UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

Report Of Foreign Private Issuer

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

The Securities Exchange Act Of 1934

For the month of February, 2020

Commission File Number: 001-14950

ULTRAPAR HOLDINGS INC.

(Translation of Registrant’s Name into English)

 

 

Brigadeiro Luis Antonio Avenue, 1343, 9th Floor

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        

 


ULTRAPAR HOLDINGS INC.

TABLE OF CONTENTS

 

ITEM

 

1.    2019 Financial Report
2    4Q19 and 2019 Earnings Release
3    Board of Directors minutes
4    Fiscal Council minutes
5    Notice to shareholders
6   

Material Notice Disclosure Policy and Securities Trading Policy


(Convenience Translation into English from

the Original Previously Issued in Portuguese)

Ultrapar Participações S.A.

Parent and Consolidated

Financial Statements

for the Year Ended

December 31, 2019 and

Independent Auditor’s Report

Financial Information

KPMG Auditores Independentes    

 


Ultrapar Participações S.A. and Subsidiaries

Parent and Consolidated

Financial Statements

for the Years Ended December 31, 2019 and 2018

 

 

Table of Contents

 

Report in the Individual and Consolidated Financial Statements

     3– 4  

Statements of Financial Position

     7–8  

Statements of Profit or Loss

     9  

Statements of Comprehensive Income

     10  

Statements of Changes in Equity

     11–12  

Statements of Cash Flows—Indirect Method

     13–14  

Statements of Value Added

     15  

Notes to the Financial Statements

     16–104  

 

 

2


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

Independent Auditor’s Report in the Individual and Consolidated Financial Statements

To the Shareholders of the

Ultrapar Participações S.A.

São Paulo – SP

Opinion

We have audited the individual and consolidated financial statements of Ultrapar Participações S.A. (“the Company”), respectively referred to as Parent and Consolidated, which comprise the statement of financial position as at December 31, 2019, the statements of income and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.    

In our opinion, the accompanying financial statements present fairly, in all material respects, the individual and consolidated financial position of the Ultrapar Participações S.A. as at December 31, 2019, and of its individual and consolidated financial performance and its cash flows for the year then ended in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).

Basis for Opinion

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Individual and Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical requirements included in the Accountant Professional Code of Ethics (“Código de Ética Profissional do Contador”) and in the professional standards issued by the Brazilian Federal Accounting Council (“Conselho Federal de Contabilidade”) and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Valuation of recoverable amount of goodwill on business combination

In accordance with accounting practices adopted in Brazil and with international financial reporting standards, the Company is required to annually perform the impairment test of the amounts recorded as intangible assets with indefinite useful lives, including goodwill for future profitability (“goodwill”). The acquisition of the operations of Imifarma Produtos Farmacêuticos S.A. (Extrafarma), resulted on the recognition of goodwill in the amount of R$ 661,553 thousand, as disclosed in the explanatory note 15, the recoverable amount of which must be evaluated annually. On December 31, 2019, the Company recorded an impairment of the recoverable amount of R$ 593,280 related to the goodwill recorded in Extrafarma.

The assessment of the need or not to reduce the recoverable amount is supported by an estimate of future profitability based on the business plan and budget prepared by the Company and approved by the Board of Directors, which are based on methodologies and assumptions involving estimates, such as: revenue growth rate, costs and expenses, investments, future working capital and discount rates. Assumptions about projected growth in future cash flows are based on the business plan of the Company’s segments, as well as on comparable market data.

Due to uncertainties related to assumptions and estimates that have a significant risk of resulting in a material adjustment to the accounting balances of the individual and consolidated financial statements, we consider this matter to be significant for our audit.

 

 

3


Our response

Our audit procedures included, among others:

Evaluation of the design, implementation and effectiveness of the internal control of financial projections related to the identification and measurement of the recoverable value of the cash-generating unit where the goodwill is allocated.

Within the involvement of our corporate finance specialists, for the methodology adopted by the Company and the assumptions used in the calculation of discounted cash flows, including growth and discount rates, comparison with historical information and testing of the arithmetic accuracy of the formulas used in discounted cash flow models.

Evaluation of the sensitivity analysis of significant assumptions and comparison with the budgets approved in the previous period with the actual values calculated in the current year.

Comparison of the recoverable amount calculated based on discounted cash flows, with the book value and evaluation of the disclosures made in the financial statements.

As a result of the evidence obtained through the audit procedures summarized above, we consider that the amount of goodwill on business combinations and the respective disclosures are acceptable in the context of the individual and consolidated financial statements taken as a whole.

Realization of deferred tax assets

As of December 31, 2019, the individual and consolidated financial statements include deferred tax asset amounts equivalent to R $ 1,076,223 thousand, of which R$ 278,140 thousand are related to temporary differences and R$ 798,083 thousand are related to tax losses, considered recoverable based on the generation of future taxable profits.

Estimates of future taxable income generation include the use of assumptions, judgments and estimates on cash flows, such as growth rates of revenues, costs and expenses, estimates of future investments and working capital and discount rates, which involve high degree of complexity and judgments that impact the expectation of realization of deferred tax assets in the coming years. Therefore, we consider this matter to be significant for our audit.

Our Response

Our audit procedures included, among others:

Evaluation of the design, implementation and effectiveness of the internal control of financial projections related to the realization of the registered deferred taxes.

Within the involvement of our corporate finance specialists, for the assumptions and data used by the Company in preparing the study of future taxable profits considering the projections of future cash flows. Also to assess the accuracy of the recorded balances.

Comparison of the budgets approved in the previous year with the actual values calculated in the current year.

Assessment whether the disclosures in the individual and consolidated financial statements consider all relevant information regarding deferred tax assets.

As a result of the evidence obtained through the audit procedures summarized above, we consider that the amount of deferred tax assets recorded and the respective disclosures are acceptable in the context of the individual and consolidated financial statements taken as a whole.

 

 

4


Other matters - Statements of value added

The individual and consolidated statements of value added (DVA) for the year ended December 31, 2019 prepared under the responsibility of the Company’s management, and presented herein as supplementary information for IFRS purposes, have been subject to audit procedures jointly performed with the audit of the Company’s financial statements. In order to form our opinion, we assessed whether those statements are reconciled with the financial statements and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement 09 (CPC 09) - Statement of Value Added. In our opinion, the statements of value added have been fairly prepared, in all material respects, in accordance with the criteria determined by the aforementioned Technical Pronouncement and are consistent with the overall individual and consolidated financial statements.

Other information accompanying the individual and consolidated financial statements and the auditor’s report

Management is responsible for the other information comprising the management report.

Our opinion on the individual and consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the individual and consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Individual and Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and subsidiaries or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and subsidiaries financial reporting process.

Auditors’ Responsibilities for the Audit of the Individual and Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Brazilian and international standards on auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Brazilian and international standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and its subsidiaries internal control.

 

 

5


Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s and its subsidiaries ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company and subsidiaries to cease to continue as a going concern.

 

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the individual and consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

São Paulo, February 19, 2020

KPMG Auditores Independentes

CRC 2SP014428/O-6

Original report in Portuguese signed by

Marcio Serpejante Peppe

Accountant CRC 1SP233011/O-8

 

6


Ultrapar Participações S.A. and Subsidiaries

Statements of Financial Position

as of December 31, 2019 and December 31, 2018

(In thousands of Brazilian Reais)

 

 

 

            Parent      Consolidated  

Assets

   Note      12/31/2019      12/31/2018      12/31/2019      12/31/2018  

Current assets

              

Cash and cash equivalents

     4.a        42,580        172,315        2,115,379        3,938,951  

Financial investments and hedging instruments

     4.b        95,829        565,930        3,090,212        2,853,106  

Trade receivables

     5.a        —          —          3,635,834        4,069,307  

Reseller financing

     5.b        —          —          436,188        367,262  

Inventories

     6        —          —          3,715,560        3,354,532  

Recoverable taxes

     7.a        —          —          1,122,335        639,699  

Recoverable income and social contribution taxes

     7.b        49,750        39,705        325,343        257,182  

Dividends receivable

        3,074        260,483        3,630        1,064  

Other receivables

        4,258        1,527        36,765        58,561  

Prepaid expenses

     10        2,135        1,962        111,355        187,570  

Contractual assets with customers – exclusive rights

     11        —          —          465,454        484,473  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

        197,626        1,041,922        15,058,055        16,211,707  

Non-current assets

              

Financial investments and hedging instruments

     4.b        —          —          506,506        202,349  

Trade receivables

     5.a        —          —          53,666        81,569  

Reseller financing

     5.b        —          —          364,748        348,268  

Related parties

     8.a        759,123        761,288        490        490  

Deferred income and social contribution taxes

     9.a        41,613        14,034        653,694        514,187  

Recoverable taxes

     7.a        —          —          767,360        747,180  

Recoverable income and social contribution taxes

     7.b        39,447        48,685        104,947        105,602  

Escrow deposits

     22.a        17        —          921,443        881,507  

Indemnification asset – business combination

     22.c        —          —          193,496        194,719  

Other receivables

        —          —          3,430        1,411  

Prepaid expenses

     10        255        30        69,216        399,095  

Contractual assets with customers – exclusive rights

     11        —          —          1,000,535        1,034,004  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total long term assets

        840,455        824,037        4,639,531        4,510,381  

Investments

              

In subsidiaries

     12.a        10,058,456        9,509,480        —          —    

In joint-ventures

     12.b        18,792        20,118        153,076        101,954  

In associates

     12.c        —          —          25,750        24,338  

Other

        —          —          2,793        2,795  
     

 

 

    

 

 

    

 

 

    

 

 

 
        10,077,248        9,529,598        181,619        129,087  

Right to use assets

     13        5,799        —          1,980,912        —    

Property, plant, and equipment

     14        2,532        —          7,572,762        7,278,865  

Intangible assets

     15        246,163        246,163        1,762,593        2,369,355  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current assets

        11,172,197        10,599,798        16,137,417        14,287,688  
     

 

 

    

 

 

    

 

 

    

 

 

 
              

Total assets

        11,369,823        11,641,720        31,195,472        30,499,395  
     

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of the financial statements.

