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ANNUAL REPORT

2015 SUMMARY

PRESENTATION ACCOMPLISHMENTS AND GOALS The Expansion of Subway System

o Line 2-Green o Line 4-Yellow o Line 5-Violet o Line 15-Silver o Line 17-Gold

PERFORMANCE o Operation o Maintenance o Customer service

ENVIRONMENT AND SUSTAINABILITY o Expansion: Environmental Licenses o Power and greenhouse gas emissions o Environmental management system

ADMINISTRATIVE PROCESSES o Information Systems o Personnel Management o Training, qualification and corporate university o Labor Safety, occupational health and life quality o Human Resources Management o Building infrastructure and administrative services

COMMUNICATION AND MARKETING o Cultural activities o Campaigns o Social Projects o Press and Social Networks

ECONOMIC-FINANCIAL PERFORMANCE o Businesses o Income statement o Financial resources

THANKS SOCIAL BALANCE

o Social Benefits 2015 ACCOUNTING STATEMENTS

   

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PRESENTATION

We are hereby presenting the Administration Report and the accounting statements of Companhia do Metropolitano de São Paulo – Metrô, regarding the fiscal year of 2015, in accordance with legal and statutory provisions related to public transportation service rendering for subway passengers and expansion of subway system.

ACCOMPLISHMENTS AND GOALS

THE EXPANSION OF SUBWAY SYSTEM

The daily concern of Companhia do Metropolitano de São Paulo – Metrô with the lines in operation is added to the continuous focus on the future. Therefore, Metrô continues with their study, research and survey activities to plan and build new lines to compose the metropolitan transportation network.

LINE 2-GREEN

Line 2‐Green project consists on the expansion of the current branch up to the Municipality 

of Guarulhos,  crossing  the east  side of São Paulo and  connecting  these  regions with  the 

south and west sides, in addition to the remaining subway‐railway network. 

With 14.4 kilometers of extension, connecting Vila Prudente Station to the Municipality of 

Guarulhos, this line expansion will count with additional thirteen stations and maintenance 

yard.  It will meet the demand of the residents from neighborhoods Jardim Anália Franco, 

Vila Formosa, Vila Manchester, Aricanduva, Penha and Tiquatira  in São Paulo, and Ponte 

Grande and Vila Augusta in Guarulhos. Its distribution role of concentrated passengers flow 

is highlighted that currently occurs  in  lines 3‐Red of Metrô, 11‐Coral, 12‐Safire and future 

13‐Jade of CPTM, which constitutes radial connections of subway‐railway service.

After  the project conclusion,  it will be  the  longest  subway  line – with 29.1 kilometers of 

extension, and is also the axis with the greatest number of stations: 27. It will connect with 

other four subway lines, tree metropolitan trains and one monorail.

For  the expansion  implementation of Line 2 – Green of Metrô –  section Vila Prudente – 

Dutra, the construction works contracts were signed on September 2014, relative to eight 

lots foreseen for this implementation. 

On October 2014, partial Service Orders were  issued  for  lots 1, 3, 4 and 5  releasing  the 

execution of preliminary services for construction works implementation, such as: detailed 

project and demolition of expropriated properties. Lots 2, 6, 7 and 8 didn’t have the service 

orders issued at that time 

   

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Expropriations and demolitions: In 2015, the necessary expropriations were continued for 

the project implementation and initiated demolition of properties for the beginning of the 

works.

Detailed  projects  and  construction  work:  In  2015,  began  the  elaboration  of  detailed 

projects and geological surveys were performed necessary for the project implementation.

In 2015, due to priorities redefinition in the expansion plan, Companhia do Metrô entirely 

suspended, until December 31, 2016, all construction work contracts of this Project.

LINE 4-YELLOW

Because of its integration characteristics with the entire rail transportation network in the Metropolitan Region of São Paulo – RMSP (lines 1-Blue, 2-Green, 3-Red and 5-Violet of Metrô and lines 7-Rubi, 8-Diamant, 9-Esmerald, 10-Turquoise, 11-Coral, and 12-Safire of CPTM) and with the bus system, Line 4-Yellow is considered a priority project for the Urban Transportation Integrated Plan (Plano Integrado do Transporte Urbano – PITU) and for the Metropolitan Network of São Paulo.

Line 4-Yellow is operated by a concessionaire – ViaQuatro – and its implementation is being performed in three phases. It has as differential the trains operated under driverless mode, without operator.

In the year 2015 was performed the management of remaining works of Phase 1, for the compliance with the services and repairs under warranty and to hire the company for the construction of public restrooms at stations Luz, República, Paulista, Faria Lima, Pinheiros and Butantã.

Due to the interruption of the works from Phase 2 by the contractor Corsàn Corvian (stations Higienópolis – Mackenzie, Oscar Freire, Fradique Coutinho, São Paulo – Morumbi, Pátio and Vila Sônia Bus Terminal), Metrô unilaterally terminated the contract on Sept/10/2015. The activities for contracting a new company, to continue the works and for its conclusion, resulted in the elaboration of material aiming a new bidding process, published on November 2015.

LINE 5-VIOLET

The operating section of Line 5-Violet, between stations Capão Redondo and Adolfo Pinheiro, in the south region of the capital, has 9.3 kilometers of extension, seven stations and a parking and maintenance yard for trains. This section is integrated to the intercity buses at stations Capão Redondo and Campo Limpo, to municipal buses in all stations and to CPTM at Santo Amaro Station.

The expansion in progress contemplates the implementation of 11.0 kilometers of ways and 10 new stations. The new section will connect Adolfo Pinheiro Station to Chácara Klabin Station, in Vila Mariana district, integrating with Line 1-Blue at Santa Cruz Station, with Line 2-Green at Chácara Klabin Station and with Line 17-Gold at Campo Belo Station.

   

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In 2015, the execution of construction works continued in the expansion section as from Adolfo Pinheiro Station up to Chácara Klabin Station, as well as Guido Caloi Yard. The construction of coverage slabs progressed at stations Alto da Boa Vista, Borba Gato and Brooklin, of internal structures of stations Eucaliptos, Moema and AACD-Servidor, and excavation of tunnels for the station of stations bodies at São Paulo Hospital, Santa Cruz and Chácara Klabin.

Also continued the excavations with three tunnel boring machines, one for the double tunnel between Bandeirantes Shaft and Dionísio da Costa Shaft, and another two for single parallel tunnels between Conde de Itu Shaft and Bandeirantes Shaft.

During the year, the excavation of the double tunnel reached Santa Cruz Station, crossing stations AACD-Servidor and São Paulo Hospital and the excavation of single tunnels crossed stations Brooklin and Campo Belo, wherein one of the tunnel boring machines concluded the trajectory, reaching Bandeirantes Shaft.

LINE 15-SILVER

Line 15-Silver in monorail will have 24.5 kilometers of extension, starting at Vila Prudente Station up to Cidade Tiradentes Hospital Station, with 17 stations and two yards for trains parking, Oratório and Ragheb Chohfi, both with capacity to park 28 trains each.

The system will meet the demand of around 550 thousand passengers/day, operating with 54 trains with seven cars each, for the section between stations Vila Prudente and Hospital Cidade Tiradentes, as foreseen in the functional project.

In 2015, another 11 new complete trains were delivered, totaling 20 trains already delivered to Oratório Yard, all of them manufactured in Brazil, at Hortolândia, in countryside of São Paulo.

LINE 17-GOLD

Line 17-Gold will have a commercial extension of 17.7 kilometers and 18 stations. This line will connect, through a branch, Congonhas Airport to Jabaquara Station from Line 1-Blue, in one direction, and to São Paulo – Morumbi Station from Line 4-Yellow in the other direction. It will also be integrated to Line 5-Violet at Campo Belo Station and to Line 9-Esmerald from CPTM at Morumbi Station – CPTM and will meet the estimated demand for section 1 of 214 thousand passengers/day. Upon the conclusion of sections 2 and 3, it will meet an estimated demand of 511 thousand passengers/day.

Água Espraiada Yard is also part of this phase, which is destined for the maintenance and parking of a freight with 27 trains, from which 14 trains were already contracted.

In this section, the implementation of construction works for Água Espraiada Yard and for stations Chucri Zaidan, Vila Cordeiro and Campo Belo, during the year of 2015, developed regularly until the middle of October, when the construction consortiums interrupted the September 2010: Sacomã – Vila Prudente from Line 2-Green. Since August 2013, was

   

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initiated, on weekends, the commercial operation using CBTC in all Line 2-Green, in order to test it operationally and prepare the Operation and Maintenance technical staff. Along 2015, the pending matters detected during the tests were settled by the supplier and it is foreseen that in 2016, Line 2-Green will starts full operation, during the 19 hours of commercial operation, with signaling made by CBTC.

