interim financial information.

 

10


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Statements of Changes in Shareholders’ Equity

For the nine-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais)

 

 

 

 

                                             Profit reserve           Shareholders’ equity
attributable to:
 
     Note      Share
capital
     Equity
instrument
granted
     Capital
reserve
     Treasury
shares
    Revaluation
reserve on
subsidiaries
    Legal
reserve
     Investments
statutory
reserve
    Retention
of profits
    Valuation
adjustments
    Cumulative
translation
adjustments
     Retained
earnings
    Additional
dividends
to the
minimum
mandatory
dividends
    Shareholders
of the
Company
    Non-controlling
interests in
subsidiaries
    Consolidated
shareholders’
equity
 

Balance as of December 31, 2016

        3,838,686        —          552,038        (483,879     5,339       550,428        2,582,898       1,333,066       (23,987     7,519        —         165,515       8,527,623       30,935       8,558,558  

Effects of IFRS adoption

     2.y        —          —          —          —         —         —          (82,427     —         —         —          —         —         (82,427     (81     (82,508
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2016—Restated

        3,838,686        —          552,038        (483,879     5,339       550,428        2,500,471       1,333,066       (23,987     7,519        —         165,515       8,445,196       30,854       8,476,050  

Net income for the period

        —          —          —          —         —         —          —         —         —         —          1,132,758       —         1,132,758       3,685       1,136,443  

Other comprehensive income:

                                      

Fair value adjustments of available for sale, net of income taxes

     25.g        —          —          —          —         —         —          —         —         50,697       —          —         —         50,697       —         50,697  

Actuarial losses of post-employment benefits, net of income taxes

     25.g        —          —          —          —         —         —          —         —         (24     —          —         —         (24     —         (24

Currency translation of foreign subsidiaries, including the effect of net investments hedge

     25.g        —          —          —          —         —         —          —         —         —         1,566        —         —         1,566       —         1,566  
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

        —          —          —          —         —         —          —         —         50,673       1,566        1,132,758       —         1,184,997       3,685       1,188,682  

Capital increase with reserves

     25.f        1,333,066        —          —          —         —         —          —         (1,333,066     —         —          —         —         —         —         —    

Stock plan

     25.c        —          —          3,114        3,685       —         —          —         —         —         —          —         —         6,799       —         6,799  

Realization of revaluation reserve of subsidiaries

     25.e        —          —          —          —         (347     —          —         —         —         —          347       —         —         —         —    

Income and social contribution taxes on realization of revaluation reserve of subsidiaries

     25.e        —          —          —          —         —         —          —         —         —         —          (85     —         (85     —         (85

Interim dividends (R$ 0.85 per share of the Company)

     25.h        —          —          —          —         —         —          —         —         —         —          (461,868     —         (461,868     —         (461,868

Additional dividends attributable to non-controlling interests

        —          —          —          —         —         —          —         —         —         —          —         —         —         (7,482     (7,482

Approval of additional dividends by the Shareholders’ Meeting

     25.h        —          —          —          —         —         —          —         —         —         —          —         (165,515     (165,515     —         (165,515
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2017—Restated

        5,171,752        —          555,152        (480,194     4,992       550,428        2,500,471       —         26,686       9,085        671,152       —         9,009,524       27,057       9,036,581  
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the interim financial information.

 

11


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Statements of Cash Flows—Indirect Method

For the nine-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais)

 

 

 

 

 

          Parent     Consolidated  
     Note    09/30/2018     09/30/2017     09/30/2018     09/30/2017  
                Restated           Restated  

Cash flows from operating activities

           

Net income for the period

        642,778       1,132,758       636,738       1,136,443  

Adjustments to reconcile net income to cash provided by operating activities

           

Share of loss (profit) of subsidiaries, joint ventures and associates

   12      (583,101     (1,143,084     9,183       (16,111

Amortization of contractual assets with customers – exclusive rights

   11      —         —         282,430       346,188  

Depreciation and amortization

   13;14      —         —         602,286       517,032  

PIS and COFINS credits on depreciation

   13;14      —         —         11,798       9,807  

Interest, monetary, and foreign exchange rate variations

        (62,942     18,891       810,269       589,802  

Deferred income and social contribution taxes

   9.b      31,861       (6,419     28,180       (108,931

(Gain) loss on disposal of property, plant and equipment and intangibles

   28      —         —         7,104       754  

Estimated losses on doubtful accounts

        —         —         73,425       102,028  

Provision for losses in inventories

        —         —         6,156       5,087  

Provision for post-employment benefits

        —         —         9,734       8,210  

Other provisions and adjustments

        (7     —         (1,148     (514
     

 

 

   

 

 

   

 

 

   

 

 

 
        28,589       2,146       2,476,155       2,589,795  

(Increase) decrease in current assets

           

Trade receivables and reseller financing

   5      —         —         (721,855     (437,848

Inventories

   6      —         —         348,243       (204,566

Recoverable taxes

   7      (11,299     6,553       (62,711     (125,868

Dividends received from subsidiaries and joint-ventures

        510,776       922,303       43,356       29,691  

Insurance and other receivables

        1,236       1,455       (64,052     299,590  

Prepaid expenses

   10      (158     (965     (526     3,339  

Contractual assets with customers – exclusive rights

   11      —         —         (30,993     (14,043

Increase (decrease) in current liabilities

           

Trade payables

   16      (419     (123     (34,165     (130,801

Salaries and related charges

   17      (16     41       33,146       28,492  

Taxes payable

   18      25       (321     32,143       30,439  

Income and social contribution taxes

        —         —         101,092       613,621  

Post-employment benefits

   19.b      —         —         (1,440     (1,729

Provision for tax, civil, and labor risks

   21.a      —         —         5,823       1,872  

Insurance and other payables

        (7,440     (2,359     (83,269     (17,029

Deferred revenue

   23      —         —         1,689       (1,628

(Increase) decrease in non-current assets

           

Trade receivables and reseller financing

   5      —         —         (47,313     (42,273

Recoverable taxes

   7      —         (14,765     (105,522     (101,700

Escrow deposits

        148       —         (45,490     (38,659

Other receivables

        —         —         5,611       1,584  

Prepaid expenses

   10      (33     —         (56,110     (82,060

Contractual assets with customers – exclusive rights

   11      —         —         31,015       25,856  

Increase (decrease) in non-current liabilities

           

Post-employment benefits

   19.b      —         —         3,987       1,055  

Provision for tax, civil, and labor risks

   21.a      —         (589     14,037       (73,439

Other payables

        1,212       2,857       18,873       9,604  

Deferred revenue

   23      —         —         (299     40  

Payments of contractual assets with customers – exclusive rights

        —         —         (279,381     (389,409

Income and social contribution taxes paid

        —         —         (139,520     (606,082
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

        522,621       916,233       1,442,524       1,367,844  
     

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the interim financial information.

 

12


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Statements of Cash Flows—Indirect Method

For the nine-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais)

 

 

 

 

 

          Parent     Consolidated  
     Note    09/30/2018     09/30/2017     09/30/2018     09/30/2017  
                Restated           Restated  

Cash flows from investing activities

           

Financial investments, net of redemptions

        (529,447     (18,228     (1,289,718     23,842  

Cash and cash equivalents of subsidiary acquired

   3.c      —         —         3,662       —    

Acquisition of property, plant, and equipment

   13      —         —         (856,760     (824,785

Acquisition of intangible assets

   14      —         —         (186,390     (163,895

Acquisition of companies

   3.c      —         —         (103,374     —    

Capital increase in joint ventures

   12.b      —         —         (24,000     (16,000

Capital reduction in associates

   12.c      —         —         1,250       —    

Proceeds from disposal of property, plant and equipment and intangibles

   28      —         —         32,049       40,386  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

        (529,447     (18,228     (2,423,281     (940,452
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

           

Loans and debentures

           

Proceeds

   15      1,721,596       —         3,295,814       3,292,187  

Repayments

   15      (800,336     —         (2,299,223     (1,584,272

Interest paid

   15      (86,806     (99,805     (514,957     (535,280

Payments of financial lease

   15.i      —         —         (3,839     (3,901

Dividends paid

        (789,319     (930,515     (790,719     (940,151

Acquisition of treasury shares

   23.c      (6,526     —         —         —    

Sale of treasury shares

   25.c      —         6,799       —         —    

Related parties

   8.a      30,683       57,003       (93     —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

        69,292       (966,518     (313,017     228,583  
     

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents in foreign currency

        —         —         43,426       23,086  
     

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

        62,466       (68,513     (1,250,348     679,061  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

   4      93,174       127,944       5,002,004       4,274,158  

Cash and cash equivalents at the end of the period

   4      155,640       59,431       3,751,656       4,953,219  

The accompanying notes are an integral part of the interim financial information.

 

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Ultrapar Participações S.A. and Subsidiaries

Statements of Value Added

For the nine-month period ended September 30, 2018 and 2017

(In thousands of Brazilian Reais, except percentages)

 

 

 

 

 

            Parent      Consolidated  
     Note      09/30/2018      %      09/30/2017     %      09/30/2018     %      09/30/2017     %  

Revenue

              Restated               Restated    

Gross revenue from sales and services, except rents and royalties

     26        —             —            70,083,735          60,039,125    

Rebates, discounts, and returns

     26        —             —            (875,288        (688,423  

Estimated losses on doubtful accounts—allowance

        —             —            (73,425        (102,028  

Gain (loss) on disposal of property, plant and equipment and intangibles and other operating income, net

     28;29        —             —            (210,571        77,903    
     

 

 

       

 

 

      

 

 

      

 

 

   
        —             —            68,924,451          59,326,577    

Materials purchased from third parties

                       

Raw materials used

        —             —            (4,575,989        (3,797,480  

Cost of goods, products, and services sold

        —             —            (57,897,573        (48,609,597  

Third-party materials, energy, services, and others

        5,355           5,480          (1,530,821        (1,802,062  

Losses of assets

        —             —            (9,734        (10,701  
     

 

 

       

 

 

      

 

 

      

 

 

   
        5,355           5,480          (64,014,117        (54,219,840  

Gross value added

        5,355           5,480          4,910,334          5,106,737    
     

 

 

       

 

 

      

 

 

      

 

 

   

Deductions

                       

Depreciation and amortization

     13;14        —             —            (602,286        (517,032  

PIS and COFINS credits on depreciation

     13;14        —             —            (11,798        (9,807  
     

 

 

       

 

 

      

 

 

      

 

 

   
        —             —            (614,084        (526,839  

Net value added by the Company

        5,355           5,480          4,296,250          4,579,898    
     

 

 

       

 

 

      

 

 

      

 

 

   

Value added received in transfer

                       

Share of profit (loss) of subsidiaries, joint-ventures, and associates

     12        583,101           1,143,084          (9,183        16,111    

Rents and royalties

     26        —             —            102,786          98,222    

Financial income

     30        171,549           78,011          449,629          451,265    
     

 

 

       

 

 

      

 

 

      

 

 

   
        754,650           1,221,095          543,232          565,598    

Total value added available for distribution

        760,005           1,226,575          4,839,482          5,145,496    
     

 

 

       

 

 

      

 

 

      

 

 

   

Distribution of value added

                       

Labor and benefits

        4,663        1        4,579       —          1,641,653       34        1,418,800       28  

Taxes, fees, and contributions

        35,222        5        (1,755     —          1,699,022       35        1,619,055       31  

Financial expenses and rents

        77,342        10        90,993       7        862,069       18        971,198       19  

Dividends distributed

        304,241        40        461,868       38        308,239       6        469,350       9  

Retained earnings

        338,537        44        670,890       55        328,499       7        667,093       13  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Value added distributed

        760,005        100        1,226,575       100        4,839,482       100        5,145,496       100  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of the interim financial information.

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

1.

Operations

Ultrapar Participações S.A. (“Ultrapar” or “Company”) is a publicly-traded company headquartered at the Brigadeiro Luis Antônio Avenue, 1343 in the city of Săo Paulo – SP, Brazil.

The Company engages in the investment of its own capital in services, commercial, and industrial activities, through the subscription or acquisition of shares of other companies. Through its subsidiaries, it operates in the segments of liquefied petroleum gas—LPG distribution (“Ultragaz”), fuel distribution and related businesses (“Ipiranga”), production and marketing of chemicals (“Oxiteno”), and storage services for liquid bulk (“Ultracargo”) and retail distribution of pharmaceutical, hygiene, beauty, and skincare products, through Imifarma Produtos Farmacêuticos e Cosméticos S.A. (“Extrafarma”). For further information about segments, see Note 32.

 

2.

Presentation of Interim Financial Information and Summary of Significant Accounting Policies

The Company’s individual and consolidated interim financial information were prepared in accordance with the International Accounting Standard (“IAS”) 34 – Interim Financial Reporting issued by the International Accounting Standards Board (“IASB”) and in accordance with the pronouncement CPC 21 (R1) issued by the Accounting Pronouncements Committee (“CPC”) and approved by the Brazilian Securities and Exchange Commission (“CVM”).

All relevant specific information of the interim financial information, and only this information, is being presented and correspond to that used by the Company’s and its subsidiaries’ Management.

The presentation currency of the Company’s individual and consolidated interim financial information is the Brazilian Real (“R$”), which is the Company’s functional currency.

The Company and its subsidiaries applied the accounting policies described below in a consistent manner for all periods presented in the individual and consolidated interim financial information.

 

a.

Recognition of Income

Revenue of sales and services rendered is measured at the value of the consideration that the Company’s subsidiaries expect to be entitled to, net of sales returns, discounts, amortization of contractual assets with customers and other deductions, if applicable, being recognized as the entity fulfills its performance obligation. At Ipiranga, the revenue from sales of fuels and lubricants is recognized when the products are delivered to gas stations and to large consumers. At Ultragaz, revenue from sales of LPG is recognized when the products are delivered to customers at home, to independent dealers and to industrial and commercial customers. At Extrafarma, the revenue from sales of pharmaceuticals is recognized when the products are delivered to end user customers in own drugstores and when the products are delivered to independent resellers. At Oxiteno, the revenue from sales of chemical products is recognized when the products are delivered to industrial customers, depending of the freight mode of delivery. At Ultracargo, the revenue provided from storage services is recognized as services are performed. The breakdowns of revenues from sales and services are shown in Notes 26 and 32.

Amortization of contractual assets with customers for the exclusive rights in Ipiranga’s reseller service stations and the bonuses paid in performance obligation sales are recognized as a deduction of the sales revenue in the income statement according to the conditions established in the agreements which is reviewed as per the changes occurred in the agreements (see Notes 2.f and 11).

Deferred revenue from loyalty program is recognized in the income statement when the points are redeemed, on which occasion the costs incurred are also recognized in profit or loss. Deferred revenue of unredeemed points is also recognized in profit or loss when points expire. For more information, see Note 23—Loyalty program.

The franchising upfront fee received by Ipiranga is deferred and recognized in profit or loss on the straight-line accrual basis throughout the terms of the agreements with the franchisees. For more information, see Note 23 – Franchising upfront fee.

Costs of products sold and services provided include goods (mainly fuels, lubricants, LPG, and pharmaceutical products), raw materials (chemicals and petrochemicals) and production, distribution, storage, and filling costs.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

b.

Cash and Cash Equivalents

Includes cash, banks deposits, and short-term, highly-liquid investments that are readily convertible into a known amount of cash and are subject to an insignificant risk of change in value. See Note 4 for further details on cash and cash equivalents of the Company and its subsidiaries.

 

c.

Financial Assets

The Company and its subsidiaries evaluated the classification and measurement of financial assets based on its business model of financial assets as follows:

 

 

Amortized cost: financial assets held in order to collect contractual cash flows, solely principal and interest. The interest earned and the foreign currency exchange variation are recognized in profit or loss, and balances are stated at acquisition cost plus the interest earned, using the effective interest rate method. Financial investments in guarantee of loans are classified as amortized cost.

 

 

Measured at fair value through other comprehensive income: financial assets that are acquired or originated for the purpose of collecting contractual cash flows or selling financial assets. The balances are stated at fair value, and the interest earned and the foreign currency exchange variation are recognized in profit or loss. Differences between fair value and initial amount of financial investments plus the interest earned are recognized in other comprehensive income in the “Valuation adjustments”. Accumulated gains and losses recognized in shareholders’ equity are reclassified to profit or loss at the time of their settlement. Substantially the financial investments in Bank Certificates of Deposit (“CDB”) and repurchase agreements are classified as measured at fair value through other comprehensive income.

 

 

Measured at fair value through profit or loss: financial assets not classified as amortized cost or measured at fair value through other comprehensive income. The balances are stated at fair value and both the interest earned and the exchange variations and changes in fair value are recognized in the income statement. Investment funds and derivatives are classified as measured at fair value through profit or loss.

The Company and its subsidiaries use financial instruments for hedging purposes, applying the concepts described below:

 

 

Hedge accounting—fair value hedge: financial instruments used to hedge exposure to changes in the fair value of an item, attributable to a particular risk, which can affect the entity’s profit or loss. In the initial designation of the fair value hedge, the relationship between the hedging instrument and the hedged item is documented, including the objectives of risk management, the strategy in conducting the transaction, and the methods to be used to evaluate its effectiveness. Once the fair value hedge has been qualified as effective, the hedge item is also measured at fair value. Gains and losses from hedge instruments and hedge items are recognized in profit or loss. The hedge accounting must be discontinued when the hedge becomes ineffective.

 

 

Hedge accounting—cash flow hedge: financial instruments used to hedge the exposure to variability in cash flows that is attributable to a risk associated with an asset or liability or highly probable transaction or firm commitment that may affect the income statements. The portion of the gain or loss on the hedging instrument that is determined to be effective relating to the effects of exchange rate effect, is recognized directly in equity in accumulated other comprehensive income as “Valuation adjustments” while the ineffective portion is recognized in profit or loss. Gains or losses on the hedging instrument relating to the effective portion of this hedge that had been recognized directly in accumulated other comprehensive income shall be recognized in profit or loss in the period in which the hedged item is recognized in profit or loss or as initial cost of non-financial assets, in the same line of the statement that the hedged item is recognized. The hedge accounting shall be discontinued when (i) the Company cancels the hedging relationship; (ii) the hedging instrument expires; and (iii) the hedging instrument no longer qualifies for hedge accounting. When hedge accounting is discontinued, gains and losses recognized in other comprehensive income in equity are reclassified to profit or loss in the period which the hedged item is recognized in profit or loss. If the transaction hedged is canceled or is not expected to occur, the cumulative gains and losses in other comprehensive income in equity shall be recognized immediately in profit or loss.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

Hedge accounting—hedge of net investments in foreign operation: financial instruments used to hedge exposure on net investments in foreign subsidiaries due to the fact that the local functional currency is different from the functional currency of the Company. The portion of the gain or loss on the hedging instrument that is determined to be effective, referring to the exchange rate effect, is recognized directly in equity in accumulated other comprehensive income as cumulative translation adjustments, while the ineffective portion and the operating costs are recognized in profit or loss. The gain or loss on the hedging instrument that has been recognized directly in accumulated other comprehensive income shall be recognized in income upon disposal of the foreign operation.

For further detail on financial instruments of the Company and its subsidiaries, see Note 33.

 

d.

Trade Receivables

Trade receivables are recognized at the amount invoiced of the counterparty that the Company subsidiaries are entitled. The estimated losses take into account, at the initial recognition of the contract, the expected losses for the next 12 months and for the useful life of the contract when the deterioration or improvement of the customers’ credit quality (see Notes 5 and 33—Customer Credit Risk), considering the customers’ characteristics in each business segment. The amount of the allowance for estimated losses on doubtful accounts is deemed by management to be sufficient to cover any probable loss on realization of trade receivables.

 

e.

Inventories

Inventories are stated at the lower of acquisition cost or net realizable value (see Note 6). The cost value of inventory is measured using the weighted average cost and includes the costs of acquisition and processing directly and indirectly related to the units produced based on the normal capacity of production. Estimates of net realizable value are based on the average selling prices at the end of the reporting period, net of applicable direct selling expenses. Subsequent events related to the fluctuation of prices and costs are also considered, if relevant. If net realizable values are below inventory costs, a provision corresponding to this difference is recognized. Provisions are also made for obsolescence of products, materials, or supplies that (i) do not meet its subsidiaries’ specifications, (ii) have exceeded their expiration date, or (iii) are considered slow-moving inventory. This classification is made by management with the support of its industrial and operations teams.

 

f.

Contractual assets with customers – exclusive rights

Exclusive rights disbursements as provided in Ipiranga’s agreements with reseller service stations and major consumers are recognized as contractual assets when paid and amortized according to the conditions established in the agreements (see Note 2.a and 11).

 

g.

Investments

Investments in subsidiaries are accounted for under the equity method of accounting in the individual interim financial information of the parent company (see Notes 3.b and 12). A subsidiary is an investee in which the investor is entitled to variable returns on investment and has the ability to interfere in its financial and operational activities. Usually the equity interest in a subsidiary is more than 50%.

Investments in associates and joint ventures are accounted for under the equity method of accounting in the individual and consolidated interim financial information (see Note 12). An associate is an investment, in which an investor has significant influence, that is, has the power to participate in the financial and operating decisions of the investee but does not exercise control. A joint venture is an investment in which the shareholders have the right to net assets on behalf of a joint control. Joint control is the agreement, which establish that decisions about the relevant activities of the investee require the consent from the parties that share control.

Other investments are stated at acquisition cost less provision for losses, unless the loss is considered temporary.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

h.

Property, Plant, and Equipment

Property, plant, and equipment is recognized at acquisition or construction cost, including financial charges incurred on property, plant, and equipment under construction, as well as maintenance costs resulting from scheduled plant outages and estimated costs to remove, to decommission, or to restore assets (see Notes 2.n and 20), less accumulated depreciation and, when applicable, less provision for losses (see Note 13).

Depreciation is calculated using the straight-line method, over the periods mentioned in Note 13, taking into account the estimated useful lives of the assets, which are reviewed annually.

Leasehold improvements are depreciated over the shorter of the lease contract term and useful life of the property.

 

i.

Leases

 

 

Finance Leases

Certain lease contracts transfer substantially all the risks and benefits associated with the ownership of an asset to the subsidiaries. These contracts are characterized as finance leases, and assets thereunder are capitalized at lease commencement at their fair value or, if lower, present value of the minimum lease payments under the contracts. The items recognized as assets are depreciated and amortized using the lower of the straight-line method over the lower of the useful lives applicable to each group of assets or the contract terms, as mentioned in Notes 13 and 14. Financial charges under the finance lease contracts are allocated to profit or loss over the lease contract term, based on the amortized cost and the effective interest rate method of the related lease obligation (see Note 15.i).

 

 

Operating Leases

There are lease transactions where the risks and benefits associated with the ownership of the asset are not transferred and where there is no purchase option, or the purchase option at the end of the contract is equivalent to the market value of the leased asset. Payments made under an operating lease contract are recognized as cost or expense in the income statement on a straight-line basis over the term of the lease contract (see Note 34.c).

 

j.

Intangible Assets

Intangible assets include assets acquired by the Company and its subsidiaries from third parties, according to the criteria below (see Note 14):

 

 

Goodwill is shown as intangible assets corresponding to the positive difference between the amount paid or payable to the seller and the fair value of the identified assets and liabilities assumed of the acquired entity. Goodwill is tested annually for impairment. Goodwill is allocated to the business segments, which represent the lowest level that goodwill is monitored by the Company for impairment testing purposes (see Note 14.i).

 

 

Other intangible assets acquired from third parties, such as software, technology, and commercial property rights, are measured at the total acquisition cost and amortized using straight-line method, over the periods mentioned in Note 14, taking into account their useful lives, which are reviewed annually.

The Company and its subsidiaries have not recognized intangible assets that were generated internally. The Company and its subsidiaries have goodwill and brands acquired in business combinations, which are evaluated as intangible assets with indefinite useful life (see Note 14 items i and v).

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

k.

Other Assets

Other assets are stated at the lower of cost and realizable value, including, if applicable, interest earned, monetary changes and changes in exchange rates incurred or less a provision for loss and, if applicable, adjustment to present value.

 

l.

Financial Liabilities

The Company and its subsidiaries’ financial liabilities include trade payables and other payables, loans, debentures, finance leases and derivative financial instruments. Financial liabilities are classified as “financial liabilities at fair value through profit or loss” or “financial liabilities at amortized cost”. The financial liabilities at fair value through profit or loss refer to derivative financial instruments, subscription warrants, and financial liabilities designated as hedged items in a fair value hedge relationship upon initial recognition (see Note 2.c – Fair Value Hedge). The financial liabilities at amortized cost are stated at the initial transaction amount plus related charges and net of amortization and transaction costs. The charges are recognized in profit or loss using the effective interest rate method.

Transaction costs incurred and directly attributable to the activities necessary for contracting loans or for issuing bonds, as well as premiums and discounts upon issuance of debentures and other debt, are allocated to the instrument and amortized to profit or loss over its term, using the effective interest rate method (see Note 15.j).

 

m.

Income and Social Contribution Taxes on Income

Current and deferred income tax (“IRPJ”) and social contribution on net income tax (“CSLL”) are calculated based on their current rates, considering the value of tax incentives. Taxes are recognized based on the rates of IRPJ and CSLL provided for by the laws enacted on the last day of the interim financial information. The current rates in Brazil are 25% for IRPJ and 9% for CSLL. For further details about recognition and realization of IRPJ and CSLL, see Note 9.

For purposes of disclosure, deferred tax assets were offset against the deferred tax liability, IRPJ and CSLL, in the same taxable entity and the same taxation authority.

 

n.

Provision for Asset Retirement Obligation – Fuel Tanks

The subsidiary Ipiranga has the legal obligation to remove the underground fuel tanks located at Ipiranga-branded service stations after a certain period. The estimated cost of the obligation to remove these fuel tanks is recognized as a liability when the tanks are installed. The estimated cost is recognized in property, plant, and equipment and depreciated over the respective useful lives of the tanks. The amounts recognized as a liability are monetarily restated using the National Consumer Price Index (“IPCA”) until the respective tank is removed (see Note 20). An increase in the estimated cost of the obligation to remove the tanks could result in negative impact in future results. The estimated removal cost is reviewed and updated annually or when there is significant change in its amount and change in the estimated costs are recognized in income statements when they become known.

 

o.

Provisions for Tax, Civil, and Labor Risks

A provision for tax, civil and labor risks is recognized for quantifiable risks, when the chance of loss is more-likely-than-not in the opinion of management and internal and external legal counsel, and the amounts are recognized based on the evaluation of the outcomes of the legal proceedings (see Note 21).

 

p.

Post-Employment Benefits

Post-employment benefits granted and to be granted to employees, retirees, and pensioners are based on an actuarial calculation prepared by an independent actuary and reviewed by management, using the projected unit credit method (see Note 19.b). The actuarial gains and losses are recognized in cumulative other comprehensive income in the “Valuation adjustments” and presented in the statement of shareholders’ equity.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

q.

Other Liabilities

Other liabilities are stated at known or measurable amounts plus, if applicable, related charges, monetary restatement, and changes in exchange rates incurred. When applicable, other liabilities are recognized at present value, based on interest rates that reflect the term, currency, and risk of each transaction.

 

r.

Foreign Currency Transactions

Foreign currency transactions carried out by the Company or its subsidiaries are remeasured into their functional currency at the exchange rate prevailing at the date of each transaction. Outstanding monetary assets and liabilities of the Company and its subsidiaries are translated using the exchange rate at the date of the reporting period. The effect of the difference between those exchange rates is recognized in profit or loss until the conclusion of each transaction.

 

s.

Basis for Translation of Interim Financial Information of Foreign Subsidiaries

1) Assets and liabilities of the foreign subsidiaries, denominated in currencies other than that of the Company (functional currency: Brazilian Real), which have administrative autonomy, are translated using the exchange rate at the end of the reporting period. Revenues and expenses are translated using the average exchange rate of each year and shareholders’ equity is translated at the historical exchange rate of each transaction affecting shareholders’ equity. Gains and losses resulting from changes in these foreign investments are directly recognized in shareholders’ equity in cumulative other comprehensive income in the “cumulative translation adjustments” and will be recognized in profit or loss if these investments are disposed of. The balance in cumulative other comprehensive income and presented in the shareholders’ equity as cumulative translation adjustments on September 30, 2018 was a gain of R$ 92,219 (gain of R$ 53,061 on December 31, 2017)—see Note 25.g—Cumulative Translation Adjustments.

The foreign subsidiaries with functional currency different from the Company and which have administrative autonomy are listed below:

 

Subsidiary

  

Functional currency

  

Location

Oxiteno México S.A. de C.V.    Mexican Peso    Mexico

Oxiteno Servicios Corporativos S.A. de C.V.

   Mexican Peso    Mexico

Oxiteno Servicios Industriales de C.V.

   Mexican Peso    Mexico

Oxiteno USA LLC

   U.S. Dollar    United States
Oxiteno Uruguay S.A. (i)    U.S. Dollar    Uruguay
Oxiteno Andina, C.A. (ii)    Bolivar Soberano    Venezuela

 

(i)

The subsidiary Oxiteno Uruguay S.A. (“Oxiteno Uruguay”) determined its functional currency as the U.S. dollar (“US$”), as its inventory sales, purchases of raw material inputs, and financing activities are performed substantially in this currency.

(ii)

According the definition and general guidance of IAS 29, the characteristics of the economic environment of Venezuela indicate that this country is a hyperinflationary economy. As a result, the financial information of Oxiteno Andina, C.A. (“Oxiteno Andina”) was adjusted by the Venezuelan Consumer Price Index.

On August 20, 2018, the Venezuelan Central Bank put into effect the currency conversion (elimination of five zeros of the currency) and the Bolivar Soberano. This implies a change in the monetary scale and all that is expressed in bolivars to simplify commercial transactions and accounting records, being the Bolivar Soberano traded as of September 30, 2018 at the variable exchange rate of 62.17 VEF/US$ for sale and 62.01 VEF/US$ for purchase.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Due to the economic and political situation in Venezuela and the uncertainty of its assets realization by Oxiteno S.A. Indústria e Comércio (“Oxiteno S.A.”), the Company’s management recognized an impairment loss for subsidiary Oxiteno Andina in the amount of R$ 6,836, as shown below:

 

Current assets

      

Cash and cash equivalents

     2,484  

Trade receivables, net

     637  

Inventories, net

     1,368  

Other receivables

     147  
  

 

 

 
     4,636  

Non-current assets

      

Property, plant, and equipment, net

     2,199  

Intangible assets, net

     1  
  

 

 

 
     2,200  
  

 

 

 

Total of impairment loss

     6,836  
  

 

 

 

2) Assets and liabilities of the other foreign subsidiaries, which do not have administrative autonomy, are considered an extension of the activities of their parent company and are translated using the exchange rate at the end of the reporting period. Gains and losses resulting from changes in these foreign investments are directly recognized as financial income or loss. The loss recognized in income for the nine-month period ended September 30, 2018 amounted to R$ 7,916 (R$ 2,667 gain for the nine-month period ended September 30, 2017).

According to the definition and general guidance of IAS 29, the characteristics of the economic environment of Argentina indicate that this country is a hyperinflationary economy since July 2018. The subsidiary Oxiteno Argentina Sociedad de Responsabilidad Ltda. acts as a commercial office and the effect of the Argentina’s economy becoming hyperinflationary does not affect the Company’s interim financial information.

 

t.

Use of Estimates, Assumptions and Judgments

The preparation of the interim financial information requires the use of estimates, assumptions, and judgments for the accounting of certain assets, liabilities, and income. Therefore, the Company and subsidiaries’ management use the best information available at the time of preparation of the interim financial information, as well as the experience of past and current events, also considering assumptions regarding future events. The interim financial information therefore include estimates, assumptions, and judgments related mainly to determining the fair value of financial instruments (Notes 2.c, 2.l, 4, 15 and 33), the determination of the estimated losses on doubtful accounts (Notes 2.d, 5 and 33), the determination of provisions for losses of inventories (Notes 2.e and 6), the determination of deferred IRPJ and CSLL amounts (Notes 2.m and 9), the determination of control in subsidiaries (Notes 2.g, 2.s, 3 and 12.a), the determination of joint control in joint venture (Notes 2.g, 12.a and 12.b), the determination of significant influence in associates (Notes 2.g and 12.c), the determination of exchange rate used to translation of Oxiteno Andina’ information (Note 2.s), the useful lives of property, plant, and equipment (Notes 2.h and 13), the useful lives of intangible assets, and the determination of the recoverable amount of goodwill (Notes 2.j and 14), provisions for assets retirement obligations (Notes 2.n and 20), provisions for tax, civil, and labor risks (Notes 2.o and 21), estimates for the preparation of actuarial reports (Notes 2.p and 19.b) and the determination of fair value of subscription warrants – indemnification (Notes 24 and 33). The actual result of the transactions and information may differ from their estimates.

 

u.

Impairment of Assets

The Company and its subsidiaries review, every report period, the existence of any indication that an asset may be impaired and annually test intangible assets with undefined useful life. If there is an indication, the Company and its subsidiaries estimate the recoverable amount of the asset. Assets that cannot be evaluated individually are grouped in the smallest group of assets that generate cash flow from continuous use and that are largely independent of cash flows of other assets (cash generating units “CGU”). The recoverable amount of assets or CGUs corresponds to the greater of their fair value net of applicable direct selling costs and their value in use.

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The fair value less costs of disposal is determined by the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, net of costs of removing the asset, and direct incremental costs to bring an asset into condition for its sale, legal costs, and taxes.

To assess the value in use, the Company and its subsidiaries consider the projections of future cash flows, trends, and outlooks, as well as the effects of obsolescence, demand, competition, and other economic factors. Such cash flows are discounted to their present values using the discount rate before tax that reflects market conditions for the period of impairment testing and the specific risks of the asset or CGU being evaluated. In cases where the expected discounted future cash flows are less than their carrying amount, an impairment loss is recognized for the amount by which the carrying value exceeds the fair value of these assets. Losses for impairment of assets are recognized in profit or loss. In case goodwill has been allocated to a CGU, the recognized losses are first allocated to reduce the corresponding goodwill. If the goodwill is not enough to absorb such losses, the surplus is allocated to the assets on a pro-rata basis. An impairment of goodwill cannot be reversed. For other assets, impairment losses may be reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if the impairment had not been recognized.

As of September 30, 2018, the Company recognized an impairment loss for subsidiary Oxiteno Andina (see Note 2.s.1.ii).

 

v.

Business Combination

A business combination is accounted applying the acquisition method. The cost of the acquisition is measured based on the consideration transferred and to be transferred, measured at fair value at the acquisition date. In a business combination, the assets acquired and liabilities assumed are measured in order to classify and allocate them accordingly to the contractual terms, economic circumstances and relevant conditions on the acquisition date. The non-controlling interest in the acquired is measured based on its interest in identifiable net assets acquired. Goodwill is measured as the excess of the consideration transferred and to be transferred over the fair value of net assets acquired (identifiable assets and liabilities assumed, net). After the initial recognition, goodwill is measured at cost less any accumulated impairment losses. For impairment testing purposes, goodwill is allocated to the Company’s operating segments. When the cost of the acquisition is lower than the fair value of net assets acquired, a gain is recognized directly in the income statement. Costs related to the acquisition are recorded in the income statement when incurred.

 

w.

Statements of Value Added

As required by Brazilian Corporate Law, the Company and its subsidiaries prepare the individual and consolidated statements of value added (“DVA”) according to CPC 09 – Statement of Value Added, as an integral part of the interim financial information as applicable to publicly-traded companies, and as supplemental information for the International Financial Reporting Standards (“IFRS”), which does not require the presentation of DVA.

 

x.

Statements of Cash Flows Indirect Method

The Company and its subsidiaries prepared its individual and consolidated statements of cash flows in accordance with IAS 7 (CPC 03)—Cash Flow Statement. The Company and its subsidiaries present the interest paid on loans and debentures in financing activities. The Company and its subsidiaries present financial investments on a net basis of income and redemptions in the investment activities.

 

y.

Adoption of the Pronouncements Issued by CPC and IASB

The following standards, amendments, and interpretations to IFRS were issued by the IASB, which are effective as of January 1, 2018:

 

     Equivalent
CPC
 

•   IFRS 9 – Financial instrument classification and measurement: includes new requirements for the classification and measurement of financial assets and liabilities, derecognition requirements, new impairment methodology for financial instruments, and new hedge accounting guidance.

 

    

 

48

 

 

 

•   IFRS 15 – Revenue from contracts with customers: establish the principles of nature, amount, timing and uncertainty of revenue and cash flow arising from a contract with a customer.

     47  

 

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The Company and its subsidiaries disclosed the information to the impacts on the adoption of IFRS 9 (CPC 48) and 15 (CPC 47), in accordance with the new accounting practices introduced by the IASB and immaterial reclassifications and adjustments to the better presentation of the interim financial information: i) the sales revenue previously recognized at the issuance of the invoice, was adjusted to the time of the delivery of the products and ii) segregation of sales and purchase taxes between the sales revenue and the cost of products.

(1) IFRS 9 adoption (CPC 48)—Financial instruments

 

  a)

Classification and measurement of financial instruments:

The Company and its subsidiaries evaluated the classification and measurement of financial instruments and, based on its business model, concluded that the target is achieved, receiving contractual cash flows and selling financial assets (hold for collect and sell). Accordingly, most part of the financial investments are classified as measured at fair value through other comprehensive income, except for funds that are classified as measured at fair value through profit or loss and financial investments given as collateral for loans that are classified as amortized cost (see Note 2.c).

 

    

12/31/2017

 
    

Classification as previously reported
according to IAS 39 / CPC 38

     New classification according to
IFRS 9 / CPC 48
 
    

Category

   Carrying
value
     Measured at fair
value through
profit or loss
     Measured at fair value
through other
comprehensive income
     Measured at
amortized cost
 

Financial assets:

              

Cash and cash equivalents

              

Cash and bank deposits

   Loans and receivables      147,926        —          —          147,926  

Financial investments in local currency

   Measured at fair value through profit or loss      4,821,605        —          4,821,605        —    

Financial investments in foreign currency

   Measured at fair value through profit or loss      32,473        32,473        —          —    

Financial investments:

              

Fixed-income securities and funds in local currency

   Available for sale      68,742        —          2,720        66,022  

Fixed-income securities and funds in local currency

   Measured at fair value through profit or loss      1,076,849        1,076,849        —          —    

Fixed-income securities and funds in local currency

   Held to maturity      7,449        —          —          7,449  

Fixed-income securities and funds in foreign currency

   Available for sale      129,131        —          129,131        —    

Currency and interest rate hedging instruments

   Measured at fair value through profit or loss      85,753        85,753        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

        6,369,928        1,195,075        4,953,456        221,397  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  b)

Estimated losses on doubtful accounts

The Company and its subsidiaries assessed the estimated credit losses on doubtful accounts on trade receivables, taking into account, at the initial recognition of the contract, the expected losses for the next 12 months and for the useful life of the contract when the deterioration or improvement of customers’ credit quality (see Note 2.d).