 

7


Ultrapar Participações S.A. and Subsidiaries

Statements of Financial Position

as of December 31, 2019 and December 31, 2018

(In thousands of Brazilian Reais)

 

 

 

            Parent     Consolidated  

Liabilities

   Note      12/31/2019     12/31/2018     12/31/2019     12/31/2018  

Current liabilities

           

Loans and hedging instruments

     16        —         —         867,871       2,007,430  

Debentures

     16.g        28,713       34,504       249,570       263,718  

Trade payables

     17        2,173       272       2,158,478       2,551,607  

Trade payables – agreement

     17        —         —         541,593       180,070  

Salaries and related charges

     18        958       228       405,636       428,192  

Taxes payable

     19        389       11,563       269,922       268,005  

Dividends payable

     26.h        14,689       282,334       16,694       284,024  

Income and social contribution taxes payable

        —         9,238       164,757       55,477  

Post-employment benefits

     20.b        —         —         28,951       45,655  

Provision for asset retirement obligation

     21        —         —         3,847       4,382  

Provision for tax, civil, and labor risks

     22.a        —         —         40,455       77,822  

Trade payables – customers and third parties’ indemnification

     23        —         —         —         3,501  

Leases payable

     13        144       —         206,396       2,849  

Other payables

        3       3,975       213,273       137,494  

Deferred revenue

     24        —         —         27,626       26,572  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

        47,069       342,114       5,195,069       6,336,798  

Non-current liabilities

           

Loans and hedging instruments

     16        —         —         6,907,113       6,487,400  

Debentures

     16.g        1,723,368       1,722,450       6,368,168       6,401,535  

Related parties

     8.a        4,220       5,158       3,925       4,071  

Deferred income and social contribution taxes

     9.a        —         —         7,531       9,297  

Post-employment benefits

     20.b        —         —         243,916       204,160  

Provision for asset retirement obligation

     21        —         —         47,395       50,285  

Provision for tax, civil, and labor risks

     22.a; 22.c        399       798       884,140       865,249  

Leases payable

     13        5,855       —         1,382,277       43,217  

Deferred revenue

     24        —         —         —         11,850  

Subscription warrants – indemnification

     25        130,657       123,095       130,657       123,095  

Other payables

        —         —         190,106       162,409  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current liabilities

        1,864,499       1,851,501       16,165,228       14,362,568  

Equity

           

Share capital

     26.a; 26.f        5,171,752       5,171,752       5,171,752       5,171,752  

Equity instrument granted

     26.b        11,970       4,309       11,970       4,309  

Capital reserve

     26.d        542,400       542,400       542,400       542,400  

Treasury shares

     26.c        (485,383     (485,383     (485,383     (485,383

Revaluation reserve on subsidiaries

     26.e        4,522       4,712       4,522       4,712  

Profit reserves

     26.f        3,995,414       4,099,092       3,995,414       4,099,092  

Valuation adjustments

     26.g.1        (146,317     (63,989     (146,317     (63,989

Cumulative translation adjustments

     26.g.2        102,427       65,857       102,427       65,857  

Additional dividends to the minimum mandatory dividends

     26.h        261,470       109,355       261,470       109,355  
     

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to:

           

Shareholders of the Company

        9,458,255       9,448,105       9,458,255       9,448,105  

Non-controlling interests in subsidiaries

        —         —         376,920       351,924  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

        9,458,255       9,448,105       9,835,175       9,800,029  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

        11,369,823       11,641,720       31,195,472       30,499,395  
     

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

8


Ultrapar Participações S.A. and Subsidiaries

Statements of Profit or Loss

For the years ended December 31, 2019 and 2018

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

 

 

 

            Parent     Consolidated  
     Note      12/31/2019     12/31/2018     12/31/2019     12/31/2018  

Net revenue from sales and services

     27        —         —         89,297,975       90,697,983  

Cost of products and services sold

     28        —         —         (83,187,109     (84,537,368
     

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

        —         —         6,110,866       6,160,615  

Operating income (expenses)

           

Selling and marketing

     28        —         —         (2,610,384     (2,601,617

Estimated losses on doubtful accounts

        —         —         (30,003     (69,250

General and administrative

     28        —         —         (1,726,253     (1,625,839

Loss on disposal of property, plant and equipment and intangibles

     29        —         —         (30,019     (22,088

Impairment of assets

     15.a; 29        —         —         (593,280     —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Other operating income, net

     30        312       (313     179,625       57,533  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

        312       (313     1,300,552       1,899,354  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

     12        394,793       1,174,985       (12,145     (14,779
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before financial income (expenses) and income and social contribution taxes

        395,105       1,174,672       1,288,407       1,884,575  

Financial income

     31        73,201       146,137       457,289       681,235  

Financial expenses

     31        (122,359     (119,900     (964,143     (794,771
     

 

 

   

 

 

   

 

 

   

 

 

 

Financial result, net

        (49,158     26,237       (506,854     (113,536
     

 

 

   

 

 

   

 

 

   

 

 

 

Income before income and social contribution taxes

        345,947       1,200,909       781,553       1,771,039  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes

           

Current

     9.b; 9.c        —         (35,363     (476,074     (476,302

Deferred

     9.b        27,579       (15,125     97,465       (162,417
     

 

 

   

 

 

   

 

 

   

 

 

 
        27,579       (50,488     (378,609     (638,719

Net income for the year

        373,526       1,150,421       402,944       1,132,320  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the year attributable to:

           

Shareholders of the Company

        373,526       1,150,421       373,526       1,150,421  

Non-controlling interests in subsidiaries

        —         —         29,418       (18,101

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

           

Basic

     32        0.3438       1.0611       0.3438       1.0611  

Diluted

     32        0.3422       1.0541       0.3422       1.0541  

The accompanying notes are an integral part of the financial statements.

 

9


Ultrapar Participações S.A. and Subsidiaries

Statements of Comprehensive Income

For the years ended December 31, 2019 and 2018

(In thousands of Brazilian Reais)

 

 

 

            Parent     Consolidated  
     Note      12/31/2019     12/31/2018     12/31/2019     12/31/2018  

Net income for the year

        373,526       1,150,421       402,944       1,132,320  

Items that are subsequently reclassified to profit or loss:

           

Fair value adjustments of financial instruments of subsidiaries, net

     26.g.1        (51,340     (213,916     (51,319     (213,937

Fair value adjustments of financial instruments of joint ventures, net

     26.g.1        (978     (2,329     (978     (2,329

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

     26.g.2        36,570       12,796       36,570       12,796  

Items that are not subsequently reclassified to profit or loss:

           

Actuarial gain (losses) of post-employment benefits of subsidiaries, net

     26.g.1        (23,219     (1,193     (29,996     (5,282

Actuarial gain (losses) of post-employment benefits of joint-ventures, net

     26.g.1        (6,791     (1,375     (6,791     (1,375
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

        327,768       944,404       350,430       922,193  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

        327,768       944,404       327,768       944,404  

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

        —         —         22,662       (22,211

The accompanying notes are an integral part of the financial statements.