Permanent way: The highlight of the year 2015 in the permanent way system was the change of 540 meters of rail on ballast way performed over the night on the day Mar/01/2015, at Line 3-Red. Due to the local difficulties – the new rail is almost on the same level of the rail to be substituted – it was the first time that such extension was substituted over a single night. The usage of special equipment (multiuse tractor) was crucial, once it minimized manpower in the elevation and positioning of the rails, improving the ergonomics and productivity.

ASSISTANCE TO USERS

Ombudsman: In 2015, were registered 12,728 manifestations from citizens in the Custom Corporate System. From this total 6,266 were claims, 4,803 information requests, 889 suggestions, 391 compliments, 323 complaints and 56 thanks. There was a 26% drop of the total Ombudsman demand when compared to the year 2014.

Manifestations 2014 / 2015 per type

Information Service for Citizen – SIC: In 2015, the information service was intensively used by the population and is within the five most demanded in the State of São Paulo. This great increase occurred mainly due to the huge effort made by Metrô in its expansion, with works in the new lines and expansion of the existing

Relationship with the communities neighboring the construction works of Metrô: In 2015, the company made 3,764 assistances for the population near the expansion areas of Metrô de São Paulo. They were performed personally, at the residences or in meetings with the community, by phone or e-mail or by website, at the link “Fale Conosco” (Contact Us)

8.028

7.047

1.138545 437

42

6.266

4.803

889391 323 56

0

2.000

4.000

6.000

8.000

10.000

RECLAMAÇÃO INFORMAÇÃO SUGESTÃO ELOGIO DENÚNCIA AGRADECIMENTO

2014 2015

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ENVIRONMENT AND SUSTAINABILITY

Sustainability is one of the strategy values of the Company. Their actions aim the operation and expansion of the metropolitan transportation network respecting life quality, environment and social aspects, maintaining the economic feasibility of the company.

EXPANSION AND ENVIRONMENTAL LICENSES

In 2015, 107 studies and technical reports were elaborated that approached the following themes: tree management, contaminated areas, archeology, heritage, license request reports, bestowals, certificates and manifestations of several entities, in addition to license follow-up reports.

Studies/Reports for Environmental Licensing

Project Stage Licensing Phase Studies/reports quantities

Design and Project Previous License 5 Works Installation License 66 Operation Operation License 36

The Installation License was issued for the section Vila Prudente – Paulo Freire of Line 2- Green and extension of three licenses that authorized the execution of the works, with two for Line 15-Silver and one for Line 17-Gold.

POWER AND GREENHOUSE GAS EMISSIONS

In 2015, the annual consumption of electricity maintained stable around 600 thousand megawatts-hour, with over 90% of this total for the operation of transportation services.

ENVIRONMENTAL MANAGEMENT SYSTEM

In 2015, Metrô searched for and implemented consumption reduction measures and usage of alternative sources for none drinking purposes. Relevant results were obtained with the utilization of water provided from water table lowering. With grounds on Ordinance DAEE No. 2.069, from Sep/19/2014, Metrô requested and obtained the bestowals in 13 places, reaching the utilization of 300 m³/day, a value much greater than the purpose of 100 m³/day that had been established.

ADMINISTRATIVE PROCESSES

INFORMATION SYSTEMS

Applications

Business Management Integrated System – Continuing the implementation of ERP solution from SAP. During the year 2015, a review in the processes of Companhia do Metrô was made and defined new flows and responsibilities.

   

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Tax Solution – Contracting and implementation start of contracted solution (Mastersaf) to comply with the tax obligations required by the Federal Government.

Panel of Indicators – Documents manager consisting of seven panels for data and graphic visualization related to the indicators from the Presidency and Board of Director areas and a summary panel for usage by the Administration Board.

Risk Management System – Strategy information about the works in Line 15-Silver and Line 5-Violet.

Contract Management System – Corporate system for the management, control and physical and financial follow-up of contracts and its additives.

Communication Infrastructure – Data, Voice e Image

The Data Corporate Network is essential for data traffic from Information Systems processed under the I.T. Environment.

In the year 2015 occurred the approval by Companhia do Metrô to contract the modernization of the current network, which contemplates the technologic evolution, mainly regarding data rate, geographic coverage, safety and availability.

PERSONNEL MANAGEMENT

Workforce Distribution

Area No. of

employees No. of

employees 2015 2014

Operation 4,511 4,624 Maintenance 2,806 2,879 Administration 1,084 1,067 Expansion 774 787 Financial 261 255

Total 9,436 9,612

Workforce indicators  

Indicators  2015  2014 

Number of employees  9,436  9,612 

‐ Admissions in the period  95  405 

‐ Layoffs in the period  248  310 

Division by gender     

‐ Male  7,554  7,694 

‐ Female  1,882  1,918 

Age range      

   

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‐ Up to 25 years old  391  546 

‐ Between 26 and 35 years old  1,689  1,737 

‐ Between 36 and 45 years old  1,867  1,969 

‐ Between 46 and 55 years old  3,293  3,394 

‐ Between 56 and 65 years old  2,017  1,823 

‐ Above 66 years old  179  143 

Average time worked (years)  17.60  17.16 

Education   

‐ Master degree/ PhD  83  88 

‐ Post‐graduation  489  496 

‐ Higher education  2,839  2,891 

‐ High school   5,241  5,362 

‐ Elementary school  692  681 

‐ Elementary school (incomplete)  92  94 

Number of trainees  198  171 

Number of disabled or rehabilitated employees  279  273 

Number of employees’ dependents  13,469  13,697 

Number of young citizens  472  472 

     

TRAINING, QUALIFICATION AND CORPORATE UNIVERSITY

Unimetro: Along 2015, continued the schools structuring as from the development of learning paths in partnership with counselors, facilitators, managers and educators. The participants made viable shops to structure six learning paths:

Internal Educators Development and Valorization Program

Leadership Development Program

Corporate Intelligence Program – PIC

Specific Qualification for the Function

Legal Training on Occupational Health and Safety and others necessary for the Management System

LABOR SAFETY, OCCUPATIONAL HEALTH AND LIFE QUALITY

In 2015, the following programs and actions were performed:

Management System of Occupational Health and Safety – OHSAS 18001:2007

Occupational Health Medical Control Program

Health Monitoring

Occupational Health Actions

Life Quality Programs

Social Assistance

Social Benefits

   

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OTHER PROGRAMS

Diversity, Professional Rehabilitation, Internal Communication and Engagement.

MANAGEMENT OF HUMAN RESOURCES

Performance Management: With the purpose of improving the organizational results, Companhia do Metrô adopts Performance Management – continuous guidance process, monitoring and assessment of employees.

Assessment of Competencies

Total of employees evaluated 2015 2014

9,246 9,328

Succession Process: In 2015, occurred 22.5% of utilization as a result of the Pilot Program. From the 40 employees indicated to participate in the Program, four successors were promoted to Manager, two successors promoted to Head of Department and three successors promoted to Coordinator.

There was also an increase in the advisory provided to the leaders in specific succession processes, not only for the position of coordination and supervision, but also for the position of head of department. Another request from the management, resulting from this program, was the acceleration action of young professionals’ development for a leadership position.

Still in 2015, the Succession Program was listed by the Board of Directors as one of the actions from the Strategical Planning.

Salary changes: In 2015, were performed 1,939 salary progressions, most of them representing actual increases of, in average, 5% in the salaries of the employees.

Salary Progressions 2015 2014

1,939 1,468

New employees: In 2015, was released the Public Sector Recruitment Tender 01/2015 – Subway Security Agent and the Selection Process 01/2015 – Senai Apprentice.

Hiring (public recruitment tender) 2015 2014

74 388

People Movement Processes in Carrier – PMPC: In 2015, was released four People Movement Processes in Carrier - PMPC:

   

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Employees enrolled in the People Movement Processes in Carrier – PMPC

2015 2014

1,433 954

Opportunity for young people: 738 students were hired in partnership with specific institutions: Fundap, Senai and SERT. These contracts were performed by means of public selection and recruitment processes.

Position 2015 2014

Senai Apprentice 74 58 Young Citizen 499 500 Trainee 165 101 Total 738 659

BUILDING INFRASTRUCTURE AND ADMINISTRATIVE SERVICES

In 2015, preventive, corrective and predictive maintenances were performed in infrastructure in 22 administrative buildings, with total working area over 32,000 m2. The decentralized area Carrão, with 760 m2, was completely revitalized to allocate employees from the Engineering and Construction Direction (DE) aiming the proximity with the expansion works and cost reduction with rented buildings.

Lightning protection systems were installed in the decentralized administrative areas Ana Rosa, Guilhermina, Ibirapuera, Oscar Freire and Bresser according to the technical standards and legislation in force.

Transportation logistic actions, intensification in the preventive maintenance routines and education campaigns resulted in a 24.33% reduction in the average of service orders, in the contact center.

The digital library was modernized and the entire technical memory record produced by Companhia do Metropolitano was digitalized and made available.