 

  c)

Derivative financial instruments

The Company and its subsidiaries have not identified impacts arising from this change keeping the permanence of the application of IAS 39.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

(2) IFRS 15 adoption (CPC 47)—Revenue recognition from contracts with customers

The Company and its subsidiaries evaluated all the stages for the recognition of their revenues from contracts with customers and based on their diagnosis did not identify material measurement impacts resulting from the adoption of this standard (see Note 2.a).

In relation to the presentation in the income statement, the Company and its subsidiaries evaluated that certain expenses, allocated as selling and marketing until December 31, 2017, should be better presented as a reduction of revenue, substantially in relation to the amortization expenses of exclusive contracts to operate Ipiranga service station.

The Company and its subsidiaries adopted retrospectively the impacts of the IFRS 9 and 15.

The table below summarizes the effects of the IFRS 9 (CPC 48) and 15 (CPC 47) adoption, immaterial reclassifications and adjustments:

Balance sheets as of December 31, 2017

 

Assets

   As
previously
reported
     IFRS 9
adoption (1)
    IFRS 15
adoption (2)
    Reclassification
and
adjustments
    After
adoption
IFRS 9
and 15
 

Current assets

           

Cash and cash equivalents

     5,002,004        —         —         —         5,002,004  

Financial investments and hedging instruments

     1,283,498        —         —         —         1,283,498  

Trade receivables and reseller financing, net

     4,337,118        (157,198     —         (32,026     4,147,894  

Inventories, net

     3,491,879        —         —         21,698       3,513,577  

Recoverable taxes, net

     881,584        —         —         —         881,584  

Dividends receivable

     11,137        —         —         —         11,137  

Other receivables

     44,025        —         —         —         44,025  

Prepaid expenses, net

     150,046        —         —         —         150,046  

Contractual assets with customers – exclusive rights, net

     —          —         456,213       —         456,213  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     15,201,291        (157,198     456,213       (10,328     15,489,978  

Non-current assets

           

Financial investments and hedging instruments

     84,426        —         —         —         84,426  

Trade receivables and reseller financing, net

     329,991        —         —         —         329,991  

Related parties

     490        —         —         —         490  

Deferred income and social contribution taxes

     545,611        53,447       12,150       2,853       614,061  

Recoverable taxes, net

     313,242        —         —         —         313,242  

Escrow deposits

     822,660        —         —         —         822,660  

Indemnity asset – business combination

     202,352        —         —         —         202,352  

Other receivables

     7,918        —         —         —         7,918  

Prepaid expenses, net

     346,886        —         —         —         346,886  

Contractual assets with customers – exclusive rights, net

     —          —         1,046,147       —         1,046,147  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total long term assets

     2,653,576        53,447       1,058,297       2,853       3,768,173  

Investments

           

In joint-ventures

     122,061        —         —         —         122,061  

In associates

     25,341        —         —         —         25,341  

Other

     2,792        —         —         —         2,792  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     150,194        —         —         —         150,194  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Property, plant, and equipment, net

     6,607,788        —         —         26,740       6,634,528  

Intangible assets, net

     3,727,473        —         (1,538,095     (26,740     2,162,638  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current assets

     13,139,031        53,447       (479,798     2,853       12,715,533  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
           

Total assets

     28,340,322        (103,751     (23,585     (7,475     28,205,511  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Balance sheets as of December 31, 2017

 

Liabilities

   As
previously
reported
    IFRS 9
adoption (1)
    IFRS 15
adoption (2)
    Reclassification
and
adjustments
    After
adoption
IFRS 9
and 15
 

Current liabilities

          

Loans and hedging instruments

     1,819,766       —         —         —         1,819,766  

Debentures

     1,681,199       —         —         —         1,681,199  

Finance leases

     2,710       —         —         —         2,710  

Trade payables

     2,155,498       —         —         —         2,155,498  

Salaries and related charges

     388,118       —         —         —         388,118  

Taxes payable

     225,829       —         —         (4,300     221,529  

Dividends payable

     338,845       —         —         —         338,845  

Income and social contribution taxes payable

     86,836       —         —         —         86,836  

Post-employment benefits

     30,059       —         —         —         30,059  

Provision for asset retirement obligation

     4,799       —         —         —         4,799  

Provision for tax, civil, and labor risks

     64,550       —         —         —         64,550  

Trade payables – customers and third parties’ indemnification

     72,216       —         —         —         72,216  

Other payables

     125,150       —         —         —         125,150  

Deferred revenue

     18,413       —         —         —         18,413  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     7,013,988       —         —         (4,300     7,009,688  

Non-current liabilities

          

Loans and hedging instruments

     6,113,545       —         —         —         6,113,545  

Debentures

     3,927,569       —         —         —         3,927,569  

Finance leases

     45,805       —         —         —         45,805  

Related parties

     4,185       —         —         —         4,185  

Deferred income and social contribution taxes

     38,524       —         —         —         38,524  

Post-employment benefits

     207,464       —         —         —         207,464  

Provision for asset retirement obligation

     59,975       —         —         —         59,975  

Provision for tax, civil, and labor risks

     861,246       —         —         —         861,246  

Deferred revenue

     12,896       —         —         —         12,896  

Subscription warrants – indemnification

     171,459       —         —         —         171,459  

Other payables

     162,834       —         —         —         162,834  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current liabilities

     11,605,502       —         —         —         11,605,502  

Shareholders’ equity

          

Share capital

     5,171,752       —         —         —         5,171,752  

Equity instrument granted

     536       —         —         —         536  

Capital reserve

     549,778       —         —         —         549,778  

Treasury shares

     (482,260     —         —         —         (482,260

Revaluation reserve on subsidiaries

     4,930       —         —         —         4,930  

Profit reserves

     3,760,079       (103,468     (23,585     (3,175     3,629,851  

Valuation adjustments

     159,643       —         —         —         159,643  

Cumulative translation adjustments

     53,061       —         —         —         53,061  

Additional dividends to the minimum mandatory dividends

     163,742       —         —         —         163,742  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ equity attributable to:

          

Shareholders of the Company

     9,381,261       (103,468     (23,585     (3,175     9,251,033  

Non-controlling interests in subsidiaries

     339,571       (283     —         —         339,288  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     9,720,832       (103,751     (23,585     (3,175     9,590,321  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

     28,340,322       (103,751     (23,585     (7,475     28,205,511  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Income Statements for the nine-month period ended September 30, 2017

 

     As previously
reported
    IFRS 9
adoption (1)
    IFRS 15
adoption (2)
    Reclassification
and
adjustments
    After
adoption
IFRS 9
and 15
 

Net revenue from sales and services

     58,433,515       —         (352,756     (198,341     57,882,418  

Cost of products and services sold

     (53,086,325     —         —         198,341       (52,887,984
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          

Gross profit

     5,347,190       —         (352,756     —         4,994,434  

Operating income (expenses)

          

Selling and marketing

     (2,153,701     (55,798     352,472       —         (1,857,027

General and administrative

     (1,160,567     —         —         —         (1,160,567

Gain (loss) on disposal of property, plant and equipment and intangibles

     (754     —         —         —         (754

Other operating income, net

     78,657       —         —         —         78,657  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          

Operating income before financial income (expenses) and share of profit of joint ventures and associates

     2,110,825       (55,798     (284     —         2,054,743  

Financial income

     451,265       —         —         —         451,265  

Financial expenses

     (806,118     —         —         —         (806,118
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial result, net

     (354,853     —         —         —         (354,853

Share of profit of joint ventures and associates

     16,111       —         —         —         16,111  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income and social contribution taxes

     1,772,083       (55,798     (284     —         1,716,001  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes

          

Current

     (688,489     —         —         —         (688,489

Deferred

     89,538       19,296       97       —         108,931  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (598,951     19,296       97       —         (579,558

Net income for the period

     1,173,132       (36,502     (187     —         1,136,443  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period attributable to:

          

Shareholders of the Company

     1,169,416       (36,502     (156     —         1,132,758  

Non-controlling interests in subsidiaries

     3,716       —         (31     —         3,685  

Earnings per share (based on weighted average number of shares outstanding) – R$

          

Basic

     2.1585             2.0908  

Diluted

     2.1427             2.0756  

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Statements of Cash Flows for the nine-month period ended September 30, 2017

 

     As
previously
reported
    IFRS 9
adoption (1)
    IFRS 15
adoption (2)
    Reclassification
and
adjustments
    After
adoption
IFRS 9
and 15
 

Cash flows from operating activities

          

Net income for the period

     1,173,132       (36,502     (187     —         1,136,443  

Adjustments to reconcile net income to cash provided by operating activities

          

Share of loss (profit) of joint ventures and associates

     (16,111     —         —         —         (16,111

Amortization of contractual assets with customers – exclusive rights

     —         —         346,188       —         346,188  

Depreciation and amortization

     869,504       —         (352,472     —         517,032  

PIS and COFINS credits on depreciation

     9,807       —         —         —         9,807  

Asset retirement obligation

     (1,526     —         —         1,526       —    

Interest, monetary, and foreign exchange rate variations

     589,802       —         —         —         589,802  

Deferred income and social contribution taxes

     (89,538     (19,296     (97     —         (108,931

(Gain) loss on disposal of property, plant and equipment and intangibles

     754       —         —         —         754  

Estimated credit losses on doubtful accounts

     —         —         —         102,028       102,028  

Provision for losses in inventories

     —         —         —         5,087       5,087  

Provision for post-employment benefits

     —         —         —         8,210       8,210  

Other provisions and adjustments

     (514     —         —         —         (514
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,535,310       (55,798     (6,568     116,851       2,589,795  

(Increase) decrease in current assets

          

Trade receivables and reseller financing

     (379,804     55,798       (11,814     (102,028     (437,848

Inventories

     (199,479     —         —         (5,087     (204,566

Contractual assets with customers – exclusive rights

     —         —         (14,043     —         (14,043

Other current asset items

     206,752       —         —         —         206,752  

Increase (decrease) in current liabilities

          

Insurance and other payables

     (15,503     —         —         (1,526     (17,029

Other current liabilities items

     540,266       —         —         —         540,266  

(Increase) decrease in non-current assets

          

Contractual assets with customers – exclusive rights

     —         —         25,856       —         25,856  

Other non-current asset items

     (263,108     —         —         —         (263,108

Increase (decrease) in non-current liabilities

          

Post-employment benefits

     9,265       —         —         (8,210     1,055  

Other non-current liabilities items

     (63,795     —         —         —         (63,795

Payments of contractual assets with customers – exclusive rights

     —         —         (389,409     —         (389,409

Income and social contribution taxes paid

     (606,082     —         —         —         (606,082
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     1,763,822       —         (395,978     —         1,367,844  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

          

Acquisition of intangible assets

     (559,873     —         395,978       —         (163,895

Capital increase in joint ventures

     (16,000     —         —         —         (16,000

Other investing activities items

     (760,557     —         —         —         (760,557
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1,336,430     —         395,978       —         (940,452
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     228,583       —         —         —         228,583  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents in foreign currency

     23,086       —         —         —         23,086  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Decrease in cash and cash equivalents

     679,061       —         —         —         679,061  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     4,274,158       —         —         —         4,274,158  

Cash and cash equivalents at the end of the period

     4,953,219       —         —         —         4,953,219  

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The following standards, amendments, and interpretations to IFRS were issued by the IASB are not effective as of September 30, 2018:

 

     Equivalent
CPC
    Effective
date
 

•   IFRS 16—Lease: requires lessees’ record, in the financial statements, a liability reflecting future payments of a lease and the right to use an asset for the lease contracts, except for certain short-term leases and low asset value contracts. The criteria for recognition and measurement of leases in the financial statements of lessors are substantially maintained.

     06  (R2)      2019  

The Company and its subsidiaries are quantifying the potential effects of this pronouncement, and it is expected to have a relevant impact on the recognition of the right of use and the debt related to lease contracts of the land and building of service stations, drugstores and stores due to the number of operating lease contracts of the subsidiaries (see Note 34.c).

 

z.

Authorization for Issuance of the Interim Financial Information

These interim financial information were authorized for issue by the Board of Directors on November 7, 2018.

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

3.

Principles of Consolidation, Investments in Subsidiaries and Acquisition

 

  a)

Principles of Consolidation

In the preparation of the consolidated interim financial information the investments of one company in another, balances of asset and liability accounts, revenues transactions, costs and expenses were eliminated, as well as the effects of transactions conducted between the companies. Non-controlling interests in subsidiaries are presented within consolidated shareholders’ equity and net income.

Consolidation of a subsidiary begins when the parent company obtains direct or indirect control over a company and ceases when the parent company loses control of a company. Income and expenses of a subsidiary acquired are included in the consolidated income statement and other comprehensive income from the date the parent company gains the control. Income and expenses of a subsidiary, in which the parent company loses control, are included in the consolidated income statement and other comprehensive income until the date the parent company loses control.

When necessary, adjustments are made to the interim financial information of subsidiaries to bring their accounting policies into line with the Company’s accounting policies.

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

  b)

Investments in Subsidiaries

The consolidated interim financial information include the following direct and indirect subsidiaries:

 

               % interest in the share  
               09/30/2018      12/31/2017  
               Control      Control  
     Location    Segment    Direct
control
     Indirect
control
     Direct
control
     Indirect
control
 

Ipiranga Produtos de Petróleo S.A.

   Brazil    Ipiranga      100        —          100        —    

am/pm Comestíveis Ltda.

   Brazil    Ipiranga      —          100        —          100  

Centro de Conveniências Millennium Ltda.

   Brazil    Ipiranga      —          100        —          100  

Icorban—Correspondente Bancário Ltda.

   Brazil    Ipiranga      —          100        —          100  

Ipiranga Trading Limited

   Virgin Islands    Ipiranga      —          100        —          100  

Tropical Transportes Ipiranga Ltda.

   Brazil    Ipiranga      —          100        —          100  

Ipiranga Imobiliária Ltda.

   Brazil    Ipiranga      —          100        —          100  

Ipiranga Logística Ltda.

   Brazil    Ipiranga      —          100        —          100  

Oil Trading Importadora e Exportadora Ltda.

   Brazil    Ipiranga      —          100        —          100  

Chevron Brasil Lubrificantes S.A. (see Note 3.c)

   Brazil    Ipiranga      —          56        —          56  

Ipiranga Lubrificantes S.A. (see Note 3.c)

   Brazil    Ipiranga      —          100        —          100  

Integra Frotas Ltda.

   Brazil    Ipiranga      —          100        —          100  

Companhia Ultragaz S.A.

   Brazil    Ultragaz      —          99        —          99  

Ultragaz Comercial Ltda.

   Brazil    Ultragaz      —          100        —          100  

Bahiana Distribuidora de Gás Ltda.

   Brazil    Ultragaz      —          100        —          100  

Utingás Armazenadora S.A.

   Brazil    Ultragaz      —          57        —          57  

LPG International Inc.

   Cayman Islands    Ultragaz      —          100        —          100  

Imaven Imóveis Ltda.

   Brazil    Others      —          100        —          100  

Imifarma Produtos Farmacêuticos e Cosméticos S.A.

   Brazil    Extrafarma      —          100        —          100  

Oxiteno S.A. Indústria e Comércio

   Brazil    Oxiteno      100        —          100        —    

Oxiteno Nordeste S.A. Indústria e Comércio

   Brazil    Oxiteno      —          99        —          99  

Oxiteno Argentina Sociedad de Responsabilidad Ltda.

   Argentina    Oxiteno      —          100        —          100  

Oleoquímica Indústria e Comércio de Produtos Químicos Ltda.

   Brazil    Oxiteno      —          100        —          100  

Oxiteno Uruguay S.A.

   Uruguay    Oxiteno      —          100        —          100  

Oxiteno México S.A. de C.V.

   Mexico    Oxiteno      —          100        —          100  

Oxiteno Servicios Corporativos S.A. de C.V.

   Mexico    Oxiteno      —          100        —          100  

Oxiteno Servicios Industriales S.A. de C.V.

   Mexico    Oxiteno      —          100        —          100  

Oxiteno USA LLC

   United States    Oxiteno      —          100        —          100  

Global Petroleum Products Trading Corp.

   Virgin Islands    Oxiteno      —          100        —          100  

Oxiteno Andina, C.A.

   Venezuela    Oxiteno      —          100        —          100  

Oxiteno Europe SPRL

   Belgium    Oxiteno      —          100        —          100  

Oxiteno Colombia S.A.S

   Colombia    Oxiteno      —          100        —          100  

Oxiteno Shanghai LTD.

   China    Oxiteno      —          100        —          100  

Empresa Carioca de Produtos Químicos S.A.

   Brazil    Oxiteno      —          100        —          100  

Ultracargo—Operações Logísticas e Participações Ltda.

   Brazil    Ultracargo      100        —          100        —    

Terminal Químico de Aratu S.A. – Tequimar

   Brazil    Ultracargo      —          99        —          99  

TEAS – Terminal Exportador de Álcool de Santos Ltda. (see Note 3.d)

   Brazil    Ultracargo      —          100        —          —    

Ultrapar International S.A.

   Luxembourg    Others      100        —          100        —    

SERMA—Ass. dos usuários equip. proc. de dados

   Brazil    Others      —          100        —          100  

The percentages in the table above are rounded.

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

  c)

Association with Chevron Brasil Lubrificantes S.A.

On August 4, 2016, the Company through its subsidiary Ipiranga Produtos de Petróleo S.A. (“IPP”) entered into an association agreement with Chevron Brasil Lubrificantes Ltda. (“Chevron”) to create a new company in the lubricants market. The association is formed by Ipiranga and Chevron’s lubricants operations in Brazil. On February 2017, this transaction was approved without restrictions through an opinion issued by the General Superintendence (“SG”) of the Brazilian Antitrust Authority (“CADE”) and published in the Brazilian Federal Official Gazette. On December 1, 2017, the association was concluded, through the contribution of the subsidiary Ipiranga Lubrificantes S.A. (“IpiLubs”) to Chevron Brasil Lubrificantes S.A. (“CBLSA”) and consequently IPP obtained direct control of CBLSA. IPP and Chevron hold 56% and 44%, respectively, of the CBLSA.

The Company is measuring the open balance, fair value of assets and liabilities, and, consequently, the goodwill of their transaction. The purchase price allocation will be concluded in 2018. During the process of identification of assets and liabilities, intangible assets, which are not recognized in the acquired entity’s books, will also be taken into account. The Company, supported by a third party company specialized in valuations, estimated the temporary amount for the purchase price allocation and calculated the temporary goodwill in the amount of R$ 85,264. The temporary goodwill is based on the synergy between the lubricant operations of CBLSA and IpiLubs. During the process of identification of assets and liabilities, intangible assets, which were not recognized in the acquired entity’s books were also taken into account, as shown below:

 

     Amount      Useful
life
     Amortization
method
 

Commercial property rights

     101,125        24 years        Straight line  

Portfolio and customers’ relationship

     10,360        28 years        Straight line  
  

 

 

       

Total

     111,485        
  

 

 

       

The table below summarizes the temporary assets acquired and liabilities assumed as of the acquisition date (December 1, 2017), subject to the customary final adjustments of purchase price allocation and calculation of goodwill:

 

Current assets           Current liabilities         

Cash and cash equivalents

     73,316        Trade payables        33,453  

Trade receivables

     157,016        Salaries and related charges        18,251  

Inventories

     113,131        Taxes payable        20,089  

Recoverable taxes

     5,595        Other payables        28,743  

Other receivables

     15,497        
  

 

 

       

 

 

 
     364,555           100,536  
Non-current assets           Non-current liabilities         

Related parties

     7,077        Provision for tax, civil, and labor risks        202,352  

Indemnity asset

     202,352        Deferred income and social contribution taxes        42,371  

Escrow deposits

     4,095        Post-employment benefits        44,478  

Other receivables

     5,257        

Property, plant, and equipment

     175,824        

Intangible assets

     121,429        
  

 

 

       

 

 

 
     516,034           289,201  
  

 

 

       

 

 

 

Total assets acquired

     880,589        Total liabilities assumed        389,737  
  

 

 

       

 

 

 

Temporary goodwill

     85,264        Participation of non-controlling interests        215,974  
  

 

 

       

Total assets acquired and temporary goodwill

     965,853        Temporary consideration transferred        360,142  

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

The calculation of the temporary goodwill is shown below:

 

 

Temporary consideration transferred

     360,142  

Total assets acquired

     (880,589

Total liabilities assumed

     389,737  

Non-controlling interest

     215,974  
  

 

 

 

Temporary goodwill (see Note 14.i)

     85,264  
  

 

 

 

 

  d)

TEAS – Terminal Exportador de Álcool de Santos Ltda. Acquisition

On January 30, 2018, the Company through its subsidiary Terminal Químico de Aratu S.A. – Tequimar (“Tequimar”) entered into a sale and purchase agreement for the acquisition of 100% of the quotas of TEAS Terminal Exportador de Álcool de Santos Ltda. (“TEAS”), owned by Raízen Energia S.A. and Raízen Araraquara Açúcar e Álcool Ltda., which had already been operated by the subsidiary Tequimar in the Port of Santos. The purchase price of the acquisition was R$ 103,373. On February 14, 2018, this transaction was approved without restrictions through an opinion issued by the SG of CADE. On March 2, 2018, CADE issued a certificate, attesting to the approval of the transaction. On March 29, 2018, the acquisition was concluded through the closing of the operation.

The Company is measuring the open balance, fair value of assets and liabilities, and, consequently, the goodwill of their transaction. The purchase price allocation will be concluded in 2018. During the process of identification of assets and liabilities, intangible assets, which are not recognized in the acquired entity’s books, will also be taken into account. The Company, supported by a third party company specialized in valuations, estimated the temporary amount for the purchase price allocation and calculated the temporary goodwill in the amount of R$ 797.

The table below summarizes the temporary assets acquired and liabilities assumed as of the acquisition date, subject to the customary final adjustments of purchase price allocation and calculation of goodwill:

 

Current assets           Current liabilities         

Cash and cash equivalents

     3,662        Trade payables        14  
        

 

 

 

Recoverable taxes

     3,830           14  

Other receivables

     —          
  

 

 

       
     7,492        

Non-current assets

        

Deferred income and social contribution taxes

     1,054        Contingent consideration        2,880  

Escrow deposits

     72        Provision for tax, civil, and labor risks        141  

Indemnity asset

     141        

Property, plant, and equipment

     96,852        
  

 

 

       
     98,119        
  

 

 

       

 

 

 

Total assets acquired

     105,611        Total liabilities assumed        3,035  
  

 

 

       

 

 

 

Temporary goodwill

     797        
  

 

 

       

Total assets acquired and temporary goodwill

     106,408        Consideration transferred        103,373  

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

The calculation of the temporary goodwill is shown below:

 

 

Consideration transferred

     103,373  

Total assets acquired

     (105,611

Total liabilities assumed

     3,035  
  

 

 

 

Temporary goodwill (see Note 14.i)

     797  
  

 

 

 

For further details of property, plant, and equipment assets acquired, see Note 13.

 

  e)

Unrealized Acquisition

On November 17, 2016, the Company through its subsidiary Companhia Ultragaz S.A. (“Cia Ultragaz”), entered into a sale and purchase agreement for the acquisition of 100% of the capital stock of Liquigás Distribuidora S.A (“Liquigás”) for the amount of R$ 2,665 million, subject to update by the Interbank Certificate of Deposit (“CDI”). On February 28, 2018, the Court of Appeals of CADE voted the transaction and, despite all the efforts endeavored by the applicants, decided to reject the transaction. Due to the non-closing of the transaction, Cia. Ultragaz paid a contractual fine of R$ 286,160 in favor of Petróleo Brasileiro S.A. – Petrobras (“Petrobras”) on March 9, 2018 (see Note 29).

4.     Cash and Cash Equivalents and Financial Investments

Cash equivalents and financial investments, excluding cash and bank deposits, are substantially represented by investments: (i) in Brazil, in certificates of deposit of first-rate financial institutions linked to the CDI, in repurchase agreement and in short term investments funds, whose portfolio comprised of Brazilian Federal Government bonds and in certificates of deposit of first-rate financial institutions; (ii) outside Brazil, in certificates of deposit of first-rate financial institutions and in short term investments funds, whose portfolio comprised of Federal Government bonds; and (iii) in currency and interest rate hedging instruments.

The financial assets were classified in Note 33, based on business model of financial assets of the Company and its subsidiaries.

Cash, cash equivalents and financial investments (consolidated) amounted to R$ 6,428,784 as of September 30, 2018 (R$ 6,369,928 as of December 31, 2017) are as follows:

 

   

Cash and Cash Equivalents

Cash and cash equivalents are considered: (i) cash and bank deposits, and (ii) highly-liquid short-term investments that are readily convertible into a known amount of cash and are subject to an insignificant risk of change in value.

 

     Parent      Consolidated  
     09/30/2018      12/31/2017      09/30/2018      12/31/2017  

Cash and bank deposits

           

In local currency

     335        143        105,669        73,128  

In foreign currency

     —          —          132,416        74,798  

Financial investments considered cash equivalents

           

In local currency

           

Fixed-income securities

     155,305        93,031        3,480,502        4,821,605  

In foreign currency

           

Fixed-income securities

     —          —          33,069        32,473  
  

 

 

    

 

 

    

 

 

    

 

 

 
           

Total cash and cash equivalents

     155,640        93,174        3,751,656        5,002,004  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

   

Financial Investments

The financial investments of the Company and its subsidiaries, which are not classified as cash and cash equivalents, are distributed as follows:

 

     Parent      Consolidated  
     09/30/2018      12/31/2017      09/30/2018      12/31/2017  

Financial investments

           

In local currency

           

Fixed-income securities and funds

     551,104        21,657        2,297,142        1,153,040  

In foreign currency

           

Fixed-income securities and funds

     —          —          112,845        129,131  

Currency and interest rate hedging instruments (a)

     —          —          267,141        85,753  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial investments

     551,104        21,657        2,677,128        1,367,924  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

     551,104        21,657        2,484,873        1,283,498  

Non-current

     —          —          192,255        84,426  

 

(a)

Accumulated gains, net of income tax (see Note 33).

5.     Trade Receivables and Reseller Financing (Consolidated)

The composition of trade receivables and reseller financing is as follows:

 

     09/30/2018     12/31/2017  
           Restated  

Domestic customers

     4,609,593       4,025,726  

Reseller financing – Ipiranga (i)

     794,800       675,236  

Foreign customers

     298,127       229,701  

(-) Estimated losses on doubtful accounts

     (528,645     (452,778
  

 

 

   

 

 

 

Total

     5,173,875       4,477,885  
  

 

 

   

 

 

 

Current

     4,796,346       4,147,894  

Non-current

     377,529       329,991  

 

(i)

Reseller financing is provided for renovation and upgrading of service stations, purchase of products, and development of the automotive fuels and lubricants distribution market.

The breakdown of trade receivables, gross of estimated losses on doubtful accounts, is as follows:

 

                Past due  
    Total     Current     less than
30 days
    31-60
days
     61-90
days
     91-180
days
     more than
180 days
 
                
09/30/2018     5,702,520       4,681,474       141,203       77,367        61,752        134,878        605,846  
12/31/2017     4,930,663       4,070,523       200,939       46,491        48,197        87,812        476,701  

Movements in the allowance for estimated losses on doubtful accounts are as follows:

 

Balance as of December 31, 2017

     295,580  

IFRS 9 adoption

     157,198  
  

 

 

 

Balance as of December 31, 2017—Restated

     452,778  

Additions

     93,796  

Write-offs

     (18,566
  

 

 

 

Oxiteno Andina (*)

     637  
  

 

 

 

Balance as of September 30, 2018

     528,645  
  

 

 

 

 

(*)

Refers to the impairment for subsidiary Oxiteno Andina (see Note 2.s.1.ii).

For further information about the allowance for estimated losses on doubtful accounts, see Note 33 – Customer credit risk.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

6.

Inventories (Consolidated)

The composition of inventories is as follows:

 

     09/30/2018      12/31/2017  
    

 

     Restated  
     Cost      Provision
for losses
    Net
balance
     Cost      Provision
for losses
    Net
balance
 

Fuels, lubricants and greases

     1,389,052        (978     1,388,074        1,626,449        (3,074     1,623,375  

Finished goods

     521,587        (29,895     491,692        500,223        (18,495     481,728  

Work in process

     1,361        —         1,361        1,637        —         1,637  

Raw materials

     360,819        (2,446     358,373        492,029        (1,835     490,194  

Liquefied petroleum gas (LPG)

     101,675        (5,761     95,914        102,748        (5,761     96,987  

Consumable materials and other items for resale

     134,573        (4,185     130,388        160,024        (5,380     154,644  

Pharmaceutical, hygiene, and beauty products

     522,508        (6,796     515,712        417,726        (2,447     415,279  

Purchase for future delivery (1)

     157,736        (2,719     155,017        222,808        —         222,808  

Properties for resale

     27,489        (107     27,382        27,032        (107     26,925  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     3,216,800        (52,887     3,163,913        3,550,676        (37,099     3,513,577  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

Refers substantially to ethanol, biodiesel and advance of fuels.

Movements in the provision for losses are as follows:

 

Balance as of December 31, 2017

     37,099  

Additions to net realizable value adjustment

     51  

Additions of obsolescence and other losses

     14,369  

Oxiteno Andina (*)

     1,368  
  

 

 

 

Balance as of September 30, 2018

     52,887  
  

 

 

 

 

(*)

Refers to the impairment for subsidiary Oxiteno Andina (see Note 2.s.1.ii).

The breakdown of provisions for losses related to inventories is shown in the table below:

 

     09/30/2018      12/31/2017  

Net realizable value adjustment

     21,236        19,817  

Obsolescence and other losses

     31,651        17,282  
  

 

 

    

 

 

 

Total

     52,887        37,099  
  

 

 

    

 

 

 

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

7.

Recoverable Taxes

Recoverable taxes are substantially represented by credits of Tax on Goods and Services (“ICMS”, the Brazilian VAT), Contribution for Social Security Financing (COFINS), Social Integration Program (PIS), IRPJ, and CSLL.

 

     Parent      Consolidated  
     09/30/2018      12/31/2017      09/30/2018     12/31/2017  

ICMS

     —          —          659,921       580,630  

Provision for ICMS losses (1)

     —          —          (71,733     (72,076

PIS and COFINS

     —          —          357,384       348,333  

IRPJ and CSLL

     93,054        81,755        357,193       295,172  

Value-Added Tax (IVA) of foreign subsidiaries

     —          —          32,732       27,180  

Others

     —          —          31,392       15,587  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

     93,054        81,755        1,366,889       1,194,826  
  

 

 

    

 

 

    

 

 

   

 

 

 

Current

     44,369        33,070        948,125       881,584  

Non-current

     48,685        48,685        418,764       313,242  

 

(1) 

The provision for ICMS losses relates to tax credits that the subsidiaries believe will not be utilized or offset in the future based on its estimative, and its movements are as follows:

 

Balance as of December 31, 2017

     72,076  

Additions, write-offs and reversals, net

     (343
  

 

 

 

Balance as of September 30, 2018

     71,733  
  

 

 

 

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

8.

Related Parties

 

a.

Related Parties

 

   

Parent Company

 

     Assets      Liabilities      Financial
income (1)
 
     Debentures (1)      Account
payable
        

Ipiranga Produtos de Petróleo S.A.

     773,301        —          41,422  

Imifarma Produtos Farmacêuticos e Cosméticos S.A.

     —          5,215        —    
  

 

 

    

 

 

    

 

 

 

Total as of September 30, 2018

     773,301        5,215        41,422  
  

 

 

    

 

 

    

 

 

 

 

     Assets      Liabilities         
     Debentures (1)      Other
payables (2)
     Account
payable
     Financial
income (1)
 

Ipiranga Produtos de Petróleo S.A.

     762,562        —          —          69,322  

Imifarma Produtos Farmacêuticos e Cosméticos S.A.

     —          —          4,003        —    

Oxiteno S.A. Indústria e Comércio

     —          3,086        —          —    

Companhia Ultragaz S.A.

     —          1,585        —          —    

Terminal Químico de Aratu S.A.—Tequimar

     —          2,768        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2017

     762,562        7,439        4,003     
  

 

 

    

 

 

    

 

 

    

Total as of September 30, 2017

              69,322  
           

 

 

 

 

(1)

In March 2016, the subsidiary IPP made its second private offering in one single series of 75 debentures at face value of R$ 10,000,000.00 (ten million Brazilian Reais) each, nonconvertible into shares and unsecured. The Company subscribed the total debentures with maturity on March 31, 2021 and semiannual interest linked to CDI.

 

(2)

Refers to the Deferred Stock Plan (see Note 8.c).

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

   

Consolidated

Balances and transactions between the Company and its subsidiaries have been eliminated in consolidation and are not disclosed in this note. The balances and transactions between the Company and its subsidiaries with other related parties are disclosed below:

 

     Loans      Commercial transactions  
     Assets      Liabilities      Receivables(1)      Payables(1)  

Oxicap Indústria de Gases Ltda.

     —          —          —          1,339  

Química da Bahia Indústria e Comércio S.A.

     —          2,926        —          —    

ConectCar Soluções de Mobilidade Eletrônica S.A.

     —          —          5,256        139  

Refinaria de Petróleo Riograndense S.A.

     —          —          —          12,190  

LA’7 Participações e Empreend. Imob. Ltda. (a)

     —          —          —          117  

Others

     490        1,166        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total as of September 30, 2018

     490        4,092        5,256        13,785  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Loans      Commercial transactions  
     Assets      Liabilities      Receivables(1)      Payables(1)  

Oxicap Indústria de Gases Ltda.

     —          —          —          1,489  

Química da Bahia Indústria e Comércio S.A.

     —          2,946        —          —    

ConectCar Soluções de Mobilidade Eletrônica S.A.

     —          —          1,067        31  

Refinaria de Petróleo Riograndense S.A.

     —          —          —          22,199  

Others

     490        1,239        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2017

     490        4,185        1,067        23,719  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Included in “domestic trade receivables” and “domestic trade payables,” respectively.

 

(a)

Refers to rental contracts of 15 drugstores owned by LA’7, a company of former shareholders of Extrafarma and current shareholders of Ultrapar.

 

     Commercial
transactions
        
     Sales and
services
     Purchases      Expenses  

Oxicap Indústria de Gases Ltda.

     5        8,986        —    

Refinaria de Petróleo Riograndense S.A.

     —          779,536        —    

ConectCar Soluções de Mobilidade Eletrônica S.A.

     4,144        766        —    

LA’7 Participações e Empreend. Imob. Ltda. (a)

     —          —          1,117  
  

 

 

    

 

 

    

 

 

 

Total as of September 30, 2018

     4,149        789,288        1,117  
  

 

 

    

 

 

    

 

 

 

 

     Commercial
transactions
 
     Sales and
services
     Purchases  

Oxicap Indústria de Gases Ltda.

     5        13,459  

Refinaria de Petróleo Riograndense S.A.

     —          694,497  

ConectCar Soluções de Mobilidade Eletrônica S.A.

     5,394        802  
  

 

 

    

 

 

 

Total as of September 30, 2017

     5,399        708,758  
  

 

 

    

 

 

 

 

(a)

Refers to rental contracts of 15 drugstores owned by LA’7, a company of former shareholders of Extrafarma and current shareholders of Ultrapar.

 

38


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Purchase and sale transactions relate substantially to the purchase of raw materials, feedstock, transportation, and storage services based on similar market prices and terms with customers and suppliers with comparable operational performance. The above operations related to ConectCar Soluções de Mobilidade Eletrônica S.A. (“ConectCar”) refer to services provided. Borrowing agreements are for an indeterminate period and do not contain interest clauses. In the opinion of the Company and its subsidiaries’ management, transactions with related parties are not subject to credit risk, which is why no allowance for doubtful accounts or collateral is provided. Collateral provided by the Company in loans of subsidiaries and affiliates are mentioned in Note 15.k). Intercompany loans are contracted in light of temporary cash surpluses or deficits of the Company, its subsidiaries, and its associates.

 

b.

Key executives (Consolidated)

The Company’s compensation strategy combines short and long-term elements, following the principles of alignment of interests and of maintaining a competitive compensation, and is aimed at retaining key officers and remunerating them adequately according to their attributed responsibilities and the value created to the Company and its shareholders.

Short-term compensation is comprised of: (a) fixed monthly compensation paid with the objective of rewarding the executive’s experience, responsibility, and his/her position’s complexity, and includes salary and benefits such as medical coverage, check-up, life insurance, and others; (b) variable compensation paid annually with the objective of aligning the executive’s and the Company’s objectives, which is linked to: (i) the business performance measured through its economic value creation and (ii) the fulfillment of individual annual goals that are based on the strategic plan and are focused on expansion and operational excellence projects, people development and market positioning, among others. In addition, the chief executive officer in office until October 2, 2017 was entitled to additional long term variable compensation, which was terminated with the succession of the chief executive officer announced by the Company in June 2017. Further details about the Deferred Stock Plan are contained in Note 8.c) and about post-employment benefits in Note 19.b).

The Company and its subsidiaries recognized expenses for compensation of its key executives (Company’s directors and executive officers) as shown below:

 

     09/30/2018     09/30/2017  

Short-term compensation

     28,673       35,011  

Stock compensation (*)

     (336     4,384  

Post-employment benefits

     1,709       2,539  

Long-term compensation

     —         (6,459

Termination benefit

     905       8,934  
  

 

 

   

 

 

 

Total

     30,951       44,409  
  

 

 

   

 

 

 

 

(*)

Includes the reversal of expenses for the cancellation of granted shares due to termination of executive employment (see Note 8.c).

 

39


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

c.

Deferred Stock Plan (Consolidated)

Since 2003, Ultrapar has adopted a stock plan in which the executive has the usufruct of shares held in treasury. The Deferred Stock Plan provides for the transfer of the ownership of the shares to those eligible members of management after five to seven years from the initial concession of the rights subject to uninterrupted employment of the participant during the period. The volume of shares and the executives eligible are determined by the Board of Directors, and there is no mandatory annual grant. The total number of shares to be used in the plan is subject to the number of shares in treasury. Ultrapar’s Board of Directors does not have a stock plan. The fair value of the awards were determined on the grant date based on the market value of the shares on the B3 S.A. – Brasil, Bolsa, Balcão (“B3”), the Brazilian Securities, Commodities and Futures Exchange and the amounts are amortized between five to seven years from the grant date.