 

10


Ultrapar Participações S.A. and Subsidiaries

Statements of Changes in Equity

For the years ended December 31, 2019 and 2018

(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, 2018

        5,171,752        4,309        542,400        (485,383     4,712       686,665        3,412,427       (63,989     65,857        —         109,355       9,448,105       351,924       9,800,029  

Net income for the year

        —          —          —          —         —         —          —         —         —          373,526       —         373,526       29,418       402,944  

Other comprehensive income:

                                    

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

     26.g.1        —          —          —          —         —         —          —         (52,318     —          —         —         (52,318     21       (52,297

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

     26.g.1        —          —          —          —         —         —          —         (30,010     —          —         —         (30,010     (6,777     (36,787

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

     26.g.2        —          —          —          —         —         —          —         —         36,570        —         —         36,570       —         36,570  
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

        —          —          —          —         —         —          —         (82,328     36,570        373,526       —         327,768       22,662       350,430  

Shareholder transaction – gain in reimbursement of shares pref. B from Oxiteno Nordeste

     3.b.2        —          —          —          —         —         —          —         —         —          1,489       —         1,489       (1,489     —    

Equity instrument granted

     26.b        —          7,661        —          —         —         —          —         —         —          —         —         7,661       —         7,661  

Realization of revaluation reserve of subsidiaries

     26.e        —          —          —          —         (190     —          —         —         —          190       —        
—  
 
    —         —    

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

     26.e        —          —          —          —         —         —          —         —         —          (31     —         (31     —         (31

Transfer to statutory reserve

        —          —          —          —         —         —          1,648       —         —          (1,648     —         —         —         —    

Additional dividends attributable to non-controlling interests

        —          —          —          —         —         —          —         —         —          —         —         —         (993     (993

Redemption of non-controlling shares of Oxiteno Nordeste

     3.b.2        —          —          —          —         —         —          —         —         —          —         —         —         (2,180     (2,180

Capital increase from Iconic non-controlling shareholders

        —          —          —          —         —         —          —         —         —          —         —         —         6,996       6,996  

Approval of additional dividends by the Shareholders’ Meeting

     26.h        —          —          —          —         —         —          —         —         —          —         (109,355     (109,355     —         (109,355

Allocation of net income:

                                    

Legal reserve

     26.f; 26.h        —          —          —          —         —         18,676        —         —         —          (18,676     —         —         —         —    

Interim dividends (R$ 0.20 per share of the Company)

     26.h        —          —          —          —         —         —          —         —         —          (217,382     —         (217,382     —         (217,382

Proposed dividends (R$ 0.24 per share of the Company)

     26.h        —          —          —          —         —         —          (124,002     —         —          (137,468     261,470       —         —         —    
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2019

        5,171,752        11,970        542,400        (485,383     4,522       705,341        3,290,073       (146,317     102,427        —         261,470       9,458,255       376,920       9,835,176  
     

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

11


Ultrapar Participações S.A. and Subsidiaries

Statements of Changes in Equity

For the years ended December 31, 2019 and 2018

(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        3,000,707        154,824       53,061        —         163,742       9,246,214       377,824       9,624,038  

Net income for the year

        —          —          —         —         —         —          —          —         —          1,150,421       —         1,150,421       (18,101     1,132,320  

Other comprehensive income:

                                    

Fair value adjustments of financial assets, net of income taxes

     26.g.1        —          —          —         —         —         —          —          (216,245     —          —         —         (216,245     (21     (216,266

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

     26.g.1        —          —          —         —         —         —          —          (2,568     —          —         —         (2,568     (4,089     (6,657

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

     26.g.2        —          —          —         —         —         —          —          —         12,796        —         —         12,796       —         12,796  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

        —          —          —         —         —         —          —          (218,813     12,796        1,150,421       —         944,404       (22,211     922,193  

Equity instrument granted

     26.b        —          3,773        —         —         —         —          —          —         —          —         —         3,773       —         3,773  

Stock plan

     8.c; 26.c        —          —          (7,378     (3,123     —         —          —          —         —          —         —         (10,501     —         (10,501

Realization of revaluation reserve of subsidiaries

     26.e        —          —          —         —         (218     —          —          —         —          218       —         —         —         —    

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

     26.e        —          —          —         —         —         —          —          —         —          (3     —         (3     —         (3

Expired dividends

        —          —          —         —         —         —          —          —         —          3,170       —         3,170       —         3,170  

Transfer to investments reserve

        —          —          —         —         —         —          3,385        —         —          (3,385     —         —         —         —    

Additional dividends attributable to non-controlling interests

        —          —          —         —         —         —          —          —         —          —         —         —         (3,689     (3,689

Approval of additional dividends by the Shareholders’ Meeting

     26.h        —          —          —         —         —         —          —          —         —          —         (163,742     (163,742     —         (163,742

Allocation of net income:

                                    

Legal reserve

     26.f; 26.h        —          —          —         —         —         57,521        —          —         —          (57,521     —         —         —         —    

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

     26.f; 26.h        —          —          —         —         —         —          —          —         —          (304,241     —         (304,241     —         (304,241

Proposed dividends (R$ 0.70 per share of the Company)

     26.h        —          —          —         —         —         —          —          —         —          (380,324     109,355       (270,969     —         (270,969

Statutory reserve

     26.h        —          —          —         —         —         —          408,335        —         —          (408,335     —         —         —         —    
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 30, 2018

        5,171,752        4,309        542,400       (485,383     4,712       686,665        3,412,427        (63,989     65,857        —         109,355       9,448,105       351,924       9,800,029  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

12


Ultrapar Participações S.A. and Subsidiaries

Statements of Cash Flows—Indirect Method

For the years ended December 31, 2019 and 2018

(In thousands of Brazilian Reais)

 

 

 

            Parent     Consolidated  
     Note      12/31/2019     12/31/2018     12/31/2019     12/31/2018  

Cash flows from operating activities

           

Net income for the year

        373,526       1,150,421       402,944       1,132,320  

Adjustments to reconcile net income to cash provided by operating activities

           

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

     12        (394,793     (1,174,985     12,145       14,779  

Amortization of contractual assets with customers – exclusive rights

     11        —         —         355,250       371,825  

Amortization of right to use assets

     13.a        —         —         300,058       —    

Depreciation and amortization

     14; 15        —         —         844,647       812,489  

PIS and COFINS credits on depreciation

     14; 15        —         —         14,918       15,721  

Interest and foreign exchange rate variations

        65,346       1,776       1,248,741       1,026,515  

Deferred income and social contribution taxes

     9.b        (27,579     15,125       (97,465     162,417  

Loss on disposal of property, plant, and equipment and intangibles

     29        —         —         30,019       22,088  

Impairment of assets

     15.a; 29        —         —         593,280       —    

Estimated losses on doubtful accounts

     5        —         —         30,003       69,250  

Provision for losses in inventories

     6        —         —         (816     (1,498

Provision for post-employment benefits

     20.b        —         —         10,682       4,854  

Equity instrument granted

     8.c        —         —         7,661       3,773  

Other provisions and adjustments

        —         (6     2,364       (3,908
     

 

 

   

 

 

   

 

 

   

 

 

 
        16,500       (7,669     3,754,431       3,630,625  

(Increase) decrease in current assets

           

Trade receivables and reseller financing

     5        —         —         361,563       (355,854

Inventories

     6        —         —         (357,553     168,704  

Recoverable taxes

     7        (10,045     (6,635     (550,805     (11,467

Dividends received from subsidiaries and joint-ventures

        1,521,209       528,778       4,108       42,436  

Insurance and other receivables

        (2,731     877       21,737       (14,536

Prepaid expenses

     10        (173     (365     (15,507     (37,525

Increase (decrease) in current liabilities

           

Trade payables

     17        1,901       (190     (31,605     576,164  

Salaries and related charges

     18        730       (16     (22,556     40,074  

Taxes payable

     19        (11,174     11,220       1,917       46,476  

Income and social contribution taxes

        (9,238     9,238       250,486       166,527  

Post-employment benefits

     20.b        —         —         (16,704     15,596  

Provision for tax, civil, and labor risks

     22.a        —         —         (37,367     13,272  

Insurance and other payables

        (3,970     (3,466     66,819       (59,237

Deferred revenue

     24        —         —         1,054       8,159  

(Increase) decrease in non-current assets

           

Trade receivables and reseller financing

     5        —         —         11,422       (99,622

Recoverable taxes

     7        9,238       —         (19,526     (539,539

Escrow deposits

        (17     148       (39,936     (58,757

Other receivables

        —         —         (797     6,350  

Prepaid expenses

     10        (225     (30     (4,379     (58,735

Increase (decrease) in non-current liabilities

           

Post-employment benefits

     20.b        —         —         (15,415     (8,457

Provision for tax, civil, and labor risks

     22.a; 22.c        (399     (184     18,891       11,811  

Other payables

        (939     (2,818     27,698       (4,397

Deferred revenue

     24        —         —         (11,850     (1,046

Payments of contractual assets with customers – exclusive rights

     11        —         —         (330,068     (390,177

Income and social contribution taxes paid

        —         —         (141,206     (197,886
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

        1,510,667       528,888       2,924,852       2,888,959  
     

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

13


Ultrapar Participações S.A. and Subsidiaries

Statements of Cash Flows—Indirect Method

For the years ended December 31, 2019 and 2018

(In thousands of Brazilian Reais)

 

 

 

            Parent     Consolidated  
     Note      12/31/2019     12/31/2018     12/31/2019     12/31/2018  

Cash flows from investing activities

           

Financial investments, net of redemptions

     4b        470,101       (544,273     (555,378     (1,669,937

Cash and cash equivalents of subsidiary acquired

     3.c        —         —         —         3,662  

Acquisition of property, plant, and equipment

     14        (2,532     —         (1,020,042     (1,178,312

Acquisition of intangible assets

     15        —         —         (151,997     (237,593

Acquisition of companies

     3.c        —         —         —         (103,373

Capital increase in subsidiary

     12.a        (1,453,964     —         —         —    

Capital increase in joint ventures

     12.b        —         —         (79,124     (31,908

Capital reduction in associates

     12.c        —         —         —         1,250  

Initial direct costs of right to use assets

     13.a        —         —         (68,007     —    

Proceeds from disposal of property, plant, and equipment and intangibles

     29        —         —         39,287       38,578  
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