In respect to the development of technical instruction, for the achievement of the Fire Department Inspection Certificate (AVCB) for the subway stations, it was made available to Metrô to propose a legislation that would define the protection measures that are already accepted internationally and followed by the Company.

This proposal was delivered formally to the Fire Department Command on May/25/2015 for analysis by the officers from the technical area of firefighting safety, being performed the first feedback session on Sep/03/2015. The proposal was then reviewed and resubmitted on Nov/23/2015 for correction of the new requirements included or modified.

   

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COMMUNICATION AND MARKETING

CULTURAL ACTIVITIES

Has as purpose to provide for the public user of subway, free of charge, artistic-cultural attractions from several languages, in several stations. Such activities humanized and activated spaces in such way that the station is no longer a crossing point becoming a place for leisure, enjoyment and knowledge. The main actions were:

Culture Line – total of 209 exhibitions in the year 2015.

Piano in Metrô, Poetry in Metrô, Metrô Security Band.

Fix Exhibitions: Alto do Ipiranga Station, Largo Treze Station, Adolfo Pinheiro Station, Corinthians-Itaquera Station, Liberdade Station: Ikebana Showcase.

Partnerships and Arrangements: Santa Cruz Station – Lasar Segall Showcase.

Trianon - MASP Station – MASP Showcase.

Tiradentes Station – Museum of Religious Art.

Special Projects.

Cultural Presentations: Music, Theater, Dance, Shops and Choral.

Art Project in Metrô: Currently, Metrô has a collection of 91 art pieces.

CAMPAIGNS

In 2015, around 60 campaigns were produced, with emphasis on: Commemoration of 47 years of Companhia do Metrô Foundation, Campaign about Irregular Commerce, Support Campaign for Water Economy, Radio Campaign (Tudo de Metrô), Accessibility – Opportunity for All, Exhibition 41 Years of Operation, Beginning of Commercial Operation and Monorail Time Schedule Expansion of Line 15-Silver, Sustainability Report, Communication Plan – Metrô and You, Creation of institutional folder with Metropolitan Transportation and Tourism maps, Campaign against Sexual Arrestment, Metrô Media, among others.

SOCIAL PROJECTS

In 2015, were performed 28 actions, with emphasis for: Prevention of STD/HIV/AIDS, Campaign Health Kidneys, World No Tabaco Day, Exhibition DMRI – Veja Bem Veja para Sempre (See Well See Forever), Sesc Summer, First Aids Campaign from Red Cross, National Vaccine Campaign against Polio, World Campaign to Combat Violence Against Women, Hepatitis Week, Challenge Day, Stroke Collective Effort 2015, Men Week, World Day of Chronic Obstructive Pulmonary Disease, Woman Defense Center, Mobilization Day Against Dengue and Disabled Inclusion.

   

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PRESS AND SOCIAL NETWORKS

In the year 2015, Metrô disclosed 268 releases. The News released involved subjects such as service rendering (special operations, specific changes in circulation and information notes), characters and life histories of users and employees, services and maintenance works over the night, backstage of mega subway operation, cultural events at the stations and expansion works progress.

Last year, over 4,500 assistances were made, adding to those made in person, following news teams and advising interviewed, by telephone or e-mail, inside and outside department headquarters.

As from the clipping service reports (collection of news disclosed about Metrô), considering a total of 27 thousand articles collected and analyzed, 51.5% were assessed as being positive and 38.4% as negative.

With respect to the content targeting its approximately 10 thousand employees, Metrô disclosed 408 releases (253.4% more than 2014, with 161 releases). Among them news provided in: wall posters, notes and announcements, in addition to the coproduction of publications of newsletters and newspapers “Linha de Frente” (printed and electronic) in the salary campaign period (May and June/2015).

SOCIAL AND DIGITAL NETWORKS

The two main managed profiles ended 2015 with 793,727 followers in Twitter (@metrosp_oficial) and 147,484 likers in Facebook (www.facebook.com/metrosp). The registered growth compared to 2014 was 139.29% and 25.84% respectively. Wes hall also remember that Metrô also has a profile in YouTube (2,252 subscribers and 1,313,767 visualizations) and a profile in the social image hosting network Flickr (327 followers and 994 photos published).

The number of assistances made by the team along 2015 was maintained, with a slight growth, registering 13,055 assistances, compared to 12,999 from the previous year.

In order to maintain an elevated assistance rate and improve the relation among internet users, Metrô generated relevant content for official profiles, elevating, therefore, the engagement of such public. In 2015, the posts made on Facebook (three per day, in average), resulted in 32,155,559 prints (number of times that each publication was seen). On Twitter, the publications made (six in average per day) generated 20.4 million views.

 

ECONOMIC-FINANCIAL PERFORMANCE

BUSINESSES

   

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The none-tariff revenue accounted in the year 2015 with commercial exploitation in real estate segments, advertisement, retail, telephony and incorporated areas, reached R$ 186.4 million, a 2.7% increase in respect to the previous year.

In the real estate segment is emphasized the malls in Metrô Tatuapé, Boulevard Tatuapé, Santa Cruz, Itaquera, Tucuruvi and Marechal Deodoro, bus terminals and real estates, which total a revenue for the Company of R$ 84,684 thousand, representing 46.0% of the total none-tariff revenue.

In the other segments, the revenues arose from: advertisement (media exploitation, Minute TV, “Projeto Encontros”, Photos & Filming etc.), in a total of R$ 35,563 thousand; retail (promotional campaigns, stores and spaces) in an amount of R$ 32,340 thousand; telephony in a value of R$ 9,898 thousand; and incorporated areas (Single Ticket and cabling) in an amount of R$ 23,878 thousand.

46%

19%

17%

13%

5%

None Tariff Revenues ‐ 2015

Des. Imobiliário

Publicidade

Varejo

Incorporadas

Telefonia

valores em %

Real Estate Dev. 

Advertisement 

Retail 

Incorporated 

Telephony 

values in %

   

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INCOME STATEMENT

In the year 2015, the total net revenue of Metrô covered 96.8% of the total expenses. These expenses contemplate the costs of services rendered, the operational expenses, in addition to the management of expansion works in the system.

Coverage Rate - 2015

In R$ million

Discrimination 2015

Total Revenue 2.269,1

. Tariff + None-Tariff Revenue 1,934.4

. Gratuity - GESP reimbursement 264.4

. Other None Operational Revenue 70.3

Total Expenses 2,343.0

. Personnel 1,730.9

. Material 55.6

. General Expenses 556.5

Revenues/expenses 96.8%

ECONOMIC-FINANCIAL STATEMENTS

In the fiscal year of 2015, Companhia do Metrô invested in the current network and in the expansion R$ 3,153.1 million, from which R$ 2,730.3 million originated from transference from the State Government of São Paulo. The Municipal Government of São  Paulo 

transferred an amount of R$ 74.9 million. Both provided resources under the modality of 

capital increase. The Company used, also, R$ 347.9 million, with R$ 199.7 million provided 

from selling electricity company stocks and other sources. 

The State Government of São Paulo transferred, also, R$ 264.4 million by way of repayment of gratuities and subsidizes to students, which, added to the amount for investment totaled R$ 2,994.7 million.

Considering the sum of these resources, it totals up to R$ 3,417.5 million, according to the statement provided next.

   

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Comparison Chart of Financial Resources - 2015/2014

THANKS

We would like to thank our collaborators, users, shareholders, suppliers and all of those that contributed for the development of Companhia do Metrô on the year 2015. In addition, we trust on the constant commitment and dedication as grounds for the accomplishment of our works, always aligned with the actions developed by the State Government of São Paulo.

(R$ million)

Discrimination Year

2015 2014 Variation

1. Investments – (Current Network and Expansion) 3,153.1 3,.899.7 -19.1%

Current Network 264.1 524.1 -49.6%

Requalification and Modernization 206.6 411.4

- Line 1 Blue 110.1 135.9

- Line 2 Green 18.1 40.6

- Line 3 Red 77.1 228.9

- Line 5 Violet 1.3 6.0

Operation of Subway Lines 56.4 110.3

Elaboration of projects for expansion 1,1 2,4

Network Expansion 2,889.0 3,375.6 -14.4%

Line 2 Green - Vila Prudente - Dutra 113.7 307.5

Line 4 Yellow - Vila Sônia - Luz - (Phase II) 84.4 176.6

Line 4 Yellow - Vila Sônia - Taboão da Serra - (Phase IIl) 3.6 8.8

Line 5 Violet - Largo Treze - Chácara Klabin 1,487.2 1,679.9

Line 5 Violet - Capão Redondo - Jardim Ângela 1.9 2.3

Line 15 Silver - Ipiranga - Cidade Tiradentes 426.6 708.5

Line 17 Gold - São Judas - Congonhas - Jabaquara - Morumbi 272.1 492.0

Unrealized Investments Associated 499,5 0,0

2. Repayment of Gratuities and Subsidizes for Students 264.4 289.3 -8.6%

3. Total of Usages = (1+2) 3,417.5 4,189.0 -18.4%

4. State Government of São Paulo 2,994.7 3,761.5 -20.4%

5. Municipal Government of São Paulo 74.9 171.5 -56.3%

6. Others 347.9 256,0 35.9%

7. Total of Sources = (4+5+6) 3,417.5 4,189.0 -18.4%

   

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SOCIAL BALANCE

The methodology for the calculation of social benefits used in the social balance of Companhia do Metrô is based on physical and monetary losses that could take place if the subway was not operating. Therefrom arises the indicators of travel time, fuel consumption, operational costs and for track maintenance, accidents costs and emission of pollutants studies in the conditions with and without the subway existence. All of these indicators are transformed into values that represent how much the society saves with the subway operating.