The table below summarizes shares granted to the Company and its subsidiaries’ management:

 

Grant date

   Balance of
number of
shares
granted
     Vesting period      Market price
of shares on
the grant date
(in R$ per
share)
     Total grant
costs,
including
taxes
     Accumulated
recognized
grant costs
    Accumulated
unrecognized
grant costs
 

March 13, 2017

     100,000        2022 to 2024        67.99        9,378        (2,522     6,856  

March 4, 2016

     190,000        2021 to 2023        65.43        17,147        (7,523     9,624  

December 9, 2014

     470,000        2019 to 2021        50.64        32,829        (21,373     11,456  

March 5, 2014

     83,400        2019 to 2021        52.15        5,999        (4,670     1,329  

November 7, 2012

     173,332        2017 to 2019        42.90        16,731        (15,866     865  

December 14, 2011

     30,000        2016 to 2018        31.85        4,832        (4,801     31  
  

 

 

          

 

 

    

 

 

   

 

 

 
     1,046,732              86,916        (56,755     30,161  
  

 

 

          

 

 

    

 

 

   

 

 

 

For the nine-month period ended September 30, 2018, the amortization in the amount of R$ 4,774 (R$ 14,056 for the nine-month period ended September 30, 2017) was recognized as a general and administrative expense.

The table below summarizes the changes of number of shares granted:

 

Balance on December 31, 2017

     1,183,398  

Cancellation of granted shares due to termination of executive employment

     (136,666
  

 

 

 

Balance on September 30, 2018

     1,046,732  
  

 

 

 

In addition, on April 19, 2017, the Ordinary and Extraordinary General Shareholders’ Meeting (“OEGM”) of approved a new incentive plan based on shares (“Plan”), which establishes the general terms and conditions for the concession of common shares issued by the Company and held in treasury, that may or may not involve the granting of usufruct of part of these shares for later transfer of the ownership of the shares, in periods of 3 to 6 years, to directors or employees of the Company or its subsidiaries. The information in this incentive plan reflect both plans.

As a result of the Plan, common shares representing at most 1% of the Company’s share capital may be delivered to the Participants, which corresponds, at the date of approval of this Plan, to 5,564,051 common shares.

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The table below summarizes the restricted and performance stock programs:

 

Program

  

Grant date

   Balance
of
number
of shares
granted
    

Vesting
period

   Market
price of
shares on
the grant
date (in R$
per share)
     Total
grant
costs,
including
taxes
     Accumulated
recognized
grant costs
     Accumulated
unrecognized
grant costs
 

Restricted

  

October 1, 2017

     120,000      2023      76.38        12,642        (2,108      10,534  

Restricted and Performance

  

November 8, 2017

     42,858      2020 to 2022      76.38        5,485        (1,313      4,172  

Restricted and Performance

  

April 9, 2018

     103,592      2021 to 2023      68.70        13,275        (1,733      11,542  

Restricted

  

September 19, 2018

     80,000      2024      39.16        4,321        —          4,321  

Restricted

  

September 24, 2018

     40,000      2024      36.80        2,030        —          2,030  
     

 

 

          

 

 

    

 

 

    

 

 

 
        386,450              37,753        (5,154      32,599  
     

 

 

          

 

 

    

 

 

    

 

 

 

For the nine-month period ended September 30, 2018, a general and administrative expense in the amount of R$ 4,369 was recognized in relation to the Plan.

 

9.

Income and Social Contribution Taxes

 

a.

Deferred Income (IRPJ) and Social Contribution Taxes (CSLL)

The Company and its subsidiaries recognize deferred tax assets and liabilities, which are not subject to the statute of limitations, resulting from tax loss carryforwards, temporary differences, negative tax bases and revaluation of property, plant, and equipment, among others. Deferred tax assets are sustained by the continued profitability of their operations. Deferred IRPJ and CSLL are recognized under the following main categories:

 

     Parent      Consolidated  
     09/30/2018     12/31/2017      09/30/2018     12/31/2017  
                        Restated  

Assets—Deferred income and social contribution taxes on:

         

Provision for impairment of assets

     —         —          115,062       103,092  

Provisions for tax, civil, and labor risks

     —         —          152,623       145,767  

Provision for post-employment benefits

     —         —          85,251       81,199  

Provision for differences between cash and accrual basis

     —         —          170,768       40,755  

Goodwill

     —         —          13,243       14,234  

Business combination – fiscal basis vs. accounting basis of goodwill

     —         —          75,641       74,972  

Provision for asset retirement obligation

     —         —          16,385       19,111  

Other provisions

     334       29,158        128,518       158,952  

Tax losses and negative basis for social contribution carryforwards (9.d)

     416       —          326,936       201,471  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

     750       29,158        1,084,427       839,553  
  

 

 

   

 

 

    

 

 

   

 

 

 

Offset the liabilities balance

     (750     —          (338,434     (225,492
  

 

 

   

 

 

    

 

 

   

 

 

 

Net balance of assets

     —         29,158        745,993       614,061  
  

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities—Deferred income and social contribution taxes on:

         

Revaluation of property, plant, and equipment

     —         —          2,014       2,109  

Lease

     —         —          2,985       3,361  

Provision for differences between cash and accrual basis

     —         —          109,553       44,440  

Provision for goodwill/negative goodwill

     —         —          179,233       131,811  

Business combination – fair value of assets

     —         —          113,338       45,414  

Temporary differences of foreign subsidiaries

     205       —          1,645       955  

Other provisions

     3,248       —          3,357       35,926  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

     3,453       —          412,125       264,016  
  

 

 

   

 

 

    

 

 

   

 

 

 

Offset the assets balance

     (750     —          (338,434     (225,492
  

 

 

   

 

 

    

 

 

   

 

 

 

Net balance of liabilities

     2,703       —          73,691       38,524  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

41


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Changes in the net balance of deferred IRPJ and CSLL are as follows:

 

     09/30/2018     09/30/2017  
           Restated  

Initial balance

     507,086       409,699  

IFRS 9 and 15 adoption

     67,849       42,275  

Deferred IRPJ and CSLL recognized in income of the year

     (28,180     108,931  

Deferred IRPJ and CSLL recognized in other comprehensive income

     159,852       (29,288

Deferred IRPJ and CSLL recognized in business combination (see Notes 3.c and 3.d)

     (38,017     —    

Others

     3,712       1,071  
  

 

 

   

 

 

 

Final balance

     672,302       532,688  
  

 

 

   

 

 

 

The estimated recovery of deferred tax assets relating to IRPJ and CSLL is stated as follows:

 

     Parent      Consolidated  

Up to 1 Year

     417        178,612  

From 1 to 2 Years

     111        161,438  

From 2 to 3 Years

     111        185,657  

From 3 to 5 Years

     111        182,176  

From 5 to 7 Years

     —          239,981  

From 7 to 10 Years

     —          136,563  
  

 

 

    

 

 

 

Total of deferred tax assets relating to IRPJ and CSLL

     750        1,084,427  
  

 

 

    

 

 

 

The technical study on Extrafarma’s projection of taxable profits for the realization of deferred tax assets was reviewed by the Fiscal Council on February 20, 2018 and approved by the Company’s Board of Directors on February 21, 2018, taking into account implementation of the actions proposed by the subsidiary’s management, among them, the operational restructuring and the expansion of stores.

b. Reconciliation of Income and Social Contribution Taxes

IRPJ and CSLL are reconciled to the statutory tax rates as follows:

 

     Parent     Consolidated  
     09/30/2018     09/30/2017     09/30/2018     09/30/2017  
                       Restated  

Income (loss) before taxes and share of profit (loss) of subsidiaries, joint ventures, and associates

     91,538       (14,084     970,157       1,699,890  

Statutory tax rates—%

     34       34       34       34  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes at the statutory tax rates

     (31,123     4,789       (329,853     (577,963
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to the statutory income and social contribution taxes:

        

Nondeductible expenses (i)

     (213     (499     (54,667     (38,879

Nontaxable revenues (ii)

     13       1       22,837       833  

Adjustment to estimated income (iii)

     —         —         7,261       8,381  

Interest on equity (iv)

     (538     (550     (538 )       (550

Other adjustments

     —         17       (45,310     1,610  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes before tax incentives

     (31,861     3,758       (400,270     (606,568
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax incentives—SUDENE

     —         —         76,034       27,010  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes in the income statement

     (31,861     3,758       (324,236     (579,558
  

 

 

   

 

 

   

 

 

   

 

 

 

Current

     —         (2,661     (296,056     (688,489

Deferred

     (31,861     6,419       (28,180     108,931  

Effective IRPJ and CSLL rates -%

     34.8       26.7       33.4       34.1  

 

(i)

Consist of certain expenses that cannot be deducted for tax purposes under applicable tax legislation, such as expenses with fines, donations, gifts, losses of assets, negative effects of foreign subsidiaries and certain provisions;

(ii)

Consist of certain gains and income that are not taxable under applicable tax legislation, such as the reimbursement of taxes and the reversal of certain provisions;

(iii)

Brazilian tax law allows for an alternative method of taxation for companies that generated gross revenues of up to R$ 78 million in their previous fiscal year. Certain subsidiaries of the Company adopted this alternative form of taxation, whereby income and social contribution taxes are calculated on a basis equal to 32% of operating revenues, as opposed to being calculated based on the effective taxable income of these subsidiaries. The adjustment to estimated income represents the difference between the taxation under this alternative method and the income and social contribution taxes that would have been paid based on the effective statutory rate applied to the taxable income of these subsidiaries;

(iv)

Interest on equity is an option foreseen in Brazilian corporate law to distribute profits to shareholders, calculated based on the long-term interest rate (“TJLP”), which does not affect the income statement, but is deductible for purposes of IRPJ and CSLL, being taxable to the beneficiary and deductible to the entity that pays.

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

c. Tax Incentives—SUDENE

The following subsidiaries are entitled to federal tax benefits providing for IRPJ reduction under the program for development of northeastern Brazil operated by the Superintendence for the Development of the Northeast (“SUDENE”):

 

Subsidiary

  

Units

   Incentive—%      Expiration  

Bahiana Distribuidora de Gás Ltda.

   Aracaju base(1)      75        2027  
   Suape base      75        2018  
   Mataripe base      75        2024  
   Caucaia base      75        2025  
   Juazeiro base(2)      75        2026  

Terminal Químico de Aratu S.A. – Tequimar

   Suape terminal      75        2020  
   Aratu terminal      75        2022  
   Itaqui terminal      75        2025  

Oleoquímica Indústria e Comércio de Produtos Químicos Ltda.

   Camaçari plant      75        2021  

Oxiteno Nordeste S.A. Indústria e Comércio

   Camaçari plant      75        2026  

Empresa Carioca de Produtos Químicos S.A.

   Camaçari plant      75        2026  

 

(1) 

On May 9, 2018, the subsidiary Bahiana Distribuidora de Gás Ltda. (“Bahiana”), filed a request at SUDENE requiring the 75% income tax reduction incentive for additional ten years, due to the modernization for its Aracaju plant – Sergipe which was approved by SUDENE on September 21, 2018. The constitutive benefit appraisal report will be sent to the Brazilian Federal Revenue Service (“RFB”) for approval.

(2) 

On July 3, 2017, the subsidiary Bahiana, filed a request at SUDENE requiring the 75% income tax reduction incentive, due to productive unit implementation for its Juazeiro plant – Bahia. SUDENE approved the incentive until 2026 through an appraisal report issued on November 7, 2017. The constitutive benefit appraisal report was sent to the RFB, on November 27, 2017, for approval within a term of 120 days. As a result of the expiration of the statutes of limitation for the RFB to approve the constitutive benefit appraisal report, the income tax reduction was recognized by the subsidiary in the income statement in 2018, in the total amount of R$ 149 with retroactive effect in January 2017.

d . Income and Social Contribution Taxes Carryforwards

As of September 30, 2018, the Company and certain subsidiaries had tax loss carryforwards related to income tax (IRPJ) of R$ 1,084,193 (R$ 598,183 as of December 31, 2017) and negative basis of CSLL of R$ 1,061,087 (R$ 576,949 as of December 31, 2017), whose compensations are limited to 30% of taxable income in a given tax year, which do not expire. Deferred income and social contribution tax assets were recognized in the amount of R$ 326,936 as of September 30, 2018 (R$ 201,471 as of December 31, 2017).

As from April 2018, the subsidiary Extrafarma ceased to recognize the deferred taxes due to the estimate of realization of the tax loss carryforwards (IRPJ) and negative basis of CSLL to exceed the term of 10 years. The balance of tax loss carryforwards (IRPJ) and negative basis of CSLL without deferred taxes constituted amounts to R$ 116,500.

 

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Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

10.

Prepaid expenses (Consolidated)

 

     09/30/2018      12/31/2017  

Rents(1)

     405,602        329,421  

Advertising and publicity

     53,132        67,321  

Deferred Stock Plan, net (see Note 8.c)

     26,099        37,591  

Insurance premiums

     25,202        39,629  

Software maintenance

     14,348        8,237  

Other prepaid expenses

     22,659        14,733  
  

 

 

    

 

 

 
     547,042        496,932  
  

 

 

    

 

 

 

Current

     150,572        150,046  

Non-current

     396,470        346,886  

 

(1) 

Refers substantially to the rental advance of service stations of IPP, which are subsequently subleased and operated by the resellers.

 

11.

Contractual Assets with customers – exclusive rights (Consolidated)

Refers to exclusive rights disbursements of Ipiranga’s agreements with reseller service stations and major consumers that are recognized at the time of their occurrence and recognized as a reduction of the sales revenue in the income statement according to the conditions established in the agreement (amortization in weighted average term of 5 years) and are reviewed as changes occur under the terms of the agreements. Balance and changes are shown below:

 

     09/30/2018     09/30/2017
Restated
 

Initial balance

     —         —    

IFRS 15 adoption

     1,502,360       1,438,084  
  

 

 

   

 

 

 

Initial balance – restated

     1,502,360       1,438,084  

Additions

     279,381       389,409  

Amortization

     (282,430     (346,188

Transfer

     (22     (11,813
  

 

 

   

 

 

 

Final balance

     1,499,289       1,469,492  
  

 

 

   

 

 

 

Current

     487,206       462,359  

Non-current

     1,012,083       1,007,133  

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

12.

Investments

 

a.

Subsidiaries and Joint Venture (Parent Company)

The table below presents the full amounts of balance sheets and income statements of subsidiaries and joint venture:

 

     09/30/2018  
     Subsidiaries     Joint-venture  
     Ultracargo—Operações
Logísticas e
Participações Ltda.
     Oxiteno S.A.
Indústria e
Comércio
     Ipiranga Produtos
de Petróleo S.A.
     Ultrapar
International S.A.
    Refinaria de
Petróleo
Riograndense S.A.
 

Number of shares or units held

     11,839,764        35,102,127        224,467,228,244        49,995       5,078,888  

Assets

     1,256,294        5,968,205        17,245,905        3,038,471       640,292  

Liabilities

     2,506        3,404,220        11,889,637        3,030,648       570,455  

Shareholders’ equity

     1,253,788        2,563,985 (*)        5,356,268 (*)        7,823       69,837  

Net revenue from sales and services

     —          1,020,297        54,931,643        —         1,546,283  

Net income (loss)

     88,375        201,695 (*)        297,056 (*)        (5,298     9,046  

% of capital held

     100        100        100        100       33  

 

     12/31/2017—Restated  
     Subsidiaries      Joint-venture  
     Ultracargo—Operações
Logísticas e
Participações Ltda.
     Oxiteno S.A.
Indústria e
Comércio
     Ipiranga Produtos
de Petróleo S.A.
     Ultrapar
International S.A.
     Refinaria de
Petróleo
Riograndense S.A.
 

Number of shares or units held

     11,839,764        35,102,127        224,467,228,244        49,995        5,078,888  

Assets

     1,167,912        5,434,041        17,092,490        2,472,924        517,439  

Liabilities

     2,486        2,752,027        11,684,775        2,459,803        352,583  

Shareholders’ equity

     1,165,426        2,682,014 (*)        5,407,715 (*)        13,121        164,856  

% of capital held

     100        100        100        100        33  

 

     09/30/2017—Restated  
     Subsidiaries      Joint-venture  
     Ultracargo—Operações
Logísticas e
Participações Ltda.
     Oxiteno S.A.
Indústria e
Comércio
     Ipiranga Produtos
de Petróleo S.A.
     Ultrapar
International S.A.
     Refinaria de
Petróleo
Riograndense S.A.
 

Number of shares or units held

     11,839,764        35,102,127        224,467,228,244        49,995        5,078,888  

Net revenue from sales and services

     —          892,626        48,671,648        —          1,112,841  

Net income

     54,077        154,117 (*)        905,183 (*)        3,588        78,670  

% of capital held

     100        100        100        100        33  

 

(*)

adjusted for intercompany unrealized profits.

The percentages in the table above are rounded.

The financial information from our business segments is detailed in Note 32.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Balances and changes in subsidiaries and joint venture are as follows:

 

     Investments in subsidiaries     Joint-venture        
     Ultracargo –
Operações
Logísticas e
Participações
Ltda.
    Oxiteno
S.A.
Indústria e
Comércio
    Ipiranga
Produtos
de Petróleo
S.A.
    Ultrapar
International
S.A.
    Total     Refinaria
de Petróleo
Riograndense
S.A.
    Total  

Balance as of December 31, 2017

     1,165,430       2,684,541       5,535,397       13,121       9,398,489       54,739       9,453,228  

Effects of IFRS adoption

     (4     (2,526     (127,698     —         (130,228     —         (130,228
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2017—Restated

     1,165,426       2,682,015       5,407,699       13,121       9,268,261       54,739       9,323,000  

Share of profit (loss) of subsidiaries and joint venture

     88,375       201,695       297,064       (5,298     581,836       1,265       583,101  

Dividends and interest on equity (gross)

     —         (97,849     (353,824     —         (451,673     (31,174     (482,847

Tax liabilities on equity-method revaluation reserve

     —         —         (3     —         (3     —         (3

Equity instrument granted

     46       186       2,472       —         2,704       —         2,704  

Valuation adjustment of subsidiaries

     (59     (261,500     3,140       —         (258,419     (1,641     (260,060

Translation adjustments of foreign-based subsidiaries

     —         39,438       (280     —         39,158       —         39,158  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2018

     1,253,788       2,563,985       5,356,268       7,823       9,181,864       23,189       9,205,053  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Investments in subsidiaries     Joint-venture        
     Ultracargo –
Operações
Logísticas e
Participações
Ltda.
    Oxiteno
S.A.
Indústria e
Comércio
    Ipiranga
Produtos
de Petróleo
S.A.
    Ultrapar
International
S.A.
     Total     Refinaria
de Petróleo
Riograndense
S.A.
    Total  

Balance as of December 31, 2016

     1,194,739       2,549,859       4,434,954       10,548        8,190,100       45,409       8,235,509  

Effects of IFRS adoption

     (111     (3,253     (79,063     —          (82,427     —         (82,427
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2016—Restated

     1,194,628       2,546,606       4,355,891       10,548        8,107,673       45,409       8,153,082  

Share of profit (loss) of subsidiaries and joint venture

     54,077       154,117       905,183       3,588        1,116,965       26,119       1,143,084  

Dividends and interest on equity (gross)

     (105,914     (100,118     (342,021     —          (548,053     (20,100     (568,153

Tax liabilities on equity- method revaluation reserve

     —         —         (85     —          (85     —         (85

Valuation adjustment of subsidiaries

     —         34,248       15,510       —          49,758       915       50,673  

Translation adjustments of foreign-based subsidiaries

     —         1,566       —         —          1,566       —         1,566  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2017—Restated

     1,142,791       2,636,419       4,934,478       14,136        8,727,824       52,343       8,780,167  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

b.

Joint Ventures (Consolidated)

The Company holds an interest in Refinaria de Petróleo Riograndense (“RPR”), which is primarily engaged in oil refining.

The subsidiary Ultracargo – Operações Logísticas e Participações Ltda. (“Ultracargo Participações”) holds an interest in União Vopak – Armazéns Gerais Ltda. (“União Vopak”), which is primarily engaged in liquid bulk storage in the port of Paranaguá.

The subsidiary IPP holds an interest in ConectCar, which is primarily engaged in electronic payment of tolls and parking in the States of Alagoas, Bahia, Ceará, Espírito Santo, Goiás, Maranhão, Mato Grosso, Mato Grosso do Sul, Minas Gerais, Paraná, Pernambuco, Rio de Janeiro, Rio Grande do Sul, Santa Catarina, São Paulo and Distrito Federal.

These investments are accounted for under the equity method of accounting based on their interim financial information as of September 30, 2018.

Balances and changes in joint ventures are as follows:

 

     Movements in investments  
     União
Vopak
     RPR     ConectCar     Total  

Balance as of December 31, 2017

     6,096        54,739       61,226       122,061  

Capital increase

     —          —         24,000       24,000  

Valuation adjustments

     —          (1,641     —         (1,641

Dividends and interest on equity (gross)

     —          (31,174     —         (31,174

Share of profit (loss) of joint ventures

     1,478        1,265       (13,780     (11,037
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2018

     7,574        23,189       71,446       102,209  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

     Movements in investments  
     União
Vopak
     RPR     ConectCar     Total  

Balance as of December 31, 2016

     4,518        45,409       66,215       116,142  

Capital increase

     —          —         16,000       16,000  

Valuation adjustments

     —          915       —         915  

Dividends and interest on equity (gross)

     —          (20,100     —         (20,100

Share of profit (loss) of joint ventures

     1,336        26,119       (14,161     13,294  
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2017

     5,854        52,343       68,054       126,251  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

47


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The table below presents the full amounts of balance sheets and income statements of joint ventures:

 

     09/30/2018  
     União
Vopak
    RPR     ConectCar  

Current assets

     10,150       487,177       117,731  

Non-current assets

     7,424       153,115       145,028  

Current liabilities

     2,154       503,237       119,415  

Non-current liabilities

     272       67,218       452  

Shareholders’ equity

     15,148       69,837       142,892  

Net revenue from sales and services

     13,970       1,546,283       41,046  

Costs, operating expenses and income

     (9,592     (1,537,184     (82,338

Net financial income and income and social contribution taxes

     (1,420     (53     13,733  

Net income (loss)

     2,958       9,046       (27,559

Number of shares or units held

     29,995       5,078,888       193,768,000  

% of capital held

     50       33       50  
     12/31/2017  
     União
Vopak
    RPR     ConectCar  

Current assets

     7,110       389,022       90,242  

Non-current assets

     6,627       128,417       132,785  

Current liabilities

     1,210       297,762       100,564  

Non-current liabilities

     336       54,821       12  

Shareholders’ equity

     12,191       164,856       122,451  

Number of shares or units held

     29,995       5,078,888       169,860,500  

% of capital held

     50       33       50  
     09/30/2017  
     União
Vopak
    RPR     ConectCar  

Net revenue from sales and services

     12,240       1,112,841       20,578  

Costs, operating expenses and income

     (8,400     (1,003,713     (65,495

Net financial income and income and social contribution taxes

     (1,168     (30,458     16,596  

Net income (loss)

     2,672       78,670       (28,321

Number of shares or units held

     29,995       5,078,888       161,860,500  

% of capital held

     50       33       50  

The percentages in the table above are rounded.

 

48


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

c.

Associates (Consolidated)

Subsidiary IPP holds an interest in Transportadora Sulbrasileira de Gás S.A., which is primarily engaged in natural gas transportation services.

Subsidiary Oxiteno S.A. holds an interest in Oxicap Indústria de Gases Ltda. (“Oxicap”), which is primarily engaged in the supply of nitrogen and oxygen for its shareholders in the Mauá petrochemical complex.

Subsidiary Oxiteno Nordeste S.A. Indústria e Comércio (“Oxiteno Nordeste”) holds an interest in Química da Bahia Indústria e Comércio S.A., which is primarily engaged in manufacturing, marketing, and processing of chemicals. The operations of this associate are currently suspended.

Subsidiary Cia. Ultragaz holds an interest in Metalúrgica Plus S.A., which is primarily engaged in the manufacture and trading of LPG containers. The operations of this associate are currently suspended.

Subsidiary IPP holds an interest in Plenogás Distribuidora de Gás S.A., which is primarily engaged in the marketing of LPG. The operations of this associate are currently suspended.

The investment of subsidiary Oxiteno S.A. in the associate Oxicap is accounted for under the equity method of accounting based on its financial information as of August 31, 2018, while the other associates are valued based on the interim financial information as of September 30, 2018.

Balances and changes in associates are as follows:

 

     Movements in investments  
     Transportadora
Sulbrasileira de
Gás S.A.
    Oxicap
Indústria
de Gases
Ltda.
     Química da
Bahia
Indústria e
Comércio S.A.
    Metalúrgica
Plus S.A.
    Plenogás
Distribuidora
de Gás S.A.
    Total  

Balance as of December 31, 2017

     6,348       14,458        3,618       340       577       25,341  

Capital reduction

     (1,250     —          —         —         —         (1,250

Dividends

     (839     —          —         —         (206     (1,045

Share of profit (loss) of associates

     881       979        (27     (88     109       1,854  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2018

     5,140       15,437        3,591       252       480       24,900  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     Movements in investments  
     Transportadora
Sulbrasileira de
Gás S.A.
    Oxicap
Indústria
de Gases
Ltda.
     Química da
Bahia
Indústria e
Comércio S.A.
    Metalúrgica
Plus S.A.
    Plenogás
Distribuidora
de Gás S.A.
    Total  

Balance as of December 31, 2016

     6,001       12,981        3,678       71       —         22,731  

Dividends

     (576     —          —         —         (399     (975

Share of profit (loss) of associates

     898       1,067        (11     (98     961       2,817  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2017

     6,323       14,048        3,667       (27     562       24,573  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

49


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The table below presents the full amounts of balance sheets and income statements of associates:

 

     09/30/2018  
     Transportadora
Sulbrasileira de
Gás S.A.
    Oxicap
Indústria
de Gases
Ltda.
    Química da
Bahia
Indústria e
Comércio S.A.
    Metalúrgica
Plus S.A.
    Plenogás
Distribuidora
de Gás S.A.
 

Current assets

     6,096       41,449       54       37       53  

Non-current assets

     15,559       81,531       10,238       1,046       2,790  

Current liabilities

     766       8,371       1       21       25  

Non-current liabilities

     332       8,694       3,109       302       1,375  

Shareholders’ equity

     20,557       105,915       7,182       760       1,443  

Net revenue from sales and services

     7,910       42,269       —         —         —    

Costs, operating expenses and income

     (4,068     (32,211     (71     (239     346  

Net financial income and income and social contribution taxes

     (196     (3,567     17       (22     (18

Net income (loss)

     3,646       6,491       (54     (261     328  

Number of shares or units held

     20,124,996       1,987       1,493,120       3,000       1,384,308  

% of capital held

     25       15       50       33       33  

 

     12/31/2017  
     Transportadora
Sulbrasileira de
Gás S.A.
     Oxicap
Indústria
de Gases
Ltda.
     Química da
Bahia
Indústria e
Comércio S.A.
     Metalúrgica
Plus S.A.
     Plenogás
Distribuidora
de Gás S.A.
 

Current assets

     11,218        45,061        67        175        505  

Non-current assets

     16,464        74,621        10,278        1,695        2,821  

Current liabilities

     1,960        12,338        —          422        93  

Non-current liabilities

     332        7,920        3,110        427        1,500  

Shareholders’ equity

     25,390        99,424        7,235        1,021        1,733  

Number of shares or units held

     20,124,996        1,987        1,493,120        3,000        1,384,308  

% of capital held

     25        15        50        33        33  

 

     09/30/2017  
     Transportadora
Sulbrasileira de
Gás S.A.
    Oxicap
Indústria
de Gases
Ltda.
    Química da
Bahia
Indústria e
Comércio S.A.
    Metalúrgica
Plus S.A.
    Plenogás
Distribuidora
de Gás S.A.
 

Net revenue from sales and services

     7,866       39,365       —         —         —    

Costs, operating expenses and income

     (4,261     (31,599     (58     (216     586  

Net financial income and income and social contribution taxes

     11       (687     36       (34     19  

Net income (loss)

     3,616       7,079       (22     (250     605  

Number of shares or units held

     20,124,996       1,987       1,493,120       3,000       1,384,308  

% of capital held

     25       15       50       33       33  

The percentages in the table above are rounded.

 

50


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

13.

Property, Plant, and Equipment (Consolidated)

Balances and changes in property, plant, and equipment are as follows:

 

     Weighted
average
useful
life
(years)
     Balance on
12/31/2017
    Reclassifications
and adjustments
    Balance on
12/31/2017 -
Restated
    Additions      Depreciation     Transfer     Write-
offs and
disposals
    Effect of
foreign
currency
exchange
rate
variation
    Temporary
fair value
Chevron (i)
    Opening
balance
TEAS (ii)
    Balance on
09/30/2018
 
                          

Cost:

                          

Land

     —          579,174       —         579,174       3,994        —         2,018       (899     (569     (2,532     33,115       614,301  

Buildings

     30        1,639,867       —         1,639,867       5,246        —         56,328       (2,821     (5,197     (1,997     18,067       1,709,493  

Leasehold improvements

     8        912,555       —         912,555       5,626        —         78,803       (7,952     72       —         —         989,104  

Machinery and equipment

     13        4,721,931       —         4,721,931       83,546        —         162,061       (1,087     (250,879     —         60,308       4,775,880  

Automotive fuel/lubricant distribution equipment and facilities

     14        2,721,075       —         2,721,075       73,600        —         85,327       (27,767     —         8,447       —         2,860,682  

LPG tanks and bottles

     7        643,697       49,158       692,855       69,439        —         2,552       (21,791     —         —         —         743,055  

Vehicles

     6        287,295       —         287,295       21,496        —         10,174       (19,681     (1,763     —         —         297,521  

Furniture and utensils

     8        266,494       —         266,494       11,520        —         3,264       (583     (10,004     (584     45       270,152  

Construction in progress

     —          929,000       —         929,000       577,562        —         (301,740     (580     112,317       —         —         1,316,559  

Advances to suppliers

     —          112,167       —         112,167       2,277        —         (102,500     —         (4,163     —         —         7,781  

Imports in progress

     —          786       —         786       614        —         (1,360     —         2       —         —         42  

IT equipment

     5        353,022       —         353,022       19,287        —         6,115       (1,596     1,519       (36     6       378,317  
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        13,167,063       49,158       13,216,221       874,207        —         1,042       (84,757     (158,665     3,298       111,541       13,962,887  
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                          

Accumulated depreciation:

                          

Buildings

        (724,408     —         (724,408     —          (39,750     10,064       2,605       25,025       —         (4,434     (730,898

Leasehold improvements

        (475,651     —         (475,651     —          (61,027     (4,591     3,145       (11     —         —         (538,135

Machinery and equipment

        (2,980,166     —         (2,980,166     —          (199,956     1,143       516       284,066       —         (10,229     (2,904,626

Automotive fuel/lubricant distribution equipment and facilities

        (1,545,806     —         (1,545,806     —          (118,788     (7,232     25,207       —         —         —         (1,646,619

LPG tanks and bottles

        (305,965     (22,418     (328,383     —          (68,919     (2,347     12,514       —         —         —         (387,135

Vehicles

        (112,200     —         (112,200     —          (21,432     496       12,299       1,888       —         —         (118,949

Furniture and utensils

        (148,575     —         (148,575     —          (13,561     (292     411       11,145       —         (20     (150,892

IT equipment

        (260,859     —         (260,859     —          (22,376     2,701       1,505       (1,328     —         (6     (280,363
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        (6,553,630     (22,418     (6,576,048     —          (545,809     (58     58,202       320,785       —         (14,689     (6,757,617
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

51


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

     Weighted
average
useful
life
(years)
     Balance on
12/31/2017
    Reclassifications
and adjustments
     Balance on
12/31/2017 -
Restated
    Additions     Depreciation     Transfer      Write-
offs and
disposals
    Effect of
foreign
currency
exchange
rate
variation
    Temporary
fair value
Chevron (i)
     Opening
balance
TEAS (*)
     Balance on
09/30/2018
 
                             

Provision for losses:

                             

Advances to suppliers

        (83     —          (83     —         —         —          —         —         —          —          (83

Buildings

        —         —          —         (272) (*)       —         —          —         —         —          —          (272

Land

        (104     —          (104     (598) (*)       —         —          —         —         —          —          (702

Leasehold improvements

        (564     —          (564     (3,333     —         —          —         (111     —          —          (4,008

Machinery and equipment

        (4,724     —          (4,724     (1,178) (*)       —         —          —         (374     —          —          (6,276

Automotive fuel/lubricant distribution equipment and facilities

        (169     —          (169     —         —         —          3       —         —          —          (166

Construction in progress

        —         —          —         (83) (*)       —         —          —         —         —          —          (83

Furniture and utensils

        (1     —          (1     (68) (*)       —         —          —         —         —          —          (69
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
        (5,645     —          (5,645     (5,532     —         —          3       (485     —          —          (11,659
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net amount

        6,607,788       26,740        6,634,528       868,675       (545,809     984        (26,552     161,635       3,298        96,852        7,193,611  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(i)

See Note 3.c.

(ii)

See Note 3.d.

(*)

Refers to the impairment for subsidiary Oxiteno Andina (see Note 2.s.1.ii).

Construction in progress relates substantially to expansions, renovations, construction and upgrade of industrial facilities, terminals, stores, service stations and distribution bases.

Advances to suppliers is related, basically, to manufacturing of assets for expansion of plants, terminals, stores, bases, and acquisition of real estate.

 

52


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

14.

Intangible Assets (Consolidated)

Balances and changes in intangible assets are as follows:

 

     Weighted
average
useful
life
(years)
     Balance on
12/31/2017
    IFRS 15
adoption
    Balance on
12/31/2017 -
Restated
    Additions      Amortization     Transfer     Write-
offs and
disposals
    Effect of
foreign
currency
exchange
rate
variation
    Temporary
fair value
Chevron (i)
    Opening
balance
TEAS (ii)
    Balance on
09/30/2018
 
                          

Cost:

                          

Goodwill (i)

     —          1,578,157       —         1,578,157       —          —         —         —         —         (38,409     797       1,540,545  

Software (ii)

     5        853,079       —         853,079       178,240        —         (1,500     (788     3,878       —         49       1,032,958  

Technology (iii)

     5        32,617       —         32,617       —          —         —         —         —         —         —         32,617  

Commercial property rights (iv)

     10        55,069       —         55,069       6,997        —         —         (1,512     —         —         —         60,554  

Distribution rights

     6        4,273,379       (4,145,189     128,190       690        —         (350     —         (19     10,360       —         138,871  

Brands (v)

     —          113,543       —         113,543       —          —         —         —         8,628       —         —         122,171  

Trademark rights (v)

     24        —         —         —         —          —         —         —         —         101,125       —         101,125  

Others (vi)

     10        40,514       —         40,514       463        —         —         —         1,355       —         —         42,332  
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        6,946,358       (4,145,189     2,801,169       186,390        —         (1,850     (2,300     13,842       73,076       846       3,071,173  
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                          

Accumulated amortization:

                          

Software

        (456,799     —         (456,799     —          (57,077     59       18       (2,158     —         (49     (516,006

Technology

        (32,541     —         (32,541     —          (54     —         —         —         —         —         (32,595

Commercial property rights

        (21,292     —         (21,292     —          (3,490     —         1,437       —         —         —         (23,345

Distribution rights

        (2,677,057     2,580,354       (96,703     —          (7,719     125       —         —         —         —         (104,297

Trademark rights

        —         —         —         —          (3,160     —         —         —         —         —         (3,160

Others

        (31,196     —         (31,196     —          (1,509     —         —         (9     —         —         (32,714
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        (3,218,885     2,580,354       (638,531     —          (73,009     184       1,455       (2,167     —         (49     (712,117
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                          

Provision for losses:

                          

Software

        —         —         —         (1) (*)        —         —         —         —         —         —         (1
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net amount

        3,727,473       (1,564,835     2,162,638       186,389        (73,009     (1,666     (845     11,675       73,076       797       2,359,055  
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(i)

See Note 3.c.

(ii)

See Note 3.d.

(*)

Refers to the impairment for subsidiary Oxiteno Andina (see Note 2.s.1.ii).

 

53


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

i) The balance of the goodwill is tested annually for impairment and presents the following balances:

 

     Segment      09/30/2018      12/31/2017  

Goodwill on the acquisition of:

        

Extrafarma

     Extrafarma        661,553        661,553  

Ipiranga (1)

     Ipiranga        276,724        276,724  

União Terminais

     Ultracargo        211,089        211,089  

Texaco

     Ipiranga        177,759        177,759  

CBLSA (2)

     Ipiranga        85,264        123,673  

Oxiteno Uruguay

     Oxiteno        44,856        44,856  

Temmar

     Ultracargo        43,781        43,781  

DNP

     Ipiranga        24,736        24,736  

Repsol

     Ultragaz        13,403        13,403  

TEAS (3)

     Ultracargo        797        —    

Others

     Oxiteno        583        583  
     

 

 

    

 

 

 
        1,540,545        1,578,157  
     

 

 

    

 

 

 

 

(1) 

Including R$ 246,163 in the parent.

(2) 

See Note 3.c.

(3) 

See Note 3.d.

On December 31, 2017, the Company tested the balances of goodwill shown in the table above for impairment. The determination of value in use involves assumptions, judgments, and estimates of cash flows, such as growth rates of revenues, costs and expenses, estimates of investments and working capital, and discount rates. The assumptions about growth projections and future cash flows are based on the Company’s business plan of its operating segments, as well as comparable market data, and represent management’s best estimate of the economic conditions that will exist over the economic life of the various CGUs, to which goodwill is related. The main key-assumptions used by the Company to calculate the value in use are described below:

Period of evaluation: the evaluation of the value in use is calculated for a period of 5 years (except the Extrafarma segment), after which we calculate the perpetuity, considering the possibility of carrying the business on indefinitely. For the Extrafarma segment, a period of 10 years was used due to its expansion plan and a four-year period to maturity of new stores were considered.

Discount and real growth rates: on December 31, 2017, the discount and real growth rates used to extrapolate the projections ranged from 9.6% to 12.7% and from 0% to 1% p.a., respectively, depending on the CGU analyzed. For the subsidiary Oxiteno Andina, due to the macroeconomic scenario in Venezuela, the discount rate used was 803.8%.

Revenue from sales and services, costs and expenses, and gross margin: for 2018, the budget prepared by management and approved by the Board of Directors was considered. In subsequent periods, the Company considers the forecast of the general inflation or price index predicted in the contracts.

Opening of new commercial points (investments): for 2018, the budget prepared by the management and approved by the Board of Directors was considered. In subsequent periods, the Company considers the expansion plans of each business unit, which also considers the commercial establishments closed in the previously years.