        (986,395     (544,273     (1,835,261     (3,177,633
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

           

Loans and debentures

           

Proceeds

     16        —         1,721,596       2,105,737       4,461,112  

Repayments

     16        —         (800,336     (2,644,704     (3,710,718

Interest paid

     16        (112,675     (86,806     (1,469,780     (737,564

Payments of lease

     13.b        —         —         (321,716     (5,120

Dividends paid

     26.h        (594,381     (789,378     (596,436     (808,603

Redemption of non-controlling shares of Oxiteno Nordeste

     3.b.2        —         —         (2,180     —    

Capital increase from Iconic non-controlling shareholders

        —         —         6,996       —    

Acquisition of treasury shares

     24.c        —         (6,526     —         —    

Related parties

     8.a        53,049       55,976       (146     (114
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

        (654,007     94,526       (2,922,229     (801,007
     

 

 

   

 

 

   

 

 

   

 

 

 

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

        —         —         9,066       26,628  
     

 

 

   

 

 

   

 

 

   

 

 

 

Decrease (increase) in cash and cash equivalents

        (129,735     79,141       (1,823,572     (1,063,053
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the year

     4.a        172,315       93,174       3,938,951       5,002,004  

Cash and cash equivalents at the end of the year

     4.a        42,580       172,315       2,115,379       3,938,951  

Transactions without cash effect:

           

Addition on right to use assets and leases payable

     13.a        —         —         334,857       —    

The accompanying notes are an integral part of the financial statements.

 

14


Ultrapar Participações S.A. and Subsidiaries

Statements of Value Added

For the years ended December 31, 2019 and 2018

(In thousands of Brazilian Reais, except percentages)

 

 

 

            Parent      Consolidated  
     Note      12/31/2019     %     12/31/2018      %      12/31/2019     %      12/31/2018     %  

Revenue

                      

Gross revenue from sales and services, except rents and royalties

     27        —           —             95,034,980          95,297,114    

Rebates, discounts, and returns

     27        —           —             (1,494,814        (1,342,799  

Estimated losses on doubtful accounts

        —           —             (30,003        (69,250  

Amortization of contractual assets with customers – exclusive rights

     11        —           —             (355,250        (371,825  

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

     29; 30        —           —             149,606          35,445    
     

 

 

     

 

 

       

 

 

      

 

 

   
        —           —             93,304,519          93,548,685    

Materials purchased from third parties

                      

Raw materials used

        —           —             (5,621,164        (6,173,615  

Cost of goods, products, and services sold

        —           —             (77,651,614        (78,330,739  

Third-party materials, energy, services, and others

        12,255         7,306           (2,657,370        (2,351,100  

Impairment of assets

     15.a; 29        —           —             (593,280        —      

Provisions for losses of assets

        —           —             29,876          (23,141  
     

 

 

     

 

 

       

 

 

      

 

 

   
        12,255         7,306           (86,553,304        (86,878,595  

Gross value added

        12,255         7,306           6,751,215          6,670,090    
     

 

 

     

 

 

       

 

 

      

 

 

   

Deductions

                      

Depreciation and amortization

     14; 15        —           —             (1,144,705        (812,489  

PIS and COFINS credits on depreciation

     14; 15        —           —             (14,918        (15,721  
     

 

 

     

 

 

       

 

 

      

 

 

   
        —           —             (1,159,623        (828,210  

Net value added by the Company

        12,255         7,306           5,591,592          5,841,880    
     

 

 

     

 

 

       

 

 

      

 

 

   

Value added received in transfer

                      

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

     12        394,793         1,174,985           (12,145        (14,779  

Rents and royalties

     27        —           —             144,354          143,090    

Financial income

     31        73,201         146,137           457,289          681,235    
     

 

 

     

 

 

       

 

 

      

 

 

   
        467,994         1,321,122           589,498          809,546    

Total value added available for distribution

        480,249         1,328,428           6,181,090          6,651,426    
     

 

 

     

 

 

       

 

 

      

 

 

   

Distribution of value added

                      

Labor and benefits

        9,890       2       6,218        —          2,098,706       34        2,187,994       33  

Taxes, fees, and contributions

        (23,016     (5     66,114        5        2,798,355       45        2,312,328       35  

Financial expenses and rents

        119,849       25       105,675        8        881,085       14        1,018,784       15  

Dividends distributed

        354,850       74       684,565        52        355,843       6        688,254       10  

Retained earnings

        18,676       4       465,856        35        47,101       1        444,066       7  
     

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Value added distributed

        480,249       100       1,328,428        100        6,181,090       100        6,651,426       100  
     

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

15


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(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 São Paulo – SP, Brazil, listed on B3 S.A. – Brasil, Bolsa, Balcão (“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”.

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 (“Extrafarma”). The information about segments are disclosed in Note 33.

 

2.

Presentation of Financial Statements and Summary of Significant Accounting Policies

The Company’s Parent and consolidated financial statements (“financial statements”) were prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and the accounting policies adopted in Brazil.

The accounting policies adopted in Brazil include those in the Brazilian corporate law and in the Pronouncements, Orientations and Interpretations issued by the Accounting Pronouncements Committee (“CPC”) and approved by the Brazilian Federal Accounting Council (“CFC”) and the Brazilian Securities and Exchange Commission (“CVM”).

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

The presentation currency of the Company’s financial statements 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 years presented in this financial statements except for the adoption of IFRS 16/CPC 06 (R2), as of January 1, 2019 as described in Note 2.h and y.

 

a.

Recognition of Revenue

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 27 and 33.

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 in the income statement as a deduction of the revenue from sale 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).

The am/pm franchising upfront fee received by Ipiranga is deferred and recognized in profit or loss as the entity fulfills its performance obligation throughout the terms of the agreements with the franchisees. For more information, see Note 24.a.

 

 

16


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

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 24.b.

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.

Exchange variations and the results of derivative financial instruments are presented in the statement of profit and loss on financial expenses.

Research and development expenses are recognized in the statements of profit or loss in general and administrative expenses and amounted to R$ 61,589 in 2019 (R$ 63,085 in 2018).

 

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. For further information on cash and cash equivalents of the Company and its subsidiaries, see Note 4.a.

 

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 equity in other comprehensive income in the “Valuation adjustments”. Accumulated gains and losses recognized in 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 that were 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 statements of 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 the statements of profit or loss. The hedge accounting must be discontinued when the hedge becomes ineffective.

 

 

17


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

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 statements of profit or loss. 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 the statements of 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 hedging relationship is canceled; (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 equity in other comprehensive income are reclassified to the statements of 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 equity in other comprehensive income shall be recognized immediately in profit or loss.

 

 

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 the statements of 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 the statements of profit or loss when the disposal of the foreign subsidiary occurs.

For further information on financial instruments, see Note 34.

 

d.

Trade receivables and reseller financing

Trade receivables are recognized at the amount invoiced of the counterparty that the Company subsidiaries are entitled (see Notes 5 and 34.d.3). The estimated losses take into account, (i) at the initial recognition of the contract, the expected losses for the next 12 months or (ii) for the lifetime of the contract when the deterioration or improvement of the customers’ credit quality, considering the customers’ characteristics in each business segment. The amount of the expected credit losses 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).

 

 

18


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

g.

Investments

Investments in subsidiaries are accounted for under the equity method of accounting in the financial statements of the parent company (see Notes 3.b and 12.a). 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 financial statements (see Note 12 items b and c). 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.

 

h.

Right to Use Assets and Lease Payable

The Company and its subsidiaries recognized in the financial position, a right to use assets and the respective lease liabilities initially measured at the present value of future lease payments, considering the related contract costs (see Note 13). The amortization expenses of right to use assets is recognized in statement of profit or loss over the lease contract term. The liability is increased for interest and net of payments. The charges are recognized in the statement of profit or loss using the effective interest rate method. The remeasurement of assets and liabilities based on the contractual index is recognized in the financial position, not having an effect in the result. In case of cancellation of the contract, the assets and respective liabilities are written off to the result.

Right to use assets include amounts related to port concession grants (see Note 35.c).

The subsidiaries of the Company apply the exemptions for recognition of short-term leases of 12 months or less, and leases of low amount assets such. In these cases, the recognition of the lease expense in the statements of profit or loss is on a straight-line basis.

 

i.

Property, Plant, and Equipment

Property, plant, and equipment (“PP&E”) is recognized at acquisition or construction cost, including financial charges incurred on PP&E under construction, as well as qualifying maintenance costs resulting from scheduled plant outages and estimated costs to remove, to decommission, or to restore assets (see Notes 2.n and 21), less accumulated depreciation and, when applicable, less provision for losses (see Note 14).

Depreciation is calculated using the straight-line method, over the periods mentioned in Note 14, 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.

 

j.

Intangible Assets

Intangible assets include assets acquired by the Company and its subsidiaries from third parties, according to the criteria below:

 

 

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 for impairment testing purposes (see Note 15.a).

 

 

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 15, 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 15 items a and e).

 

19


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(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 financial liabilities include trade payables and other payables, loans, debentures, leases payable 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 — indemnification, 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 the statement of 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 in the statement of profit or loss taking into account its term, using the effective interest rate method (see Note 16.h).