SOCIAL BENEFITS 2015

The Metrô project generated, in the fiscal period of 2015, a positive social benefit of R$ 11.4 billion. The traveling time reduction continues to be the most important benefit, representing 65.5% of the total.

STATEMENT OF SOCIAL BENEFIT (in R$ millions)

Discrimination 2015 2014 Accounting Profit or Loss in period (93.3) 86.8

Total of social benefits 11,360.6 9,284.0

Discrimination  UnitsQuantity (thousand)

Value (Million)

Quantity (thousand)

Value (Million)

Pollutant emission reduction ton/year 911 220 886  118

Fuel consumption reduction liters/year 448,336 1,209 434,488 1,050

Bus operation cost reduction km/year 248,254 1,566 244,427 1,437

Operational cost reduction with autos km/year 1,578,861 493 1,568,668  459

Operational cost reduction w/motorcycles   km/year 383,064 65 380,591 62

Way maintenance and operation costreduction    - - 58 -  59

Travel time reduction hours/year 1,007,527 7,454 918,258 5,824

Cost reduction with accidents accidents 19 296 19 275

Total 11,361 9,284

2015 2014 (Average Prices)

   

17  

The increase of 22.36% in the social benefits of 2015 compared to 2014 was due to:

- inflation of 12.6% in the period analyzed; - increase in fuel prices around 10.5%; - increase in exchange rate and variation of “purchasing power parity” between USA and

Brazil; - increase of public transportation fare and consequent elevation in time value.

In the graphic below are demonstrated the absolute values (in million reais) and relative (%) of the benefits verified in 2015.

ACCOUNTING STATEMENTS

Presented next are the Accounting Statements of the periods ended on December 31, 2015 and 2014:

Assets; Liabilities; Financial Statements of Fiscal Years; Statement of Comprehensive Income; Cash Flow Statements; Statement of Net Equity Changes; Statement of Added Values and Explanation Notes.

Graphic 1 – Social Benefits – 2015 – R$ 11.4 billion (average prices in 2015) 

Maintenance and 

Operation of ways 

Emission of Pollutants 

Number of Accidents 

Fuel Consumption 

Operational Cost of Buses, Vehicles 

Travel Time 

R$ m

illion 

   

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19  

   

20  

   

21  

   

22  

   

23  

   

24  

   

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EXPLANATORY NOTES FROM MANAGEMENT TO THE FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2015 AND 2014

(In thousands of Brazilian Real except as otherwise indicated)

GENERAL INFORMATION  

The São Paulo Metropolitan Company (Companhia do Metropolitano de São Paulo – Metro) is a joint stock company with authorized capital based in the City of São Paulo, State of São Paulo. The São Paulo State Government is the majority shareholder. The São Paulo Metropolitan Company – Metro performs the following activities, as per its Company by laws:

ARTICLE 2 – The Company has the following purposes:

I. Planning, design, construction, implementation, operation, and maintenance of metro-rail, rail, and wheeled public transportation systems in the São Paulo Metropolitan Area.

II. Execution of supplementary and additional works and services required to integrate the passenger transport system in the city’s urban complex.

III. Construction and operation of passenger terminals; implementation and operation of parking facilities.

IV. Construction and direct or indirect sale, admitted the private sector participation, of residential or commercial properties, in addition to design, execute, and direct or indirect administrate any other works of the public and Company interest.

V. Sale of trademarks, patents, names, and insignias; sale of advertising areas and space; delivery of additional user support services directly or through licensed providers, with or without the assignment of building/facility use rights.

VI. Direct or indirect sale of technology through partnerships or consortia; delivery of consulting services, technical support, and services for equipment operation and maintenance; construction and implementation of transportation systems and passenger terminals in Brazil and abroad.

VII. Publication, except printing services, of newspapers, journals, and any other technical and commercial publications, which may include advertising.

The Management Board approved the financial statements on March 16, 2016.

   

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1. OPERATIONAL CONTEXT

In the fiscal year ended December 31, 2015, the São Paulo State Government contributed financial resources in the amount R$ 2,730,228 toward capital increases and R$ 264,424 to reimburse gratuities (social action program), while the São Paulo Municipal Government incorporated financial resources in the amount of R$ 74,957 for capital increases throughout 2015.

For fiscal 2016, resources in the amount of R$ 3,143,100.00 for investments and R$ 445,060.00 to reimburse gratuities were authorized through Law No. 16,083, dated December 28, 2015, as published in the São Paulo State Official Gazette (Diário Oficial do Estado de São Paulo) of December 28, 2015.

The tables below illustrate the key physical data on the Company’s operational context:

2013 Operating

Extension - Km No. of Stations¹

Proprietary Fleet

Km Covered Passengers

Transported in year

Line 1 – Blue 20.20 23 58 6,268,504 416,550,132

Line 2 – Green 14.70 14 27 3,576,128 185,952,501

Line 3 – Red 22.00 18 57 7,022,972 426,264,190

Line 5 – Violet 8.40 6 8 1,464,616 77,971,020 Total 65.30 58 ¹ 150 18,332,220 1,106,737,843

2014 Operating

Extension - Km No. of Stations¹

Proprietary Fleet

Km Covered Passengers

Transported in year

Line 1 – Blue 20.20 23 58 5,990,620 418,308,183

Line 2 – Green 14.70 14 27 3,496,520 186,482,024

Line 3 – Red 22.00 18 57 7,080,135 425,898,765

Line 5 – Violet 9.30 7 8 1,497,959 79,734,627

Total 66.20 59 ¹ 150 18,065,234 1,110,423,599

2015 Operating

Extension - Km No. of Stations¹

Proprietary Fleet

Km Covered Passengers

Transported in year

Line 1 – Blue 20.20 23 58 6,301,670 417,848,001

Line 2 – Green 14.70 14 27 3,609,978 188,346,157

Line 3 – Red 22.00 18 57 7,433,257 430,801,622

Line 5 – Violet 9.30 7 8 1,522,667 79,748,219

Line 15 – Silver 2.30 2 4 65,978 894,394

Total 68.50 61 (¹) 154 18,933,550 1,117,638,393

(¹) Transfer Stations: The system’s “transfer” stations are Ana Rosa, Paraíso, and Praça da Sé. These facilities serve to interconnect two or more lines. For purposes of computing the total number of metro-rail system stations, transfer stations were computed only once. However, for purposes of each line’s sum total, these were computed for each of the two lines served. For this reason, the total number of stations is 61, not 64.

   

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2. PRESENTATION OF FINANCIAL STATEMENTS

2.1 Basis of Preparation

The Metro Company’s financial statements were prepared and are presented pursuant to the standard accounting practices adopted in Brazil and the applicable international financial reporting standards (International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

The accounting standards adopted in Brazil encompass those covered by Brazilian corporate law and the Pronouncements, Guidelines, and Technical Interpretations of the Brazilian Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis – CPC) approved by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM).

2.2 Value-Added Statement

The Value-Added Statement – VAS presents information on wealth creation by the Company and the manner in which that wealth is distributed. The statement was prepared pursuant to CPC 09 – Value-Added Statement approved by CVM Decision 557/2008 and is presented as additional information.

2.3 Social Accounting

The social accounting statement provides social and environmental information, functional quantitative indexes, and pertinent information on the exercise of citizenship and corporate social responsibility. Some of the information was obtained from Company auxiliary records and management information. The statement is presented as additional information.

2.4 Measurement Basis

The financial statements were prepared based on historic cost, with the exception of financial instruments measured by the fair value through income and available for sale.

2.5 Functional Currency

These financial statements are presented in Brazilian Real (R$), the Company’s functional currency. All financial information presented in Brazilian Real were rounded to the nearest thousand, except as otherwise indicated.

2.6 Estimates

Preparation of the financial statements pursuant to the IFRS and CPC standards requires that the Board make judgments, estimates, and assumptions which affect accounting policies and reported asset, liability, revenue, and expense amounts. Real income may diverge from these estimates.

   

28  

Estimates and assumptions are reviewed on a continuing basis. Reviews of accounting estimates are recognized in the fiscal year in which those estimates are reviewed and any future fiscal years on which they have an effect.