The goodwill impairment tests and net assets of the Company and its subsidiaries did not result in the recognition of impairment for the year ended December 31, 2017. The Company assessed a sensitivity analysis of discount and growth rate of perpetuity, due to their significant impact on cash flows and value in use. An increase of 0.5 percentage points in the discount rate or a decrease of 0.5 percentage points in the growth rate of the perpetuity of the cash flow of each business segment would not result in the recognition of impairment.

ii) Software includes user licenses and costs for the implementation of the various systems used by the Company and its subsidiaries, such as: integrated management and control, financial management, foreign trade, industrial automation, operational and storage management, accounting information, and other systems.

iii) The subsidiaries Oxiteno S.A., Oxiteno Nordeste and Oleoquímica Indústria e Comércio de Produtos Químicos Ltda. (“Oleoquímica”) recognize as technology certain rights of use held by them. Such licenses include the production of ethylene oxide, ethylene glycols, ethanolamines, glycol ethers, ethoxylates, solvents, fatty acids from vegetable oils, fatty alcohols, and specialty chemicals, which are products that are supplied to various industries.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

iv) Commercial property rights include those described below:

 

   

Subsidiary Tequimar has an agreement with CODEBA – Companhia das Docas do Estado da Bahia, which allows it to explore the area in which the Aratu Terminal is located for 20 years, renewable for a similar period. The price paid by Tequimar was R$ 12,000, which is being amortized from August 2002 to July 2042.

 

   

Subsidiary Tequimar has a lease contract for an area adjacent to the Port of Santos for 20 years from December 2002, renewable for a similar period, which allows the construction, operation, and use of a terminal for liquid bulk unloading, tank storage, handling, and distribution. The price paid by Tequimar was R$ 4,334, which is being amortized from August 2005 to December 2022.

 

   

Subsidiary Extrafarma pays key money to obtain certain commercial establishments to open drugstores which is stated at the cost of acquisition, amortized using the straight-line method, considering the lease contract terms. In the case of the closedown of stores, the residual amount is written off.

v) Brands are represented by the acquisition cost of the ‘am/pm’ brand in Brazil and of the Extrafarma brand and Chevron and Texaco trademark rights.

vi) Other intangibles refer mainly to the loyalty program “Clube Extrafarma”.

The amortization expenses were recognized in the interim financial information as shown below:

 

     09/30/2018      09/30/2017  
            Restated  

Inventories and cost of products and services sold

     12,133        8,738  

Selling and marketing

     6,966        10,015  

General and administrative

     53,910        40,468  
  

 

 

    

 

 

 
     73,009        59,221  
  

 

 

    

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

15.

Loans, Debentures, and Finance Leases (Consolidated)

 

a.

Composition

 

Description

   09/30/2018      12/31/2017      Index/Currency      Weighted average
financial charges
09/30/2018 –% p.a.
     Maturity  

Foreign currency – denominated loans:

              

Notes in the foreign market (b) (*)

     3,025,738        2,454,142        US$        +5.3        2026  

Foreign loan (c.1) (*)

     941,377        788,794        US$ + LIBOR (i)        +1.0        2018 to 2023  

Foreign loan (c.1) (*)

     757,465        259,015        US$        +3.9        2021 to 2023  

Financial institutions (e)

     644,083        330,755        US$ + LIBOR (i)        +2.1        2019 to 2023  

Foreign loan (c.2 and c.3)

     362,521        298,927        US$ + LIBOR (i)        +2.0        2018 to 2020  

Financial institutions (e)

     132,065        106,745        US$        +2.9        2019 to 2022  

Advances on foreign exchange contracts

     112,876        44,515        US$        +3.1        < 82 days  

Foreign currency advances delivered

     38,108        26,080        US$        +3.0        < 70 days  

Financial institutions (e)

     34,972        27,048        MX$ (ii)        +9.0        2018  

Financial institutions (e)

     17,171        3,382        MX$ + TIIE (ii)        +1.5        2019  

BNDES (d)

     3,301        4,460        US$        +6.5        2018 to 2020  

Financial institutions (e)

     —          593        Bs$ (vii)        
  

 

 

    

 

 

          

Total foreign currency

     6,069,677        4,344,456           
  

 

 

    

 

 

          

Brazilian Reais – denominated loans:

              

Debentures—Ipiranga (g.1, g.2,and g.4)

     2,838,168        2,836,741        CDI        105.8        2018 to 2022  

Banco do Brasil – floating rate (f)

     2,590,652        2,794,272        CDI        107.3        2019 to 2022  

Debentures – 5th and 6th issuance (g.6 and g.7)

     1,728,735        817,654        CDI        105.3        2023  

Debentures – CRA (g.3 and g.5)

     1,404,842        1,380,852        CDI        95.0        2022  

Debentures – CRA (g.3 and g.5) (*)

     541,282        554,402        IPCA        +4.6        2024  

BNDES (d)

     170,879        206,423        TJLP (iii)        +2.4        2018 to 2023  

BNDES (d)

     56,299        69,422        SELIC (vi)        +2.3        2018 to 2023  

FINEP

     56,198        32,682        TJLP (iii)        +1.5        2018 to 2023  

Finance leases (i)

     46,716        48,515        IGP-M (v)        +5.6        2018 to 2031  

FINEP

     25,814        35,611        R$        +4.0        2018 to 2021  

Banco do Nordeste do Brasil

     17,206        28,136        R$        +8.5        2018 to 2021  

BNDES (d)

     16,998        26,270        R$        +6.0        2018 to 2022  

FINAME

     36        56        TJLP (iii)        +5.7        2018 to 2022  

Export Credit Note – floating rate (h)

     —          157,749        CDI        

BNDES EXIM

     —          62,754        TJLP (iii)        

BNDES EXIM

     —          30,850        SELIC (vi)        
  

 

 

    

 

 

          

Total Brazilian Reais

     9,493,825        9,082,389           
  

 

 

    

 

 

          

Total foreign currency and Brazilian Reais

     15,563,502        13,426,845           

Currency and interest rate hedging instruments (**)

     56,629        163,749           
  

 

 

    

 

 

          

Total

     15,620,131        13,590,594           
  

 

 

    

 

 

          

Current

     3,641,597        3,503,675           

Non-current

     11,978,534        10,086,919           

 

(*)

These transactions were designated for hedge accounting (see Note 33 – Hedge Accounting).

(**)

Accumulated losses (see Note 33).

 

(i)

LIBOR = London Interbank Offered Rate.

(ii)

MX$ = Mexican Peso; TIIE = the Mexican interbank balance interest rate.

(iii)

TJLP (Long-term Interest Rate) = set by the National Monetary Council, TJLP is the basic financing cost of Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”), the Brazilian Development Bank. On September 30, 2018, TJLP was fixed at 6.56% p.a.

(iv)

Contract linked to the rate of FNE (Northeast Constitutional Financing Fund) fund whose purpose is to promote the development of the industrial sector, managed by Banco do Nordeste do Brasil. On September 30, 2018, the FNE interest rate was 10% p.a. FNE grants a discount of 15% on the interest rate for timely payments.

(v)

IGP-M = General Market Price Index is a measure of Brazilian inflation, calculated by the Getúlio Vargas Foundation.

(vi)

SELIC = basic interest rate set by the Brazilian Central Bank.

(vii)

Bs$ = Bolívar.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The changes in loans, debentures and finance leases are shown below:

 

Balance as of December 31, 2017

     13,426,845  

New loans and debentures with cash effect

     3,295,814  

Interest accrued

     652,916  

Principal payment and financial leases

     (2,303,062

Interest payment

     (514,957

Monetary and exchange rate variation

     1,002,430  

Change in fair value

     3,516  
  

 

 

 

Balance as of September 30, 2018

     15,563,502  
  

 

 

 

The long-term consolidated debt had the following principal maturity schedule:

 

     09/30/2018      12/31/2017  

From 1 to 2 years

     993,618        1,826,907  

From 2 to 3 years

     1,577,016        894,640  

From 3 to 4 years

     2,367,534        1,302,450  

From 4 to 5 years

     3,455,830        3,016,406  

More than 5 years

     3,584,536        3,046,516  
  

 

 

    

 

 

 
     11,978,534        10,086,919  
  

 

 

    

 

 

 

As provided in IAS 39 (CPC 8 (R1)), the transaction costs and issuance premiums associated with debt issuance by the Company and its subsidiaries were added to their financial liabilities, as shown in Note 15.j).

The Company’s management entered into hedging instruments against foreign exchange and interest rate variations for a portion of its debt obligations (see Note 33).

b. Notes in the Foreign Market

On October 6, 2016, the subsidiary Ultrapar International S.A. (“Ultrapar International”) issued US$ 750 million in notes in the foreign market, maturing in October 2026, with interest rate of 5.25% p. a., paid semiannually. The issue price was 98.097% of the face value of the note. The notes were guaranteed by the Company and its subsidiary IPP. The Company has designated hedge relationships for this transaction (see Note 33 – Hedge accounting: cash flow hedge and net investment hedge in foreign entities).

As a result of the issuance of the notes in the foreign market, the Company and its subsidiaries are required to perform certain obligations, including:

 

   

Restriction on sale of all or substantially all assets of the Company and subsidiaries Ultrapar International and IPP.

 

   

Restriction on encumbrance of assets exceeding US$ 150 million or 15% of the amount of the consolidated tangible assets.

The Company and its subsidiaries are in compliance with the levels of covenants required by this debt. The restrictions imposed on the Company and its subsidiaries are customary in transactions of this nature and have not limited their ability to conduct their business to date.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

c. Foreign Loans

1) The subsidiary IPP has foreign loans in the amount of US$ 415 million. IPP also contracted hedging instruments with floating interest rate in U.S. dollar and exchange rate variation, changing the foreign loans charges, on average, to 103.9% of CDI (see Note 33). IPP designated these hedging instruments as a fair value hedge; therefore, loans and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss. The foreign loans are secured by the Company.

The foreign loans have the maturity distributed as follows:

 

Maturity

   US$ (million)      Cost in % of CDI  

Nov/18 (*)

     80.0        101.4  

Jun/21

     100.0        105.0  

Jul/21

     60.0        101.8  

Jul/23

     50.0        104.9  

Sep/23

     60.0        105.0  

Sep/23

     65.0        104.8  
  

 

 

    

 

 

 

Total / average cost

     415.0        103.9(*)  
  

 

 

    

 

 

 

 

(*)

In September 2018, the subsidiary IPP renegotiated this foreign loan changing its amount to US$ 60 million and its maturity to November 2023. After the renegotiation, the financial charges will be 104.5% of the CDI, considering the respective hedging instrument.

2) The subsidiary LPG International Inc. has a foreign loan in the amount of US$ 30 million with maturity in December 2018 and interest rate of LIBOR + 1.85% p.a., paid quarterly. The foreign loan is guaranteed by the Company and its subsidiary IPP.

During these contracts, the Company shall maintain the following financial ratios, calculated based on its audited consolidated interim financial information:

 

   

Maintenance of a financial ratio, determined by the ratio between consolidated net debt and consolidated Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA), at less than or equal to 3.5.

 

   

Maintenance of a financial ratio determined by the ratio between consolidated EBITDA and consolidated net financial expenses, higher than or equal to 1.5.

The Company complies with the levels of covenants required by these loans. The restrictions imposed on the Company and its subsidiaries are usual for this type of transaction and have not limited their ability to conduct their business to date.

3) The subsidiary Global Petroleum Products Trading Corporation has a foreign loan in the amount of US$ 60 million with maturity on June 22, 2020 and interest of LIBOR + 2.0% p.a., paid quarterly. The Company, through the subsidiary Cia. Ultragaz, contracted hedging instruments subject to floating interest rates in dollar and exchange rate variation, changing the foreign loan charge to 105.9% of CDI. The foreign loan is guaranteed by the Company and its subsidiary Oxiteno Nordeste.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

d. BNDES

The subsidiaries have financing from BNDES for some of their investments and for working capital.

During the term of these agreements, the Company must maintain the following capitalization and current liquidity levels, as determined in the annual consolidated audited balance sheet:

 

   

Capitalization level: shareholders’ equity / total assets equal to or above 0.3; and

 

   

Current liquidity level: current assets / current liabilities equal to or above 1.3.

The Company complies with the levels of covenants required by these loans. The restrictions imposed on the Company and its subsidiaries are usual for this type of transaction and have not limited their ability to conduct their business to date.

e. Financial Institutions

The subsidiaries Oxiteno Mexico S.A. de C.V., Oxiteno USA LLC (“Oxiteno USA”) and Oxiteno Uruguay have loans to finance investments and working capital.

The subsidiary Oxiteno USA has loans with bearing interest of LIBOR + 2.1% and maturity as shown below:

 

     US$  

Maturity

   Millions  

Aug/19

     10.0  

Feb/20

     10.0  

Aug/20

     10.0  

Sep/20

     20.0  

Feb/21

     10.0  

Mar/22

     30.0  

Oct/22

     40.0  

Mar/23

     30.0  
  

 

 

 

Total

     160.0  
  

 

 

 

The proceeds of this loan are being used in the working capital and to fund the construction of a new alkoxylation plant in the state of Texas.

f. Banco do Brasil

The subsidiary IPP has floating interest rate loans with Banco do Brasil to finance the marketing, processing, or manufacturing of agricultural goods (ethanol).

These loans mature, as follows (accrued interest until September 30, 2018):

 

Maturity

      

Feb/19

     168,367  

May/19

     1,409,128  

May/20

     337,719  

May/21

     337,719  

May/22

     337,719  
  

 

 

 

Total

     2,590,652  
  

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

g. Debentures

 

1)

In January 2014, the subsidiary IPP made its second issuance of public debentures, in a single series of 80,000 simple, nominative, registered debentures, nonconvertible into shares and unsecured, which main characteristics are as follows:

 

Face value unit:    R$ 10,000.00
Final maturity:    December 20, 2018
Payment of the face value:    Lump sum at final maturity
Interest:    107.9% of CDI
Payment of interest:    Semiannually
Reprice:    Not applicable

 

2)

In March 2015, the Company made its fifth issuance of debentures, in a single series of 80,000 simple, nonconvertible into shares, unsecured debentures, which main characteristics are as follows:

 

Face value unit:    R$ 10,000.00
Final maturity:    March 16, 2018
Payment of the face value:    Lump sum at final maturity
Interest:    108.25% of CDI
Payment of interest:    Semiannually
Reprice:    Not applicable

The debentures were settled by the Company on the maturity date.

 

3)

In May 2016, the subsidiary IPP made its fourth issuance of public debentures, in one single series of 500 simple, nominative, registered debentures, nonconvertible into shares and unsecured, which main characteristics are as follows:

 

Face value unit:    R$ 1,000,000.00
Final maturity:    May 25, 2021
Payment of the face value:    Annual as from May 2019
Interest:    105.0% of CDI
Payment of interest:    Semiannually
Reprice:    Not applicable

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

4)

In April 2017, the subsidiary IPP carried out its fifth issuance of debentures, in two single series of 660,139 and 352,361, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Eco Consult – Consultoria de Operações Financeiras Agropecuárias Ltda. The proceeds from this issuance has been used exclusively for the purchase of ethanol.

The debentures were later assigned and transferred to Eco Securitizadora de Direitos Creditórios do Agronegócio S.A. that acquired these agribusiness credit rights with the purpose to bind the issuance of Certificates of Agribusiness Receivables (CRA). The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:

 

Face value unit:    R$ 1,000.00
Final maturity:    April 18, 2022
Payment of the face value:    Lump sum at final maturity
Interest:    95% of CDI
Payment of interest:    Semiannually
Reprice:    Not applicable

 

Face value unit:    R$ 1,000.00
Final maturity:    April 15, 2024
Payment of the face value:    Lump sum at final maturity
Interest:    IPCA + 4.7%
Payment of interest:    Annually
Reprice:    Not applicable

The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 93.9% of CDI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.

 

5)

In July 2017, the subsidiary IPP made its sixth issuance of public debentures, in one single series of 1,500,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:

 

Face value unit:    R$ 1,000.00
Final maturity:    July 28, 2022
Payment of the face value:    Annual as from July 2021
Interest:    105.0% of CDI
Payment of interest:    Annually
Reprice:    Not applicable

 

6)

In October 2017, the subsidiary IPP carried out its seventh issuance of debentures in the amount of R$ 944,077, in two single series of 730,384 and 213,693, simple, nonconvertible into shares, nominative, book-entry and unsecured debentures. The debentures have been subscribed by Vert Companhia Securitizadora. The proceeds from this issuance has been used exclusively for the purchase of ethanol.

The debentures were later assigned and transferred to Vert Créditos Ltda., that acquired these agribusiness credit rights with the purpose to bind the issuance of Certificates of Agribusiness Receivables (CRA). The financial settlement occurred on November 1, 2017. The debentures have an additional guarantee from Ultrapar and the main characteristics of the debentures are as follows:

 

Face value unit:    R$ 1,000.00
Final maturity:    October 24, 2022
Payment of the face value:    Lump sum at final maturity
Interest:    95% of CDI
Payment of interest:    Semiannually
Reprice:    Not applicable

 

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Face value unit:    R$ 1,000.00
Final maturity:    October 24, 2024
Payment of the face value:    Lump sum at final maturity
Interest:    IPCA + 4.33%
Payment of interest:    Annually
Reprice:    Not applicable

The subsidiary IPP contracted hedging instruments subjected to IPCA variation, changing the debentures charges linked to IPCA to 97.3% of CDI. IPP designated these hedging instruments as fair value hedges; therefore, debentures and hedging instruments are both measured at fair value from inception, with changes in fair value recognized through profit or loss.

 

7)

In March 2018, the Company made its sixth issuance of public debentures, in a single series of 1,725,000 simple, nonconvertible into shares and unsecured debentures, which main characteristics are as follows:

 

Face value unit:    R$ 1,000.00
Final maturity:    March 5, 2023
Payment of the face value:    Lump sum at final maturity
Interest:    105.25% of CDI
Payment of interest:    Semiannually
Reprice:    Not applicable

The debentures have maturity dates distributed as shown below (accrued interest until September 30, 2018).

 

Maturity

      

Dec/18

     815,116  

May/19

     177,127  

May/20

     165,642  

May/21

     165,642  

Apr/22

     666,925  

Jul/22

     1,514,640  

Oct/22

     737,917  

Mar/23

     1,728,735  

Apr/24

     337,475  

Oct/24

     203,808  
  

 

 

 

Total

     6,513,027  
  

 

 

 

h.     Export Credit Note

The export credit note contract of the subsidiary Oxiteno Nordeste, with maturity in May 2018, and floating rate of 101.5% of CDI, paid quarterly, was settled on the maturity date.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

i. Finance Leases

The subsidiary Cia. Ultragaz has a finance lease contract related to LPG bottling facilities, maturing in April 2031.

The amounts of equipment and intangible assets, net of depreciation and amortization, and the amounts of the corresponding liabilities are shown below:

 

     09/30/2018      12/31/2017  

Equipment and intangible assets, net of depreciation and amortization

     14,107        15,732  

Financing (present value)

     46,716        48,515  
  

 

 

    

 

 

 

Current

     2,815        2,710  

Non-current

     43,901        45,805  

The future disbursements (installments) assumed under these contracts are presented below:

 

     09/30/2018      12/31/2017  

Up to 1 year

     5,124        5,113  

From 1 to 2 years

     5,124        5,113  

From 2 to 3 years

     5,124        5,113  

From 3 to 4 years

     5,124        5,113  

From 4 to 5 years

     5,124        5,113  

More than 5 years

     38,853        42,611  
  

 

 

    

 

 

 

Total

     64,473        68,176  
  

 

 

    

 

 

 

The above amounts include Services Tax (“ISS”) payable on the monthly installments, except for disbursements for the LPG bottling facilities.

j. Transaction Costs

Transaction costs incurred in issuing debt were deducted from the value of the related financial instruments and are recognized as an expense according to the effective interest rate method, as follows:

 

     Effective rate
of transaction
costs (% p.a.)
     Balance
on
12/31/2017
     Incurred
cost
     Amortization     Balance
on
09/30/2018
 

Debentures (g)

     0.2        44,709        3,740        (7,137     41,312  

Notes in the foreign market (b)

     0.0        15,298        —          (1,035     14,263  

Banco do Brasil (f)

     0.2        8,065        —          (3,397     4,668  

Foreign loans (c)

     0.1        1,213        —          (721     492  

Other

     0.2        2,801        366        (365     2,802  
     

 

 

    

 

 

    

 

 

   

 

 

 

Total

        72,086        4,106        (12,655     63,537  
     

 

 

    

 

 

    

 

 

   

 

 

 

The amount to be appropriated to profit or loss in the future is as follows:

 

     Up to 1
year
     1 to 2
years
     2 to 3
years
     3 to 4
years
     4 to 5
years
     More
than 5
years
     Total  

Debentures (g)

     9,928        9,838        9,850        8,011        1,988        1,697        41,312  

Notes in the foreign market (b)

     1,444        1,525        1,610        1,700        1,795        6,189        14,263  

Banco do Brasil (f)

     3,377        648        441        202        —          —          4,668  

Foreign loans (c)

     306        186        —          —          —          —          492  

Other

     819        1,028        519        382        54        —          2,802  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     15,874        13,225        12,420        10,295        3,837        7,886        63,537  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

k. Guarantees

The financings are guaranteed by collateral in the amount of R$ 69,019 as of September 30, 2018 (R$ 66,337 as of December 31, 2017) and by guarantees and promissory notes in the amount of R$ 11,045,120 as of September 30, 2018 (R$ 9,587,971 as of December 31, 2017).

The Company and its subsidiaries offer collateral in the form of letters of credit for commercial and legal proceedings in the amount of R$ 231,455 as of September 30, 2018 (R$ 237,537 as of December 31, 2017). In addition, the Company provides guarantees related to the supply of LPG by Petrobras up to the amount of R$ 45 million. As of September 30, 2018, the Company did not have guarantees related to raw materials imported by the subsidiary IPP(R$ 81,046 as of December 31, 2017).

Some subsidiaries of Oxiteno issue collateral to financial institutions in connection with the amounts owed by some of their customers to such institutions (vendor financing). If a subsidiary is required to make any payment under these collaterals, this subsidiary may recover the amount paid directly from its customers through commercial collection. The maximum amount of future payments related to these collaterals is R$ 3,214 as of September 30, 2018 (R$ 8,224 as of December 31, 2017), with maturities of up to 30 days. Until September 30, 2018, the subsidiaries did not have losses in connection with these collaterals. The fair value of collaterals recognized in current liabilities as other payables is R$ 80 as of September 30, 2018 (R$ 205 as of December 31, 2017), which is recognized as profit or loss as customers settle their obligations with the financial institutions.

16.     Trade Payables (Consolidated)

 

     09/30/2018      12/31/2017  

Domestic suppliers

     1,830,966        1,973,668  

Foreign suppliers

     290,367        181,830  
  

 

 

    

 

 

 
     2,121,333        2,155,498  
  

 

 

    

 

 

 

Some Company’s subsidiaries acquire oil based fuels and LPG from Petrobras and its subsidiaries and ethylene from Braskem S.A. These suppliers control almost all of the markets for these products in Brazil.

17.     Salaries and Related Charges (Consolidated)

 

     09/30/2018      12/31/2017  

Provisions on salaries

     241,271        179,120  

Profit sharing, bonus and premium

     116,195        125,006  

Social charges

     50,487        64,524  

Others

     13,311        19,468  
  

 

 

    

 

 

 
     421,264        388,118  
  

 

 

    

 

 

 

18.     Taxes Payable (Consolidated)

 

     09/30/2018      12/31/2017  
            Restated  

ICMS

     169,503        128,571  

PIS and COFINS

     23,097        25,319  

PERT (*)

     1,832        19,584  

Value-Added Tax (IVA) of foreign subsidiaries

     20,954        17,992  

ISS

     18,141        11,211  

Others

     20,145        18,852  
  

 

 

    

 

 

 
     253,672        221,529  
  

 

 

    

 

 

 

 

(*)

Refers to federal tax debits of the subsidiary IPP that were included in the Special Program of Tax Regularization (PERT).

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

19.     Employee Benefits and Private Pension Plan (Consolidated)

a. ULTRAPREV- Associaçăo de Previdência Complementar

In February 2001, the Company’s Board of Directors approved the adoption of a defined contribution pension plan to be sponsored by the Company and each of its subsidiaries. Participating employees have been contributing to this plan, managed by Ultraprev—Associação de Previdência Complementar (“Ultraprev”), since August 2001. Under the terms of the plan, every year each participating employee chooses his or her basic contribution to the plan. Each sponsoring company provides a matching contribution in an amount equivalent to each basic contribution, up to a limit of 11% of the employee’s reference salary, according to the rules of the plan. As participating employees retire, they may choose to receive either (i) a monthly sum ranging between 0.5% and 1.0% of their respective accumulated fund in Ultraprev or (ii) a fixed monthly amount which will exhaust their respective accumulated fund over a period of 5 to 25 years. The sponsoring company does not take responsibility for guaranteeing amounts or the duration of the benefits received by the retired employee. For the nine-month period ended September 30, 2018, the subsidiaries contributed R$ 18,262 (R$ 18,553 for the nine-month period ended September 30, 2017) to Ultraprev, which is recognized as expense in the income statement. The total number of participating employees as of September 30, 2018 was 8,049 active participants and 271 retired participants. In addition, Ultraprev had 26 former employees receiving benefits under the rules of a previous plan whose reserves are fully constituted.

b. Post-employment Benefits

The subsidiaries recognized a provision for post-employment benefits mainly related to seniority bonus, payment of Government Severance Indemnity Fund (“FGTS”), and health, dental care, and life insurance plan for eligible retirees.

The amounts related to such benefits were determined based on a valuation conducted by an independent actuary and reviewed by management as of December 31, 2017 and are recognized in the interim financial information in accordance with IAS 19 R2011 (CPC 33 R2).

 

     09/30/2018      12/31/2017  

Health and dental care plan (1)

     105,430        99,767  

FGTS Penalty

     85,409        81,831  

Bonus

     42,557        40,254  

Life insurance (1)

     16,706        15,671  
  

 

 

    

 

 

 

Total

     250,102        237,523  
  

 

 

    

 

 

 

Current

     28,619        30,059  

Non-current

     221,483        207,464  

 

(1)

Only IPP, IpiLubs and CBLSA.

20.     Provision for Asset Retirement Obligation – Fuel Tanks (Consolidated)

The provision corresponds to the legal obligation to remove the subsidiary IPP’s underground fuel tanks located at Ipiranga-branded service stations after a certain use period (see Note 2.n).

Changes in the provision for asset retirement obligation are as follows:

 

Balance as of December 31, 2017

     64,774  

Additions (new tanks)

     238  

Expense with tanks removed

     (10,462

Accretion expense

     1,971  
  

 

 

 

Balance as of September 30, 2018

     56,521  
  

 

 

 

Current

     4,411  

Non-current

     52,110  

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

21.     Provisions, Contingencies and Commitments (Consolidated)

a. Provisions for tax, civil, and labor risks

The Company and its subsidiaries are parties in tax, civil, environmental, regulatory, and labor disputes at the administrative and judiciary levels, which, when applicable, are backed by escrow deposits. Provisions for losses are estimated and updated by Management based on the opinion of the Company’s legal department and its external legal advisors.

The table below demonstrates the breakdown of provisions by nature and its movement:

 

Provisions

   Balance on
12/31/2017
     Additions      Write-offs     Monetary
restatement
     Balance on
09/30/2018
 

IRPJ and CSLL (a.1.1)

     515,829        —          —         12,490        528,319  

PIS and COFINS (a.1.2)

     34,927        —          (5,831     676        29,772  

ICMS

     111,784        1,470        (3,070     314        110,498  

Civil, environmental and regulatory claims (a.2.1)

     89,296        7,067        (5,059     37        91,341  

Labor litigation (a.3.1)

     82,425        18,658        (9,491     1,348        92,940  

IPI

     78,067        —          —         —          78,067  

Others

     13,468        827        (347     752        14,700  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

     925,796        28,022        (23,798     15,617        945,637  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Current

     64,550                70,373  

Non-current

     861,246                875,264  

Some of the provisions above involve, in whole or in part, escrow deposits.

Balances of escrow deposits are as follows:

 

     09/30/2018      12/31/2017  

Tax matters

     709,627        659,062  

Labor litigation

     71,202        71,074  

Civil and other

     87,411        92,524  
  

 

 

    

 

 

 

Total – non-current assets

     868,240        822,660  
  

 

 

    

 

 

 

a.1) Provisions for Tax Matters and Social Security

a.1.1) On October 7, 2005, the subsidiaries Cia. Ultragaz and Bahiana filed for and obtained a preliminary injunction to recognize and offset PIS and COFINS credits on LPG purchases, against other taxes levied by the RFB, notably IRPJ and CSLL. The decision was confirmed by a trial court on May 16, 2008. Under the preliminary injunction, the subsidiaries made escrow deposits for these debits which amounted to R$ 496,173 as of September 30, 2018 (R$ 483,485 as of December 31, 2017). On July 18, 2014, a second instance unfavorable decision was published and the subsidiaries suspended the escrow deposits, and started to pay income taxes from that date. To revert the court decision, the subsidiaries presented a writ of prevention which was dismissed on December 30, 2014, and the subsidiaries appealed this decision on February 3, 2015. Appeals were also presented to the respective higher courts (STJ and STF) whose final trial are pending.

a.1.2) The subsidiaries Oxiteno S.A., Oxiteno Nordeste, Cia. Ultragaz, Tequimar, Tropical Transportes Ipiranga Ltda., Empresa Carioca de Produtos Químicos S.A. (“EMCA”), IPP and Extrafarma filed for a preliminary injunction seeking the deduction of ICMS from their PIS and COFINS tax bases. On March 15, 2017, in a decision with general repercussion, the Federal Supreme Court (STF) decided that the ICMS does not make up the calculation of PIS and COFINS tax bases. Therefore, supported by its legal advisors, on May 31, 2017, Oxiteno Nordeste and IPP reversed the provision in the amount of R$ 109,463.

The Company emphasizes that it is possible for the STF to restrict the effects of the judgment or to decide that the effectiveness will be reached after its final decision or other time that may be fixed. Despite the favorable context, until there is effective final decision, the causes may be reassessed, which could result in the recognition of new provisions in the future, except for Oxiteno S.A., that obtained a favorable final decision and is assessing amounts and evaluating the possibility of constituting a possible contingent asset.

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

a.2) Provisions for Civil, Environmental and Regulatory Claims

a.2.1) The Company and its subsidiaries maintained provisions for lawsuits and administrative proceedings, mainly derived from contracts entered into with customers and former services providers, as well as proceedings related to environmental and regulatory issues in the amount of R$ 91,341 as of September 30, 2018 (R$ 89,296 as of December 31, 2017).

a.3) Provisions for Labor Matters

a.3.1) The Company and its subsidiaries maintained provisions of R$ 92,940 as of September 30, 2018 (R$ 82,425 as of December 31, 2017) for labor litigation filed by former employees and by employees of our service providers mainly contesting the non-payment of labor rights.

b. Contingent Liabilities (Possible)

The Company and its subsidiaries are parties in tax, civil, environmental, regulatory, and labor claims whose loss prognosis is assessed as possible (proceedings whose chance of loss is 50% or less). by the Company’s legal departments based on the opinion of its external legal advisors and, based on this assessment, these claims were not recognized in the interim financial information. The estimated amount of this contingency is R$ 2,781,606 as of September 30, 2018 (R$ 2,576,583 as of December 31, 2017).

b.1) Contingent Liabilities for Tax Matters and Social Security

The Company and its subsidiaries have contingent liabilities for tax matters and social security in the amount of R$ 1,880,572 as of September 30, 2018 (R$ 1,709,435 as of December 31, 2017), mainly represented by:

b.1.1) The subsidiary IPP and its subsidiaries have assessments invalidating the offset of excise tax (“IPI”) credits in connection with the purchase of raw materials used in the manufacturing of products which sales are not subject to IPI under the protection of tax immunity. The amount of this contingency is R$ 167,034 as of September 30, 2018 (R$ 166,003 as of December 31, 2017).

b.1.2) The subsidiary IPP and its subsidiaries have legal proceedings related to ICMS. The total amount involved in these proceedings, was R$ 758,638 as of September 30, 2018 (R$ 618,774 as of December 31, 2017). Such proceedings arise mostly of the disregard of ICMS credits amounting to R$ 366,390 as of September 30, 2018 (R$ 307,255 as of December 31, 2017), of which R$ 173,905 (R$ 121,891 as of December 31, 2017) refer to proportional reversal requirement of ICMS credits related to the acquisition of hydrated alcohol; of alleged non-payment in the amount of R$ 124,445 (R$ 113,999 as of December 31, 2017); and inventory differences in the amount of R$ 181,459 (R$ 149,171 as of December 31, 2017) related to the leftovers or faults due to temperature changes or product handling.

b.1.3) The Company and its subsidiaries are parties to administrative and judicial suits involving Income Tax, Social Security Contribution, PIS and COFINS, substantially about denials of offset claims and credits disallowance which total amount is R$ 660,414 as of September 30, 2018 (R$ 645,868 as of December 31, 2017), mainly represented by:

b.1.3.1) The subsidiary IPP received a tax assessment related to the IRPJ and CSLL resulting from the supposedly undue amortization of the goodwill paid on acquisition of a subsidiary, in the amount of R$ 192,108 as of September 30, 2018 (R$ 187,027 as of December 31, 2017), which includes the amount of the income taxes, interest and penalty. Management assessed the likelihood of the tax assessment, supported by the opinion of its legal advisors, as “possible”, and therefore did not recognize a provision for this contingent liability.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

b.2) Contingent Liabilities for Civil, Environmental and Regulatory Claims

The Company and its subsidiaries have contingent liabilities for civil, environmental and regulatory claims in the amount of R$ 628,622, totaling 3,192 lawsuits as of September 30, 2018 (R$ 593,437, totaling 2,783 lawsuits as of December 31, 2017), mainly represented by:

b.2.1) The subsidiary Cia. Ultragaz is party to an administrative proceeding before CADE based on alleged anti-competitive practices in the State of Minas Gerais in 2001. The CADE entered a decision against Cia. Ultragaz and imposed a penalty of R$ 32,821 as of September 30, 2018 (R$ 32,315 as of December 31, 2017). The imposition of such administrative decision was suspended by a court order and its merit is being judicially reviewed.

b.2.2) In 2016, the subsidiary Cia. Ultragaz became party to two administrative proceedings filed by CADE, related to allegations of anti-competitive practices: i) one of the proceedings relate to practices in the State of Paraíba and other Northeast States, in which the subsidiary Bahiana is part along with Cia. Ultragaz. On this proceeding, Cia. Ultragaz and Bahiana signed a Cessation Commitment Agreement (TCC) with CADE, approved on November 22, 2017, in the amount of R$ 95,987, to be paid in 8 (eight) equal installments updated semiannually by SELIC, with maturity of the first one in 180 (one hundred and eighty) days from the date of publication of the approval. Three employees and one former employee signed TCC in the total amount of R$ 1,100. With the TCC, the administrative proceeding will be suspended in relation to the Cia. Ultragaz and Bahiana until final decision; ii) the second proceeding relate to practices in the Federal District and around, in which only Cia. Ultragaz is part. On this proceeding, Cia. Ultragaz signed a TCC with CADE, approved on September 6, 2017, in the amount of R$ 2,154, to be paid in a single installment, with maturity in 180 (one hundred and eighty) days from the date of publication of the approval. Two former employees signed TCC in the amount of R$ 50 each. With the TCC, the administrative proceeding will be suspended in relation to the Cia. Ultragaz until final decision.

b.2.3) The subsidiary IPP became party to two administrative proceedings filed by CADE, related to allegations of anti-competitive practices in the city of Joinville, State of Santa Catarina and around the city of Belo Horizonte, State of Minas Gerais. As of September 30, 2018, as a result of these administrative proceedings, no fine had been imposed to the subsidiary. Supported by the opinion of external legal counsel that classified the probability of loss as “remote”, Management did not recognize a provision for this contingency as of September 30, 2018.

b.2.4) On November 29, 2016, a technical opinion was issued by the Operational Support Center for Execution (Centro de Apoio Operacional à Execução—CAEX), a technical body linked to the São Paulo State Public Prosecutor (“MPE”), presenting a proposal of compensation for the alleged environmental damages caused by the fire on April 2nd, 2015 at the Santos Terminal of the subsidiary Tequimar. This technical opinion is non-binding, with no condemnatory or sanctioning nature, and will still be evaluated by the authorities and parties. The subsidiary disagrees with the methodology and the assumptions adopted in the proposal and is negotiating an agreement with the MPE and the Brazilian Federal Public Prosecutor (“MPF”), and currently there is no civil lawsuit filed on the matter. The negotiations relate to in natura repair of the any damages. When the negotiations with the MPE and MPF are concluded, the payments related to the project costs may affect the Company’s interim financial information, in addition to the amounts already recognized. In the criminal sphere, the MPF denounced the subsidiary Tequimar, which was summoned and replied to the complaint on June 19, 2018. In addition, as of September 30, 2018, there are contingent liabilities not recognized related to lawsuits and extrajudicial lawsuits in the amount of R$ 68,186 and R$ 3,426 (R$ 88,075 and R$ 25,852 as of December 31, 2017), respectively. For more information, see Note 22.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

b.3) Contingent Liabilities for Labor Matters

The Company and its subsidiaries have contingent liabilities for labor matters in the amount of R$ 272,412, totaling 1,743 lawsuits as of September 30, 2018 (R$ 273,711, totaling 1,899 lawsuits as of December 31, 2017), mainly represented by:

b.3.1) In 1990, the Petrochemical Industry Labor Union (Sindiquímica), of which the employees of Oxiteno Nordeste and EMCA, companies located in the Camaçari Petrochemical Complex, are members, filed separate lawsuits against the subsidiaries demanding the compliance with the fourth section of the collective labor agreement, which provided for a salary adjustment in lieu of the salary policies practiced. In the same year, a collective labor dispute was also filed by the Union of Employers (SINPEQ) against Sindiquímica, requiring the recognition of the loss of effectiveness of such fourth section. The decisions rendered on the individual claims which were favorable to the subsidiaries Oxiteno Nordeste and EMCA are final and unappealable. The collective labor dispute remains pending trial by STF. In 2010, some companies in the Camaçari Petrochemical Complex signed an agreement with Sindiquímica and reported the fact in the collective labor dispute. In October 2015, Sindiquímica filed enforcement lawsuits against all Camaçari Petrochemical Complex companies that have not yet made settlements, including Oxiteno Nordeste and EMCA. The decisions of 1st instance were favorable to the companies, which are waiting for judgment of the Regional Labor Court of the 5th Region. In addition to collective actions, individual claims containing the same object have been filed.

c. Lubricants operation between IPP and Chevron

In the process of transaction of the lubricants operation in Brazil between Chevron and subsidiary IPP (see Note 3.c), it was agreed that each shareholder is responsible for any claims arising out of acts, facts or omissions prior to the transaction. The liability provisions of the Chevron shareholder in the amount of R$ 3,554 are reflected in the consolidation of these interim financial information (R$ 3,452 as of December 31, 2017), as well as the contingent liabilities identified in the date of acquisition, whose provision amount of R$ 198,900 was recognized as a business combination on December 1, 2017. The amounts of provisions of Chevron’s liability recognized in the business combination will be reimbursed to subsidiary CBLSA in the event of losses and an indemnity asset was hereby constituted in the same amount, without the need to establish a provision for uncollectible amounts.