 

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. For the calculation of current IRPJ, the value of tax incentives is also considered. Taxes are recognized based on the rates of IRPJ and CSLL provided for by the laws enacted on the last day of the financial statements. The current rates in Brazil are 25% for IRPJ and 9% for CSLL. For further information 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 tax 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 PP&E and depreciated over the respective useful lives of the tanks. The amounts recognized as a liability accrue interest using the National Consumer Price Index (“IPCA”) until the tank is removed (see Note 21). 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 statements of profit or loss when they become known. An increase in the estimated cost of the obligation to remove the tanks could result in negative impact in future results.

 

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 22).

 

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 20.b). The actuarial gains and losses are recognized in equity in cumulative other comprehensive income in the “Valuation adjustments”.

 

 

20


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(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, 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 financial statements. The effect of the difference between those exchange rates is recognized in financial results until the conclusion of each transaction.

 

s.

Basis for Translation of Financial Statements of Foreign Subsidiaries

 

s.1.

Subsidiaries with administrative autonomy

Assets and liabilities of the foreign subsidiaries, denominated in currencies other than Brazilian Real, which have administrative autonomy, are translated using the exchange rate at the date of the financial statements. Revenues and expenses are translated using the average exchange rate of each year and equity is translated at the historical exchange rate of each transaction affecting equity. Gains and losses resulting from changes in these foreign investments are directly recognized in 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 on December 31, 2019 was a gain of R$ 102,427 (gain of R$ 65,857 in 2018) — see Note 26.g.2.

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 S.A. de C.V.

   Mexican Peso      Mexico  

Oxiteno USA LLC

   U.S. Dollar      United States  

Oxiteno Uruguay S.A. (i)

   U.S. Dollar      Uruguay  

 

(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.

 

s.2.

Subsidiaries without self-administrative autonomy

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 date of the financial statements. Gains and losses resulting from changes in these foreign investments are directly recognized as financial result. The gain recognized in income in 2019 amounted to R$ 2,444 (gain of R$ 4,090 in 2018).

 

t.

Use of Estimates, Assumptions and Judgments

The preparation of the financial statements requires the use of estimates, assumptions, and judgments for the accounting and disclosure of certain assets, liabilities, and profit or loss. Therefore, the Company and subsidiaries’ management use the best information available at the date of preparation of the financial statements, as well as the experience of past and current events, also considering assumptions regarding future events. The estimates and assumptions are reviewed periodically.

 

 

21


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

t.1

Judgments

Information on the judgments is included: in the determination of control in subsidiaries (Notes 2.g, 2.s.1, 3 and 12.a), the determination of joint control in joint venture (Notes 2.g, 12.a and 12.b) and the determination of significant influence in associates (Notes 2.g and 12.c).

 

t.2

Uncertainties related to the assumptions and estimates

The information regarding uncertainties related to the assumptions and estimates are included: in determining the fair value of financial instruments (Notes 2.c, 2.l, 4, 16 and 34), the determination of the estimated losses on doubtful accounts (Notes 2.d, 5 and 34.d.3), the determination of provisions for losses of inventories (Notes 2.e and 6), realization of deferred IRPJ and CSLL amounts (Notes 2.m and 9.a), the useful lives and discount rate of right to use assets (Notes 2.h and 13), the useful lives of PP&E (Notes 2.i and 14), the useful lives of intangible assets, and the determination of the recoverable amount of goodwill (Notes 2.j and 15.a), provisions for assets retirement obligations (Notes 2.n and 21), provisions for tax, civil, and labor risks (Notes 2.o and 22), estimates for the preparation of actuarial reports (Notes 2.p and 20.b) and the determination of fair value of subscription warrants – indemnification (Notes 25 and 34.j). The actual result of the transactions and information may differ from their estimates.

 

u.

Impairment of Assets

The Company and its subsidiaries review, in 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 inflow 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.

The fair value less costs to sell 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 projections of future cash flows, trends, and outlooks, as well as the effects of obsolescence, demand, competition, and other economic factors were considered. 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.

On December 31, 2019, the Company recognized an impairment loss for the subsidiary Imifarma Produtos Farmacêuticos e Cosméticos S.A. (“Extrafarma”) (see Note 15.a).

 

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 acquire 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 statement of profit or loss. Costs related to the acquisition are recorded in the statement of profit or loss when incurred.

 

 

22


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

w.

Statements of Value Added

The statements of value added (“DVA”) are presented as an integral part of the financial statements as applicable to publicly-traded companies, and as supplemental information for the IFRS, which does not require the presentation of DVA.

 

x.

Statements of Cash Flows Indirect Method

The Company and its subsidiaries present the interest paid on loans, debentures, and leases payable in financing activities. The Company and its subsidiaries present financial investments on a net basis of income and redemptions in the investing 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, 2019:

(i) IFRS 16/CPC 06 (R2) — Lease:

With the adoption of IFRS 16/CPC 06 (R2), the leases contracted by the Company’s subsidiaries, identified and effective at the date of transition and with maturities of more than 12 months, were accounted in the financial statements:

- recognition of right to use assets and lease liabilities in financial position, initially measured at the present value of future lease payments; and

- recognition of amortization expenses of right to use assets and interest expenses on the lease payable in the financial result in the statements of profits or loss.

The Company selected as transition method the modified retrospective approach, with the cumulative effect of initial application of this new pronouncement recorded as an adjustment to the opening balance of equity and without restatement of comparative periods.

In the analysis of the adoption, the Company’s management, with the assistance of specialized consulting, carried out the inventory of the contracts, evaluating whether or not each agreement contains a lease in accordance with IFRS 16/CPC 06 (R2). This analysis identified impacts mainly related to the lease of properties from third parties, port areas and lower amounts arising from other operations where the existence of leased assets individually or combined in service contracts was identified.

As allowed in the standard, short-term leases with a term of 12 months or less, variable amounts, indefinite term and leases of low amount assets such as computers and office furniture, are recognized as lease expenses on a straight-line basis in the statements of profit or loss.

In addition, the following practical expedients were used to transition to new lease accounting requirements:

 

 

application of the IFRS 16/CPC 06 (R2) to all contracts initiated before January 1, 2019 that were identified as leases in accordance with IAS 7/CPC 06 (R1) and IFRIC 4/ICPC 03;

 

 

use of discount rate according to the lease term and similar characteristics;

 

 

contracts with a term of 12 months from the date of the initial adoption of the standard or with indefinite term were not recorded;

 

 

exclusion of the initial direct costs of the measurement of the opening balance from right to use asset; and

 

 

options for extension of the term or termination were considered, when applicable.

 

23


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The table below summarizes the effects on the initial adoption of the IFRS 16/CPC 06 (R2):

 

     01/01/2019  

Current assets

  

Prepaid expenses

     (39,066

Non-current assets

  

Prepaid expenses

     (288,630

Right to use assets

     1,731,427  

Intangible assets

     (39,928
  

 

 

 

Total assets

     1,363,803  
  

 

 

 

Current liabilities

  

Leases payable

     13,827  

Non-current liabilities

  

Leases payable

     1,349,976  
  

 

 

 

Total liabilities

     1,363,803  
  

 

 

 

The analysis associated with the measurement and accounting of the lease agreements are completed.

To measurement, the Company used a nominal discount rate, and estimated the payment flows for the gross portion of taxes.

(ii) IFRIC 23/ICPC 22—Uncertainty over income tax treatments:

IFRS 23 (ICPC 22) clarifies how to apply the recognition and measurement when there is uncertainty over income tax treatments, that means, there are doubts about acceptance of the treatments adopted by the fiscal authority, applying the requirements in IAS 12 (CPC 32).

In the evaluation of management, no significant impacts were identified as a result of the adoption of IFRIC 23/ICPC 22, since all the procedures adopted for the determination and collection of income taxes are supported by the legislation and precedents from Administrative and Judicial Courts.

 

z.

Authorization for Issuance of the Financial Statements

This financial statements were authorized for issue by the Board of Directors on February 19, 2020.

 

3.

Principles of Consolidation and Investments in Subsidiaries

 

a.

Principles of Consolidation

In the preparation of the consolidated financial statements 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 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 statement of profit or loss and 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 statement of profit or loss and comprehensive income until the date the parent company loses control.

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

 

24


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

b.

Investments in Subsidiaries

The consolidated financial statements includes the following direct and indirect subsidiaries:

 

               % interest in the share  
               12/31/2019      12/31/2018  
               Control      Control  
     Location    Segment    Direct      Indirect      Direct      Indirect  

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  

Iconic Lubrificantes S.A.

   Brazil    Ipiranga      —          56        —          56  

Integra Frotas Ltda.

   Brazil    Ipiranga      —          100        —          100  

Companhia Ultragaz S.A.

   Brazil    Ultragaz      —          99        —          99  

Ultragaz Comercial Ltda.

   Brazil    Ultragaz      —          100        —          100  

Nova Paraná Distribuidora de Gás Ltda. (1)

   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 (2)

   Brazil    Oxiteno      —          —          —          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. (3)

   Venezuela    Oxiteno      —          —          —          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.