Information on critical judgments in respect of accounting policies with a significant effect on the amounts recognized in the financial statements is included in the following explanatory notes:

Note 6 – Estimated Provision for Doubtful Credits

Note 9 – Fixed Assets

Note 13 – Benefit Plan

Note 15 – Provision for Contingencies

2.7 Principal accounting policies

2.7.1 Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits, and other short-term high liquidity investments with initial maturity dates of up to three months and insignificant risk of changes in value.

2.7.2 Financial assets

Classification

Receivables are non-derivative financial assets with fixed payments that are listed on the asset market. They are entered as current assets. The Company’s receivables encompass “Cash and cash equivalents,” “Accounts receivable,” “Escrow account banks,” and “Advances.”

Recognition and measurement

Receivables are accounted for by the amortized cost method.

Financial instrument offsets

Financial assets and liabilities are offset and the net values reported in the balance sheet, when there is an applicable legal right to offset recognized values and a intention to settle these on a net basis, or to realize an asset and settle a liability simultaneously.

Impairment of financial assets

At the end of each reporting period, the Company examines whether there is objective evidence that a financial asset has deteriorated.

A financial asset or group of financial assets is deemed to have deteriorated and the losses from impairment incurred only if there is objective evidence of impairment by virtue of one or more events following initial recognition of the assets (a “loss event”) and that loss event (or events) has (have) an impact on future estimated cash flow of the financial asset or group of financial assets based on reliable estimates.

   

29  

2.7.3 Accounts receivable

Accounts receivable correspond to receivables for ticket sales, lots, leases, reimbursement of general expenses, and contracts and agreements.

Accounts receivable are initially recognized by the fair value and subsequently measured by the amortized cost using the effective interest rate method, minus the estimated losses from the accounts receivable. In practice, they are generally recognized in the invoiced amount, and adjusted for the estimated provision for doubtful credits, where necessary.

2.7.4 Inventory

Operating material inventories are itemized as fixed assets. Consumable inventories are evaluated by the average purchase price, below the replacement cost.

2.7.5 Investments

Investments correspond to equity instruments classified as available for sale and evaluated at the fair value.

2.7.6 Intangible assets

Acquired software licenses are capitalized based on the costs incurred for the acquisition of software and preparing such software for use. These costs are amortized based on an estimated useful life of three to five years.

Software maintenance costs are recognized as expenses when effectively incurred. The related development costs which are directly attributable to the design and testing of identifiable and exclusive software products controlled by the Company are recognized as intangible assets.

2.7.7 Property, plant, and equipment

Property, plant, and equipment are measured by the historic costs, minus the cumulative depreciation. The historic cost includes expenses directly attributable to acquisition of the respective items.

Subsequent costs are included in the asset’s book value or recognized as a separate asset, where appropriate, only when there is a likelihood of future economic benefits associated to the item and the cost can be measured with a high degree of certainty. The book value of substituted items or parts is written off. All repairs and maintenance operations are recorded in the income statement for the fiscal year, when effectively incurred.

Lots are not depreciated. The depreciation of other assets is computed using the linear method for purposes of allocating the related costs to the residual values during the forecast useful life.

The residual value and useful life of assets are reviewed and adjusted, where appropriated, at the end of each fiscal year.

The book value of an asset is immediately written down to the recoverable value if the asset’s book value is higher than the estimated recoverable value (Note 9).

The losses and profits from assignments are determined by comparing the income statement with the book value and are recognized as “Other revenues/net operating expenses” in the income statement.

2.7.8 Impairment of non-financial assets

   

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Assets subject to depreciation and amortization are reviewed to verify impairment where events or changes in circumstances indicate that the book value is not recoverable. A loss by impairment is recognized based on the amount above which the asset’s book value exceeds the recoverable value. The recoverable value is the highest value between the fair value of an asset, minus the sale cost and the value in use.

2.7.9 Suppliers and other obligations

Accounts payable to suppliers and other accounts payable are obligations to pay for assets or services acquired from suppliers in the normal course of business transactions. These are classified as current liabilities if payment is due within a period of up to one year. Otherwise, accounts payable are presented as non-current liabilities.

Accounts payable are initially recognized based on the fair value and subsequently measured by the amortized costs using the effective interest method. In practice, they are generally recognized at the corresponding invoice value.

2.7.10 Provisions

Provisions  for  judicial proceedings  (labor, civil, and tax) are recognized when: the Company has a 

current obligation or a constructive obligation by virtue of past events; it is likely that resources will 

have  to be  expended  to  settle  the obligation;  and  the  value  is  estimated with  a high degree of 

certainty. Provisions are not recognized in respect of future operating losses. 

In the case of a series of similar obligations, the likelihood of liquidating these is determined based on the category of obligations as whole. A provision is recognized even when the likelihood of settlement of any individual item included in the same category is small.

Provisions are measured based on the present expense values required to settle the obligation using a before tax rate, which reflects current market evaluations of the time value of money and the specific risks associated with the obligation.

2.7.11 Current and deferred income tax and mandatory social contributions

Expenses for income taxes and social contributions in the period encompass current and deferred taxes. Income tax assessments are recognized in the income statement, except in the proportion to which they are related to items recognized directly in the net equity statement. In these cases, the respective taxes are also recognized the net equity statement.

Current income taxes and social contributions are computed based on the tax laws in effect, or substantially in effect, on the date of the balance sheet in the country in which the Company operates and generates taxable profits. On a periodic basis, Management evaluates the positions assumed by the Company in its income tax returns with respect to situations in which the applicable fiscal and tax regulations leave room for interpretation, establishing provisions, where appropriate, based on estimated amounts payable to the jurisdictional tax authorities.

Deferred income taxes and mandatory social contributions are recognized using the liability method on time differences arising from the differences between the tax bases of assets and liabilities and their book values as reflected in the financial statements. Deferred income taxes and mandatory social contributions are determined using tax rates (and tax law) in effect, or substantially in effect, on the date of the balance sheet and must be applied when the respective deferred asset tax is realized or when the deferred expense tax is paid.

   

31  

Pursuant to Note 23, the Company does not recognize deferred income taxes or mandatory social contributions, as it does not forecast future taxable profits.

2.7.12 Employee benefits

(a) Employment termination benefits

As of December 31, 2015, the Company did not operate any employment termination benefit plans.

(b) Profit sharing

Profit sharing is generally recognized in a linear manner in the course of the fiscal year.

(c) Post-employment benefits

Pursuant to Note 13, the Company, in conjunction with Metrus, sponsors pension plans to its collaborators, the characteristics of, and additional information on, which are presented in the respective Note.

2.7.13 Revenue recognition

Revenue encompasses the fair value of consideration received or receivable in the normal course of Company activities.

Revenue is presented as net values after taxes, deductions, and discounts.

The Company recognizes revenue when the value can be measured with a high degree of certainty, it is likely that future economic benefits will flow to the entity.

(a) Tariff Revenue

The Company provides metro-rail transportation services. The respective revenue is recognized at the time of system use of the service by riders.

The delivery of services through single rider fares is recognized as revenue at the point of sale.

(b) Rent, Lease, and Media Revenue

This form of revenue is accrued monthly based on signed contracts to meet the accrual regime. It is accounted for as services are provided.

(c) Revenue with Gratuity

Revenue accounted for on a monthly basis as received from the São Paulo State Government.

(d) Financial Revenue

Financial revenue is recognized based on elapsed time using the effective interest rate method.

   

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2.8 New pronouncements, amendments, and interpretation of standards

The IASB and CPC issued the following pronouncements, amendments, and interpretations of standards, which took effect January 1, 2014. The Company examined the amended and updated pronouncement in the CPC and did not identify any impacts for purposes of these financial statements:

IFRS 10, IFRS 12, and IAS 28 – “Investment Entities”; IFRIC 21 – “Taxes”; IAS 12 – “Income Tax”; IAS 19 – “Employee Benefits”; IAS 32 – “Financial Asset and Financial Liability Offsets”; IAS 36 – “Reduction in Recoverable Asset Amount”; IAS 37 – “Provisions, Contingent Liabilities, and Contingent Assets”; IAS 39 – “Novation of Derivatives and Continuation of Hedge Accounting.”

2.8.1 Pronouncements, amendments, and interpretations of standards still in effect

The IASB issued the following new standards, amendments, and interpretations of standards, which, however, have still not been published by the CPC. These standards, amendments, and interpretations are effective for annual reporting periods beginning on/or after January 1, 2016. The Company is assessing the impact of adopting these instruments in its financial statements:

IAS 1 – “Presentation of Financial Statements”; IFRS 9 – “Financial Instruments”; IFRS 14 – “Regulatory deferral accounts”; IFRS 11 – “Joint Arrangements”; IAS 16 and IAS 38 – “Clarification on Acceptable Methods of Depreciations and Amortization”; IFRS 15 – “Revenue from Contracts with Customers”; IAS 16 – “Property, Plant, and Equipment”; IFRS 10 – “Consolidated Statements” and IAS 28 – “Investments in Associates and Joint Ventures”; and IFRS 5, IFRS 7, and IAS 19 – “Review of Standards.”

3. FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors

The Company’s activities expose the organization to a number of financial risks: market risks (including currency risk, fair value interest rate risk, cash flow interest rate risk), price risk, credit risk, and liquidity risk. The Company’s risk management programs are based on the unpredictability of the financial markets and aimed at mitigating potential adverse effects on the Company’s financial position.

Risk management is performed by Management pursuant to the pertinent shareholder approved policies. The Company’s upper management identifies, evaluates, and protects the Company from potential financial risks.

(a) Credit risk

Credit risk derives from cash, cash equivalents, deposits in banks and financial institutions, and other receivables.

Only bonds from first-line entities are accepted for purposes of banks and financial institutions.

   

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(a) Liquidity risk

Cash flow forecasts are performed by Management.

Management monitors the Company’s continuous forecasts in respect of liquidity requirements to ensure sufficient cash to meet operating demands.

In addition to the balance required to manage current capital, excess cash held by the Company is invested in financial instruments in first-line financial institutions and entities under the Integrated State and Municipal Financial Management System (Sistema Integrado de Administração Financeira de Estados e Municípios – SIAFEM).  

4. FINANCIAL INSTRUMENTS  

Classification and measurement The Company classifies its financial assets in the following categories: measured at fair value through income, financial assets available for sale, and receivables. Classification depends on the ends for which the financial assets were acquired. Management classifies financial assets in the initial recognition.

Financial assets at fair value measured through income Financial assets measured at fair value through income are financial assets maintained for purposes of active and frequent operations. The losses and gains stemming from variations in the fair value of financial assets measured at fair value through income are presented in the “net financials” component of the income statement for the respective period, except where the instrument was contracted in connection with another transaction. In this case, the variation is recognized on the same line as the income affected by the corresponding transaction.

Financial assets available for sale Financial assets available for sale are non-derivative financial assets designated as available for sale or not classified under any other category of financial assets. Financial assets available for sale are recorded initially at their fair value plus any directly attributable financial cost. Following initial recognition, they are measured at fair value and the changes, except those in connection with losses due to impairment, are recognized in other comprehensive income and presented in the net equity statement. When an investment is written off, the income accrued in other comprehensive income is transferred to the income statement.

Company investments in equity shares are classified as financial assets available for sale.

Receivables

This category includes receivables are classified as non-derivative financial assets with fixed or determinable payments which are unlisted on the asset market. They are included as current assets, except those with a maturity date greater than 12 months after issuance of the balance sheet (these are classified as non-current assets). Company receivables encompass accounts receivable and other receivables. Following initial recognition, receivable are measured by the amortized cost through the effective interest method, minus any losses from impairment.

   

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Non-derivative financial liabilities

The Company recognizes all financial liabilities initially on the date of negotiation, i.e. the date on which the Company becomes a party to the contractual provisions of the instrument. The Company does not recognize a financial liability when its contractual obligation is terminated or canceled, or lapses.

The Company classifies non-derivative financial liabilities under the other financial liabilities category. These liabilities are recognized initially at their fair value, minus any attributable transaction costs. Following initial recognition, financial liabilities are measured by the amortized cost using the effective interest method.

Other non-derivative financial liabilities include suppliers, taxes and levies, and other obligations payable.

Classification of financial instruments

The classification of financial instruments is presented in the table below. No financial instruments are classified in other categories beyond those indicated:

Fair value measured through income

Available for sale

Receivables

Non-derivative financial liabilities

Total on

December 31, 2015

Assets

Cash and cash equivalents

679,527 - -

-

679,527

Accounts receivable

-

-

185,825

-

185,825

Advances and others

- -

24,663

-

24,663

Investments

-

73,989

-

-

73,989

Total

679,527

73,989 210,487

-

964,003

Liabilities

Suppliers

- - -

(817,794)

(817,794)Taxes and Social contributions - - -

(196,424)

(196,424)Agreements, contracts, and others

- - -

(808,235)

(808,235)

Total

-

-

-

(1,822,453)

(1,822,453)

Fair value “Derivative” financial instruments

   

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The Company does not execute transactions with derivative instruments for the purpose of mitigating or eliminating inherent operational risks. “Non-derivative” financial instruments For purposes of all transactions, Management deems the fair value equivalent to the book value, insofar as for purposes of the respective transactions the book value reflects the liquidation value on that date by virtue of the short-term maturity of these instruments. As such, the book values recorded in the balance sheet do not diverge from the respective fair values as of December 31, 2015.

5. CASH AND CASH EQUIVALENTS  

2015 2014

Cash 3,485 1,749 Banks – Transaction Account 732 35,395 Financial investments: SIAFEM 666,808 385,580 BB Short-Term Fund 8,501 38,704

Total financial investments 675,309 424,284

Cash and cash equivalents 679,527 461,428

In accordance with State Decree No. 60,244, dated March 14, 2014, all financial investments by the Metro Company are executed in the Finance Secretariat’s SIAFEM brokerage system, having an approximate return of 0.98% per month, and BB CP (short-term) automatic – Banco do Brasil, with an approximate return of 0.71% per month.

   

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6. ACCOUNTS RECEIVABLE

a) – Detailed composition of Net Accounts Receivable:

2015

2014

Accounts Receivable Reimbursement PETROBRAS (Paulista Station) 40,564 40,564Concessions – Shopping malls and parking facilities 39,453 44,597Reimbursement for expenses for designated staff 21,349 17,596Leases 17,871 11,611West Corridor 11,305 11,305Others 150,661 139,570

281,203 265,242

State Government

Reimbursement for sale of Lots

700

700

Agreement (Line 4 Yellow)

135,901

332,711 136,601 333,411

Estimated provision for losses in accounts receivable (231,979) (532,616)

Accounts receivable – net 185,825 66,038

b) – Reporting per maturity amounts due and past due:

2015 2014

Due 171,588 41,400 Past due up to 30 days 2,931 2,571 Past due 31 to 90 days 9,194 5,838 Past due more than 90 days 234,091 548,845

Estimated provision for losses in accounts receivable (1)

(231,979)

(532,616)

Accounts receivable – net 185,825 66,038 (1) The variation stems from reversion of the provision in Estimated Losses from Doubtful Credits (PECLD) in the

amount of R$ 332,711 and constitution of Estimated Losses from Doubtful Credits (PECLD) in the amount of R$32,074 per year

   

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a) – Use of provision for estimated losses from doubtful credits:

2015 2014

Initial Balance 532,616 199,905

Additions 32,074 332,711

Write-Offs (332,711) -

Final Balance 231,979 532,616

The Company records the estimated provision for losses in the accounts receivable column after individual analysis by customers.

Agreements and contracts

On November 29, 2006, the Company entered into a sponsored concession contract, as intervener, for the delivery of passenger transportation services on Line 4 – Yellow of the São Paulo Metro, running from the Luz Station to Taboão da Serra. The agreement was executed between the São Paulo State Government, Granting Authority, and the São Paulo Metro Company Line 4 Concessionaire.

By virtue of the Line 4 Concessionaire’s priority withdrawal of the amounts deposited with the clearinghouse, the Metro Company began to register a deficit in tariff revenue from the outset of the line 4 commercial operations due to the difference between the contractual amount paid to the Concessionaire (for which the Granting Authority was responsible), with resources drawn from the amounts deposited with the clearinghouse, and sale of ridership rights on the metro-rail system – public tariff, in view of the priority withdrawal above. Recognition of the Revenue from Service Deliveries is performed in accordance with CPC Technical Pronouncement 30, subject to the Competence regime, at the time of effective service delivery and on the corresponding fare amount, pursuant to the applicable fare table published in the pertinent Resolution of the Metropolitan Transportation Secretariat.

In fiscal year 2015, the São Paulo State Government and São Paulo Metropolitan Company – Metro executed a Term Agreement on October 30, 2015, with a view to reconstituting the tariff revenue stemming from the difference between the contractual amount paid to the Concessionaire and sale of ridership rights on the metro-rail system (public tariff).

Pursuant to Clause One – Accounting Adjustments of the Term Agreement, a loss in the amount of R$ 332.711 was recognized by the Company, while under Clause Two – Reconstitution of Tariff Revenue, the parties agreed that “as of execution of this instrument the State recognizes its responsibility to address the effects incurred by the Metro, pursuant to the tariff revenue distribution rule applied by the metro-rail system, with respect, specifically, to those issues affecting the Company’s economic and financial sustainability.”