22.     Trade payables – customers’ indemnification

In April 2015, a fire occurred in six ethanol and gasoline tanks operated by Ultracargo in Santos, which represented 4% of the subsidiary’s overall capacity as of December 31, 2014. The Civil and Federal Police investigated the accident and its impacts, and concluded that it is not possible to determine the cause of the accident and neither to individualize active or passive conduct related to the cause, and there was no criminal charge against either individual or the subsidiary, by both authorities. Notwithstanding that, the Brazilian Federal Public Prosecutor denounced the subsidiary Tequimar in the criminal sphere, which was summoned and replied to the complaint on June 19, 2018.

In June 2017, the licensing required for the return to operation of 67.5 thousands cubic meters from the total of 150 thousands cubic meters affected by the fire was obtained. The remaining tanks continue to be paralyzed and in the process of recovery for subsequent licensing and start of operation.

The remaining balance of customers and third parties’ indemnification is shown below:

 

Balance on December 31, 2017

     72,216  

Additions

     19,368  

Write-offs

     (23,597

Payments

     (64,486
  

 

 

 

Balance on September 30, 2018

     3,501  
  

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

23.     Deferred Revenue (Consolidated)

The Company’s subsidiaries have recognized the following deferred revenue:

 

     09/30/2018      12/31/2017  

‘am/pm’ and Jet Oil franchising upfront fee

     19,521        19,537  

Loyalty program “Km de Vantagens”

     11,828        9,134  

Loyalty program “Clube Extrafarma”

     1,349        2,638  
  

 

 

    

 

 

 
     32,698        31,309  
  

 

 

    

 

 

 

Current

     20,102        18,413  

Non-current

     12,596        12,896  

Loyalty Programs

Subsidiary Ipiranga has a loyalty program called Km de Vantagens (www.kmdevantagens.com.br) under which registered customers are rewarded with points when they buy products at Ipiranga service stations or at its partners. The customers may exchange these points, during the period of one year, for discounts on products and services offered by Ipiranga and its partners. Points received by Ipiranga’s customers that may be used with the partner Multiplus Fidelidade and for discounts of fuel in Ipiranga’s website (www.postoipiranganaweb.com.br) and discounted from sales revenue.

Subsidiary Extrafarma has a loyalty program called Clube Extrafarma (www.clubeextrafarma.com.br) under which registered customers are rewarded with points when they buy products at its drugstore chain. The customers may exchange these points, during the period of six months, for discounts in products at its drugstore chain, recharge credit on a mobile phone, and prizes offered by partners Multiplus Fidelidade and Ipiranga, through Km de Vantagens. Points received by Extrafarma’s customers are discounted from sales revenue.

Deferred revenue is estimated based on the fair value of the points granted, considering the value of the prizes and the expected redemption of points.

Franchising Upfront Fee

am/pm is the convenience stores chain of the Ipiranga service stations. Ipiranga ended September 30, 2018 with 2,468 stores (2,414 stores as of December 31, 2017). Jet Oil is Ipiranga’s lubricant-changing and automotive service specialized network. Ipiranga ended September 30, 2018 with 1,765 stores (1,735 stores as of December 31, 2017).

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

24.     Subscription warrants – indemnification

Because of the association between the Company and Extrafarma on January 31, 2014, 7 subscription warrants – indemnification were issued, corresponding to up to 3,205,622 shares of the Company. The subscription warrants – indemnification may be exercised beginning 2020 by the former shareholders of Extrafarma and are adjusted according to the changes in the amounts of provisions for tax, civil, and labor risks and contingent liabilities related to the period prior to January 31, 2014. The subscription warrants – indemnification’s fair value is measured based on the share price of Ultrapar (UGPA3) and is reduced by the dividend yield until 2020, since the exercise is possible only from 2020, and they are not entitled to dividends until that date. As of September 30, 2018, the subscription warrants – indemnification were represented by 2,032,011 shares and amounted to R$ 73,317 (as of December 31, 2017, they were represented by 2,415,848 and totaled R$ 171,459). Due to the final adverse decision of some of these lawsuits, on September 30, 2018, the maximum number of shares that could be issued related to the subscription warrants – indemnification was up to 2,992,010 (3,035,499 shares as of December 31, 2017). For further information on Extrafarma’s acquisition, see Note 3.a to the Financial Statements of the Company filed with the CVM on February 17, 2016.

25.     Shareholders’ Equity

a. Share Capital

The Company is a publicly traded company listed on B3 in the Novo Mercado listing segment under the ticker “UGPA3” and on the New York Stock Exchange (NYSE) in the form of level III American Depositary Receipts (“ADRs”) under the ticker “UGP”. On September 30, 2018, the subscribed and paid-in capital stock consists of 556,405,096 common shares with no par value and the issuance of preferred shares and participation certificates is prohibited. Each common share entitles its holder to one vote at Shareholders’ Meetings.

The price of the shares issued by the Company as of September 30, 2018, on B3 was R$ 37.33.

As of September 30, 2018, the Company is authorized to increase capital up to the limit of 800,000,000 common shares, without amendment to the Bylaws, by resolution of the Board of Directors.

As of September 30, 2018, there were 31,971,260 common shares outstanding abroad in the form of ADRs (28,935,260 shares as of December 31, 2017).

b. Equity instrument granted

On April 19, 2017, a new share-based incentive plan was approved, which establishes the general terms and conditions for the concession of common shares issued by the Company held in treasury (see Note 8.c).

c. Treasury Shares

The Company acquired its own shares at market prices, without capital reduction, to be held in treasury and to be subsequently disposed of or cancelled, in accordance with CVM Instructions 10, issued on February 14, 1980 and 268, issued on November 13, 1997.

As of September 30, 2018, 13,311,355 common shares (13,041,356 shares as of December 31, 2017) were held in the Company’s treasury, acquired at an average cost of R$ 36.38 per share (R$ 36.98 as of December 31, 2017).

d. Capital Reserve

The capital reserve reflects the gain on the transfer of shares at market price used in the Deferred Stock Plan granted to executives of the subsidiaries of the Company, as mentioned in Note 8.c).

Because of Extrafarma’s association in 2014, the Company recognized an increase in the capital reserves in the amount of R$ 498,812, due to the difference between the value attributable to share capital and the market value of the Ultrapar shares on the date of issue, deducted by R$ 2,260 related to the incurred costs directly attributable to issuing new shares. For further information about the Extrafarma acquisition, see Note 3.a. to the Financial Statements of the Company filed with the CVM on February 17, 2016.

 

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e. Revaluation Reserve

The revaluation reserve reflects the revaluation of assets of subsidiaries and is based on depreciation, write-off, or disposal of the revalued assets of the subsidiaries, as well as the tax effects recognized by these subsidiaries.

f. Profit Reserves

Legal Reserve

Under Brazilian Corporate Law, the Company is required to appropriate 5% of net annual earnings to a legal reserve, until the balance reaches 20% of capital stock. This reserve may be used to increase capital or absorb losses, but may not be distributed as dividends.

Retention of Profits

Reserve recognized in previous fiscal years and used for investments contemplated in a capital budget, mainly for expansion, productivity, and quality, acquisitions and new investments, in accordance with Article 196 of Brazilian Corporate Law.

Investments Reserve

In compliance with Article 194 of the Brazilian Corporate Law and Article 55.c) of the Bylaws this reserve is aimed to protect the integrity of the Company’s assets and to supplement its capital stock, in order to allow new investments to be made. As provided in its Bylaws, the Company may allocate up to 45% of net income to the investments reserve, up to the limit of 100% of the share capital.

The investments reserve is free of distribution restrictions and totaled R$ 3,000,707 as of September 30, 2018.

g. Valuation Adjustments and Cumulative Translation Adjustments

Valuation Adjustments

 

(i)

Actuarial gains and losses relating to post-employment benefits, calculated based on a valuation conducted by an independent actuary, are recognized in shareholders’ equity under the title “valuation adjustments”. Actuarial gains and losses recorded in equity are not reclassified to profit or loss in subsequent periods.

 

(ii)

Gains and losses on the hedging instruments of exchange rate related to firm commitment and highly probable transactions designated as cash flows hedges are recognized in shareholders’ equity as “valuation adjustments”. Gains and losses are reclassified to initial cost of non-financial assets.

 

(iii)

The differences between the fair value of financial investments measured at fair value through other comprehensive income and the initial amount of financial investments plus the interest earned and the foreign currency exchange variation are recognized in shareholders’ equity as valuation adjustments. Gains and losses are reclassified to income statements when the financial investment is settled.

 

(iv)

The Company recognizes in this item the effect of changes in the non-controlling interest in subsidiaries that do not result in loss of control. This amount corresponds to the difference between the amount by which the non-controlling interest was adjusted and the fair value of the consideration received or paid and represents a transaction with shareholders.

 

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(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Cumulative Translation Adjustments

The change in exchange rates on assets, liabilities, and income of foreign subsidiaries that have (i) functional currency other than the presentation currency of the Company, (ii) an independent administration and (iii) notes in the foreign market (see Note 33—net investment hedge in foreign entities), is directly recognized in the shareholders’ equity. This accumulated effect is reflected in profit or loss as a gain or loss only in case of disposal or write-off of the investment.

Balance and changes in valuation adjustments and cumulative translation adjustments of the Company are as follows:

 

     Valuation adjustments        
     Fair value
of cash flow
hedging
instruments
    Fair value
of financial
instruments
     Actuarial
gains
(losses) of
post-
employment
benefits
    Non-controlling
shareholders
interest change
     Total     Cumulative
translation
adjustment
 

Balance on December 31, 2017

     (27,364     —          (15,181     202,188        159,643       53,061  

Translation of foreign subsidiaries, net of income tax

     —         —          —         —          —         39,158  

Changes in fair value of financial instruments

     (399,192     188        —         —          (399,004     —    

Income and social contribution taxes on fair value

     135,168       —          —         —          135,168       —    

Difference between the fair value of the consideration received or paid and the variation in the non-controlling shareholders interest

     —         —          —         4,064        4,064       —    

Actuarial losses of post-employment benefits

     —         —          (299     —          (299     —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance on September 30, 2018

     (291,388     188        (15,480     206,252        (100,428     92,219  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

     Valuation adjustments  
     Fair value
of cash flow
hedging
instruments
    Actuarial
gains
(losses) of
post-
employment
benefits
    Total     Cumulative
translation
adjustment
 

Balance on December 31, 2016

     (26,883     2,896       (23,987     7,519  

Translation of foreign subsidiaries, net of income tax

     —         —         —         1,566  

Changes in fair value of hedge instruments

     76,343       —         76,343       —    

Income and social contribution taxes on fair value

     (25,646     —         (25,646     —    

Actuarial losses of post-employment benefits

     —         (24     (24     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance on September 30, 2017

     23,814       2,872       26,686       9,085  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

h. Dividends and Allocation of Net Income

The shareholders are entitled, under the Bylaws, to a minimum annual dividend of 50% of adjusted net income calculated in accordance with Brazilian Corporate Law. The dividends and interest on equity in excess of the obligation established in the Bylaws are recognized in shareholders’ equity until the Shareholders approve them. The proposed dividends payable as of December 31, 2017 in the amount of R$ 489,027 (R$ 0.90 – ninety cents of Brazilian Real per share), were approved by the Board of Directors on February 21, 2018, and paid beginning March 12, 2018. On August 1, 2018, the Board of Directors approved the anticipation of dividends of 2018, in the amount of R$ 304,241 (R$ 0.56 – fifty six cents of Brazilian Real per share), paid as from August 20, 2018.

26.     Revenue from Sale and Services (Consolidated)

 

     09/30/2018     09/30/2017  
           Restated  

Gross revenue from sale

     69,918,613       59,960,981  

Gross revenue from services

     549,203       517,529  

Sales taxes

     (2,080,293     (1,566,506

Discounts and sales returns

     (875,289     (688,423

Amortization of contractual assets with customers (see Note 11)

     (282,430     (346,188

Deferred revenue (see Note 23)

     1,135       5,025  
  

 

 

   

 

 

 

Net revenue from sales and services

     67,230,939       57,882,418  
  

 

 

   

 

 

 

27.     Expenses by Nature (Consolidated)

The Company presents its expenses by function in the consolidated income statement and presents below its expenses by nature:

 

     09/30/2018      09/30/2017  
            Restated  

Raw materials and materials for use and consumption

     61,499,614        51,987,220  

Personnel expenses

     1,885,715        1,640,148  

Freight and storage

     927,502        842,116  

Depreciation and amortization

     602,286        517,032  

Advertising and marketing

     107,412        156,651  

Services provided by third parties

     248,608        257,780  

Lease of real estate and equipment

     185,190        143,978  

Other expenses

     363,694        360,653  
  

 

 

    

 

 

 

Total

     65,820,021        55,905,578  
  

 

 

    

 

 

 

Classified as:

     

Cost of products and services sold

     62,625,490        52,887,984  

Selling and marketing

     2,017,309        1,857,027  

General and administrative

     1,177,222        1,160,567  
  

 

 

    

 

 

 

Total

     65,820,021        55,905,578  
  

 

 

    

 

 

 

Research and development expenses are recognized in the income statements and amounted to R$ 40,381 for the nine-month period ended September 30, 2018 (R$ 40,420 for the nine-month period ended September 30, 2017).

 

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28.     Gain (loss) on Disposal of Property, Plant and Equipment and Intangibles (Consolidated)

The gain or loss is determined as the difference between the selling price and residual book value of the investment, property, plant, and equipment, or intangible asset disposed of. For the nine-month period ended September 30, 2018, the loss was R$ 7,104 (loss of R$ 754 for the nine-month period ended September 30, 2017), represented primarily from disposal of property, plant, and equipment.

29.     Other Operating Income, Net (Consolidated)

 

     09/30/2018     09/30/2017  

Commercial partnerships (1)

     38,003       30,291  

Merchandising (2)

     23,847       13,107  

Loyalty program (3)

     15,406       16,367  

Ultracargo – fire accident in Santos (4)

     (3,529     (36,002

Reversal of provision – ICMS from PIS and COFINS tax bases (see Note 21.a.1.2)

     —         49,152  

Fine for unrealized acquisition (5)

     (286,160     —    

Others

     8,966       5,742  
  

 

 

   

 

 

 

Other operating income, net

     (203,467     78,657  
  

 

 

   

 

 

 

 

(1)

Refers to contracts with service providers and suppliers, which establish trade agreements for convenience stores and gas stations.

(2)

Refers to contracts with suppliers of convenience stores, which establish, among other agreements, promotional campaigns.

(3)

Refers to sales of “Km de Vantagens” to partners of the loyalty program. Revenue is recognized at the time that the partners transfer the points to their customers.

(4)

For more information about the fire accident in Ultracargo, see Notes 21.b.2.4 and 22.

(5)

For more information about the fine see Note 3.e.

30.     Financial Income (Expense)

 

     Parent     Consolidated  
     09/30/2018     09/30/2017     09/30/2018     09/30/2017  

Financial income:

        

Interest on financial investments

     77,220       78,011       242,980       373,776  

Interest from customers

     —         —         110,198       74,832  

Changes in subscription warranty—indemnification (see Note 24)

     94,329       —         94,329       —    

Other financial income

     —         —         2,122       2,657  
  

 

 

   

 

 

   

 

 

   

 

 

 
     171,549       78,011       449,629       451,265  
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial expenses:

        

Interest on loans

     —         —         (351,207     (553,700

Interest on debentures

     (77,099     (69,840     (333,104     (280,006

Interest on finance leases

     —         —         (2,040     (4,327

Bank charges, financial transactions tax, and other charges

     (2,641     (2,205     (56,553     (67,606

Exchange variation, net of gains and losses with derivative instruments

     —         —         53,379       70,502  

Reversal of provision – ICMS from PIS and COFINS tax bases (see Note 21.a.1.2)

     —         —         —         43,411  

Changes in subscription warranty—indemnification (see Note 24)

     —         (20,640     —         (20,640

Monetary restatement of provisions, net, and other financial expenses

     —         589       9,706       6,248  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (79,740     (92,096     (679,819     (806,118
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial income (expense)

     91,809       (14,085     (230,190     (354,853
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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31.     Earnings per Share (Parent and Consolidated)

The table below presents a reconciliation of numerators and denominators used in computing earnings per share. The Company has a deferred stock plan and subscription warrants—indemnification, as mentioned in Notes 8.c and 24, respectively.

 

Basic Earnings per Share

   09/30/2018      09/30/2017  
            Restated  

Net income for the year of the Company

     642,778        1,132,758  

Weighted average shares outstanding (in thousands)

     542,047        541,774  

Basic earnings per share –R$

     1.1858        2.0908  

Diluted Earnings per Share

     

Net income for the year of the Company

     642,778        1,132,758  

Weighted average shares outstanding (in thousands), including dilution effects

     545,668        545,744  

Diluted earnings per share –R$

     1.1780        2.0756  

Weighted Average Shares Outstanding (in thousands)

     

Weighted average shares outstanding for basic per share calculation

     542,047        541,774  

Dilution effect

     

Subscription warrants—indemnification

     2,307        2,392  

Deferred Stock Plan

     1,314        1,578  
  

 

 

    

 

 

 

Weighted average shares outstanding for diluted per share calculation

     545,668        545,744  
  

 

 

    

 

 

 

32.     Segment Information

The Company operates five main business segments: gas distribution, fuel distribution, chemicals, storage and drugstores. The gas distribution segment (Ultragaz) distributes LPG to residential, commercial, and industrial consumers, especially in the South, Southeast, and Northeast regions of Brazil. The fuel distribution segment (Ipiranga) operates the distribution and marketing of gasoline, ethanol, diesel, fuel oil, kerosene, natural gas for vehicles, and lubricants and related activities throughout all the Brazilian territory. The chemicals segment (Oxiteno) produces ethylene oxide and its main derivatives and fatty alcohols, which are raw materials used in the home and personal care, agrochemical, paints, varnishes, and other industries. The storage segment (Ultracargo) operates liquid bulk terminals, especially in the Southeast and Northeast regions of Brazil. The drugstores segment (Extrafarma) trades pharmaceutical, hygiene, and beauty products through its own drugstore chain in the states of Alagoas, Amapá, Amazonas, Bahia, Ceará, Maranhão, Pará, Paraíba, Pernambuco, Piauí, Rio Grande do Norte, São Paulo, Sergipe and Tocantins. The segments shown in the interim financial information are strategic business units supplying different products and services. Intersegment sales are at prices similar to those that would be charged to third parties.

 

 

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(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The main financial information of each of the Company’s segments are stated as follows:

 

     09/30/2018     09/30/2017  
           Restated  

Net revenue from sales and services:

    

Ultragaz

     5,260,621       4,401,209  

Ipiranga

     56,590,430       49,003,064  

Oxiteno

     3,548,492       2,827,528  

Ultracargo

     366,833       319,378  

Extrafarma

     1,529,311       1,376,761  
  

 

 

   

 

 

 
     67,295,687       57,927,940  

Others (1)

     36,823       38,446  

Intersegment sales

     (101,571     (83,968
  

 

 

   

 

 

 

Total

     67,230,939       57,882,418  
  

 

 

   

 

 

 

Intersegment sales:

    

Ultragaz

     2,129       1,489  

Ipiranga

     577       670  

Oxiteno

     —         1,072  

Ultracargo

     62,109       42,468  

Extrafarma

     —         —    
  

 

 

   

 

 

 
     64,815       45,699  

Others (1)

     36,756       38,269  
  

 

 

   

 

 

 

Total

     101,571       83,968  
  

 

 

   

 

 

 

Net revenue from sales and services, excluding intersegment sales:

    

Ultragaz

     5,258,492       4,399,720  

Ipiranga

     56,589,853       49,002,394  

Oxiteno

     3,548,492       2,826,456  

Ultracargo

     304,724       276,910  

Extrafarma

     1,529,311       1,376,761  
  

 

 

   

 

 

 
     67,230,872       57,882,241  

Others (1)

     67       177  
  

 

 

   

 

 

 

Total

     67,230,939       57,882,418  
  

 

 

   

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

     09/30/2018     09/30/2017  
           Restated  

Operating income (expense):

    

Ultragaz

     (30,947     258,606  

Ipiranga

     991,684       1,659,507  

Oxiteno

     221,868       106,733  

Ultracargo

     98,682       50,927  

Extrafarma

     (83,763     (23,935
  

 

 

   

 

 

 
     1,197,524       2,051,838  

Others (1)

     2,823       2,905  
  

 

 

   

 

 

 

Total

     1,200,347       2,054,743  
  

 

 

   

 

 

 

Share of profit (loss) of joint-ventures and associates:

    

Ultragaz

     21       863  

Ipiranga

     (12,899     (13,263

Oxiteno

     952       1,056  

Ultracargo

     1,478       1,336  
  

 

 

   

 

 

 
     (10,448     (10,008

Others (1)

     1,265       26,119  
  

 

 

   

 

 

 

Total

     (9,183     16,111  
  

 

 

   

 

 

 

Financial result, net

     (230,190     (354,853

Income before income and social contribution taxes

     960,974       1,716,001  
  

 

 

   

 

 

 

Additions to property, plant, and equipment and intangible assets (excluding intersegment account balances):

    

Ultragaz

     183,330       196,628  

Ipiranga

     306,404       333,556  

Oxiteno

     401,929       298,116  

Ultracargo

     89,279       62,276  

Extrafarma

     68,748       101,672  
  

 

 

   

 

 

 
     1,049,690       992,248  

Others (1)

     10,907       15,073  
  

 

 

   

 

 

 

Total additions to property, plant, and equipment and intangible assets (see Notes 13 and 14)

     1,060,597       1,007,321  

Asset retirement obligation – fuel tanks (see Note 20)

     (238     (468

Capitalized borrowing costs

     (17,209     (18,173
  

 

 

   

 

 

 

Total investments in property, plant, and equipment and intangible assets (cash flow)

     1,043,150       988,680  
  

 

 

   

 

 

 

Payments of contractual assets with customers – exclusive rights (see Note 11):

     279,381       389,409  
  

 

 

   

 

 

 

Ipiranga

     279,381       389,409  
  

 

 

   

 

 

 

 

Depreciation and amortization charges:

     

Ultragaz

     168,280        132,480  

Ipiranga

     208,665        182,557  

Oxiteno

     122,761        111,408  

Ultracargo

     38,729        35,413  

Extrafarma

     52,480        44,248  
  

 

 

    

 

 

 
     590,915        506,106  

Others (1)

     11,371        10,926  
  

 

 

    

 

 

 

Total

     602,286        517,032  
  

 

 

    

 

 

 

Amortization of contractual assets with customers – exclusive rights (see Note 11):

     282,430        346,188  
  

 

 

    

 

 

 

Ipiranga

     282,430        346,188  

 

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Notes to the Individual and Consolidated Interim Financial Information

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     09/30/2018      12/31/2017  
            Restated  

Total assets (excluding intersegment account balances):

     

Ultragaz

     2,733,623        2,408,600  

Ipiranga

     15,209,048        15,309,811  

Oxiteno

     7,325,769        6,557,456  

Ultracargo

     1,427,974        1,394,083  

Extrafarma

     2,033,294        1,948,808  
  

 

 

    

 

 

 
     28,729,708        27,618,758  

Others (1)

     1,075,636        586,753  
  

 

 

    

 

 

 

Total

     29,805,344        28,205,511  
  

 

 

    

 

 

 

 

(1)

Composed of the parent company Ultrapar (including goodwill of certain acquisitions) and subsidiaries Serma—Associação dos Usuários de Equipamentos de Processamento de Dados e Serviços Correlatos (“Serma”) and Imaven Imóveis Ltda.

Geographic Area Information

The fixed and intangible assets of the Company and its subsidiaries are located in Brazil, except those related to Oxiteno’ plants abroad, as shown below:

 

     09/30/2018      12/31/2017  

United States of America (*)

     862,527        511,912  

Mexico

     136,659        109,034  

Uruguay

     75,574        65,876  

Venezuela (**)

     2,201        22,480  
  

 

 

    

 

 

 
     1,076,961        709,302  
  

 

 

    

 

 

 

 

(*)

The increase refers to the construction of a new plant in Pasadena, Texas.

(**)

The reduction refers to the effects of the adoption of the Bolivar Soberano (See Note 2.s.1.ii).

The subsidiaries generate revenue from operations in Brazil, United Stated of America, Mexico, Uruguay and Venezuela, as well as from exports of products to foreign customers, as disclosed below:

 

     09/30/2018      09/30/2017  
            Restated  

Net revenue:

     

Brazil

     66,071,738        57,061,510  

Mexico

     154,266        139,730  

Uruguay

     36,635        24,416  

Venezuela

     48,186        26,056  

Other Latin American countries

     323,731        309,568  

United States of America and Canada

     357,746        148,554  

Far East

     79,421        53,138  

Europe

     111,110        81,249  

Others

     48,106        38,197  
  

 

 

    

 

 

 

Total

     67,230,939        57,882,418  
  

 

 

    

 

 

 

Sales to the foreign market are made substantially by the Oxiteno segment.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

33.     Risks and Financial Instruments (Consolidated)

Risk Management and Financial Instruments—Governance

The main risks to which the Company and its subsidiaries are exposed reflect strategic/operational and economic/financial aspects. Operational/strategic risks (including, but not limited to, demand behavior, competition, technological innovation, and material changes in the industry structure) are addressed by the Company’s management model. Economic/financial risks primarily reflect default of customers, behavior of macroeconomic variables, such as exchange and interest rates, as well as the characteristics of the financial instruments used by the Company and its subsidiaries and their counterparties. These risks are managed through control policies, specific strategies, and the establishment of limits.

The Company has a policy for the management of resources, financial instruments, and risks approved by its Board of Directors (“Policy”). In accordance with the Policy, the main objectives of financial management are to preserve the value and liquidity of financial assets and ensure financial resources for the development of the business, including expansions. The main financial risks considered in the Policy are risks associated with currencies, interest rates, credit, and selection of financial instruments. Governance of the management of financial risks and financial instruments follows the segregation of duties below:

 

   

Implementation of the management of financial assets, instruments, and risks is the responsibility of the financial area, through its treasury department, with the assistance of the tax and accounting departments.

 

   

Supervision and monitoring of compliance with the principles, guidelines, and standards of the Policy is the responsibility of the Risk and Investment Committee, which is composed of members of the Company’s Executive Board (“Committee”). The Committee holds regular meetings and is in charge, among other responsibilities, of discussing and monitoring the financial strategies, existing exposures, and significant transactions involving investment, fundraising, or risk mitigation. The Committee monitors the risk standards established by the Policy through a monitoring map on a monthly basis.

 

   

Changes in the Policy or revisions of its standards are subject to the approval of the Board of Directors of Ultrapar.

 

   

Continuous improvement of the Policy is the joint responsibility of the Board of Directors, the Committee, and the financial area.

 

   

The internal audit department audits the compliance with the requirements of the Policy.

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Currency Risk

Most transactions of the Company, through its subsidiaries, are located in Brazil and, therefore, the reference currency for risk management is the Brazilian Real. Currency risk management is guided by neutrality of currency exposures and considers the transactional, accounting, and operational risks of the Company and its subsidiaries and their exposure to changes in exchange rates. The Company considers as its main currency exposures the assets and liabilities in foreign currency and the short-term flow of net sales in foreign currency of Oxiteno.

The Company and its subsidiaries use exchange rate hedging instruments (especially between the Brazilian Real and the U.S. dollar) available in the financial market to protect their assets, liabilities, receipts, and disbursements in foreign currency and net investments in foreign operations. Hedge is used in order to reduce the effects of changes in exchange rates on the Company´s income and cash flows in Brazilian Reais within the exposure limits under its Policy. Such foreign exchange hedging instruments have amounts, periods, and rates substantially equivalent to those of assets, liabilities, receipts, and disbursements in foreign currencies to which they are related. Assets and liabilities in foreign currencies are stated below, translated into Brazilian Reais:

Assets and Liabilities in Foreign Currencies

 

In millions of Brazilian Reais    09/30/2018     12/31/2017  

Assets in foreign currency

    

Cash, cash equivalents and financial investments in foreign currency (except hedging instruments)

     278.3       236.4  

Foreign trade receivables, net of allowance for doubtful accounts and advances to foreign customers

     286.1       214.9  

Net investments in foreign subsidiaries (except cash, cash equivalents, financial investments, trade receivables, financing, and payables)

     1,362.0       930.0  
  

 

 

   

 

 

 
     1,926.4       1,381.3  
  

 

 

   

 

 

 

Liabilities in foreign currency

    

Financing in foreign currency, gross of transaction costs and discount

     (6,095.7     (4,416.2

Payables arising from imports, net of advances to foreign suppliers

     (276.1     (173,1
  

 

 

   

 

 

 
     (6,371.8     (4,589.3
  

 

 

   

 

 

 

Foreign currency hedging instruments

     2,407.5       1,777.6  
  

 

 

   

 

 

 

Net asset (liability) position – Total

     (2,037.9     (1,430.4

Net asset (liability) position – Income statement effect

     109.6       (26.1

Net asset (liability) position – Shareholders’ equity effect

     (2,147.5     (1,404.3

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Sensitivity Analysis of Assets and Liabilities in Foreign Currency

Scenarios I, II and III were based on 10%, 25% and 50% variations, respectively, applied on the net position of the Company exposed to the currency risk, simulating the effects of appreciation and devaluation of the Real in the income statement and the shareholders’ equity:

The table below shows, in the three scenarios, the effects of exchange rate changes on the net liability position of R$ 2,037.9 million in foreign currency as of September 30, 2018:

 

In millions of Brazilian Reais

  

Risk

   Scenario I     Scenario II     Scenario III  
          10%     25%     50%  

(1) Income statement effect

   Real devaluation      11.0       27.4       54.8  

(2) Shareholders’ equity effect

        (214.8     (536.9     (1,073.8
     

 

 

   

 

 

   

 

 

 

(1) + (2)

   Net effect      (203.8     (509.5     (1,019.0
     

 

 

   

 

 

   

 

 

 

(3) Income statement effect

   Real appreciation      (11.0     (27.4     (54.8

(4) Shareholders’ equity effect

        214.8       536.9       1,073.8  
     

 

 

   

 

 

   

 

 

 

(3) + (4)

   Net effect      203.8       509.5       1,019.0  
     

 

 

   

 

 

   

 

 

 

The shareholders’ equity effect refers to cumulative translation adjustments of changes in the exchange rate on equity of foreign subsidiaries (see Notes 2.s and 25.g—Cumulative Translation Adjustments), net investments hedge in foreign entities, cash flow hedge of firm commitment and highly probable transaction (see Note 2.c and Hedge Accounting below).

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Interest Rate Risk

The Company and its subsidiaries adopt policies for borrowing and investing financial resources and for capital cost minimization. The financial investments of the Company and its subsidiaries are primarily held in transactions linked to the CDI, as set forth in Note 4. Borrowings primarily relate to financing from Banco do Brasil, as well as debentures and borrowings in foreign currency, as shown in Note 15.

The Company attempts to maintain its financial interest assets and liabilities at floating rates.

The table below shows the financial assets and liabilities exposed to floating interest rates:

In millions of Brazilian Reais

 

     Note      09/30/2018     12/31/2017  

CDI

       

Cash equivalents

     4        3,480.5       4,821.6  

Financial investments

     4        2,297.1       1,153.0  

Asset position of foreign exchange hedging instruments – CDI

     33        33.6       29.9  

Loans and debentures

     15        (8,562.4     (7,987.3

Liability position of foreign exchange hedging instruments – CDI

     33        (2,163.0     (1,877.4

Liability position of fixed interest instruments + IPCA – CDI

     33        (588.0     (586.6
     

 

 

   

 

 

 

Net liability position in CDI

        (5,502.2     (4,446.8
     

 

 

   

 

 

 

TJLP

       

Loans – TJLP

     15        (227.1     (301.9
     

 

 

   

 

 

 

Net liability position in TJLP

        (227.1     (301.9
     

 

 

   

 

 

 

LIBOR

       

Asset position of foreign exchange hedging instruments – LIBOR

     33        1,176.8       984.3  

Loans – LIBOR

     15        (1,948.0     (1,418.5
     

 

 

   

 

 

 

Net liability position in LIBOR

        (771.2     (434.2
     

 

 

   

 

 

 

TIIE

       

Loans – TIIE

     15        (17.2     (3.4
     

 

 

   

 

 

 

Net liability position in TIIE

        (17.2     (3.4
     

 

 

   

 

 

 

SELIC

       

Loans – SELIC

     15        (56.3     (100.3
     

 

 

   

 

 

 

Net liability position in SELIC

        (56.3     (100.3
     

 

 

   

 

 

 

Total net liability position exposed to floating interest

        (6,574.0     (5,286.6
     

 

 

   

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Sensitivity Analysis of Floating Interest Rate Risk

The table below shows the incremental expenses and income that would be recognized in financial income as of September 30, 2018, due to the effect of floating interest rate changes in different scenarios.

For sensitivity analysis of floating interest rate risk, the Company used the accumulated amount of the reference indexes (CDI, TJLP, LIBOR, TIIE and SELIC) as a base scenario up to September 30, 2018. Scenarios I, II and III were based on 10%, 25% and 50% variations, respectively, applied in the floating interest rate of the base scenario:

In millions of Brazilian Reais

 

    

Risk

   Scenario I     Scenario II     Scenario III  
          10%     25%     50%  

Exposure of interest rate risk

         

Interest effect on cash equivalents and financial investments

   Increase in CDI      24.1       60.4       120.7  

Foreign exchange hedging instruments (assets in CDI) effect

   Increase in CDI      0.0       0.1       0.2  

Interest effect on debt in CDI

   Increase in CDI      (41.3     (103.2     (206.4

Interest rate hedging instruments (liabilities in CDI) effect

   Increase in CDI      (23.6     (52.6     (101.1
     

 

 

   

 

 

   

 

 

 

Incremental expenses

        (40.8     (95.3     (186.6
     

 

 

   

 

 

   

 

 

 

Interest effect on debt in TJLP

   Increase in TJLP      (1.6     (4.0     (8.1
     

 

 

   

 

 

   

 

 

 

Incremental expenses

        (1.6     (4.0     (8.1
     

 

 

   

 

 

   

 

 

 

Foreign exchange hedging instruments (assets in LIBOR) effect

   Increase in LIBOR      1.1       2.8       5.6  

Interest effect on debt in LIBOR

   Increase in LIBOR      (2.6     (6.6     (13.2
     

 

 

   

 

 

   

 

 

 

Incremental expenses

        (1.5     (3.8     (7.6
     

 

 

   

 

 

   

 

 

 

Interest effect on debt in TIIE

   Increase in TIIE      (0.1     (0.2     (0.4
     

 

 

   

 

 

   

 

 

 

Incremental expenses

        (0.1     (0.2     (0.4
     

 

 

   

 

 

   

 

 

 

Interest effect on debt in SELIC

   Increase in SELIC      (0.3     (0.8     (1.5
     

 

 

   

 

 

   

 

 

 

Incremental expenses

        (0.3     (0.8     (1.5
     

 

 

   

 

 

   

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Credit Risks

The financial instruments that would expose the Company and its subsidiaries to credit risks of the counterparty are basically represented by cash and bank deposits, financial investments, hedging instruments (see Note 4), and trade receivables (see Note 5).

Credit risk of financial institutions—Such risk results from the inability of financial institutions to comply with their financial obligations to the Company and its subsidiaries due to insolvency. The Company and its subsidiaries regularly conduct a credit review of the institutions with which they hold cash and cash equivalents, financial investments, and hedging instruments through various methodologies that assess liquidity, solvency, leverage, portfolio quality, etc. Cash and cash equivalents, financial investments, and hedging instruments are held only with institutions with a solid credit history, chosen for safety and soundness. The volume of cash and cash equivalents, financial investments, and hedging instruments are subject to maximum limits by each institution and, therefore, require diversification of counterparties.

Government credit risk—The Company’s policy allows investments in government securities from countries classified as investment grade AAA or Aaa by specialized credit rating agencies and in Brazilian government bonds. The volume of such financial investments is subject to maximum limits by each country and, therefore, requires diversification of counterparties.

The credit risk of cash, cash equivalents and financial investments is summarized below:

 

     Fair value  

Counterparty credit rating

   09/30/2018      12/31/2017  

AAA

     5,210,382        29,003  

AA

     861,285        6,076,520  

A

     217,673        192,638  

BBB

     139,444        71,767  
  

 

 

    

 

 

 

Total

     6,428,784        6,369,928  
  

 

 

    

 

 

 

Customer credit risk - Such risks are managed by each business unit through specific criteria for acceptance of customers and their credit rating and are additionally mitigated by the diversification of sales. No single customer or group accounts for more than 10% of total revenue.

The Company maintained the following allowance for estimated losses on doubtful accounts on trade receivables:

 

     09/30/2018      12/31/2017  
            Restated  

Ipiranga

     447,666        350,594  

Ultragaz

     59,070        83,627  

Oxiteno

     13,819        10,755  

Extrafarma

     5,979        5,623  

Ultracargo

     2,111        2,179  
  

 

 

    

 

 

 

Total

     528,645        452,778  
  

 

 

    

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Liquidity Risk

The Company and its subsidiaries’ main sources of liquidity derive from (i) cash, cash equivalents, and financial investments, (ii) cash generated from operations and (iii) financing. The Company and its subsidiaries believe that these sources are sufficient to satisfy their current funding requirements, which include, but are not limited to, working capital, capital expenditures, amortization of debt, and payment of dividends.

The Company and its subsidiaries periodically examine opportunities for acquisitions and investments. They consider different types of investments, either directly, through joint ventures, or through associated companies, and finance such investments using cash generated from operations, debt financing, through capital increases, or through a combination of these methods.

The Company and its subsidiaries believe to have enough working capital and sources of financing to satisfy their current needs. The gross indebtedness due over the next twelve months totals R$ 4,162.0 million, including estimated interests on loans (for quantitative information, see Note 15). Furthermore, the investment plan for 2018 totals R$ 2,676 million, and until September 30, 2018, the amount of R$ 1,532.7 million had been realized. As of September 30, 2018, the Company and its subsidiaries had R$ 6,236.5 million in cash, cash equivalents, and short-term financial investments (for quantitative information, see Note 4).

The table below presents a summary of financial liabilities as of September 30, 2018 by the Company and its subsidiaries, listed by maturity. The amounts disclosed in this table are the contractual undiscounted cash outflows, and, therefore, these amounts may be different from the amounts disclosed on the balance sheet as of September 30, 2018.