   Brazil    Ultracargo      —          100        —          100  

Tequimar Vila do Conde Logística Portuária S.A. (4)

   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.

(1)

Non operating company in closing phase.

(2)

On April 30, 2019, the shareholders of Oxiteno Nordeste S.A. Indústria e Comércio (“Oxiteno Nordeste”) approved the rescue of all of its preferred shares class “B”, with consequent cancellation. On December 2, 2019, in order to simplify the corporate structure, the subsidiary Oxiteno Nordeste was incorporated by its parent Oxiteno S.A. Indústria e Comércio (“Oxiteno S.A.”).

(3)

On October 15, 2019, the subsidiary Oxiteno S.A. approved the asset write-offs of Oxiteno Andina C.A. (“Oxiteno Andina”).

(4)

Company constituted on May 20, 2019 due the concession of the port of Vila do Conde (see Note 35.c).

 

25


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

c.

TEAS – Terminal Exportador de Álcool de Santos Ltda. Acquisition

The Company through its subsidiary Terminal Químico de Aratu S.A. – Tequimar (“Tequimar”) acquired 100% of the quotas of TEAS Terminal Exportador de Álcool de Santos Ltda. (“TEAS”). On March 29, 2018, the acquisition was concluded through the closing of the operation. For further details of TEAS business combination, see Note 3.d of financial statements as of and for the year ended December 31, 2018 filed on CVM on February 20, 2019.

 

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 financial institutions linked to interest rate of the Interbank Deposits (“DI”), in repurchase agreement, financial bills, and in short term investments funds, whose portfolio comprised of Brazilian Federal Government bonds and in certificates of deposit of financial institutions; (ii) outside Brazil, in certificates of deposit of 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 34.j, based on business model of financial assets of the Company and its subsidiaries.

Cash, cash equivalents and financial investments (consolidated) amounted to R$ 5,712,097 as of December 31, 2019 (R$ 6,994,406 as of December 31, 2018) are as follows:

 

a.

Cash and Cash Equivalents

Cash and cash equivalents of the Company and its subsidiaries are presented as follows:

 

     Parent      Consolidated  
     12/31/2019      12/31/2018      12/31/2019      12/31/2018  

Cash and bank deposits

           

In local currency

     381        381        182,237        117,231  

In foreign currency

     —          —          102,755        88,251  

Financial investments considered cash equivalents

           

In local currency

           

Fixed-income securities

     42,199        171,934        1,780,939        3,722,308  

In foreign currency

           

Fixed-income securities

     —          —          49,448        11,161  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

     42,580        172,315        2,115,379        3,938,951  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

b.

Financial Investments and Currency and Interest Rate Hedging Instruments

The financial investments, which are not classified as cash and cash equivalents, are presented as follows:

 

     Parent      Consolidated  
     12/31/2019      12/31/2018      12/31/2019      12/31/2018  

Financial investments

           

In local currency

           

Fixed-income securities and funds

     95,829        565,930        2,610,686        2,537,315  

In foreign currency

           

Fixed-income securities and funds

     —          —          303,417        154,811  

Currency and interest rate hedging instruments (a)

     —          —          682,615        363,329  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial investments

     95,829        565,930        3,596,718        3,055,455  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

     95,829        565,930        3,090,212        2,853,106  

Non-current

     —          —          506,506        202,349  

 

(a)

Accumulated gains, net of income tax (see Note 34.j).

 

5.

Trade Receivables and Reseller Financing (Consolidated)

 

a.

Trade Receivables

The composition of trade receivables is as follows:

 

     12/31/2019     12/31/2018  

Domestic customers

     3,867,902       4,290,996  

Foreign customers

     226,484       244,960  

(-) Estimated losses on doubtful accounts

     (404,886     (385,080
  

 

 

   

 

 

 
     3,689,500       4,150,876  
  

 

 

   

 

 

 

Current

     3,635,834       4,069,307  

Non-current

     53,666       81,569  

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
 

12/31/2019

     4,094,386        3,199,315        159,350        27,320        12,245        61,489        634,667  

12/31/2018

     4,535,956        3,739,601        121,622        53,864        49,629        84,920        486,320  

The breakdown 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
 

12/31/2019

     404,886        28,861        1,456        1,625        3,749        23,698        345,497  

12/31/2018

     385,080        39,226        4,094        3,754        5,533        46,783        285,690  

 

 

27


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

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

 

Balance as of December 31, 2017

     347,801  

Additions

     287,566  

Write-offs

     (250,287
  

 

 

 

Balance as of December 31, 2018

     385,080  

Additions

     189,192  

Write-offs

     (169,386
  

 

 

 

Balance as of December 31, 2019

     404,886  
  

 

 

 

For further information about the allowance for estimated losses on doubtful accounts, see Note 34.d.3.

 

b.

Reseller financing

The composition of reseller financing is as follows:

 

     12/31/2019     12/31/2018  

Reseller financing – Ipiranga

     956,942       855,229  

(-) Estimated losses on doubtful accounts

     (156,006     (139,699
  

 

 

   

 

 

 
     800,936     715,530  
  

 

 

   

 

 

 

Current

     436,188       367,262  

Non-current

     364,748       348,268  

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 terms of reseller financing range substantially from 12 months to 60 months, with an average term of 40 months. The minimum and maximum interest rates are 0% per month and 1% per month, respectively.

The breakdown of reseller financing, 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
 

12/31/2019

     956,942        644,488        26,262        10,481        12,616        30,144        232,951  

12/31/2018

     855,229        633,183        11,262        14,869        9,377        20,783        165,755  

The breakdown 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
 

12/31/2019

     156,006        21,337        2,519        1,063        1,313        14,639        115,135  

12/31/2018

     139,699        26,982        1,250        1,642        1,131        12,176        96,518  

 

 

28


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

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

 

Balance as of December 31, 2017

     104,977  

Additions

     34,722  

Balance as of December 31, 2018

     139,699  

Additions

     30,601  

Write-offs

     (14,294
  

 

 

 

Balance as of December 31, 2019

     156,006  
  

 

 

 

For further information about the allowance for estimated losses on doubtful accounts, see Note 34.d.3.

6.    Inventories (Consolidated)

The composition of inventories is as follows:

 

     12/31/2019      12/31/2018  
     Cost      Provision
for losses
    Net
balance
     Cost      Provision
for losses
    Net
balance
 

Fuels, lubricants and greases

     1,843,257        (2,073     1,841,184        1,367,015        (1,804     1,365,211  

Finished goods

     541,689        (22,048     519,641        581,504        (20,923     560,581  

Work in process

     1,971        —         1,971        1,412        —         1,412  

Raw materials

     365,960        (2,552     363,408        383,161        (1,894     381,267  

Liquefied petroleum gas (LPG)

     101,715        (5,761     95,954        109,362        (5,761     103,601  

Consumable materials and other items for resale

     140,058        (2,587     137,471        150,188        (3,770     146,418  

Pharmaceutical, hygiene, and beauty products

     549,191        (2,877     546,314        583,060        (5,364     577,696  

Purchase for future delivery (1)

     183,170        (2,719     180,451        193,928        (2,964     190,964  

Properties for resale

     29,273        (107     29,166        27,489        (107     27,382  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     3,756,284      (40,724)     3,715,560      3,397,119      (42,587)     3,354,532  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

(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

     600  

Additions of obsolescence and other losses

     3,903  

Oxiteno Andina (i)

     985  
  

 

 

 

Balance as of December 31, 2018

     42,587  

Reversals to net realizable value adjustment

     (5,174

Additions of obsolescence and other losses

     4,296  

Oxiteno Andina (ii)

     (985
  

 

 

 

Balance as of December 31, 2019

     40,724  
  

 

 

 

 

(i) 

Refers to the impairment for subsidiary Oxiteno Andina (see Note 2.s.1.ii of financial statements as of and for the year ended December 31, 2018 filed on CVM on February 20, 2019).

(ii)

Refers to the asset write-offs of Oxiteno Andina (see Note nº 3.b.3).

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

 

     12/31/2019      12/31/2018  

Net realizable value adjustment

     15,243        21,402  

Obsolescence and other losses

     25,481        21,185  
  

 

 

    

 

 

 

Total

     40,724        42,587  
  

 

 

    

 

 

 

 

29


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

7.

Taxes to Recover

 

a.

Recoverable Taxes (Consolidated)

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

 

     12/31/2019     12/31/2018  

ICMS (a.1)

     914,066       710,669  

Provision for ICMS losses (a.1)

     (41,396     (99,187

PIS and COFINS (a.2)

     930,570       720,731  

Value-Added Tax (IVA) of foreign subsidiaries

     29,707       31,678  

Others

     56,748       22,988  
  

 

 

   

 

 

 

Total

     1,889,695       1,386,879  
  

 

 

   

 

 

 

Current

     1,122,335       639,699  

Non-current

     767,360       747,180  

 

a.1

The recoverable ICMS is substantially related to the following subsidiaries and operations:

 

  (i)

The subsidiary Oxiteno Nordeste predominantly carries out export operations, interstate outflow or deferred ICMS of products purchased within the State of Bahia;

 

  (ii)

The subsidiary Ipiranga Produtos de Petróleo S.A. (“IPP”) has credits arising from interstate outflows of oil-related products, whose ICMS was prepaid by the supplier (Petróleo Brasileiro S.A. (“Petrobras”)), and credits arising from the difference between transactions of inflows and outflows of products subject to ICMS taxation (mainly ethanol);

 

  (iii)

The subsidiary Extrafarma has credits of ICMS and ICMS-ST (tax substitution) advances on the inflow and outflow of operations carried out by its distribution centers, mostly in the North and Northeast.