   

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7. ESCROW ACCOUNT BANKS

Transaction 2015 2014

Deposits - 226,737

Basic Compensation 25 6,272

Interest Credit - -

Withholding Tax (33) (1,320)

Redemptions (4,543) (227,138)

Total (4,551) 4,551

This item refers to financial resources received from the São Paulo Municipal Government and deposited in an escrow account, the operation and use of which is only permitted when execution of civil works is effectively demonstrated through Metro share issues to the São Paulo Municipal Government in a quantity equivalent to the financial sum used under Agreement No. 0262880201, dated October 15, 2008.

In January 2015, the last withdrawal was made from the escrow account. The respective sum of approximately R$ 4,543 was transferred for purposes of capital pay-ins stemming from payments in connection with presentation of Line 17 – Gold measurements.

8. INVESTMENTS

2015 2014

Cia. Energética de São Paulo - CESP 8,934 10,000

Duke Energy International (Geração Paranapanema S/A) 2,613 3,231

AES Tietê S/A - 7,740

Cia. De Transmissão de Energia Elétrica Paulista – CTEEP - 25,349

Eletropaulo Metropolitana Eletricidade de São Paulo S/A 15,322 15.349

Energias do Brasil – EDP - 7,674

Cia. Piratininga de Força e Luz - CPFL - 7,674

EMAE – Empresa Metropolitana de Águas e Energia S/A 15,349 15,349

42,218 92,366

Adjustment of shares to market value (1) 26,658 240,657

Total share investment 68,876 333,023

Station art works 5,113 5,024

Investments 73,989 338,047(1) Variation from sale of electric power shares in 2015.

   

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(2) Calculation Log of share investments

 

Company

Acquisition Cost R$

(adjusted)

BOVESPA* Code

December 2014 December 2015

No. of Shares

Fair Value

R$

No. of Shares

Fair Value

R$

CESP

DUKE

AES

CTEEP

10,000

3,231

7,740

25,349

CESP3

GEP A4

GETI3

TRPL4

1,323,626

1,323,627

5,294,506

2,252,873

29,649

81,535

81,271

93,495

1,182,500

1,070,421

0

0

12,050

42,817

0

0

SUB-TOTAL

46,320 10,194,632 285,950 2,252,921 54,867

ELETRO

EDP

CPFL

EMAE

15,349

7,674

7,674

15,349

EL PL3

EN BR3

CPFE3

EMAE4

1,403,328

994,872

1,140,800

350,832

16,138

8,526

21,093

1,316

1,400,917

0

0

350,832

14,009

0

0

0

SUB-TOTAL

46,046 3,889,832 47,073 1,751,749 14,009

TOTAL 92,366 14,084,464 333,023 4,004,670 68,876

*São Paulo Stock Exchange

   

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9. PROPERTY, PLANT, AND EQUIPMENT

a) Balances

Amounts in thousands of Brazilian Real  Useful life

in years Annual depreciation rate

Balance on 12/31/2014

Additions

Depreciation

Write-offs

Transfers

Balance on 12/31/2015

ADMINISTRATIVE

Lots and Buildings 50 2.00 183,033 - - - - 183,033

Equipment and Facilities

10 10.00 164,897 15,564 - (285) - 180,176

Data Center 5 20.00 10,213 - - - - 10,213

Others 10 10.00 1,531 - - - - 1,531

Cumulative Depreciation

- - (152,273) - (18,755) 257 1,116 (169,655)

TOTAL ADMINISTRATIVE

207,401 15,564 (18,755) (28) 1,116 205,298

OPERATIONAL

Operations Buildings 50 2.00 520,676 - - - 974 521,650

Expropriated Lots - - 2,419,884 114,696 - (637) - 2,533,943

Stations 60 1.67 3,340,654 - - - 78,712 3,419,366

Tunnels, Bridges, and Other Civil Works

125 0.80 4,125,300 (1,152) - - 358,015 4,482,163

Bus Terminals and Other Infrastructure

125 0.80 465,310 - - - - 465,310

Urbanisations 60 1.67 13,015 - - - - 13,015

Rolling Stock System 30 3.34 2,342,119 27,729 - (40,258) 65,280 2,394,870

Other Systems 50 2.00 3,475,296 (25) - - 787 3,476,058

Inter-Municipal and Interstate Terminals

30 3.34 112,199 - - - - 112,199

Inventory Property, Plant, and Equipment

- - 190,421 4,750 - - - 195,171

Depreciation - - (3,248,615) - (254,422) 38,285 (1,371) (3,466,123)

TOTAL OPERATIONAL

13,756,259 145,998 (254,422) (2,610) 502,397 14,147,622

CURRENT WORKS

Buildings 420,183 12,557 - - 107,345 540,085

Stations 1,483,549 35,111 - - 68,292 1,586,952

Tunnels, Bridges, and Other Civil Works

2,523,520 159,139 - - (41,077) 2,641,582

Civil Works for Appropriation

2,744,628 1,902,715 - - (459,484) 4,187,859

Bus Terminals and Other Infrastructure

49,028 4,578 - - 1,639 55,245

Systems 2,292,927 767,463 - - 24,586 3,084,976

Systems for Appropriation

1,575,075 - - - (204,793) 1,370,282

Imports in Progress 24,526 2,475 - - - 27,001

Materials Appropriation

867 - - - (21) 846

Inter-Municipal and Interstate Terminals

- - - - - -

TOTAL CURRENT WORKS

11,114,303 2,884,038 - - (503,513) 13,494,828

TOTAL PROPERTY, PLANT, AND EQUIPMENT

25,077,963 3,045,600 (273,177) (2,638) - 27,847,748

 

Impairment test

On closing of the financial statements for the fiscal year ended December 31, 2015, the Company performed impairment tests on its property, plant, and equipment.

For each group of Operational Property, Plant, and Equipment: Expropriated Lots, Civil Works, Rolling Stock, and Systems, the last contracts formalized by the Metro Company or the last estimated evaluations, in the case of expropriations, were identified. The contracted amounts were adjusted, where necessary, to the base date of December 31, 2015, based on the São Paulo Municipal Consumer Price Index (Índice de Preços ao Consumidor do Município de São Paulo – IPC-FIPE). These were then divided by the extension (in kilometers) of the project under the

   

41  

corresponding contract for purposes of obtaining the reference value per kilometer. A similar procedure was adopted for rolling stock: the value of the last contract divided by the number of corresponding trains to arrive at the reference value per train.

The product of the reference values by extension in kilometers and number of trains on each of the four operating lines resulted in values designated overall assessment of operational assets.

Assumptions:

a) The Company regards its contracts as a reflection of current market costs, as these are preceded by detailed budget analyses prepared by engineers in the pertinent unit of the Cost Engineering Department (Gerência de Engenharia de Custos) and the final amounts established and negotiated for purposes of contract execution are equal to or less, in all cases, than those entered in the Company’s analyses; b) The Capão Redondo – Largo Treze de Maio section of Line 5 – Violet was built by the São Paulo Metropolitan Rail Company (Companhia Paulista de Trens Metropolitanos – CPTM) and, pursuant to Agreement 326474109100(AII), also approved on December 27, 2012, is operated by the Metro Company. The Metro Company is currently implementing the Largo Treze de Maio – Chácara Klabin section. c) The initial property, plant, and equipment required by HMD Consortium – (Hochtief Montreal Deconsult) to perform the respective studies on planning of the full network are recorded under the Basic Network item; d) Operational property, plant, and equipment are currently in a perfect state of repair and the work performed thereon to date has involved regularly scheduled maintenance or system update and modernization activities. Therefore the Metro Company does not believe changes to the useful economic life of these assets are necessary.

The amounts computed in the test above are sufficient to cover the respective assets.

Train Modernization Program

Modernization of the 98 trains of the Line 1-Blue and Line 3-Red fleed has enabled technological updates to equipment and enhanced comfort for riders. This year, an additional 12 trains were supplied, bringing the total number of modernized trains to 74.

Refurbishment of Line 1 – Blue = 66.67%

Refurbishment of Line 3 – Red = 85.11%

Trains acquired by the State of São Paulo

Pursuant to the Term Agreement of June 23, 2008, between the State of São Paulo, through the Metropolitan Transportation Secretariat (Secretaria de Transportes Metropolitanos – STM ), and the São Paulo Metropolitan Company – Metro, seventeen trains acquired by the State of São Paulo for R$ 401,579 are recorded only in offset accounts for purposes of control and registry by the Company.

   

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On December 6, 2010, the 1st Amendment to the Agreement was executed. Clause one, line “m,” of the Amendment mandated that the Company receive, maintain custody, manage, and operate the trains, and, in addition, perform all related preventive, predictive, and corrective maintenance work.