In millions of Brazilian Reais

 

Financial liabilities

   Total      Less than
1 year
     Between 1
and 3 years
     Between 3
and 5 years
     More than
5 years
 

Loans including future contractual interest (1) (2)

     20,086.3        4,162.0        4,288.8        6,982.6        4,652.9  

Currency and interest rate hedging instruments (3)

     469.2        59.2        216.6        178.6        14.8  

Trade payables

     2,121.3        2,121.3        —          —          —    

 

(1)

To calculate the estimated interest on loans some macroeconomic assumptions were used, including averaging for the period the following: (i) CDI of 8.91% in 2018, 11.12% from 2019 to 2021, 11.12% from 2022 to 2023, 12.21% from 2024 to 2033, (ii) exchange rate of the Real against the U.S. dollar of R$ 4.05 in 2018, R$ 4.15 in 2019, R$ 4.36 in 2020, R$ 4.67 in 2021, R$ 5.05 in 2022, R$ 5.46 in 2023, R$ 5.90 in 2024, R$ 6.39 in 2025, R$ 6.91 in 2026 and R$ 7.45 in 2027 (iii) TJLP of 6.75% p.a. and (iv) IGP-M of 9.55% in 2018, 4.39% in 2019, 4.0% from 2020 to 2033 (v) IPCA of 4.40% (source: B3, Bulletin Focus and financial institutions).

 

(2) 

Includes estimated interest payments on short-term and long-term loans until the payment date.

 

(3)

The currency and interest rate hedging instruments were estimated based on projected U.S dollar futures contracts and the futures curves of DI x Pre and Pre x IPCA contracts quoted on B3 on September 28, 2018 and on the futures curve of LIBOR (ICE—IntercontinentalExchange) on September 28, 2018. In the table above, only the hedging instruments with negative results at the time of settlement were considered.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Capital Management

The Company manages its capital structure based on indicators and benchmarks. The key performance indicators related to the capital structure management are the weighted average cost of capital, net debt / EBITDA, interest coverage, and indebtedness / equity ratios. Net debt is composed of cash, cash equivalents, and financial investments (see Note 4) and loans, including debentures (see Note 15). The Company can change its capital structure depending on the economic and financial conditions, in order to optimize its financial leverage and capital management. The Company seeks to improve its return on invested capital by implementing efficient working capital management and a selective investment program.

Selection and Use of Financial Instruments

In selecting financial investments and hedging instruments, an analysis is conducted to estimate rates of return, risks involved, liquidity, calculation methodology for the carrying value and fair value, and a review is conducted of any documentation applicable to the financial instruments. The financial instruments used to manage the financial resources of the Company and its subsidiaries are intended to preserve value and liquidity.

The Policy contemplates the use of derivative financial instruments only to cover identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). The risks identified in the Policy are described in the above sections, and are subject to risk management. In accordance with the Policy, the Company and its subsidiaries can use forward contracts, swaps, options, and futures contracts to manage identified risks. Leveraged derivative instruments are not permitted. Because the use of derivative financial instruments is limited to the coverage of identified risks, the Company and its subsidiaries use the term “hedging instruments” to refer to derivative financial instruments.

As mentioned in the section “Risk Management and Financial Instruments – Governance”, the Committee monitors compliance with the risk standards established by the Policy through a risk map, including the use of hedging instruments, on a monthly basis. In addition, the internal audit department verifies the compliance with the requirements of the Policy.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The table below summarizes the position of hedging instruments entered into by the Company and its subsidiaries:

 

          Notional amount1      Fair value      Amounts
receivable
     Amounts
payable
 

Hedging instruments

  

Maturity

   09/30/2018      12/31/2017      09/30/2018      12/31/2017      09/30/2018  
                        R$      R$      R$      R$  
                        million      million      million      million  

Designated as hedge accounting

                    

a – Exchange rate swaps receivable in U.S. dollars

                    

Receivables in U.S. dollars (LIBOR)

   Nov 2018 to Sep 2023    US$ 230.0      US$ 240.0        931.0        788.6        931.0        —    

Receivables in U.S. dollars (Fixed)

   US$ 185.0      US$ 203.6        743.6        665.6        743.6        —    

Payables in CDI interest rate

   US$  (415.0)      US$  (443.6)        (1,613.3)        (1,568.6)        —          1,613.3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total result

        —          —          61.3        (114.4)        1,674.6        1,613.3  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

b – Interest rate swaps in Brazilian Reais

                    

Receivables in fixed interest rates + IPCA

   Apr 2024 to Oct 2024    R$ 566.1      R$ 566.1        557.2        583.3        557.2        —    

Payables in CDI interest rates

   R$ (566.1)      R$ (566.1)        (588.0)        (586.6)        —          588.0  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total result

        —          —          (30.8)        (3.3)        557.2        588.0  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Not designated as hedge accounting

                    

c – Exchange rate swaps receivable in U.S. dollars

                    

Receivables in U.S. dollars (LIBOR)

   Oct 2018 to Oct 2026    US$ 60.0      US$ 60.0        245.8        195.7        245.8        —    

Receivables in U.S. dollars (Fixed)

   US$ 815.1      US$ 753.0        521.0        157.5        521.0        —    

Payables in CDI interest rate

   US$ (875.1)      US$ (813.0)        (549.7)        (308.8)        —          549.7  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total result

        —          —          217.1        44.4        766.8        549.7  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

d – Exchange rate swaps payable in U.S. dollars + COUPON

                    

Receivables in CDI interest rates

   Oct 2018 to Dec 2018    US$ 8.4      US$ 9.1        33.6        29.9        33.6        —    

Payables in U.S. dollars (Fixed)

   US$ (8.4)      US$ (9.1)        (33.9)        (29.8)        —          33.9  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total result

        —          —          (0.3)        0.1        33.6        33.9  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total gross result

              247.3        (73.2)        3,032.2        2,784.9  

Income tax

              (36.8)        (4.7)        (36.8)        —    
           

 

 

    

 

 

    

 

 

    

 

 

 

Total net result

              210.5        (77.9)        2,995.4        2,784.9  
           

 

 

    

 

 

    

 

 

    

 

 

 

Positive result (see Note 4)

              267.1        85.8        1,353.6        1,086.4  

Negative result (see Note 15)

              (56.6)        (163.7)        1,641.9        1,698.5  

 

(1)

In million. Currency as indicated.

All transactions mentioned above were properly registered with CETIP S.A.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Hedging instruments existing as of September 30, 2018 are described below, according to their category, risk, and hedging strategy:

a and c—Hedging against foreign exchange exposure of liabilities in foreign currency—The purpose of these contracts is (i) to offset the effect of the change in exchange rates of debts or firm commitments in U.S. dollars by converting them into debts or firm commitments in Brazilian Reais linked to CDI, (ii) firm commitments in U.S. dollars, changing them into debts or firm commitments in Reais indexed to the CDI and (iii) change a financial investment linked to the CDI and given as a guarantee to a loan in the U.S. dollar into a financial investment linked to the U.S. dollar. As of September 30, 2018, the Company and its subsidiaries had outstanding swap contracts totaling US$ 1,290.1 million in notional amount with a liability position, on average of 84.5% of CDI, of which US$ 267.1 million, had an asset position at US$ + 3.36% p.a., US$ 290.0 million had an asset position at US$ + LIBOR + 1.29% p.a. and US$ 733.0 million in interest rate swap with an asset position at US$ + 5.65% p.a. This amount includes US$ 415.0 million related to the fair value of hedging instruments of Ipiranga’s debt (see Notes 15.c and “hedge accounting” below).

b—Hedging against fixed interest rate + IPCA in Brazilian Reais – The purpose of this contract is to change fixed interest rate + IPCA of debentures issued in Brazilian Reais to floating interest. As of September 30, 2018 this swap contract totaled R$ 566.1 million of notional amount, corresponding to the principal amount of the debt and had an asset position at 4.55% p.a. + IPCA and a liability position at 95.2% of CDI.

d—Hedging against foreign exchange exposure of operations—The purpose of these contracts is to make the exchange rate of the revenues of subsidiaries Oleoquímica, Oxiteno S.A. and Oxiteno Nordeste equal to the exchange rate of the cost of their main raw materials during their operating cycles. As of September 30, 2018, these swap contracts totaled US$ 8.4 million and, on average, had an asset position at 44.7% of CDI and a liability position at US$ + 0.0% p.a.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Hedge Accounting

The Company and its subsidiaries use derivative and non-derivative financial instruments for hedging purposes and test, throughout the duration of the hedge, their effectiveness, as well as the changes in their fair value.

Fair value hedge

The Company and its subsidiaries designate as fair value hedges certain financial instruments used to offset the variations in interest and exchange rates, which are based on the market value of financing contracted in Brazilian Reais and U.S. dollars.

On September 30, 2018, the notional amount of foreign exchange hedging instruments designated as fair value hedge totaled US$ 415.0 million. In 2018, a gain of R$ 210.0 million related to the result of hedging instruments, a loss of R$ 33.6 million related to the fair value adjustment of debt, and a loss of R$ 255.9 million related to the financial expense of the debt were recognized in the income statements, transforming the average effective cost of the operation into 103.8% of CDI (see Note 15.c.1).

On September 30, 2018, the notional amount of interest rate hedging instruments designated as fair value hedges totaled R$ 566.1 million. As of September 30, 2018, a loss of R$ 36.7 million related to the result of hedging instruments, a gain of R$ 37.7 million related to the fair value adjustment of debt, and a loss of R$ 38.8 million related to the financial expense of the debt were recognized in the income statements, transforming the average effective cost of the operations into 95.2% of CDI.

Cash flow hedge

The Company and its subsidiaries designate, as cash flow hedge of firm commitment and highly probable transactions, derivative financial instruments to hedge “firm commitments” and non-derivative financial instruments to hedge “highly probable future transactions”, to hedge against fluctuations arising from changes in exchange rate.

On September 30, 2018, the Company had no open exchange rate hedging instruments of firm commitments designated as cash flow hedges. For the exchange rate hedging instruments settled in 2018, a gain of R$ 10.7 million was recognized in the income statement, transferring the unrealized gain of “Other comprehensive income” to the income statement on September 30, 2018 (gain of R$ 5.3 million on December 31, 2017, net of deferred income and social contribution taxes).

On September 30, 2018, the notional amount of foreign exchange hedging instruments for highly probable future transactions designated as fair value hedge, related to notes in the foreign market totaled US$ 570.0 million. On September 30, 2018, the unrealized loss of “Other comprehensive income” is R$ 292.3 million (loss of R$ 30.5 million on December 31, 2017), net of deferred income and social contribution taxes.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Net investment hedge in foreign entities

The Company and its subsidiaries designate, as net investment hedge in foreign entities, notes in the foreign market, for hedging net investment in foreign entities, to offset changes in exchange rates.

On September 30, 2018, the balance of foreign exchange hedging instruments designated as net investments hedge in foreign entities, related to part of the investments made in entities which functional currency is other than the Brazilian Real, totaled US$ 96.0 million. On September 30, 2018, the unrealized loss of “Other comprehensive income” is R$ 54.1 million (loss of R$ 6.2 million on December 31, 2017), net of deferred income and social contribution taxes. The effects of exchange rate changes on investments and hedging instruments were offset in shareholders’ equity.

Gains (losses) on Hedging Instruments

The following tables summarize the value of gains (losses) recognized, which affected the shareholders’ equity of the Company and its subsidiaries:

 

     R$ million  
     09/30/2018  
     Profit or loss     Equity  

a – Exchange rate swaps receivable in U.S. dollars (i) (ii)

     55.9       —    

b – Exchange rate swaps payable in U.S. dollars (ii)

     (5.9     —    

c – Interest rate swaps in R$ (iii)

     1.0       —    

d – Non-derivative financial instruments (iv)

     (109.2     (346.4
  

 

 

   

 

 

 
    

Total

     (58.2     (346.4
  

 

 

   

 

 

 

 

     R$ million  
     09/30/2017     12/31/2017  
     Profit or loss     Equity  

a – Exchange rate swaps receivable in U.S. dollars (i) (ii)

     (50.3     5.3  

b – Exchange rate swaps payable in U.S. dollars (ii)

     3.8       —    

c – Interest rate swaps in R$ (iii)

     9.7       —    

d – Non-derivative financial instruments (iv)

     (63.0     (36.7
  

 

 

   

 

 

 
    

Total

     (99.8     (31.4
  

 

 

   

 

 

 

 

(i)

Does not consider the effect of exchange rate variation of exchange swaps receivable in U.S. dollars when this effect is offset in the gain or loss of the hedged item (debt/firm commitments);

 

(ii)

Considers the designation effect of foreign exchange hedging;

 

(iii)

Considers the designation effect of interest rate hedging in Brazilian Reais; and

 

(iv)

Considers the results of notes in the foreign market.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Fair Value of Financial Instruments

The fair values and the carrying values of the financial instruments, including currency and interest rate hedging instruments, are stated below:

 

                 09/30/2018      12/31/2017  
                        Restated  
    

Category

   Note      Carrying
value
     Fair
value
     Carrying
value
     Fair
value
 

Financial assets:

                 

Cash and cash equivalents

                 

Cash and bank deposits

   Measured at amortized cost      4        238,085        238,085        147,926        147,926  

Financial investments in local currency

   Measured at fair value through other comprehensive income      4        3,480,502        3,480,502        4,821,605        4,821,605  

Financial investments in foreign currency

   Measured at fair value through profit or loss      4        33,069        33,069        32,473        32,473  

Financial investments:

                 

Fixed-income securities and funds in local currency

   Measured at fair value through profit or loss      4        2,222,815        2,222,815        1,076,849        1,076,849  

Fixed-income securities and funds in local currency

   Measured at fair value through other comprehensive income      4        2,127        2,127        2,720        2,720  

Fixed-income securities and funds in local currency

   Measured at amortized cost      4        72,200        72,200        73,471        73,471  

Fixed-income securities and funds in foreign currency

   Measured at fair value through other comprehensive income      4        112,845        112,845        129,131        129,131  

Currency and interest rate hedging instruments

   Measured at fair value through profit or loss      4        267,141        267,141        85,753        85,753  
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

           6,428,784        6,428,784        6,369,928        6,369,928  
        

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

                 

Financing

   Measured at fair value through profit or loss      15        1,698,842        1,698,842        1,047,809        1,047,809  

Financing

   Measured at amortized cost      15        7,304,917        7,065,972        6,740,872        6,761,907  

Debentures

   Measured at amortized cost      15        5,971,745        5,915,976        5,035,247        5,037,072  

Debentures

   Measured at fair value through profit or loss      15        541,282        541,282        554,402        554,402  

Finance leases

   Measured at amortized cost      15        46,716        46,716        48,515        48,515  

Currency and interest rate hedging instruments

   Measured at fair value through profit or loss      15        56,629        56,629        163,749        163,749  

Subscription warrants – indemnification

   Measured at fair value through profit or loss      24        73,317        73,317        171,459        171,459  
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

           15,693,448        15,398,734        13,762,053        13,784,913  
        

 

 

    

 

 

    

 

 

    

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The fair value of financial instruments, including currency and interest hedging instruments, was determined as follows:

 

 

The fair value of cash and bank deposit balances are identical to their carrying values.

 

Financial investments in investment funds are valued at the value of the fund unit as of the date of the interim financial information, which corresponds to their fair value.

 

Financial investments in CDBs (Bank Certificates of Deposit) and similar investments offer daily liquidity through repurchase at the “yield curve” and the Company calculates their fair value through methodologies commonly used for mark to the market.

 

The fair value of trade receivables and trade payables are approximate to their carrying values.

 

The subscription warrants – indemnification were measured based on the share price of Ultrapar (UGPA3) at the interim financial information date and are adjusted to the Company’s dividend yield, since the exercise is only possible starting in 2020 onwards and they are not entitled to dividends until then. The number of shares of subscription warrants – indemnification is also adjusted according to the changes in the amounts of provision for tax, civil, and labor risks and contingent liabilities related to the period prior to January 31, 2014. (See Note 24).

 

The fair value calculation of notes in the foreign market (see Note 15.b) is based on the quoted price in an active market.

The fair value of other financial investments and financing was determined using calculation methodologies commonly used for mark-to-market reporting, which consist of calculating future cash flows associated with each instrument adopted and adjusting them to present value at the market rates as of September 30, 2018 and December 31, 2017. For some cases where there is no active market for the financial instrument, the Company and its subsidiaries can use quotes provided by the transaction counterparties.

The interpretation of market information on the choice of calculation methodologies for the fair value requires considerable judgment and estimates to obtain a value deemed appropriate to each situation. Consequently, the estimates presented do not necessary indicate the amounts that may be realizable in the current market.

Financial instruments were classified as financial assets or liabilities measured at amortized cost, except (i) all exchange rate and interest rate hedging instruments, which are measured at fair value through profit or loss, (ii) financial investments classified as measured at fair value through profit or loss, (iii) financial investments that are classified as measured at fair value through other comprehensive income (see Note 4), (iv) loans and financing measured at fair value through profit or loss (see Note 15), (v) guarantees to customers that have vendor arrangements (see Note 15.k), which are measured at fair value through profit or loss, and (vi) subscription warrants – indemnification, which are measured at fair value through profit or loss (see Note 24). Cash, banks, and trade receivables are classified as measured at amortized cost. Trade payables and other payables are classified as financial liabilities measured at amortized cost.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Fair Value Hierarchy of Financial Instruments

The financial instruments are classified in the following categories:

 

(a)

Level 1—prices negotiated (without adjustment) in active markets for identical assets or liabilities;

 

(b)

Level 2—inputs other than prices negotiated in active markets included in Level 1 and observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

 

(c)

Level 3—inputs for the asset or liability which are not based on observable market variables (unobservable inputs).

The table below shows a summary of the financial assets and financial liabilities measured at fair value:

 

    

Category

   Note      09/30/2018      Level 1      Level 2      Level 3  

Financial assets:

                 

Cash equivalents

                 

Cash and banks

   Measured at amortized cost      4        238,085        238,085        —          —    

Financial investments in local currency

   Measured at fair value through other comprehensive income      4        3,480,502        —          3,480,502        —    

Financial investments in foreign currency

   Measured at fair value through profit or loss      4        33,069        33,069        —          —    

Financial investments:

                 

Fixed-income securities and funds in local currency

   Measured at fair value through profit or loss      4        2,222,815        2,222,815        —          —    

Fixed-income securities and funds in local currency

   Measured at fair value through other comprehensive income      4        2,127        —          2,127        —    

Fixed-income securities and funds in local currency

   Measured at amortized cost      4        72,200        —          72,200        —    

Fixed-income securities and funds in foreign currency

   Measured at fair value through other comprehensive income      4        112,845        48,968        63,877        —    

Currency and interest rate hedging instruments

   Measured at fair value through profit or loss      4        267,141        —          267,141        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

           6,428,784        2,542,937        3,885,847        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

                 

Financing

   Measured at fair value through profit or loss      15        1,698,842        —          1,698,842        —    

Financing

   Measured at amortized cost      15        7,065,972        2,811,614        4,254,358        —    

Debentures

   Measured at amortized cost      15        5,915,976        —          5,915,976        —    

Debentures

   Measured at fair value through profit or loss      15        541,282        —          541,282        —    

Finance leases

   Measured at amortized cost      15        46,716        —          46,716     

Currency and interest rate hedging instruments

   Measured at fair value through profit or loss      15      56,629        —          56,629        —    

Subscription warrants – indemnification (1)

   Measured at fair value through profit or loss      24        73,317        —          73,317        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

           15,398,734        2,811,614        12,587,120        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

    

Category

   Note      12/31/2017      Level 1      Level 2      Level 3  

Financial assets:

                 

Cash equivalents

                 

Cash and banks

   Measured at amortized cost      4        147,926        147,926        —          —    

Financial investments in local currency

   Measured at fair value through profit or loss      4        4,821,605        —          4,821,605        —    

Financial investments in foreign currency

   Measured at fair value through profit or loss      4        32,473        32,473        —          —    

Financial investments:

                 

Fixed-income securities and funds in local currency

   Measured at fair value through profit or loss      4        1,076,849        1,076,849        —          —    

Fixed-income securities and funds in local currency

   Measured at fair value through other comprehensive income      4        2,720        —          2,720        —    

Fixed-income securities and funds in local currency

   Measured at amortized cost      4        73,471        —          73,471        —    

Fixed-income securities and funds in foreign currency

   Measured at fair value through other comprehensive income      4        129,131        40,556        88,575        —    

Currency and interest rate hedging instruments

   Measured at fair value through profit or loss      4        85,753        —          85,753        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

           6,369,928        1,297,804        5,072,124        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

                 

Financing

   Measured at fair value through profit or loss      15        1,047,809        —          1,047,809        —    

Financing

   Measured at amortized cost      15        6,761,907        2,523,643        4,238,264        —    

Debentures

   Measured at amortized cost      15        5,037,072        —          5,037,072        —    

Debentures

   Measured at fair value through profit or loss      15        554,402        —          554,402        —    

Finance leases

   Measured at amortized cost      15        48,515        —          48,515        —    

Currency and interest rate hedging instruments

   Measured at fair value through profit or loss      15      163,749        —          163,749        —    

Subscription warrants – indemnification (1)

   Measured at fair value through profit or loss      24        171,459        —          171,459        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

           13,784,913        2,523,643        11,261,270        —    
        

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Refers to subscription warrants issued by the Company in the Extrafarma acquisition.

The fair value of trade receivables and trade payables are classified as level 2.

Sensitivity Analysis of Derivative Financial Instruments

The Company and its subsidiaries use derivative financial instruments only to hedge against identified risks and in amounts consistent with the risk (limited to 100% of the identified risk). Thus, for purposes of sensitivity analysis of market risks associated with financial instruments, as required by CVM Instruction 475/08, the Company analyzes the hedging instrument and the hedged item together, as shown on the charts below.

For the sensitivity analysis of foreign exchange hedging instruments, management adopted as a likely scenario the Real/U.S. dollar exchange rates at maturity of each swap, projected by U.S dollar futures contracts quoted on B3 as of September 28, 2018. As a reference, the exchange rate for the last maturity of foreign exchange hedging instruments is R$ 7.04 in the likely scenario. Scenarios II and III were estimated with a 25% and 50% additional appreciation or depreciation of the Brazilian Real against the likely scenario, according to the risk to which the hedged item is exposed.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Based on the balances of the hedging instruments and hedged items as of September 28, 2018, the exchange rates were replaced, and the changes between the new balance in Brazilian Reais and the original balance in Brazilian Reais as of September 28, 2018 were calculated in each of the three scenarios. The table below shows the change in the values of the main derivative instruments and their hedged items, considering the changes in the exchange rate in the different scenarios:

 

    

Risk

   Scenario I
(likely)
    Scenario II     Scenario III  

Currency swaps receivable in U.S. dollars

         

(1) U.S. Dollar / Real swaps

   Dollar      523,664       1,235,892       1,948,121  

(2) Debts/firm commitments in dollars

   appreciation      (523,651     (1,235,863     (1,948,076
     

 

 

   

 

 

   

 

 

 

(1)+(2)

   Net effect      13       29       45  
     

 

 

   

 

 

   

 

 

 

Currency swaps payable in U.S. dollars

         

(3) Real / U.S. Dollar swaps

   Dollar      (319     8,186       16,691  

(4) Gross margin of Oxiteno

   devaluation      319       (8,186     (16,691
     

 

 

   

 

 

   

 

 

 

(3)+(4)

   Net effect      —         —         —    
     

 

 

   

 

 

   

 

 

 

For sensitivity analysis of hedging instruments for interest rates in Brazilian Reais, the Company used the futures curve of the DI x Pre contract quoted on B3 as of September 28, 2018 for each of the swap and debt (hedged item) maturities, to determine the likely scenarios. Scenarios II and III were estimated based on a 25% and 50% deterioration, respectively, of the likely scenario pre-fixed interest rate.

Based on the three scenarios of interest rates in Brazilian Reais, the Company estimated the values of its debt and hedging instruments according to the risk which is being hedged (variations in the pre-fixed interest rates in Brazilian Reais), by projecting them to future value at the contracted rates and bringing them to present value at the interest rates of the estimated scenarios. The result are shown in the table below:

 

    

Risk

   Scenario I
(likely)
    Scenario II     Scenario III  

Interest rate swap (in Brazilian Reais) – Debentures—CRA

         

(1) Fixed rate swap—CDI

   Decrease in      (125,593     (68,192     40  

(2) Fixed rate debt

   Pre-fixed rate      125,593       68,192       (40
         

(1) + (2)

   Net effect      —         —         —    
     

 

 

   

 

 

   

 

 

 

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

34.

Commitments (Consolidated)

 

a.

Contracts

i) Subsidiary Tequimar has agreements with CODEBA and Complexo Industrial Portuário Governador Eraldo Gueiros, in connection with its port facilities in Aratu and Suape, respectively. Such agreements establish a minimum cargo movement of products, as shown below:

 

Port

   Minimum movement
in tons per year
     Maturity  

Aratu

     397,000        2031  

Aratu

     900,000        2022  

Suape

     250,000        2027  

Suape

     400,000        2029  

If the annual movement is less than the minimum contractual movement, the subsidiary is liable to pay the difference between the effective movement and the minimum contractual movement, based on the port tariff rates in effect on the date established for payment. As of September 30, 2018, these rates were R$ 6.99 per ton for Aratu and R$ 2.54 per ton for Suape. The subsidiary has met the minimum cargo movement required since the beginning of the contractual agreements.

ii) Subsidiary Oxiteno Nordeste has a supply agreement with Braskem S.A. which establishes a minimum annually consumption level of ethylene, and conditions for the supply of ethylene until 2021. The minimum purchase commitment clause provided for a minimum annual consumption of 205 thousand tons in 2018. Should the minimum purchase commitment not be met, the subsidiary would be liable for a fine based on the current ethylene price for the quantity not purchased. According to contractual conditions and tolerances, there are no material issues regarding the minimum purchase commitment.

iii) Subsidiary Oxiteno S.A. has a supply agreement with Braskem S.A., valid until 2023, which establishes and regulates the conditions for supply of ethylene to Oxiteno based on the international market for this product. The minimum purchase is 44,100 tons of ethylene annually. Should the minimum purchase commitment not be met, the subsidiary would be liable for a fine based on the current ethylene price for the quantity not purchased. According to contractual conditions and tolerances, there are no material issues regarding the minimum purchase commitment.

 

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Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

b.

Insurance Coverage

The Company maintains insurance policies with the objective of covering several risks to which it is exposed, including loss of profits, losses and damage from fire, lightning, explosion of any kind, gale, aircraft crash, electric damage, and other risks, covering the industrial plants and distribution bases and branches of all subsidiaries. The maximum compensation values based on the risk analysis of certain locations are shown below:

 

     Maximum compensation value (*)  

Oxiteno

   US$  1,142  

Ipiranga

   R$ 1,032  

Ultracargo

   R$ 949  

Ultragaz

   R$ 266  

Extrafarma

   R$ 160  

 

(*)

In millions. In accordance with policy conditions.

The General Liability Insurance program covers the Company and its subsidiaries with a maximum aggregate coverage of US$ 400 million against losses caused to third parties as a result of accidents related to commercial and industrial operations and/or distribution and sale of products and services.

The Company maintains liability insurance policies for directors and executive officers (D&O) to indemnify the members of the Board of Directors, fiscal council and executive officers of Ultrapar and its subsidiaries (“Insured”) in the total amount of US$ 80 million, which cover any of the Insured liabilities resulting from wrongful acts, including any act or omission committed or attempted, except if the act, omission or the claim is consequence of gross negligence or willful misconduct.

In addition, group life and personal accident, health and national and international transportation and other insurance policies are also maintained.

The coverage and limit of the insurance policies are based on a careful study of risks and losses conducted by independent insurance advisors. The type of insurance is considered by management to be sufficient to cover potential losses based on the nature of the business conducted by the companies.

 

98


Table of Contents

Ultrapar Participações S.A. and Subsidiaries

Notes to the Individual and Consolidated Interim Financial Information

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

c. Operating Lease Contracts

Subsidiaries Cia. Ultragaz, Bahiana, Tequimar, Serma, and Oxiteno S.A. have operating lease contracts for the use of IT equipment. These contracts have terms from 36 to 48 months. The subsidiaries have the option to purchase the assets at a price equal to the fair market price on the date of option, and management does not intend to exercise such option. Subsidiaries Cia. Ultragaz and Bahiana have operating lease contracts related to vehicles in their fleet. These contracts have terms of 24 to 60 months and there is no purchase option. The future disbursements (installments), assumed under these contracts, amount approximately to:

 

    Up to 1 year     Between 1 and 5 years     More than 5 years     Total  
09/30/2018     32,575       62,649       —         95,224  

The subsidiaries IPP, Extrafarma, and Cia. Ultragaz have operating lease contracts related to land and building of service stations, drugstores, and stores, respectively. The future disbursements and receipts (installments), arising from these contracts, amount approximately to:

 

          Up to 1 year     Between 1 and 5 years     More than 5 years     Total  

09/30/2018

   payable      213,883       668,978       536,476       1,419,337  
   receivable      (83,119     (250,148     (215,857     (549,124

The expense recognized for the nine-month period ended September 30, 2018 for operating leases was R$ 140,332 (R$ 112,525 for the nine-month period ended September 30, 2017), net of sublease income.

 

99


Table of Contents

MD&A—ANALYSIS OF CONSOLIDATED EARNINGS

Third quarter of 2018

 

(R$ million)   3Q18     3Q17     2Q18    

D

3Q18 x
3Q17

   

D

3Q18 x
2Q18

    9M18     9M17    

D

9M18 x
9M17

 

Net revenue from sales and services

    23,834.2       20,341.6       22,645.6       17%       5%       67,230.9       57,882.4       16%  

Cost of products and services sold

    (22,209.1     (18,364.2     (21,186.5     21%       5%       (62,625.5     (52,888.0     18%  

Gross profit

    1,625.1       1,977.4       1,459.0       -18%       11%       4,605.4       4,994.4       -8%  

Selling, marketing, general and administrative expenses

    (1,090.5     (1,053.5     (1,060.0     4%       3%       (3,194.5     (3,017.6     6%  

Other operating income. net

    24.4       15.7       34.9       55%       -30%       (203.5     78.7       -359%  

Gain on disposal of property. plant and equipment and intangibles

    (2.5     (0.6     (2.4     317%       7%       (7.1     (0.8     842%  

Operating income

    556.5       939.1       431.5       -41%       29%       1,200.3       2,054.7       -42%  

Financial expenses. net

    (58.8     (120.8     (64.4     -51%       -9%       (230.2     (354.9     -35%  

Share of profit of joint ventures and associates

    (2.8     4.0       (3.4     -170%       -17%       (9.2     16.1       -157%  

Income before income and social contribution taxes

    494.9       822.3       363.7       -40%       36%       961.0       1,716.0       -44%  

Income and social contribution taxes – current and deferred

    (201.7     (290.0     (152.5     -30%       32%       (400.3     (606.6     -34%  

Income and social contribution taxes – tax incentives

    30.1       12.8       29.5       135%       2%       76.0       27.0       182%  

Net income

    323.2       545.1       240.7       -41%       34%       636.7       1,136.4       -44%  

Net income attributable to Ultrapar

    327.3       544.7       241.6       -40%       35%       642.8       1,132.8       -43%  

Net income attributable to non-controlling interests in subsidiaries

    (4.1     0.5       (0.9     -962%       348%       (6.0     3.7       -264%  

Adjusted EBITDA

    849.7       1,221.5       718.1       -30%       18%       2,075.9       2,934.1       -29%  

Volume—LPG sales (000 tons)

    449.9       460.3       443.8       -2%       1%       1,303.8       1,320.0       -1%  

Volume—Fuels sales (000 m³)

    6,200.3       6,059.2       5,858.5       2%       6%       17,519.9       17,550.9       0%  

Volume—Chemicals sales (000 tons)

    205.4       210.5       193.4       -2%       6%       578.8       589.1       -2%  


Table of Contents

Considerations on the financial and operational information

 

 

The financial information presented in this document has been prepared according to International Financial Reporting Standards (IFRS). The financial information of Ultrapar corresponds to the Company ’s consolidated information. The information on Ipiranga, Oxiteno, Ultragaz, Ultracargo and Extrafarma is reported without the elimination of intercompany transactions. Therefore, the sum of such information may not correspond to Ultrapar’s consolidated information. Additionally, the financial and operational information presented in this document is subject to rounding and, consequently, the total amounts presented in the tables and charts may differ from the direct sum of the amounts that precede them. Except when otherwise indicated, the information presented in this document compares the third quarter of 2018 (“3Q18”) and the third quarter of 2017 (“3Q17).

As from 2018, the IFRS 9 and 15 standards issued by the IASB (International Accounting Standards Board) have been adopted. In order to provide a comparative basis between the information for 3Q18 and 9M18 and that of 3Q17 and 9M17 shown in this document, the information for 2017 includes alterations in the accounting standards, consequently differing from the values previously reported in the respective earnings releases. Explanations on the impacts of the third quarter 2017 compared with the amounts previously published are available from our website (ri.ultra.com.br).

Information denominated EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization; Adjusted EBITDA – adjusted for amortization of contractual assets with customers - exclusive rights; and EBIT – Earnings Before Interest and Taxes is presented in accordance with Instruction 527, issued by the Brazilian Securities and Exchange Commission – CVM on October 04, 2012. The calculation of EBITDA based on net earnings is shown below:

 

R$ million

   3Q18      3Q17      2Q18      9M18      9M17  

Net income

     323.2        545.1        240.7        636.7        1,136.4  

(+) Income and social contribution taxes

     171.7        277.2        123.0        324.2        579.6  

(+) Financial result

     58.8        120.8        64.4        230.2        354.9  

(+) Depreciation and amortization

     210.3        179.7        197.8        602.3        517.0  

EBITDA

     763.9        1,122.9        625.9        1,793.5        2,587.9  

Adjustments

              

(+) Amortization of contractual assets with customers - exclusive rights (Ipiranga)

     85.8        98.6        92.2        282.4        346.2  

Adjusted EBITDA

     849.7        1,221.5        718.1        2,075.9        2,934.1  


Table of Contents

Ultrapar

 

 

 

Values in R$ million (except EPS)   3Q18     3Q17     2Q18    

D (%)

3Q18 v
3Q17

   

D (%)

3Q18 v
2Q18

    9M18     9M17    

D (%)

9M18 v
9M17

 

Net sales and services

    23,834       20,342       22,646       17%       5%       67,231       57,882       16%  

Net earnings1

    323       545       241       (41%     34%       637       1,136       (44%

Earnings per share attributable to Ultrapar shareholders 2

    0.60       1.01       0.45       (40%     35%       1.19       2.09       (43%

Adjusted EBITDA

    850       1,221       718       (30%     18%       2,076       2,934       (29%

Investments

    492       542       437       (9%     13%       1,533       1,511       1%  

 

¹

Under IFRS, consolidated net earnings includes net earnings attributable to the stake of non-controlling shareholders of the controlled companies

²

Calculated in Reais based on the weighted average number of shares over the period net of shares held as treasury stock

Net revenues – Total of R$ 23,834 million (+17%) due to growth in revenues at all the businesses. In relation to 2Q18, net revenues increased 5%, the result of higher revenues at Ipiranga, Oxiteno e Ultragaz. In 9M18, net revenues amounted to R$ 67,231 million, 16% higher than the same period in 2017.

Adjusted EBITDA – Total of R$ 850 million (-30%) and reflecting lower EBITDA at Ipiranga and Extrafarma, and higher EBITDA at Oxiteno, Ultragaz e Ultracargo. Compared with 2Q18, Adjusted EBITDA increased by 18% due to a higher EBITDA at Ipiranga, Oxiteno and Ultragaz. In 9M18, Adjusted EBITDA amounted to R$ 2,076 million, 29% less than 9M17, impacted by the fine following the rejection of the Liquigás acquisition.

Depreciation and amortization³ – Total of R$ 296 million (+6%) reflecting the investments made over the past 12 months. Compared with 2Q18, total costs and expenses with depreciation and amortization rose 2%. In 9M18, depreciation and amortization totaled R$ 885 million, a growth of 2% in relation to 9M17.

Financial results - Ultrapar reported net debt on September 30, 2018 of R$ 9.2 billion (2.9x LTM Adjusted EBITDA) compared with R$ 6.8 billion on September 30, 2017 (1.7x LTM Adjusted EBITDA). The increased leverage mainly reflects lower EBITDA LTM and higher working capital in the period, despite the practically stable investment amount compared to the same period of the previous year. Ultrapar’s net financial expenses were R$ 59 million, R$ 62 million less than when compared with 3Q17, due to: (i) the decline in the Interbank Rate (CDI) year-over-year despite the increase in net debt, (ii) the depreciation in Ultrapar’s shares relative to the subscription warrant (issued in association with Extrafarma), and (iii) the effects of currency variations in the periods. In relation to 2Q18, net finance expenses fell R$ 6 million, principally due to the effects of currency variations in the periods under review, partially compensated by lower depreciation of Ultrapar’s shares relative to the subscription warrant. In 9M18, net financial expenses amounted to R$ 230 million, a decrease of 35% compared to 9M17.

Net earnings – Total of R$ 323 million (-41%), due to lower EBITDA, despite the reduction in financial expenses. In relation to 2Q18, net earnings increased 34%, principally due to higher EBITDA. In 9M18, net income amounted to R$ 637 million, 44% less than 9M17. Excluding the effects of the fine, net earnings would have been R$ 826 million in 9M18.

Operational cash flow – Total of R$ 1,443 million in 9M18, compared with R$ 1,368 million in 9M17, due to lower tax payments, reflecting lower earnings and greater use of credits for compensating taxes, offset by higher investments in working capital, the result of insurance reimbursements during 2017.

 

 

³

Includes amortization of contractual assets with customers– exclusive rights


Table of Contents

Ipiranga

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v
3Q17

   

D (%)

3Q18 v
2Q18

    9M18     9M17    

D (%)

9M18 v
9M17

 

Total volume (000 M³)¹

    6,200       6,059       5,859       2%       6%       17,520       17,551       0%  

Diesel

    3,301       3,156       3,067       5%       8%       8,993       8,856       2%  

Gasoline, ethanol e NGV

    2,780       2,814       2,675       (1%     4%       8,178       8,436       (3%

Others²

    120       90       117       34%       3%       348       258       35%  

Adjusted EBITDA (R$ million)

    497       935       402       (47%     24%       1,484       2,189       (32%

1 Starting in Dec/17, total volume includes ICONIC, the lubricants joint venture with Chevron

² Fuel oils, arla 32, kerosene, lubricants and greases

Operational performance – Otto cycle volume fell 1% in relation to 3Q17, in line with the weak performance of the market as a whole. By contrast, diesel volume improved by 5%, due to higher service station sales. Compared with 2Q18, volumes increased 6%, with an increase of 8% in diesel and 4% in Otto cycle, reflecting an improvement on the economic environment, seasonal variations between periods and the effect of the strike in the preceding quarter. In 9M18, Ipiranga registered sales volume of 17,520 thousand m³, flat in relation to volume in 9M17.