Management estimates the realization of these credits within up to 10 years.

The provision for ICMS losses relates to tax credits of the subsidiaries whose amounts are not included within the term determined by its policy.

 

a.2

Refers, mainly, to the PIS and COFINS credits recorded under Laws 10,637/2002 and 10,833/2003, whose consumption will occur through the offset of debts administered by the Brazilian Federal Revenue Service (“RFB”) in an estimated term of 2 years by management. The subsidiaries Extrafarma, Tequimar and Oxiteno S.A. have credits resulting from a definitive favorable decision on the exclusion of ICMS from the calculation basis of PIS and COFINS. For these cases, management estimates the realization of these credits within up to 5 years (see Note 20.d.1).

 

30


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

b. Recoverable Income Tax and Social Contribution Taxes

Represented by recoverable IRPJ and CSLL.

 

     Parent      Consolidated  
     12/31/2019      12/31/2018      12/31/2019      12/31/2018  

IRPJ and CSLL

     89,197        88,390        430,290        362,784  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     89,197        88,390        430,290        362,784  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current

     49,750        39,705        325,343        257,182  

Non-current

     39,447        48,685        104,947        105,602  

Relates to IRPJ and CSLL to be recovered by the Company and its subsidiaries arising from the tax advances of previous years, with management estimating the realization of these credits within up to 5 years.

8.    Related Parties

The balances and transactions between the Company and its related parties are disclosed below:

a.    Related Parties

a.1 Parent

 

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

Ipiranga Produtos de Petróleo S.A.

     759,123        —          50,884  

Imifarma Produtos Farmacêuticos e Cosméticos S.A.

     —          4,220        —    
  

 

 

    

 

 

    

 

 

 
        

Total as of December 31, 2019

     759,123        4,220        50,884  
  

 

 

    

 

 

    

 

 

 

 

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

Ipiranga Produtos de Petróleo S.A.

     761,288        —          —          54,702  

Companhia Ultragaz S.A.

     —          3,975        —          —    

Imifarma Produtos Farmacêuticos e Cosméticos S.A.

     —          —          5,158        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
           

Total as of December 31, 2018

     761,288        3,975        5,158        54,702  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 DI.

(2)

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

 

31


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

a.2

Consolidated

Balances and transactions between the Company and its subsidiaries and between 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  
     Assets      Liabilities  

Química da Bahia Indústria e Comércio S.A.

     —          2,875  

Others

     490        1,050  
  

 

 

    

 

 

 

Total as of December 31, 2019

     490        3,925  
  

 

 

    

 

 

 

 

     Loans  
     Assets      Liabilities  

Química da Bahia Indústria e Comércio S.A.

     —          2,925  

Others

     490        1,146  
  

 

 

    

 

 

 

Total as of December 31, 2018

     490        4,071  
  

 

 

    

 

 

 

Loans agreements have indeterminate terms and do not contain interest clauses. These are carried out due temporary excess or necessity cash of the Company, its subsidiaries, and its associates.

 

     Commercial transactions  
     Receivables (1)      Payables (1)      Sales and
services
     Purchases      Expenses  

Oxicap Indústria de Gases Ltda.

     —          1,545        1        18,565        —    

Refinaria de Petróleo Riograndense S.A.

     —          264,602        —          1,019,108        —    

ConectCar Soluções de Mobilidade Eletrônica S.A.

     739        113        7,385        121        —    

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

     —          124        —          —          1,477  

Chevron Latin America Marketing LLC

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2019

     739        266,384        7,386        1,037,794        1,477  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

     Commercial transactions  
     Receivables (1)      Payables (1)      Sales and
services
     Purchases      Expenses  

Oxicap Indústria de Gases Ltda.

     —          567        6        9,032        —    

Refinaria de Petróleo Riograndense S.A.

     —          24,630        —          1,008,860        —    

ConectCar Soluções de Mobilidade Eletrônica S.A.

     1,042        136        3,844        186        —    

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

     —          117        —          —          1,469  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2018

     1,042        25,450        3,850        1,018,078        1,469  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

 

(a)

Refers to rental contracts of 15 drugstores owned by LA’7 as of December 31, 2019 (15 drugstores as of December 31, 2018), a company of the former shareholders of Extrafarma that are current shareholders of Ultrapar.

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. In the opinion of the Company and its subsidiaries’ management, transactions with related parties are not subject to credit risk, which is why no an estimated loss or collateral is provided. Collateral provided by the Company in loans of subsidiaries and affiliates are mentioned in Note 16.i.

 

 

32


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

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. Further details about the Deferred Stock Plan are contained in Note 8.c and about post-employment benefits in Note 20.b.

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

 

     12/31/2019      12/31/2018  

Short-term compensation

     41,659        36,504  

Stock compensation

     9,881        1,407  

Post-employment benefits

     2,640        2,278  

Termination benefit

     —          905  
  

 

 

    

 

 

 

Total

     54,180        41,094  
  

 

 

    

 

 

 

 

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 until the transfer of the full 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, the Brazilian Securities, Commodities and Futures Exchange and the amounts are amortized between five to seven years from the grant date.

 

 

33


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

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

     200,000        2022 to 2024        34.00        9,378        (4,513     4,865  

March 4, 2016

     380,000        2021 to 2023        32.72        17,147        (11,164     5,983  

December 10, 2014

     533,324        2019 to 2021        25.32        27,939        (23,967     3,972  

March 5, 2014

     111,200        2020 to 2021        26.08        5,999        (5,610     389  

November 7, 2012

     —          2019        21.45        16,139        (16,139     —    
  

 

 

          

 

 

    

 

 

   

 

 

 
     1,224,524                    76,602      (61,393)     15,209  
  

 

 

          

 

 

    

 

 

   

 

 

 

In 2019, the amortization in the amount of R$ 10,321 (R$ 3,922 in 2018) was recognized as a general and administrative expense.

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

 

Balance on December 31, 2017

     2,366,796  

Cancellation of granted shares due to termination of executive employment

     (433,332

Shares vested and transferred

     (233,336
  

 

 

 

Balance on December 31, 2018

     1,700,128  

Shares vested and transferred

     (475,604
  

 

 

 

Balance on December 31, 2019

     1,224,524  
  

 

 

 

The information above were adjusted retrospectively as disclosure in Note 26.a.

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 three to six years, to directors or employees of the Company or its subsidiaries.

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 11,128,102 common shares.

 

34


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(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      240,000      2023      38.19        12,642        (4,741     7,901  

Restricted and performance

   November 8, 2017      75,876      2020 to 2022      38.19        5,014        (2,850     2,164  

Restricted and performance

   April 4, 2018      184,076      2021 to 2023      34.35        12,066        (5,539     6,527  

Restricted

   September 19, 2018      160,000      2024      19.58        4,321        (900     3,421  

Restricted

   September 24, 2018      80,000      2024      18.40        2,030        (423     1,607  

Restricted and performance

   April 3, 2019      558,708      2022 to 2024      23.25        24,096        (4,729     19,367  

Restricted

   September 2, 2019      440,000      2025      16.42        10,074        (560     9,514  
     

 

 

          

 

 

    

 

 

   

 

 

 
          1,738,660                  70,243      (19,742)     50,501  
     

 

 

          

 

 

    

 

 

   

 

 

 

In 2019, a general and administrative expense in the amount of R$ 12,893 was recognized in relation to the Plan (R$ 6,001 in 2018).

 

Balance on December 31, 2017

     332,540  

Shares granted on April 9, 2018

     207,184  

Shares granted on September 19, 2018

     160,000  

Shares granted on September 24, 2018

     80,000  

Cancellation of granted shares due to termination of executive employment

     (39,772
  

 

 

 

Balance on December 31, 2018

     739,952  

Shares granted on April, 3, 2019

     567,876  

Shares granted on September 2, 2019

     440,000  

Cancellation of granted shares due to termination of executive employment

     (9,168
  

 

 

 

Balance on December 31, 2019

     1,738,660  
  

 

 

 

The information above were adjusted retrospectively as disclosure in Note 26.a.