Net revenues – Total of R$ 20,007 million (+17%), principally due to the variation in fuel costs and higher sales volume. In relation to 2Q18, net revenues rose 5%, due to the same factors explained above. In 9M18, net revenues amounted to R$ 56,590 million, 15% higher than 9M17.

Cost of goods sold – Total of R$ 19,162 million (+21%), mainly due to variations in fuel costs and higher sales volume. In relation to 2Q18, the cost of goods sold rose 5%, in line with the growth reported in volume and the variation in the costs of fuels. In 9M18, cost of goods sold totaled R$ 54,050 million, an 18% increase in relation to 9M17.

Sales, general and administrative expenses (SG&A) – Total of R$ 544 million (+1%), mainly due to higher expenses of R$ 29 million with the consolidation of results of ICONIC, the lubricants joint venture with Chevron, which began operations in December 2017. Excluding this effect, SG&A expenses would have been 4% lower year-over-year, due to: (i) lower expenditures with marketing programs, (ii) reduced expenditures with strategic consultancies, (iii) adherence to the Special Tax Regulation Program amnesty (Programa Especial de Regularização Tributária - PERT) in 3Q17, and (iv) lower maintenance expenses. These effects were partially compensated by the increase in freight expenditures, in line with higher sales volume and the increased costs of diesel. In relation to 2Q18, SG&A expenses, rose 1%, the result of higher expenditures with freight, again in line with higher sale volumes and increased expenses with maintenance, partially offset by lower expenses with marketing programs and reduced provisions for doubtful debts. In 9M18, SG&A expenses totaled R$ 1,634 million, 7% higher than 9M17. Excluding expenses with ICONIC, SG&A expenses were flat in relation to 9M17.

Adjusted EBITDA – Total of R$ 497 million (-47%), impacted by the more favorable fuel costs and the opportunities for importing in 3Q17 and the impact of R$ 24 million from inventory loss due to the truckers ’ strike and the booking of inventory at average cost. These effects were partially attenuated by the higher sales volume and the greater than normal disposal of assets, in 3Q18 amounting to R$ 13 million. In relation to 2Q18, Adjusted EBITDA increased 24%, due to: (i) the gradual recovery in margins, (ii) higher sales volume, (iii) the positive variation in the costs of fuels, and (iv) asset disposals in 3Q18 amounting to R$ 13 million. In 9M18, Adjusted EBITDA at Ipiranga was R$ 1,484 million, a decrease of 32% in relation to the same period in 2017.

Investments – A total of R$ 253 million was invested in the period and mainly allocated to maintenance and expansion of the service station and franchise network. Out of total investments, R$ 90 million were applied in property, plant and equipment and in intangible assets, R$ 102 million in contractual assets with clients (exclusive rights) and R$ 61 million for financing clients and rental advances, net of repayments. Ipiranga ended 3Q18 with 8,018 service stations (+3%), a net addition of 204 service stations over the past 12 months. In 9M18, investments amounted to R$ 674 million.


Table of Contents

Oxiteno

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v
3Q17

   

D (%)

3Q18 v
2Q18

    9M18     9M17    

D (%)

9M18 v
9M17

 

Total volume (000 tons)

    205       211       193       (2%     6%       579       589       (2%

Specialty chemicals

    162       173       152       (7%     6%       465       482       (4%

Commodities

    44       37       41       18%       6%       114       107       6%  

Sales in Brazil

    151       154       139       (2%     9%       416       425       (2%

Sales outside Brazil

    54       56       54       (4%     (1%     163       164       (1%

EBITDA (R$ million)

    173       74       121       135%       43%       346       219       58%  

Operational performance – Specialty chemicals sales volume reported a 7% reduction on an annualized basis, due to the high comparative base in 3Q17. The domestic market fell 8%, principally in the agro-chemical and distribution segments. Specialty chemicals sales volume to export markets declined 5%, due to lower exports to Argentina, in spite of the greater sales volume in the United States. On the other hand, commodity sales rose 18% in relation to 3Q17, reflecting the stronger demand for these products domestically. In relation to 2Q18, total sales volume was up 6%, with increases both in commodity volume as well as specialty chemical volume. In 9M18, sales volume totaled 579 thousand tons, a reduction of 2% in relation to the same period in 2017.

Net revenues – Total of R$ 1,368 million (+33%), due to a 25% devaluation of the Real in relation to the US Dollar (equivalent to R$ 0.79/US$) and an average price 9% higher in US Dollars, the result of increased year-over-year costs of raw materials, principally ethylene, in spite of lower sales volume and the higher share of commodities in the sales mix. In relation to 2Q18, net revenues increased 16%, due to higher sales volume and a 10% devaluation in the Real in relation to the US Dollar (equivalent to R$ 0.35/US$). In 9M18, net revenues amounted to R$ 3,548 million, 25% greater than 9M17.

Cost of goods sold – Total of R$ 1,038 million (+26%), due to: (i) the 25% devaluation of the Real against the US Dollar, (ii) the increase in costs of raw materials, mainly ethylene on a year-on-year comparative basis, and (iii) the costs related to the startup of the new unit in Texas. Compared with 2Q18, the cost of goods sold rose 13%, reflecting the increase in sales volume, the 10% devaluation in the Real against the US Dollar, in addition to higher costs in the USA, with the startup of the new plant. In 9M18, the cost of goods sold amounted to R$ 2,784 million, a growth of 22% in relation to 9M17.

Sales, general and administrative expenses (SG&A) – Total of R$ 194 million (+12%), due to: (i) greater expenses with variable compensation, (ii) greater expenditures in the United States with the startup of the new plant, and (iii) the impact of the Real’s devaluation on expenses in the international operations. In relation to 2Q18, SG&A expenses increased 9%, mainly due to higher logistical expenses, reflecting higher sales volume, the sales mix, as well as greater expenditures with the international units affected by the impact of devaluation of the Real. In 9M18, SG&A expenses amounted to R$ 538 million, and year-over-year improvement of 11% relative to the same period in 2017.

EBITDA – Oxiteno’s EBITDA amounted to R$ 173 million (+135%) due to the higher average exchange rate given the 25% devaluation of the Real against the US Dollar and the higher unitary margins in US Dollars. The results of 3Q18 consider an impairment at Oxiteno Andina of R$ 7 million as a consequence of the adverse political and economic scenario at Venezuela. In relation to 2Q18, EBITDA increased 43% due to higher sales volume and a 10% devaluation in relation to the US Dollar. In 9M18, EBITDA was R$ 346 million, a growth of 58% in relation to 9M17.

Investments – Investment in the period was R$ 107 million, mainly allocated to the new specialty chemicals plant in the United States and maintenance of the production facilities. Investments in 9M18 were R$ 397 million.


Table of Contents

Ultragaz

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v
3Q17

   

D (%)

3Q18 v
2Q18

    9M18     9M17    

D (%)

9M18 v
9M17

 

Total volume (000 tons)

    450       460       444       (2%     1%       1,304       1,320       (1%)  

Bottled

    309       317       311       (3%     (1%     901       906       (1%)  

Bulk

    141       143       133       (1%     6%       403       414       (3%)  

EBITDA (R$ million)

    159       159       148       0%       7%       137       392       (65%)  

EBITDA ex-fine (R$ million)

    159       159       148       0%       7%       424       392       8%  

Operational performance – The bottled segment recorded a decline of 3% when compared to the same period in 2017, lower than the 4% decline in the LPG market as a whole. The bulk segment registered a decline of 1% in volume due to fewer business days in the quarter. In relation to 2Q18, sales volume rose 1%, with an increase of 6% in the bulk segment, reflecting seasonal factors between periods and the impacts from the truckers’ strike in 2Q18. In 9M18, Ultragaz sales volume was 1,304 thousand tons, a reduction of 1% in relation to 9M17, in line with the 1% reduction in the LPG market.

Net revenues – Total of R$ 1,870 million (+19%) mainly due to pass-through of readjusted LPG costs, despite the reduced volume of sales in the period. In relation to 2Q18, net revenues increased 6%, reflecting higher sales volume and pass-through of cost readjustments in LPG, with the bulk segment taking a greater share of the sales mix. In 9M18, net revenues amounted to R$ 5,261 million, 20% greater than 9M17.

Cost of goods sold – Total of R$ 1,625 million (+25%), principally due to readjustments in LPG costs. In relation to 2Q18, the cost of goods sold increased by 5% due to greater sales volume and readjustments in LGP costs. In 9M18, cost of goods sold amounted to R$ 4,601 million, a growth of 25% in relation to 9M17.

Sales, general and administrative expenses (SG&A) Total of R$ 145 million (-10%), due to: (i) lower expenses with strategic consultancies, (ii) lower provisions for doubtful debts, (iii) lower marketing expenditures, and (iv) lower freight expenditures, reflecting the migration of clients from delivery CIF to FOB. In relation to 2Q18, SG&A expenses increased 8%, mainly due to the non-recurring effect of the reevaluation of the provision for estimated losses in 2Q18 with the reversal of R$ 9 million. In 9M18, SG&A expenses totaled R$ 411 million, 13% less than the same period in 2017.

EBITDA – Total of R$ 159 million (0%) due to initiatives adopted for reducing costs and expenses, thus neutralizing the impact on results of lower sales volume. In relation to 2Q18, Ultragaz’s EBITDA rose 7% due to higher sales volume and the greater share of bulk in the overall sales mix. In 9M18, EBITDA ex-fine imposed following the rejection of the proposed acquisition of Liquigás in 1Q18, totaled R$ 424 million, a growth of 8% in relation to 9M17.

Investments – Ultragaz invested R$ 54 million, allocated mainly to clients in the bulk segment, gas bottles and IT with a focus on the strategy of differentiation and innovation. In 9M18, investments totaled R$ 171 million.


Table of Contents

Ultracargo

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v
3Q17

    

D (%)

3Q18 v
2Q18

     9M18      9M17     

D (%)

9M18 v
9M17

 

Effective storage1 (000 m³)

    765       729       786       5%        (3%      758        717        6%  

EBITDA (R$ million)

    44       40       54       10%        (19%      139        88        58%  

 

1

Monthly average

Operational performance – Ultracargo ’s average storage rose 5% in relation to 3Q17 due to increased ethanol handling at the Suape and Santos port terminals, despite the reduced handling of fuels at the Suape and Itaqui terminals. Compared with 2Q18, average storage at the terminals fell 3%, due to reduced fuel and ethanol handling activity in Suape, but partially offset by more intensive ethanol operations in Santos. In 9M18, Ultracargo’s average storage increased by 6% in relation to 9M17.

Net revenues – Total of R$ 124 million in 3Q18 (+11%), driven by increased average storage and by higher average prices. In relation to 2Q18, net revenues fell 2% due to lower average storage in the quarter. In 9M18, net revenues totaled R$ 367 million, 15% higher than 9M17.

Cost of services provided – Total of R$ 62 million (+12%), due to greater expenditures in Santos due to the partial resumption in operations at the terminal. In relation to 2Q18, the cost of services provided rose by 2% due to greater expenditures with maintenance. In 9M18, the cost of services provided amounted to R$ 182 million, an increase of 14% in relation to 9M17.

Sales, general and administrative expenses (SG&A) – Total of R$ 31 million (+13%), due to higher payroll expenses and consultancies for new projects. In relation to 2Q18, SG&A increased 29%, influenced by a non-recurring credit of R$ 8 million in 2Q18, with the recovery of an improperly charged port management fee. In 9M18, SG&A expenses amounted to R$ 83 million, year-over-year 3% greater.

EBITDA – Total of R$ 44 million (+10%) due to higher average storage in the period and higher average prices at the terminals. In relation to 2Q18, EBITDA fell 19%, due to the receipt of non-recurring credits amounting to R$ 8 million in 2Q18, as mentioned above, and lower activity in the period. In 9M18, Ultracargo’s EBITDA amounted to R$ 139 million, a growth of 58% in relation to 9M17.

Investments – Ultracargo invested R$ 36 million in the period, mainly allocated to expansion at the Itaqui terminal and maintenance and modernization of terminal safety systems and processes. In 9M18, investments amounted to R$ 86 million.


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Extrafarma

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v
3Q17

   

D (%)

3Q18 v
2Q18

  9M18     9M17    

D (%)

9M18 v
9M17

Gross Revenues (R$ million)

    515       501       559       3%     (8%)     1.615       1.459     11%

Drugstores (end of period)

    414       366       406       13%     2%     414       366     13%

% of mature stores (+ 3 years)

    47%       49%       46%       (2.6 p.p.   0,6 p.p.     47%       49%     (2.6 p.p.)

EBITDA (R$ million)

    (24     7       (7     na     na     (31     20     na

Operational performance – Extrafarma ended 3Q18 with 414 stores, 77 openings and 29 closures in the past 12 months, equivalent to an increase of 13%. At the end of 3Q18, still maturing stores (up to three years of operations) represented 53% of the store network compared with 51% in 3Q17, reflecting the accelerated expansion of the network. In relation to 2Q18, Extrafarma opened 21 new stores and closed 13, as a result of a higher churn ratio specifically in this quarter.

Gross Revenue – Total of R$ 515 million (+3%), due to the growth of 9% in retail sales, a reflection of the higher number of stores and the annual readjustment in medicine prices. These effects were attenuated by the non-recurring impact of the replacement of the retailing system in June and temporarily affected operations during the stabilization phase. In relation to 2Q18, gross revenue declined 8% largely due to the non-recurring effects of the aforementioned IT migration in the retailing system. In 9M18, Extrafarma ’s gross revenue was R$ 1,615 million, 11% higher than the same period for 2017.

Cost of goods sold and gross profit – Cost of goods sold totaled R$ 346 million (+7%), due to improving sales and the annual readjustment in medicine prices. Gross profit was R$ 143 million (-4%), principally due to the substitution of the retailing system, which impacted sales, and by more intensive promotional activities and the network’s more extensive geographical coverage. In relation to 2Q18, the cost of goods sold and the gross profit recorded a reduction of 6% and 11% respectively, due to a reduction in sales and lower trade marketing funds from industries in the period. In 9M18, the cost of goods sold amounted to R$ 1,073 million and gross profit R$ 456 million, 15% and 4% more than 9M17, respectively.

Sales, general and administrative expenses (SG&A) Total of R$ 178 million (+13%), reflecting the higher number of stores. Excluding the effect of new stores, SG&A expenses fell by 4% on an annual comparative basis. This was mainly the result of initiatives implemented for improving productivity and reducing expenses, particularly payroll, logistics and card fees. In relation to 2Q18, SG&A expenses fell 3% due to lower expenses with payroll, publicity and advertising and logistics, in spite of a higher average number of stores. In 9M18, SG&A expenses were R$ 531 million, 16% higher than 9M17.

EBITDA – Total of R$ 24 million negative compared to R$ 7 million in 3Q17, due to: (i) the non-recurring effects relating to the substitution of the retailing system and the investments write-off given the higher churn ratio, with an impact on results of R$ 26 million, and (ii) the greater number of new and still-maturing stores. Excluding the non-recurring effects, EBITDA would have been R$ 2 million in 3Q18. In relation to 2Q18, EBITDA fell due to non-recurring effects already mentioned – stabilization of the retailing system and investments write-off. In 9M18, Extrafarma’s EBITDA was R$ 31 million negative, compared with an EBITDA of R$ 20 million in 9M17.

Investments – Extrafarma invested R$ 29 million, allocated largely to the opening of new stores and IT, in order to enhance the shopping experience and operational excellence. In 9M18, Extrafarma invested R$ 68 million.


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São Paulo November 7, 2018—Ultrapar Participações S.A. (B3: UGPA3/NYSE: UGP), a Company engaged in retail and specialized distribution (Ipiranga/Ultragaz/Extrafarma), specialty chemicals (Oxiteno) and storage for liquid bulk (Ultracargo), hereby reports its results for the third quarter of 2018.

 

Net Revenues

 

  Adjusted EBITDA   Net earnings

R$24

billion

 

 

R$850

million

 

R$323

million

17% YoY            5% QoQ

 

  -30% YoY            18% QoQ   -41% YoY            34% QoQ

Investments

 

  Operational Cash Flow1   Market cap

R$492

million

 

R$1,443

million

 

R$21

billion

 

¹

Accumulated Jan-Set/18

Highlights:

 

 

Ultra was recognized as the best company in the Estadão Mais ranking for Innovation and as the best company in the Fuels, Oil and Gas sector by Isto É Dinheiro magazine

 

 

Oxiteno Nordeste received the award for the best company in the Chemicals and Petrochemicals sector in the ‘Best and Biggest’ (Melhores e Maiores) 2018 by Exame magazine

 

 

Startup of Oxiteno’s specialty chemicals plant in the United States

 

 

Completion of the succession process in Ipiranga

During the third quarter, we observed a recovery in the economy following the truckers’ strike, despite continuing high levels of unemployment and fuel price hikes in line with international market parity. We maintain our perspective on the recovery of Brazilian economy especially now that the electoral process is complete and there is a definition of the new occupants of the legislative and executive branches.

At Oxiteno, we initiated operations at the new specialty chemicals plant in Texas, a state of the art facility supplying a market with a growing demand for our products. At Ipiranga, we have noted a gradual improvement in sales volume and gains in market share and profitability thanks to a more hands-on commercial management. We remain committed to pursuing operational excellence and initiatives for reducing costs and expenses in order to overcome the difficulties of a still challenging economy. We have made adjustments in our initial investment plan with a focus on greater selectivity and discipline in the allocation of capital, the objective being to maximize returns on invested capital and preserve financial leverage.

We are confident that we are taking the necessary measures to resume our trajectory of growth at Ultra. We are convinced of the potential of our businesses and our people to continue creating value for our stakeholders.

 

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Conference Call 3Q18

 

 

Ultrapar will be holding a conference call for analysts on November 08, 2018 to comment on the company’s performance in the third quarter of 2018 and its outlook. The presentation will be available for download on the company’s website 30 minutes prior to the conference call.

English: 12:30 pm (Brasília time) / 9:30 am (US EST)

International Participants: +1 (412) 317-6356

Code: Ultrapar

Replay: +1 (412) 317-0088 (available for seven days)

Code: 10124621

Portuguese: 11 am (Brasília time) / 8 am (US EST)

Telephone for connection: +55 (11) 2188-0155

Code: Ultrapar

Replay: +55 (11) 2188-0400 (available for seven days)

Code: Ultrapar

WEBCAST live via internet at ri.ultra.com.br. Please connect 15 minutes in advance.

 

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Considerations on the financial and operational information

 

 

The financial information presented in this document has been prepared according to International Financial Reporting Standards (IFRS). The financial information of Ultrapar corresponds to the Company’s consolidated information. The information on Ipiranga, Oxiteno, Ultragaz, Ultracargo and Extrafarma is reported without the elimination of intercompany transactions. Therefore, the sum of such information may not correspond to Ultrapar’s consolidated information. Additionally, the financial and operational information presented in this document is subject to rounding and, consequently, the total amounts presented in the tables and charts may differ from the direct sum of the amounts that precede them. Except when otherwise indicated, the information presented in this document compares the third quarter of 2018 (“3Q18”) and the third quarter of 2017 (“3Q17).

As from 2018, the IFRS 9 and 15 standards issued by the IASB (International Accounting Standards Board) have been adopted. In order to provide a comparative basis between the information for 3Q18 and 9M18 and that of 3Q17 and 9M17 shown in this document, the information for 2017 includes alterations in the accounting standards, consequently differing from the values previously reported in the respective earnings releases. Explanations on the impacts of the third quarter 2017 compared with the amounts previously published are available from our website (ri.ultra.com.br).

Information denominated EBITDA—Earnings Before Interest, Taxes, Depreciation and Amortization; Adjusted EBITDA—adjusted for amortization of contractual assets with customers—exclusive rights; and EBIT—Earnings Before Interest and Taxes is presented in accordance with Instruction 527, issued by the Brazilian Securities and Exchange Commission—CVM on October 04, 2012. The calculation of EBITDA based on net earnings is shown below:

 

R$ million

   3Q18      3Q17      2Q18      9M18      9M17  

Net income

     323.2        545.1        240.7        636.7        1,136.4  

(+) Income and social contribution taxes

     171.7        277.2        123.0        324.2        579.6  

(+) Financial result

     58.8        120.8        64.4        230.2        354.9  

(+) Depreciation and amortization

     210.3        179.7        197.8        602.3        517.0  

EBITDA

     763.9        1,122.9        625.9        1,793.5        2,587.9  

Adjustments

              

(+) Amortization of contractual assets with customers—exclusive rights (Ipiranga)

     85.8        98.6        92.2        282.4        346.2  

Adjusted EBITDA

     849.7        1,221.5        718.1        2,075.9        2,934.1  

 

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Executive Summary

 

 

 

Indicators   3Q18     3Q17     2Q18    

D (%)

3Q18 v 3Q17

   

D (%)

3Q18 v 2Q18

    9M18     9M17    

D (%)

9M18 v 9M17

 

Average exchange rate (R$/US$)

    3.96       3.16       3.61       25%       10%       3.60       3.17       14%  

Brazilian interbank interest rate (CDI)

    1.6%       2.3%       1.6%                       4.8%       8.0%          

Inflation in the period (IPCA)

    0.7%       0.6%       1.9%                       3.3%       1.8%          

IBC—Br¹

    139.4       136.3       135.8       2%       3%       137.7       136.0       1%  

Average Brent crude oil (US$/barrel)

    75.5       51.7       74.5       46%       1%       72.3       52.0       39%  

 

1 

Quarterly average seasonally adjusted. Considers the first two months of the quarters (Jul-Aug and Apr-May) and the first eight months of the year (Jan-Aug)

Ultrapar reported an Adjusted EBITDA in 3Q18 of R$ 850 million (-30%) and net income of R$ 323 million (-41%).

Ipiranga

Ipiranga reported volumes of 6,200 thousand m³, an increase of 2% in relation to 3Q17, with a growth of 5% in diesel, and a decrease of 1% in Otto cycle. Adjusted EBITDA at Ipiranga was R$ 497 million, a decline of 47% in relation to 3Q17, quarter which recorded gains due to the variation in fuel costs and opportunities for importation. On the other hand in 3Q18 the residual effects of the truckers’ strike were still felt, in particular in July, followed by gradual recovery in August and September, even with the constant increases in prices in a scenario of already high levels of unemployment and the government measures introduced following the truckers’ strike.

Oxiteno

Oxiteno posted volumes of 205 thousand tons in 3Q18, a year-over-year reduction of 2% due to lower sales of specialty chemicals, a reflection of a high comparative base in 3Q17, a record for the period. Oxiteno’s EBITDA amounted to R$ 173 million, a growth of 135% in relation to 3Q17, principally due to the 25% depreciation in the Real against the US Dollar and the higher levels of unit margins in US Dollar terms.

Ultragaz

Ultragaz reported volumes of 450 thousand tons, a year-over-year reduction of 2%, with a 3% decline in the bottled segment and 1% in the bulk business, lower than the nationwide decrease in LPG volume. EBITDA at Ultragaz was R$ 159 million (0%), and initiatives for reducing costs and expenses effectively neutralized lower sales volume.

Ultracargo

Average storage at Ultracargo increased by 5% in relation to 3Q17, largely reflecting greater ethanol handling activity at the Santos and Suape port terminals. Ultracargo’s EBITDA amounted to R$ 44 million in the quarter, an increase of 10% in relation to 3Q17, and reflecting greater average storage and higher average prices collected at the terminals.

Extrafarma

Extrafarma ended 3Q18 with 414 stores, opening 77 units over the past 12 months and 21 in the quarter. EBITDA in 3Q18 was negative at R$ 24 million, mainly as a result of the high percentage of new or maturing stores as well as the following non-recurring effects during the quarter: (i) stabilization of the new retail management system implemented in June 2018, and (ii) investments write-off due to a higher churn, impacting the quarter in R$ 26 million.

 

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Ipiranga

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v 3Q17

    

D (%)

3Q18 v 2Q18

     9M18      9M17     

D (%)

9M18 v 9M17

 

Total volume (000 M³)¹

    6,200       6,059       5,859       2%        6%        17,520        17,551        0%  

Diesel

    3,301       3,156       3,067       5%        8%        8,993        8,856        2%  

Gasoline, ethanol e NGV

    2,780       2,814       2,675       (1%      4%        8,178        8,436        (3%

Others²

    120       90       117       34%        3%        348        258        35%  

Adjusted EBITDA (R$ million)

    497       935       402       (47%      24%        1,484        2,189        (32%

 

1 

Starting in Dec/17, total volume includes ICONIC, the lubricants joint venture with Chevron

²

Fuel oils, arla 32, kerosene, lubricants and greases

Operational performance—Otto cycle volume fell 1% in relation to 3Q17, in line with the weak performance of the market as a whole. By contrast, diesel volume improved by 5%, due to higher service station sales. Compared with 2Q18, volumes increased 6%, with an increase of 8% in diesel and 4% in Otto cycle, reflecting an improvement on the economic environment, seasonal variations between periods and the effect of the strike in the preceding quarter. In 9M18, Ipiranga registered sales volume of 17,520 thousand m³, flat in relation to volume in 9M17.

Net revenues—Total of R$ 20,007 million (+17%), principally due to the variation in fuel costs and higher sales volume. In relation to 2Q18, net revenues rose 5%, due to the same factors explained above. In 9M18, net revenues amounted to R$ 56,590 million, 15% higher than 9M17.

Cost of goods sold—Total of R$ 19,162 million (+21%), mainly due to variations in fuel costs and higher sales volume. In relation to 2Q18, the cost of goods sold rose 5%, in line with the growth reported in volume and the variation in the costs of fuels. In 9M18, cost of goods sold totaled R$ 54,050 million, an 18% increase in relation to 9M17.

Sales, general and administrative expenses (SG&A)—Total of R$ 544 million (+1%), mainly due to higher expenses of R$ 29 million with the consolidation of results of ICONIC, the lubricants joint venture with Chevron, which began operations in December 2017. Excluding this effect, SG&A expenses would have been 4% lower year-over-year, due to: (i) lower expenditures with marketing programs, (ii) reduced expenditures with strategic consultancies, (iii) adherence to the Special Tax Regulation Program amnesty (Programa Especial de Regularização Tributária—PERT) in 3Q17, and (iv) lower maintenance expenses. These effects were partially compensated by the increase in freight expenditures, in line with higher sales volume and the increased costs of diesel. In relation to 2Q18, SG&A expenses, rose 1%, the result of higher expenditures with freight, again in line with higher sale volumes and increased expenses with maintenance, partially offset by lower expenses with marketing programs and reduced provisions for doubtful debts. In 9M18, SG&A expenses totaled R$ 1,634 million, 7% higher than 9M17. Excluding expenses with ICONIC, SG&A expenses were flat in relation to 9M17.

Adjusted EBITDA—Total of R$ 497 million (-47%), impacted by the more favorable fuel costs and the opportunities for importing in 3Q17 and the impact of R$ 24 million from inventory loss due to the truckers’ strike and the booking of inventory at average cost. These effects were partially attenuated by the higher sales volume and the greater than normal disposal of assets, in 3Q18 amounting to R$ 13 million. In relation to 2Q18, Adjusted EBITDA increased 24%, due to: (i) the gradual recovery in margins, (ii) higher sales volume, (iii) the positive variation in the costs of fuels, and (iv) asset disposals in 3Q18 amounting to R$ 13 million. In 9M18, Adjusted EBITDA at Ipiranga was R$ 1,484 million, a decrease of 32% in relation to the same period in 2017.

Investments—A total of R$ 253 million was invested in the period and mainly allocated to maintenance and expansion of the service station and franchise network. Out of total investments, R$ 90 million were applied in property, plant and equipment and in intangible assets, R$ 102 million in contractual assets with clients (exclusive rights) and R$ 61 million for financing clients and rental advances, net of repayments. Ipiranga ended 3Q18 with 8,018 service stations (+3%), a net addition of 204 service stations over the past 12 months. In 9M18, investments amounted to R$ 674 million.

 

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Oxiteno

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v 3Q17

    

D (%)

3Q18 v 2Q18

     9M18      9M17     

D (%)

9M18 v 9M17

 

Total volume (000 tons)

    205       211       193       (2%      6%        579        589        (2%

Specialty chemicals

    162       173       152       (7%      6%        465        482        (4%

Commodities

    44       37       41       18%        6%        114        107        6%  

Sales in Brazil

    151       154       139       (2%      9%        416        425        (2%

Sales outside Brazil

    54       56       54       (4%      (1%      163        164        (1%

EBITDA (R$ million)

    173       74       121       135%        43%        346        219        58%  

Operational performance—Specialty chemicals sales volume reported a 7% reduction on an annualized basis, due to the high comparative base in 3Q17. The domestic market fell 8%, principally in the agro-chemical and distribution segments. Specialty chemicals sales volume to export markets declined 5%, due to lower exports to Argentina, in spite of the greater sales volume in the United States. On the other hand, commodity sales rose 18% in relation to 3Q17, reflecting the stronger demand for these products domestically. In relation to 2Q18, total sales volume was up 6%, with increases both in commodity volume as well as specialty chemical volume. In 9M18, sales volume totaled 579 thousand tons, a reduction of 2% in relation to the same period in 2017.

Net revenues—Total of R$ 1,368 million (+33%), due to a 25% devaluation of the Real in relation to the US Dollar (equivalent to R$ 0.79/US$) and an average price 9% higher in US Dollars, the result of increased year-over-year costs of raw materials, principally ethylene, in spite of lower sales volume and the higher share of commodities in the sales mix. In relation to 2Q18, net revenues increased 16%, due to higher sales volume and a 10% devaluation in the Real in relation to the US Dollar (equivalent to R$ 0.35/US$). In 9M18, net revenues amounted to R$ 3,548 million, 25% greater than 9M17.

Cost of goods sold—Total of R$ 1,038 million (+26%), due to: (i) the 25% devaluation of the Real against the US Dollar, (ii) the increase in costs of raw materials, mainly ethylene on a year-on-year comparative basis, and (iii) the costs related to the startup of the new unit in Texas. Compared with 2Q18, the cost of goods sold rose 13%, reflecting the increase in sales volume, the 10% devaluation in the Real against the US Dollar, in addition to higher costs in the USA, with the startup of the new plant. In 9M18, the cost of goods sold amounted to R$ 2,784 million, a growth of 22% in relation to 9M17.

Sales, general and administrative expenses (SG&A)—Total of R$ 194 million (+12%), due to: (i) greater expenses with variable compensation, (ii) greater expenditures in the United States with the startup of the new plant, and (iii) the impact of the Real’s devaluation on expenses in the international operations. In relation to 2Q18, SG&A expenses increased 9%, mainly due to higher logistical expenses, reflecting higher sales volume, the sales mix, as well as greater expenditures with the international units affected by the impact of devaluation of the Real. In 9M18, SG&A expenses amounted to R$ 538 million, and year-over-year improvement of 11% relative to the same period in 2017.

EBITDA—Oxiteno’s EBITDA amounted to R$ 173 million (+135%) due to the higher average exchange rate given the 25% devaluation of the Real against the US Dollar and the higher unitary margins in US Dollars. The results of 3Q18 consider an impairment at Oxiteno Andina of R$ 7 million as a consequence of the adverse political and economic scenario at Venezuela. In relation to 2Q18, EBITDA increased 43% due to higher sales volume and a 10% devaluation in relation to the US Dollar. In 9M18, EBITDA was R$ 346 million, a growth of 58% in relation to 9M17.

Investments—Investment in the period was R$ 107 million, mainly allocated to the new specialty chemicals plant in the United States and maintenance of the production facilities. Investments in 9M18 were R$ 397 million.

 

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Ultragaz

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v 3Q17

    

D (%)

3Q18 v 2Q18

     9M18      9M17     

D (%)

9M18 v 9M17

 

Total volume (000 tons)

    450       460       444       (2%      1%        1,304        1,320        (1%

Bottled

    309       317       311       (3%      (1%      901        906        (1%

Bulk

    141       143       133       (1%      6%        403        414        (3%

EBITDA (R$ million)

    159       159       148       0%        7%        137        392        (65%

EBITDA ex-fine (R$ million)

    159       159       148       0%        7%        424        392        8%  

Operational performance—The bottled segment recorded a decline of 3% when compared to the same period in 2017, lower than the 4% decline in the LPG market as a whole. The bulk segment registered a decline of 1% in volume due to fewer business days in the quarter. In relation to 2Q18, sales volume rose 1%, with an increase of 6% in the bulk segment, reflecting seasonal factors between periods and the impacts from the truckers’ strike in 2Q18. In 9M18, Ultragaz sales volume was 1,304 thousand tons, a reduction of 1% in relation to 9M17, in line with the 1% reduction in the LPG market.

Net revenues—Total of R$ 1,870 million (+19%) mainly due to pass-through of readjusted LPG costs, despite the reduced volume of sales in the period. In relation to 2Q18, net revenues increased 6%, reflecting higher sales volume and pass-through of cost readjustments in LPG, with the bulk segment taking a greater share of the sales mix. In 9M18, net revenues amounted to R$ 5,261 million, 20% greater than 9M17.

Cost of goods sold—Total of R$ 1,625 million (+25%), principally due to readjustments in LPG costs. In relation to 2Q18, the cost of goods sold increased by 5% due to greater sales volume and readjustments in LGP costs. In 9M18, cost of goods sold amounted to R$ 4,601 million, a growth of 25% in relation to 9M17.

Sales, general and administrative expenses (SG&A)—Total of R$ 145 million (-10%), due to: (i) lower expenses with strategic consultancies, (ii) lower provisions for doubtful debts, (iii) lower marketing expenditures, and (iv) lower freight expenditures, reflecting the migration of clients from delivery CIF to FOB. In relation to 2Q18, SG&A expenses increased 8%, mainly due to the non-recurring effect of the reevaluation of the provision for estimated losses in 2Q18 with the reversal of R$ 9 million. In 9M18, SG&A expenses totaled R$ 411 million, 13% less than the same period in 2017.

EBITDA—Total of R$ 159 million (0%) due to initiatives adopted for reducing costs and expenses, thus neutralizing the impact on results of lower sales volume. In relation to 2Q18, Ultragaz’s EBITDA rose 7% due to higher sales volume and the greater share of bulk in the overall sales mix. In 9M18, EBITDA ex-fine imposed following the rejection of the proposed acquisition of Liquigás in 1Q18, totaled R$ 424 million, a growth of 8% in relation to 9M17.

Investments—Ultragaz invested R$ 54 million, allocated mainly to clients in the bulk segment, gas bottles and IT with a focus on the strategy of differentiation and innovation. In 9M18, investments totaled R$ 171 million.

 

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Ultracargo

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v 3Q17

    

D (%)

3Q18 v 2Q18

     9M18      9M17     

D (%)

9M18 v 9M17

 

Effective storage¹ (000 m³)

    765       729       786       5%        (3%      758        717        6%  

EBITDA (R$ million)

    44       40       54       10%        (19%      139        88        58%  

 

1

Monthly average

Operational performance—Ultracargo’s average storage rose 5% in relation to 3Q17 due to increased ethanol handling at the Suape and Santos port terminals, despite the reduced handling of fuels at the Suape and Itaqui terminals. Compared with 2Q18, average storage at the terminals fell 3%, due to reduced fuel and ethanol handling activity in Suape, but partially offset by more intensive ethanol operations in Santos. In 9M18, Ultracargo’s average storage increased by 6% in relation to 9M17.

Net revenues—Total of R$ 124 million in 3Q18 (+11%), driven by increased average storage and by higher average prices. In relation to 2Q18, net revenues fell 2% due to lower average storage in the quarter. In 9M18, net revenues totaled R$ 367 million, 15% higher than 9M17.

Cost of services provided—Total of R$ 62 million (+12%), due to greater expenditures in Santos due to the partial resumption in operations at the terminal. In relation to 2Q18, the cost of services provided rose by 2% due to greater expenditures with maintenance. In 9M18, the cost of services provided amounted to R$ 182 million, an increase of 14% in relation to 9M17.

Sales, general and administrative expenses (SG&A)—Total of R$ 31 million (+13%), due to higher payroll expenses and consultancies for new projects. In relation to 2Q18, SG&A increased 29%, influenced by a non-recurring credit of R$ 8 million in 2Q18, with the recovery of an improperly charged port management fee. In 9M18, SG&A expenses amounted to R$ 83 million, year-over-year 3% greater.

EBITDA—Total of R$ 44 million (+10%) due to higher average storage in the period and higher average prices at the terminals. In relation to 2Q18, EBITDA fell 19%, due to the receipt of non-recurring credits amounting to R$ 8 million in 2Q18, as mentioned above, and lower activity in the period. In 9M18, Ultracargo’s EBITDA amounted to R$ 139 million, a growth of 58% in relation to 9M17.

Investments—Ultracargo invested R$ 36 million in the period, mainly allocated to expansion at the Itaqui terminal and maintenance and modernization of terminal safety systems and processes. In 9M18, investments amounted to R$ 86 million.

 

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Extrafarma

 

 

 

     3Q18     3Q17     2Q18    

D (%)

3Q18 v 3Q17

    

D (%)

3Q18 v 2Q18

   9M18      9M17     

D (%)

9M18 v 9M17

Gross Revenues (R$ million)

    515       501       559       3%      (8%)      1,615        1,459      11%

Drugstores (end of period)

    414       366       406       13%      2%      414        366      13%

% of mature stores (+ 3 years)

    47%       49%       46%       (2.6 p.p.    0.6 p.p.      47%        49%      (2.6 p.p.)

EBITDA (R$ million)

    (24     7       (7     na      na      (31      20      na

Operational performance—Extrafarma ended 3Q18 with 414 stores, 77 openings and 29 closures in the past 12 months, equivalent to an increase of 13%. At the end of 3Q18, still maturing stores (up to three years of operations) represented 53% of the store network compared with 51% in 3Q17, reflecting the accelerated expansion of the network. In relation to 2Q18, Extrafarma opened 21 new stores and closed 13, as a result of a higher churn ratio specifically in this quarter.

Gross Revenue—Total of R$ 515 million (+3%), due to the growth of 9% in retail sales, a reflection of the higher number of stores and the annual readjustment in medicine prices. These effects were attenuated by the non-recurring impact of the replacement of the retailing system in June and temporarily affected operations during the stabilization phase. In relation to 2Q18, gross revenue declined 8% largely due to the non-recurring effects of the aforementioned IT migration in the retailing system. In 9M18, Extrafarma’s gross revenue was R$ 1,615 million, 11% higher than the same period for 2017.

Cost of goods sold and gross profit—Cost of goods sold totaled R$ 346 million (+7%), due to improving sales and the annual readjustment in medicine prices. Gross profit was R$ 143 million (-4%), principally due to the substitution of the retailing system, which impacted sales, and by more intensive promotional activities and the network’s more extensive geographical coverage. In relation to 2Q18, the cost of goods sold and the gross profit recorded a reduction of 6% and 11% respectively, due to a reduction in sales and lower trade marketing funds from industries in the period. In 9M18, the cost of goods sold amounted to R$ 1,073 million and gross profit R$ 456 million, 15% and 4% more than 9M17, respectively.

Sales, general and administrative expenses (SG&A)—Total of R$ 178 million (+13%), reflecting the higher number of stores. Excluding the effect of new stores, SG&A expenses fell by 4% on an annual comparative basis. This was mainly the result of initiatives implemented for improving productivity and reducing expenses, particularly payroll, logistics and card fees. In relation to 2Q18, SG&A expenses fell 3% due to lower expenses with payroll, publicity and advertising and logistics, in spite of a higher average number of stores. In 9M18, SG&A expenses were R$ 531 million, 16% higher than 9M17.

EBITDA—Total of R$ 24 million negative compared to R$ 7 million in 3Q17, due to: (i) the non-recurring effects relating to the substitution of the retailing system and the investments write-off given the higher churn ratio, with an impact on results of R$ 26 million, and (ii) the greater number of new and still-maturing stores. Excluding the non-recurring effects, EBITDA would have been R$ 2 million in 3Q18. In relation to 2Q18, EBITDA fell due to non-recurring effects already mentioned – stabilization of the retailing system and investments write-off. In 9M18, Extrafarma’s EBITDA was R$ 31 million negative, compared with an EBITDA of R$ 20 million in 9M17.

Investments—Extrafarma invested R$ 29 million, allocated largely to the opening of new stores and IT, in order to enhance the shopping experience and operational excellence. In 9M18, Extrafarma invested R$ 68 million.

 

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Ultrapar

 

 

 

Values in R$ million
(except EPS)
  3Q18     3Q17     2Q18    

D (%)

3Q18 v 3Q17

    

D (%)

3Q18 v 2Q18

     9M18      9M17     

D (%)

9M18 v 9M17

 

Net sales and services

    23,834       20,342       22,646       17%        5%        67,231        57,882        16%  

Net earnings¹

    323       545       241       (41%      34%        637        1,136        (44%

Earnings per share attributable to Ultrapar shareholders²

    0.60       1.01       0.45       (40%      35%        1.19        2.09        (43%

Adjusted EBITDA

    850       1,221       718       (30%      18%        2,076        2,934        (29%

Investments

    492       542       437       (9%      13%        1,533        1,511        1%  

 

¹

Under IFRS, consolidated net earnings includes net earnings attributable to the stake of non-controlling shareholders of the controlled companies

²

Calculated in Reais based on the weighted average number of shares over the period net of shares held as treasury stock

Net revenues—Total of R$ 23,834 million (+17%) due to growth in revenues at all the businesses. In relation to 2Q18, net revenues increased 5%, the result of higher revenues at Ipiranga, Oxiteno e Ultragaz. In 9M18, net revenues amounted to R$ 67,231 million, 16% higher than the same period in 2017.

Adjusted EBITDA—Total of R$ 850 million (-30%) and reflecting lower EBITDA at Ipiranga and Extrafarma, and higher EBITDA at Oxiteno, Ultragaz e Ultracargo. Compared with 2Q18, Adjusted EBITDA increased by 18% due to a higher EBITDA at Ipiranga, Oxiteno and Ultragaz. In 9M18, Adjusted EBITDA amounted to R$ 2,076 million, 29% less than 9M17, impacted by the fine following the rejection of the Liquigás acquisition.

Depreciation and amortization³—Total of R$ 296 million (+6%) reflecting the investments made over the past 12 months. Compared with 2Q18, total costs and expenses with depreciation and amortization rose 2%. In 9M18, depreciation and amortization totaled R$ 885 million, a growth of 2% in relation to 9M17.

Financial results—Ultrapar reported net debt on September 30, 2018 of R$ 9.2 billion (2.9x LTM Adjusted EBITDA) compared with R$ 6.8 billion on September 30, 2017 (1.7x LTM Adjusted EBITDA). The increased leverage mainly reflects lower EBITDA LTM and higher working capital in the period, despite the practically stable investment amount compared to the same period of the previous year. Ultrapar’s net financial expenses were R$ 59 million, R$ 62 million less than when compared with 3Q17, due to: (i) the decline in the Interbank Rate (CDI) year-over-year despite the increase in net debt, (ii) the depreciation in Ultrapar’s shares relative to the subscription warrant (issued in association with Extrafarma), and (iii) the effects of currency variations in the periods. In relation to 2Q18, net finance expenses fell R$ 6 million, principally due to the effects of currency variations in the periods under review, partially compensated by lower depreciation of Ultrapar’s shares relative to the subscription warrant. In 9M18, net financial expenses amounted to R$ 230 million, a decrease of 35% compared to 9M17.

Net earnings—Total of R$ 323 million (-41%), due to lower EBITDA, despite the reduction in financial expenses. In relation to 2Q18, net earnings increased 34%, principally due to higher EBITDA. In 9M18, net income amounted to R$ 637 million, 44% less than 9M17. Excluding the effects of the fine, net earnings would have been R$ 826 million in 9M18.

Operational cash flow—Total of R$ 1,443 million in 9M18, compared with R$ 1,368 million in 9M17, due to lower tax payments, reflecting lower earnings and greater use of credits for compensating taxes, offset by higher investments in working capital, the result of insurance reimbursements during 2017.

 

 

³

Includes amortization of contractual assets with customers—exclusive rights

 

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Capital markets

 

 

Ultrapar reported a financial trading volume of R$ 123 million/day (-12%) in 3Q18, including trading on both B3 and NYSE. Ultrapar’s share price closed the quarter at R$ 37.33 on B3, a decline of 19% in the quarter while the Ibovespa stock index rose 9% in the same period. Ultrapar’s shares on the NYSE depreciated 22% in 3Q18, while the Dow Jones Industrial Average appreciated by 9% in the same period. Ultrapar ended 3Q18 with a market capitalization of R$ 21 billion.

 

Capital markets   3Q18     3Q17     2Q18     9M18      9M17  

Number of shares (000)

    556,405       556,405       556,405       556,405        556,405  

Market capitalization¹ (R$ million)

    20,771       41,903       25,567       20,771        41,903  

B3

                                        

Average daily volume (shares)

    2,129,349       1,379,750       1,863,487       1,714,370        1,300,357  

Average daily volume (R$ 000)

    88,953       101,662       101,427       92,040        93,470  

Average share price (R$/share)

    41.77       73.68       54.43       53.69        71.88  

NYSE

                                        

Quantity of ADRs² (000 ADRs)

    31,971       28,791       31,178       31,971        28,791  

Average daily volume (ADRs)

    812,594       520,579       787,475       697,605        541,059  

Average daily volume (US$ 000)

    8,575       12,186       11,883       10,677        12,235  

Average share price (US$/ADR)

    10.55       23.41       15.09       15.31        22.61  

Total

                                        

Average daily volume (shares)

    2,941,943       1,900,329       2,650,962       2,411,975        1,841,416  

Average daily volume (R$ 000)

    122,725       140,112       144,205       130,076        132,337  

 

1

Calculated based on the closing price of the period

²

1 ADR = 1 common share

Performance UGPA3 x Ibovespa—3Q18

(June 29, 2018 = 100)

 

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Debt (R$ million)

 

 

 

Ultrapar consolidated   3Q18     3Q17     2Q18  

Gross Debt

    (15,620.1     (13,122.4     (15,044.7

Cash and cash equivalents

    6,428.8       6,355.8       6,119.3  

Net debt

    (9,191.3     (6,766.6     (8,925.5

Net debt/Adjusted EBITDA LTM

    2.94x       1.67x       2.55x  

Average cost of debt (% CDI)

    96.2%       96.4%       95.7%  

Average cash yield (% CDI)

    95.6%       96.2%       93.8%  

Debt amortization profile:

 

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Debt breakdown:

 

Local currency

    9,493.8  

Foreign currency

    6,069.7  

Result from currency and interest hedge instruments

    56.6  

Total

    15,620.1  

 

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ULTRAPAR

In million Reais

CONSOLIDATED BALANCE SHEET

 

     QUARTERS ENDED IN  
     SEP 18     SEP 17     JUN 18  

ASSETS

  

Cash and cash equivalents

     3,751.7       4,953.2       3,940.4  

Financial investments

     2,484.9       1,306.5       2,029.7  

Trade receivables and reseller financing

     4,796.3       3,724.0       4,403.6  

Inventories

     3,163.9       2,988.1       3,076.5  

Taxes

     948.1       667.6       965.7  

Contractual assets with customers—exclusive rights

     487.2       462.4       471.1  

Other

     274.2       211.3       274.3  

Total Current Assets

     15,906.3       14,313.1       15,161.2  

Financial investments

     192.3       96.1       149.2  

Trade receivables and reseller financing

     377.5       269.4       350.8  

Deferred income and social contribution taxes

     746.0       536.1       727.9  

Escrow deposits

     868.2       817.4       839.3  

Contractual assets with customers—exclusive rights

     1,012.1       1,007.1       1,012.2  

Other

     1,020.4       594.2       981.2  

Investments

     129.9       153.6       128.9  

Property, plant and equipment and intangible assets

     9,552.7       8,126.8       9,322.2  

Total Non-Current Assets

     13,899.1       11,600.7       13,511.7  

TOTAL ASSETS

     29,805.3       25,913.8       28,672.9  

LIABILITIES

  

Loans, financing and debentures

     3,641.6       2,955.4       4,128.6  

Trade payables

     2,121.3       1,578.9       1,651.0  

Salaries and related charges

     421.3       391.2       344.0  

Taxes

     253.7       198.8       257.4  

Other

     331.0       453.3       311.0  

Total Current Liabilities

     6,768.8       5,577.6       6,692.0  

Loans, financing and debentures

     11,978.5       10,167.0       10,916.1  

Provisions for tax, civil and labor risks

     875.3       653.6       871.3  

Post-employment benefits

     221.5       129.1       218.3  

Other

     397.5       349.8       407.4  

Total Non-Current Liabilities

     13,472.8       11,299.6       12,413.2  

TOTAL LIABILITIES

     20,241.6       16,877.2       19,105.2  

SHAREHOLDERS’ EQUITY

  

Capital

     5,171.8       5,171.8       5,171.8  

Reserves

     4,179.8       3,611.0       4,180.1  

Treasury shares

     (484.2     (480.2     (484.1

Other

     333.7       706.9       366.5  

Non-controlling interests in subsidiaries

     362.6       27.1       333.4  

Total shareholders’ equity

     9,563.7       9,036.6       9,567.7  

TOTAL LIAB. AND SHAREHOLDERS’ EQUITY

     29,805.3       25,913.8       28,672.9  

Cash and financial investments

     6,428.8       6,355.8       6,119.3  

Debt

     (15,620.1     (13,122.4     (15,044.7

Net cash (debt)

     (9,191.3     (6,766.6     (8,925.5

 

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ULTRAPAR

In million Reais

CONSOLIDATED INCOME STATEMENT

 

     3Q18     3Q17     2Q18     9M18     9M17  

Net revenue from sales and services

     23,834.2       20,341.6       22,645.6       67,230.9       57,882.4  

Cost of products and services sold

     (22,209.1     (18,364.2     (21,186.5     (62,625.5     (52,888.0

Gross profit

     1,625.1       1,977.4       1,459.0       4,605.4       4,994.4  

Operating expenses

          

Selling and marketing

     (683.4     (644.7     (662.5     (2,017.3     (1,857.0

General and administrative

     (407.1     (408.7     (397.6     (1,177.2     (1,160.6

Other operating income (expenses)

     24.4       15.7       34.9       (203.5     78.7  

Gain (loss) on disposal of property, plant and equipment and intangibles

     (2.5     (0.6     (2.4     (7.1     (0.8

Operating income

     556.5       939.1       431.5       1,200.3       2,054.7  

Financial results

          

Financial income

     145.0       150.0       192.2       449.6       451.3  

Financial expenses

     (203.8     (270.8     (256.6     (679.8     (806.1

Share of profit of subsidiaries, joint ventures and associates

     (2.8     4.0       (3.4     (9.2     16.1  

Income before income and social contribution taxes

     494.9       822.3       363.7       961.0       1,716.0  

Provision for income and social contribution taxes

          

Current

     (185.9     (392.9     (47.7     (372.1     (715.5

Deferred

     (15.9     102.9       (104.8     (28.2     108.9  

Benefit of tax holidays

     30.1       12.8       29.5       76.0       27.0  

Net income

     323.2       545.1       240.7       636.7       1,136.4  

Net income attributable to:

          

Shareholders of the Company

     327.3       544.7       241.6       642.8       1,132.8  

Non-controlling interests in subsidiaries

     (4.1     0.5       (0.9     (6.0     3.7  

Adjusted EBITDA

     849.7       1,221.5       718.1       2,075.9       2,934.1  

Depreciation and amortization¹

     296.0       278.3       290.0       884.7       863.2  

Total investments²

     492.2       542.1       437.0       1,532.7       1,511.2  

RATIOS

          

Earnings per share—R$

     0.60       1.01       0.45       1.19       2.09  

Net debt / Stockholders’ equity

     0.96       0.75       0.93       0.96       0.75  

Net debt / LTM Adjusted EBITDA

     2.94       1.67       2.55       2.94       1.67  

Net interest expense / Adjusted EBITDA

     0.07       0.10       0.09       0.11       0.12  

Gross margin

     6.8%       9.7%       6.4%       6.9%       8.6%  

Operating margin

     2.3%       4.6%       1.9%       1.8%       3.5%  

Adjusted EBITDA margin

     3.6%       6.0%       3.2%       3.1%       5.1%  

Number of employees

     16,936       15,985       16,965       16,936       15,985  

 

¹

Includes amortization with contractual assets with customers—exclusive rights

²

Includes property, plant and equipment and additions to intangible assets, contractual assets with customers, financing of clients and rental advances (net of repayments) and acquisition of shareholdings

 

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ULTRAPAR

In million Reais

CONSOLIDATED CASH FLOW

 

     JAN—SEP     JAN—SEP  
     2018     2017  

Cash flows from operating activities

    

Net income for the period

     636.7       1,136.4  

Adjustments to reconcile net income to cash provided by operating activities

 

Share of loss (profit) of subsidiaries, joint ventures and associates

     9.2       (16.1

Amortization of contractual assets with customers—exclusive rights

     282.4       346.2  

Depreciation and amortization

     602.3       517.0  

PIS and COFINS credits on depreciation

     11.8       9.8  

Interest, monetary, and foreign exchange rate variations

     810.3       589.8  

Deferred income and social contribution taxes

     28.2       (108.9

(Gain) loss on disposal of property, plant and equipment and intangibles

     7.1       0.8  

Estimated losses on doubtful accounts

     73.4       102.0  

Provision for losses in inventories

     6.2       5.1  

Provision for post-employment benefits

     9.7       8.2  

Other provisions and adjustments

     (1.1     (0.5
     2,476.2       2,589.8  

(Increase) decrease in current assets

 

Trade receivables and reseller financing

     (721.9     (437.8

Inventories

     348.2       (204.6

Taxes

     (62.7     (125.9

Dividends received from subsidiaries and joint ventures

     43.4       29.7  

Insurance and other receivables

     (64.1     299.6  

Prepaid expenses

     (0.5     3.3  

Contractual assets with customers—exclusive rights

     (31.0     (14.0

Increase (decrease) in current liabilities

 

Trade payables

     (34.2     (130.8

Salaries and related charges

     33.1       28.5  

Taxes

     32.1       30.4  

Income and social contribution taxes

     101.1       613.6  

Post-employment benefits

     (1.4     (1.7

Provision for tax, civil, and labor risks

     5.8       1.9  

Insurance and other payables

     (83.3     (17.0

Deferred revenue

     1.7       (1.6

(Increase) decrease in non-current assets

 

Trade receivables and reseller financing

     (47.3     (42.3

Taxes

     (105.5     (101.7

Escrow deposits

     (45.5     (38.7

Other receivables

     5.6       1.6  

Prepaid expenses

     (56.1     (82.1

Contractual assets with customers—exclusive rights

     31.0       25.9  

Increase (decrease) in non-current liabilities

    

Post-employment benefits

     4.0       1.1  

Provision for tax, civil, and labor risks

     14.0       (73.4

Other payables

     18.9       9.6  

Deferred revenue

     (0.3     0.0  

Payments of contractual assets with customers—exclusive rights

     (279.4     (389.4

Income and social contribution taxes paid

     (139.5     (606.1

Net cash provided by operating activities

     1,442.5       1,367.8  

Cash flows from investing activities

    

Financial investments, net of redemptions

     (1,289.7     23.8  

Cash and cash equivalents of subsidiary acquired

     3.7       —    

Acquisition of property, plant, and equipment

     (856.8     (824.8

Acquisition of intangible assets

     (186.4     (163.9

Acquisiton of companies

     (103.4     —    

Capital increase in joint ventures

     (24.0     (16.0

Capital reduction in associates

     1.3       —    

Proceeds from disposal of property, plant and equipment and intangibles

     32.0       40.4  

Net cash used in investing activities

     (2,423.3     (940.5

Cash flows from financing activities

    

Loans and debentures

    

Proceeds

     3,295.8       3,292.2  

Repayments

     (2,299.2     (1,584.3

Interest paid

     (515.0     (535.3

Payments of financial lease

     (3.8     (3.9

Dividends paid

     (790.7     (940.2

Related parties

     (0.1     —    

Net cash provided by (used in) financing activities

     (313.0     228.6  

Effect of exchange rate changes on cash and cash equivalents in foreign currency

     43.4       23.1  

Increase (decrease) in cash and cash equivalents

     (1,250.3     679.1  

Cash and cash equivalents at the beginning of the year

     5,002.0       4,274.2  

Cash and cash equivalents at the end of the year

     3,751.7       4,953.2  

 

15


Table of Contents

LOGO

 

IPIRANGA

In million Reais

CONSOLIDATED BALANCE SHEET

 

     QUARTERS ENDED IN  
     SEP 18      SEP 17      JUN 18  

OPERATING ASSETS

        

Trade receivable

     3,431.8        2,702.9        3,186.2  

Trade receivable—noncurrent portion

     338.0        233.8        311.3  

Inventories

     1,750.7        1,822.9        1,685.0  

Taxes

     630.2        360.6        588.7  

Contractual assets with customers—exclusive rights

     1,499.3        1,469.5        1,483.3  

Other

     901.9        510.5        842.3  

Property, plant and equipment, intangibles and investments

     3,483.9        2,869.4        3,373.8  

TOTAL OPERATING ASSETS

     12,035.9        9,969.5        11,470.6  

OPERATING LIABILITIES

        

Suppliers

     1,401.0        1,108.3        1,017.7  

Salaries and related charges

     109.0        105.8        87.2  

Post-employment benefits

     197.3        109.3        195.9  

Taxes

     176.0        132.9        178.7  

Judicial provisions

     333.7        106.5        329.6  

Other accounts payable

     253.4        209.3        238.5  

TOTAL OPERATING LIABILITIES

     2,470.5        1,772.1        2,047.5  

CONSOLIDATED INCOME STATEMENT

 

     3Q18     3Q17     2Q18     9M18     9M17  

Net sales

     20,006.5       17,165.0       19,067.6       56,590.4       49,003.1  

Cost of products and services sold

     (19,162.0     (15,870.3     (18,314.3     (54,050.4     (45,879.0

Gross profit

     844.5       1,294.7       753.3       2,540.1       3,124.1  

Operating expenses

          

Selling

     (337.1     (323.6     (334.7     (1,035.2     (935.0

General and administrative

     (207.0     (212.8     (206.1     (598.5     (586.1

Other operating income (expenses)

     22.1       15.0       30.9       74.2       56.9  

Income from sale of assets

     12.8       0.1       (0.9     11.2       (0.3

Operating income

     335.2       773.4       242.5       991.7       1,659.5  

Equity in earnings (losses) of affiliates

     0.4       0.3       0.3       0.9       0.9  

Adjusted EBITDA

     496.8       934.7       401.5       1,483.7       2,189.2  

Depreciation and amortization¹

     161.2       161.0       158.7       491.1       528.7  

RATIOS

          

Gross margin (R$/m3)

     136       214       129       145       178  

Operating margin (R$/m3)

     54       128       41       57       95  

Adjusted EBITDA margin (R$/m3)

     80       154       69       85       125  

Adjusted EBITDA margin (%)

     2.5%       5.4%       2.1%       2.6%       4.5%  

Number of service stations

     8,018       7,814       8,044       8,018       7,814  

Number of employees

     3,324       3,008       3,347       3,324       3,008  

 

¹

Includes amortization with contractual assets with customers—exclusive rights

 

16


Table of Contents

LOGO

 

OXITENO

In million Reais

CONSOLIDATED BALANCE SHEET

 

     QUARTERS ENDED IN  
     SEP 18      SEP 17      JUN 18  

OPERATING ASSETS

        

Trade receivable

     777.2        551.4        654.5  

Inventories

     770.2        696.8        811.5  

Taxes

     169.9        149.1        162.1  

Other

     138.1        146.3        142.2  

Property, plant and equipment, intangibles and investments

     2,542.3        1,956.8        2,450.5  

TOTAL OPERATING ASSETS

     4,397.7        3,500.5        4,220.9  

OPERATING LIABILITIES

        

Suppliers

     435.5        214.4        394.9  

Salaries and related charges

     113.4        86.2        85.9  

Taxes

     42.5        36.2        38.1  

Judicial provisions

     22.6        15.7        16.8  

Other accounts payable

     33.8        50.5        33.7  

TOTAL OPERATING LIABILITIES

     647.8        403.0        569.5  

CONSOLIDATED INCOME STATEMENT

 

     3Q18     3Q17     2Q18     9M18     9M17  

Net sales

     1,368.4       1,030.0       1,180.8       3,548.5       2,827.5  

Cost of goods sold

          

Variable

     (873.8     (696.8     (775.0     (2,333.4     (1,915.5

Fixed

     (126.3     (93.5     (111.9     (341.3     (270.3

Depreciation and amortization

     (37.6     (34.4     (35.3     (109.3     (99.9

Gross profit

     330.7       205.3       258.5       764.5       541.8  

Operating expenses

          

Selling

     (95.0     (83.7     (82.6     (255.6     (224.8

General and administrative

     (98.9     (89.2     (95.0     (282.7     (260.7

Other operating income (expenses)

     2.0       2.6       1.0       4.9       52.1  

Income from sale of assets

     (8.2     0.1       (0.8     (9.3     (1.7

Operating income

     130.6       35.1       81.2       221.9       106.7  

Equity in earnings (losses) of affiliates

     0.4       0.4       0.2       1.0       1.1  

EBITDA

     173.3       73.9       121.1       345.6       219.2  

Depreciation and amortization

     42.3       38.4       39.7       122.8       111.4  

RATIOS

          

Gross margin (R$/ton)

     1,610       975       1,337       1,321       920  

Gross margin (US$/ton)

     407       308       371       367       290  

Operating margin (R$/ton)

     636       167       420       383       181  

Operating margin (US$/ton)

     161       53       116       106       57  

EBITDA margin (R$/ton)

     844       351       626       597       372  

EBITDA margin (US$/ton)

     213       111       174       166       117  

Number of employees

     1,931       1,896       1,918       1,931       1,896  

 

17


Table of Contents

LOGO

 

ULTRAGAZ

In million Reais

CONSOLIDATED BALANCE SHEET

 

     QUARTERS ENDED IN  
     SEP 18      SEP 17      JUN 18  

OPERATING ASSETS

        

Trade receivable

     403.7        300.4        381.4  

Trade receivable—noncurrent portion

     39.2        35.3        39.2  

Inventories

     119.1        122.1        108.3  

Taxes

     84.4        83.8        86.5  

Escrow deposits

     218.4        209.1        213.1  

Other

     54.3        65.7        61.9  

Property, plant and equipment, intangibles and investments

     966.8        975.8        968.1  

TOTAL OPERATING ASSETS

     1,886.0        1,792.2        1,858.4  

OPERATING LIABILITIES

        

Suppliers

     73.9        64.4        71.2  

Salaries and related charges

     117.5        126.0        99.3  

Taxes

     8.7        9.3        10.8  

Judicial provisions

     111.9        108.8        111.1  

Other accounts payable

     127.2        47.2        129.7  

TOTAL OPERATING LIABILITIES

     439.1        355.6        422.0  

CONSOLIDATED INCOME STATEMENT

 

     3Q18     3Q17     2Q18     9M18     9M17  

Net sales

     1,869.9       1,576.0       1,764.9       5,260.6       4,401.2  

Cost of sales and services

     (1,625.3     (1,304.2     (1,543.6     (4,601.2     (3,673.8

Gross profit

     244.5       271.7       221.4       659.4       727.4  

Operating expenses

          

Selling

     (94.8     (100.4     (83.7     (260.3     (304.0

General and administrative

     (50.2     (60.6     (51.0     (150.6     (170.6

Other operating income (expenses)

     2.0       1.0       3.8       (279.2     3.8  

Income from sale of assets

     1.1       (0.8     (0.6     (0.3     2.0  

Operating income (loss)

     102.6       111.0       89.9       (30.9     258.6  

Equity in earnings (losses) of affiliates

     (0.0     (0.0     (0.0     0.0       0.9  

EBITDA

     159.2       158.6       148.2       137.4       391.9  

Depreciation and amortization

     56.6       47.6       58.3       168.3       132.5  

RATIOS

          

Gross margin (R$/ton)

     544       590       499       506       551  

Operating margin (R$/ton)

     228       241       202       (24     196  

EBITDA margin (R$/ton)

     354       345       334       105       297  

Number of employees

     3,556       3,638       3,587       3,556       3,638  

 

18


Table of Contents

LOGO

 

ULTRACARGO

In million Reais

CONSOLIDATED BALANCE SHEET

 

     QUARTERS ENDED IN  
     SEP 18      SEP 17      JUN 18  

OPERATING ASSETS

        

Trade receivable

     45.8        35.3        36.3  

Inventories

     6.2        6.8        5.9  

Taxes

     8.6        0.5        17.7  

Other

     17.7        17.8        22.0  

Property, plant and equipment, intangibles and investments

     1,123.4        947.1        1,095.5  

TOTAL OPERATING ASSETS

     1,201.8        1,007.5        1,177.2  

OPERATING LIABILITIES

        

Suppliers

     28.0        26.4        23.6  

Salaries and related charges

     23.3        23.0        18.6  

Taxes

     6.7        5.7        6.9  

Judicial provisions

     24.8        26.0        25.3  

Other accounts payable¹

     59.2        129.0        101.9  

TOTAL OPERATING LIABILITIES

     142.1        210.2        176.4  

 

¹

Includes the long term obligations with clients account and the extra amount related to the acquisition of Temmar, in the port of Itaqui and payables—indemnification clients

CONSOLIDATED INCOME STATEMENT

 

     3Q18     3Q17     2Q18     9M18     9M17  

Net sales

     124.3       112.3       126.6       366.8       319.4  

Cost of sales and services

     (62.1     (55.2     (60.8     (181.7     (159.2

Gross profit

     62.2       57.1       65.7       185.1       160.2  

Operating expenses

          

Selling

     (2.0     (2.2     (2.0     (5.8     (5.7

General and administrative

     (28.6     (24.8     (21.7     (77.1     (74.6

Other operating income (expenses)

     (1.5     (2.7     (1.3     (3.5     (34.0

Income from sale of assets

     (0.0     (0.0     (0.0     (0.0     4.9  

Operating income

     30.1       27.3       40.7       98.7       50.9  

Equity in earnings (losses) of affiliates

     0.1       0.5       0.7       1.5       1.3  

EBITDA

     43.7       39.7       54.2       138.9       87.7  

Depreciation and amortization

     13.4       11.9       12.8       38.7       35.4  

RATIOS

          

Gross margin

     50.1%       50.8%       51.9%       50.5%       50.2%  

Operating margin

     24.2%       24.3%       32.2%       26.9%       15.9%  

EBITDA margin

     35.1%       35.4%       42.8%       37.9%       27.5%  

Number of employees

     711       709       724       711       709  

 

19


Table of Contents

LOGO

 

EXTRAFARMA

In million Reais

BALANCE SHEET

 

     QUARTERS ENDED IN  
     SEP 18      SEP 17      JUN 18  

OPERATING ASSETS

        

Trade receivable

     147.6        143.3        154.2  

Inventories

     517.6        339.5        465.8  

Taxes

     113.9        104.3        109.2  

Other

     24.8        17.5        19.5  

Property, plant and equipment and intangibles

     1,138.4        1,078.6        1,136.3  

TOTAL OPERATING ASSETS

     1,942.4        1,683.2        1,885.1  

OPERATING LIABILITIES

        

Suppliers

     187.3        170.2        150.5  

Salaries and related charges

     57.8        50.0        52.7  

Taxes

     19.1        14.0        21.9  

Judicial provisions

     48.7        61.1        48.8  

Other accounts payable

     13.0        11.2        12.3  

TOTAL OPERATING LIABILITIES

     325.9        306.5        286.2  

INCOME STATEMENT

 

     3Q18     3Q17     2Q18     9M18     9M17  

Gross Revenues

     514.5       500.8       558.7       1,615.2       1,458.5  

Sales returns, discounts and taxes

     (25.8     (28.1     (29.7     (85.9     (81.7

Net sales

     488.7       472.7       529.0       1,529.3       1,376.8  

Cost of products and services sold

     (345.5     (324.1     (369.0     (1,073.1     (936.0

Gross profit

     143.2       148.5       160.1       456.3       440.8  

Operating expenses

     (177.7     (157.0     (183.5     (530.9     (458.9

Other operating income (expenses)

     (0.3     (0.1     0.1       (0.4     (0.2

Income from sale of assets

     (8.3     (0.0     (0.1     (8.7     (5.7

Operating loss

     (43.1     (8.6     (23.5     (83.8     (23.9

EBITDA

     (24.4     7.0       (6.7     (31.3     20.3  

Depreciation and amortization

     18.7       15.6       16.8       52.5       44.2  

RATIOS1

          

Gross margin

     27.8%       29.7%       28.6%       28.2%       30.2%  

Operating margin

     -8.4%       -1.7%       -4.2%       -5.2%       -1.6%  

EBITDA margin

     -4.7%       1.4%       -1.2%       -1.9%       1.4%  

Number of employees

     6,951       6,280       6,940       6,951       6,280  

 

1 

Calculated base on gross revenues

 

20


Table of Contents

ULTRAPAR PARTICIPAÇÕES S.A.

Publicly Traded Company

 

CNPJ nº 33.256.439/0001-39    NIRE 35.300.109.724

MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS (11/2018)

Date, Time and Location:

November 7, 2018, at 2:30 p.m., at the Company’s headquarters, located at Av. Brigadeiro Luís Antônio, nº 1343, 9th floor, in the City and State of São Paulo.

Attendance:

(i) Members of the Board of Directors herein signed; (ii) Mr. Paulo Guilherme Aguiar Cunha, as Chairman Emeritus of the Board of Directors; and (iii) the member of the Fiscal Board, Mr. Flávio Cesar Maia Luz, in relation to the item number 1 of the agenda.

Agenda and decisions:

 

  1.

After having analyzed and discussed the performance of the Company in the third quarter of this fiscal year, were approved the financial statements of the Company.

 

  2.

The Directors discussed the integrated strategic planning of the Company and its subsidiaries.

 

  3.

The Directors approved, pursuant article 28, item “p” of the Company´s Bylaws, the 8th (eighth) issuance, by Ipiranga Produtos de Petróleo S.A. (“Ipiranga”), wholly-owned subsidiary of the Company, of simple debentures, non-convertible into shares, unsecured, with additional personal guarantee, in 02 (two) series (“First Series” and “Second Series” and, together, “Series”) for private placement to Vert Companhia Securitizadora (“Debentureholder” or “Securitization Company”, “Issuance” and “Debentures”, respectively), with the following characteristics and main conditions, that will be detailed and regulated in the Indenture:

 

  (a)

Total Amount of the Issuance: The total issuance amount is up to R$ 900,000,000.00 (nine hundred million Reais), on the Issuance date. The amount may be reduced, up to the final demand of the respective Certificates of Agribusiness Receivables (“CRA”) to which the Debentures will be linked, as provided in item “c” below, without the need for a General Meeting of Debenture Holders or a new corporate approval by Ipiranga and/or by the Company;

 

  (b)

Quantity of Series: The Issuance will be divided into two Series, and the total amount of the Issuance will be allocated among the Series according to the demand of the Debenture. The amount may be canceled, up to the final demand of the respective CRA to which the Debentures will be linked, as provided in item “c” below, without the need for a General Meeting of Debenture Holders or a new corporate approval by Ipiranga and/or by the Company;

 

  (c)

Binding to the Issuance of CRA: After the subscription of the Debentures, acquisitions by Securitization Company, considering the fiduciary regime stablished by the Securitization Company, all amounts due to the Securitization Company as a consequence of the Debentures shall be bound, respectively, to the 1st (first) and the 2nd (second) series of the twentieth issuance of CRA of the Securitization Company, in the scope of securitization of credits of the agribusiness, as provided by Law 11,076, Law n.º 9.514, of November 20, 1997, as amended, CVM Instruction 400, CVM Instruction nº 600, of August 1, 2018 and in terms of the “Securitization Term of Credit Rights of Agribusiness for the issuance of Real Estate Receivable of Agribusiness of the 1st and 2nd Series of the 20th Issuance of Vert Companhia Securitizadora;

 

  (d)

Adjustment of the Unit Par Value: The unit par value of the Debentures of First Series will not be subject to monetary adjustment. The unit par value of the Second-Series Debentures shall be adjusted, as from the date of payment of the Second-Series Debenture, by the IPCA index, as per calculation to be described in the Indenture;

 

  (e)

Amortization of the Debentures: The unit par value of the Debentures will be fully redeemed by Ipiranga, in a single tranche at the final maturity dates, except in case of early maturity, redemption offer, optional or mandatory early redemption of the Debentures, pursuant to the indenture of the Issuance;

 


Table of Contents

(Minutes of the Meeting of the Board of Director s of Ultrapar Participações S.A., held on November 7, 2018)

 

  (f)

Effective Term of the Debentures: The effectiveness of the First Series will be 5 (five) years from the Issuance date and of the Second Series will be 7 (seven) years from the Issuance date, except for the events of early maturity, early redemption offer, early optional or mandatory redemption of Debentures, pursuant to the Indenture;

 

  (g)

Compensation of the Debentures: As of the first payment, the First-Series Debentures will be entitled to compensatory interest, calculated on exponential, cumulative, pro rata temporis basis, levied on the unit par value of the First-Series Debentures or the balance of the unit par value of the First-Series Debentures, equivalent to ninety six nine point fifty percent (96.5099.00%) of the average Interbank Deposit (DI) rate, calculated as described in the Indenture. As from the payment date of the Second-Series Debentures, the Second-Series Debentures are entitled to compensatory interest, levying on the restated unit par value of the Second-Series Debentures, corresponding of up to 100% of the IPCA Treasury’s internal return rate + half-annual interest, with maturity in 2026, exponentially reduced by zero point ten (0.10) percent compensation per annum, based on two hundred and fifty-two (252) business days, calculated on exponential, cumulative, pro rata temporis basis, as described in the Indenture;

 

  (h)

Payment of the compensation of the Debentures: The amounts related to the compensation of the First-Series Debentures shall be paid half-annually, and the amounts related to the Second-Series Debentures Compensation shall be paid annually;

 

  (i)

Default Charges: Without prejudice of the compensation, upon payment delay of any pecuniary obligations related to the Debentures, the overdue and unpaid debts shall be increased by interest on arrears of one percent (1%) per month, calculated pro rata temporis, from the date of default to the effective payment date, as well as a non-compensatory fine of two percent (2%) on the amount due, regardless of any warning, notice, notification or judicial or extrajudicial notifications (“Default Charges”).

 

  (j)

Other characteristics: will be defined in the Indenture.

 

  3.1

The Board of Directors authorized the provision of guarantee, by the Company, in relation to the main and ancillary obligations, including, but not limited to, compensation and Default Charges, to be undertaken by Ipiranga under the Issuance (“Guarantee”), which shall be valid in all its terms until the full payment of the secured obligations (under the Indenture). The Guarantee shall be irrevocably and irreversibly provided, and the Company undertakes the condition of guarantor and main payer, jointly and severally liable with Ipiranga, for the full payment on time of the total debt amount represented by the Debentures, plus the relevant compensation and applicable Default Charges, as well as the other pecuniary obligations provided in the Indenture. The Guarantee may be executed and demanded by the holder of the Debentures, on a judicial or extrajudicial basis, whenever necessary to ensure the full settlement of the secured obligations.

 

  3.2

The Board of Directors decided to authorize the Company’s Board of Executive Officers and Board of Executive Officers of Ipiranga to take any measures necessary to the implementation of the Issuance of the Debentures and provision of Guarantee, including, but not limited to the Instrument of Deed of the 8th (eighth) Issuance of Simple Debentures, non-convertible into Shares, Unsecured, with Personal Guarantee, in 2 (two) Series, for Private Placement, of Ipiranga Produtos de Petróleo S.A., to negotiate the Guarantee’s terms, including regarding the waivers of certain legal rights of the Company, set forth in the draft of the indenture filed with the CVM on October 1st, 2018, practice all acts that are necessary or convenient to the Issuance and to CRA, in order to grant guarantees and other ancillary acts that are necessary to the transaction, such as hedging, hiring of service provider for the Issuance.

 

  3.3

The Directors authorized the Company´s Board of Executive Officers to practice all acts and formalities necessary to perform the resolutions herein included, the execution of the Indenture, amendments and establishment of other terms and conditions of the transaction.

  3.4

The Director ratified all acts already practiced related to the resolutions above.

 

  4.

The Directors verified, under the terms of the Disclosure and Securities Trading Policy of the Company, the adherence of the transactions performed by the beneficiaries of the individual investment programs filed at the Company to the programs formalized by them.

 

  5.

The Directors approved the calendar of meetings for the next fiscal year.

 


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(Minutes of the Meeting of the Board of Director s of Ultrapar Participações S.A., held on November 7, 2018)

As there were no further matters to be discussed, the meeting was closed, the minutes of this meeting were written, read and approved by all the undersigned members present.

Pedro Wongtschowski – Chairman

Lucio de Castro Andrade Filho – Vice-Chairman

Carlos Tadeu da Costa Fraga

Jorge Marques de Toledo Camargo

José Maurício Pereira Coelho

Nildemar Secches

Olavo Egydio Monteiro de Carvalho


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 8, 2018

 

ULTRAPAR HOLDINGS INC.
By:   /s/ Andre Pires de Oliveira Dias

Name: Andre Pires de Oliveira Dias

Title: Chief Financial and Investor Relations Officer

(Individual and Consolidated Interim Financial Information for the Nine-Month Period Ended September 30, 2018 Report on Review of Interim Financial Information, 3Q18 Earnings release and Board of Directors Minutes)