 

35


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

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 PP&E, 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  
     12/31/2019      12/31/2018      12/31/2019     12/31/2018  

Assets — Deferred income and social contribution taxes on:

          

Provision for impairment of assets

     —          —          72,377       116,191  

Provisions for tax, civil, and labor risks

     —          —          150,085       154,516  

Provision for post-employment benefits

     —          —          92,199       85,575  

Provision for differences between cash and accrual basis

     —          —          224,065       147,376  

Goodwill

     —          —          8,161       12,258  

Business combination – fiscal basis vs. accounting basis of goodwill

     —          —          75,745       75,838  

Provision for asset retirement obligation

     —          —          14,762       15,801  

Provision for suppliers

     439        —          35,214       38,339  

Provision for profit sharing and bonus

     —          —          44, 818       49,621  

Leases payable

     —          —          19,003       —    

Change in fair value of subscription warrants

     —          —          16,338       13,700  

Other provisions

     16,542        14,034        45,316       42,694  

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

     24,632        —          278,140       208,036  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

     41,613        14,034        1,076,223       959,945  
  

 

 

    

 

 

    

 

 

   

 

 

 

Offset the liabilities balance

     —          —          (422,529     (445,758
  

 

 

    

 

 

    

 

 

   

 

 

 

Net balance of deferred taxes assets

     41,613        14,034        653,694       514,187  
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities — Deferred income and social contribution taxes on:

          

Revaluation of PP&E

     —          —          1,866       1,981  

Lease payable

     —          —          2,356       2,858  

Provision for differences between cash and accrual basis

     —          —          257,718       138,332  

Provision for goodwill

     —          —          39,186       187,845  

Business combination – fair value of assets

     —          —          114,125       117,352  

Other provisions

     —          —          14,809       6,687  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

     —          —          430,060       455,055  
  

 

 

    

 

 

    

 

 

   

 

 

 

Offset the assets balance

     —          —          (422,529     (445,758
  

 

 

    

 

 

    

 

 

   

 

 

 

Net balance of deferred taxes liabilities

     —          —          7,531       9,297  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

36


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

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

 

     Parent     Consolidated  
     12/31/2019      12/31/2018     12/31/2019      12/31/2018  

Initial balance

     14,034        29,159       504,890        530,419  

Deferred IRPJ and CSLL recognized in income of the year

     27,579        (15,125     97,465        (162.417

Deferred IRPJ and CSLL recognized in other comprehensive income

     —          —         40,497        133,124  

Deferred IRPJ and CSLL recognized in business combination (i)

     —          —         —          1,054  

Others

     —          —         3,311        2,710  
  

 

 

    

 

 

   

 

 

    

 

 

 

Final balance

     41,613        14,034       646,163        504,890  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(i)

For further details of TEAS business combination, see Note 3.d of financial statements filed on CVM on February 20, 2019.

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

 

     Parent      Consolidated  

Up to 1 Year

     13,209        178,127  

From 1 to 2 Years

     4,211        54,814  

From 2 to 3 Years

     4,265        141,105  

From 3 to 5 Years

     8,652        136,029  

From 5 to 7 Years

     6,354        353,806  

From 7 to 10 Years

     4,922        212,342  
  

 

 

    

 

 

 

Total of deferred tax assets relating to IRPJ and CSLL

     41,613        1,076,223  
  

 

 

    

 

 

 

In order to evaluate the realization of deferred tax assets, the taxable income projections from business plans of each segment of the Company, approved by Company’s Board of Directors, which indicates trends and perspectives, demand effects, competition and other economic factors that represent the management’s best estimate about the economic conditions existing during the period of realization of the deferred tax asset were taken into account.

The main key assumptions used to calculate the realization of deferred tax assets are: growth in Gross Domestic Product (“GDP”), exchange rate, basic interest rate (SELIC) and DI, inflation rate, commodity price index , among others. The balance of R$ 1,076,223 was supported by the technical study on taxable income projections for the realization of deferred tax assets, reviewed by the Fiscal Council and by the Audit and Risks Committee and approved by Company’s Board of Directors.

 

37


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

b.     Reconciliation of Income and Social Contribution Taxes

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

 

     Parent     Consolidated  
     12/31/2019       12/31/2018       12/31/2019       12/31/2018  

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

     (48,846     25,924       793,698       1,785,818  

Statutory tax rates – %

     34       34       34       34  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes at the statutory tax rates

     16,608       (8,814     (269,857     (607,178
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to the statutory income and social contribution taxes:

        

Nondeductible expenses (i)

     11,023       (372     (68,795     (82,784

Nontaxable revenues (ii)

     11       13       28,235       32,523  

Adjustment to estimated income (iii)

     —         —         10,511       9,706  

Interest on equity (iv)

     —         (41,338     —         (538

Unrecorded deferred Income and Social

Contribution Taxes Carryforwards deferred (v)

  

 

—  

 

    —         (146,820     (95,480

Other adjustments

     (63     23       24,873       (2,634
  

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes before tax incentives

     27,579       (50,488     (421,853     (746,385
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax incentives – SUDENE

     —         —         43,244       107,666  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income and social contribution taxes in the income statement

     27,579       (50,488     (378,609     (638,719
  

 

 

   

 

 

   

 

 

   

 

 

 

Current

     —         (35,363     (476,074     (476,302

Deferred

     27,579       (15,125     97,465       (162,417

Effective IRPJ and CSLL rates – %

     56.5       194.8       47.7       35.8  

 

(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;

 

(v)

See Note 9.d.

 

 

38


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(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”), as shown below:

 

Subsidiary

   Units    Incentive
— %
   Expiration

Bahiana Distribuidora de Gás Ltda.

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

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 S.A. Indústria e Comércio (3)

   Camaçari plant    75    2026

Empresa Carioca de Produtos Químicos S.A.

   Camaçari plant    75    2026

 

(1)

The subsidiary Bahiana Distribuidora de Gás Ltda. (“Bahiana”), obtained 75% income tax reduction incentive recognized by SUDENE, through an appraisal report on October 22, 2018, until 2027, due to the modernization for its Aracaju plant – Sergipe. Due to the tacit approval by the RFB the constitutive benefit appraisal report the subsidiary recognized income tax reduction retroactive effect in January 2018 in the amount of R$ 1,067.

 

(2)

The subsidiary Bahiana had the 75% income tax reduction incentive recognized by SUDENE, through an appraisal report on January 14, 2019, until 2027, due to the modernization for its Suape plant – Pernambuco. The constitutive benefit appraisal report was approved in May 2019 by the RFB.

 

(3) 

The request to transfer the right to reduce the IRPJ to Oxiteno S.A. will be submitted to SUDENE due to the incorporation of the subsidiary Oxiteno Nordeste.

d.    Income and Social Contribution Taxes Carryforwards

In December 31, 2019, the Company and certain subsidiaries had tax loss carryforwards related to income tax (IRPJ) of R$ 1,268,964 (R$ 873,718 as of December 31, 2018) and negative basis of CSLL of R$ 1,270,714 (R$ 876,315 as of December 31, 2018), whose compensations are limited to 30% of taxable income in a given tax year, which do not expire.

In addition, certain offshore subsidiaries had tax loss carryforwards of R$ 878,470 (R$ 620,906 as of December 31, 2018).

The amount of deferred income and social contribution tax assets are as follows:

 

     12/31/2019      12/31/2018  

Cia. Ultragaz

     12,808        37,332  

Oxiteno S.A.

     148,306        43,645  

Iconic

     17,657        28,256  

Extrafarma

     72,318        98,803  

Ultrapar

     24,632        —    

Ultrapar International

     2,419        —    
  

 

 

    

 

 

 
     278,140      208,036  
  

 

 

    

 

 

 

 

 

39


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

The amount of deferred income and social contribution and social contribution tax assets are as follows:

 

     12/31/2019      12/31/2018  

Extrafarma

     237,664        94,115  

Integra Frotas

     4,636        1,365  

Oxiteno Argentina

     —          22  

Oxiteno USA

     127,992        124,864  

Oxiteno Andina

     —          466  
  

 

 

    

 

 

 
     370,292      220,832  
  

 

 

    

 

 

 

The technical study of the realization of deferred tax assets was approved by the Company’s CA, according Note 9.a.

10.     Prepaid Expenses (Consolidated)

 

     12/31/2019        12/31/2018  

Rents(1)

     37,106        413,799  

Advertising and publicity

     24,857        54,011  

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

     15,965        22,737  

Insurance premiums

     61,884        52,607  

Software maintenance

     21,759        21,667  

Other prepaid expenses

     19,000        21,844  
  

 

 

    

 

 

 
     180,571      586,665  
  

 

 

    

 

 

 

Current

     111,355        187,570  

Non-current

     69,216        399,095  

 

 

(1) 

After the adoption of IFRS16/CPC 06 (R2), some agreements were transferred to right to use assets (see Note 2.y).

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 revenue from sales and services in the statement of profit or loss according to the conditions established in the agreement (amortization in weighted average term of five years), being reviewed as changes occur under the terms of the agreements.

Balance and changes are shown below:

 

Balance as of December 31, 2017

     1,502,360  

Additions

     390,177  

Amortization

     (371,825

Transfer

     (2,235
  

 

 

 

Balance as of December 31, 2018

     1,518,477  

Additions

     330,068  

Amortization

     (355,250

Transfer

     (27,306
  

 

 

 

Balance as of December 31, 2019

     1,465,989  

Current

     465,454  

Non-current

     1,000,535  

 

40


Ultrapar Participações S.A. and Subsidiaries

Notes to the Parent and Consolidated Financial Statements

(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 statements of financial position and statements of profit or loss of subsidiaries and joint venture:

 

     12/31/2019  
     Subsidiaries