Analysis of useful life

Based on the best assessments of its internal experts, on December 31, 2015, Management concluded that change in the useful economic life of the Company’s property, plant, and equipment, which had been used in previous years, as demonstrated in the table above (useful life in years), was not necessary

10. DEFERRED

Annual

amortization rate 2015 2014

Pre-operating expenses

Implementation of lines 68,854 68,909

Amortization 10%

(32,628)

(25,832)

36,226 43,077

Implementation of associated projects 2,434 2,434

Amortization 10%

(859)

(633)

1,575 1,801

TOTAL 37,801 44,878

The amounts reported as deferred amounts are expenses stemming from project development, analyses and research for future projects. Following the changes introduced to the applicable accounting standards, no additions were included in the group, with the exception of amortization of the remaining balance. In 2015, the respective costs, which had been fully amortized, were offset directly.

   

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11. SUPPLIERS

2015 2014

Domestic

Construction Companies 225,809 186,163

Systems 454,567 303,387

Services 101,700 69,589

Materials, Goods, Fares, Electric Power 34,405 30,178

816,480 589,317

Foreign

Construction Companies 1,314 1,259

1,314 1,259

Total Domestic and Foreign Suppliers 817,794 590,576

12. TAXES AND SOCIAL CONTRIBUTIONS

2015 2014

Current INSS payable 141,847 115,079 FGTS payable 10,330 9,699 PIS/PASEP and COFINS Tax payable 4,231 1,628 IPTU payable - 2,345 Withholding Tax payable 34,854 32,944 Others 2,291 2,264

193,553 163,958 Non-Current PASEP under litigation 2,871 2,686

2,871 2,686

Total 196,424 166,644

   

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13. BENEFIT PLANS

2015 2014

Plan I Plan II Plan I Plan II

Non-current 57,793 - 45,837 -

57,793 - 45,837 -

Total 57,793 45,837

General description of plans

Plan I Benefit Plan I is a benefit program that was instituted April 1, 1993, which was closed to new members as of August 1, 1999, upon implementation of Benefit Plan II. The following benefits are offered: Regular Retirement; Early Retirement; Proportional Benefit; Deferred Benefit for Termination; Disability Retirement; Sick Pay; Death Benefits; Annual Bonus; Minimum Benefit. Plan II Benefit Plan II of the Supplementary Pension Plan, or “Plan II,” has been in place since 1999 and was established to meet the demands of participants for a more flexible model and one more consistent with their expectations. Sponsored by the Metro and Metrus, Plan II is offered to employees. Plan II falls under the Variable Contribution modality. As such, the respective benefits have similar characteristics to the Fixed Contribution and Fixed Benefit programs. Plan II provides the following benefits: a. For participants: Regular Retirement; Early Retirement; Disability Retirement; Sick Pay Retirement Benefit; Deferred Retirement Benefit for Termination; Proportional Retirement Benefit; Annual Bonus Retirement Benefit.

   

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b. For beneficiaries: Death benefits; Annual Bonus.

The fixed benefit amount, current service costs, and past service costs were measured using the unitary credit forecast method.

Actuarial Evaluation Report – IFRS

The principal topics of the Actuarial Evaluation Report – IFRS are set forth below:

EVALUATED PLANS AND BENEFITS

The METRO sponsors a private pension plan for employees that is managed by METRUS – Social Security Institute (METRUS – Instituto de Seguridade Social), a closed supplementary pension program established in accordance with Brazilian law. The METRO sponsors two supplementary retirement and pension benefit plans for employees: Plan I under the Fixed Benefit modality, currently discontinued, and Plan II under the Variable Contribution modality for program benefits and Fixed Benefits in connection with risk benefits. Both plans are paid for through the capitalization regime with contributions from participants and the Company according to a cost plan prepared and submitted to actuarial review.

Computation Assumptions

The assumptions applied were determined by the Metro pursuant to CPC 33.

Financial

The following key financial assumptions, reflected in nominal terms, were applied:

Assumptions

Benefit

Average duration of actuarial liability payment (years)

12/31/2015

Discount rate on obligations (per year)

Plan I

Plan II

14.73

19.20

12.85% (1)

12.85%

   

46  

Discount rate on obligations (per year)

Plan I

Plan II

14.73

19.20

12.85% (1)

12.85%

Salary increase rate

Plano I

Plano II

6,61%

8,29%

Long-term Inflationand Interest Rate 5.50%

Unit Salary R$ 365.16

Data position October 2015 (2)

The computation method corresponds to capitalization by means of the unitary credit forecast method for all benefits;

(1) Based on the rates offered by the Brazilian Central Bank’s NTN-B bond. The rate adopted takes into account the bonds issued on the date of computation and the average duration of the future service to the population. Where none of the bonds issued had the same duration, the rate was obtained by means of linear interpolation of bonds with a duration near the intended duration;

The rates applied to determine the discount rate for used in computing the actuarial discount correspond to November 2015: In real values, i.e. not considering projected inflation of 5.5% per year.

(2) The balances computed were adjusted to the base date of December 31, 2015;

(3) As per the plan’s administration, all the financial assets managed by Metrus are computed at market value;

(4) Plan II is presented as the gross structured values of fixed contributions;

(5) The asset amounts are net of debt contracts undertaken with the respective sponsors.

Demographics

The demographic assumptions were determined by the Entity and based on membership studies.

Key assumptions applied include:

   

47  

Assumptions 2015

Life Table:

Plan I

Plan II

AT 83

AT 2000

Entry into Disability: Álvaro Vindas

Disability Related Deaths: IBGE 2010

Turnover Gama Experience PII 2003- 2012

Retirement Age 60 years with a minimum 5 years under the plan for founding members and 10 years for non-founding members

 

Plan I 

Reconciliation of assets/(liabilities) to be recognized 12/31/2014 12/31/2015 Total present value of total actuarial or partially covered obligations Total present value of total actuarial obligations without coverage

(1,050,153,698) (1,204,060,661)

Total present value of actuarial obligations – Total (1,050,153,698) (1,204,060,661)

Fair value of assets Asset-ceiling effect Total value of covered actuarial obligations (uncovered) Value of unrecognized (gains) or losses Recognition of gains/(loss) in Other Comprehensive Income

958,479,317 -

(91,674,381) - -

1,088,474,071 -

(115,586,591) 39,166,314

(39,166,314)

Total assets/(liabilities) to be recognized (91,674,381) (115,586,591)

 

Expenses for 2015 2016 Current service costs Net financial costs Employee contributions

18,777,533 11,808,026 (7,960,337)

20,767,307 14,852,877

(10,383,654)

Total 22,625,221 25,236,531

 

Reconciliation of Total Liabilities 12/31/2014 12/31/2015 Present value of actuarial obligations at beginning of fiscal year Cost of current service Interest costs Paid benefits Modifications to plan Actuarial (gains)/losses on financial assumptions Actuarial (gains)/losses on demographic assumptions

916,639,490 12,003,171

115,771,568 (45,853,746)

- -

51,593,216

1,050,153,698 18,777,533

135,263,980 (54,318,107)

- (94,038,203) 148,221,760

Present actuarial value at end of fiscal year 1,050,153,698 1,204,060,661

 

 Reconciliation of Total Assets 12/31/2014 12/31/2015

Fair value of plan assets at beginning of fiscal year Expected yield on plan assets Contribution received by fund

900,200,495 114,326,823

41,978,871

958,479,317 123,455,955

45,839,663

   

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Paid benefits Modifications to plan Actuarial gains/(losses) on plan assets

(45,853,746) -

(57,173,126)

(54,318,107) -

15,017,243

14. AGREEMENTS, CONTRACTS, AND OTHERS

Liabilities 2015 2014

Current

Fares held by riders

254,281

240,438

Profit Sharing

55,103

49,311

Insurance

2,116

4,236

Agreement with the Brazilian Urban Rail Company

3,886

3,886

Others

102,611

81,980

417,997

379,851 Non-Current

Agreement with the Brazilian Urban Rail Company

246,034

249,908

Companhia Santa Cruz

30,668

31,554

Shopping Tatuapé e Boulevard Consortium

92,878

95,899

INSS – Tax Administration System Installment Agreement

17,516

17,516

Others

3,143

3,678

390,238

398,555

Total agreements, contracts, and others

808,235

778,406

The most significant items in this group include:

Agreement signed December 28, 2007, between the Brazilian Urban Rail Company (Companhia Brasileira de Trens Urbanos – CBTU) and the São Paulo Metropolitan Company – Metro (Companhia do Metropolitano de São Paulo – Metrô), with a remaining balance in 2015 of R$ 249,920, distributed as follows: current liabilities of R$ 3,886 and non-current liabilities of R$ 246,034. The São Paulo State Metropolitan Transportation Secretariat (Secretaria de Estado dos Transportes Metropolitanos – STM) served as intervener to the agreement, with a view to continuing work on Line 2 – Green – Vila Madalena-Oratório – through implementation of the Alto do Ipiranga-Vila Prudente section of the São Paulo Metro. The full value of the agreement is R$ 351,000.

   

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Fares held by users: credits on Transit Cards held by users not yet used in the system. The remaining balance as of December 31, 2015, was R$ 254,281.

15. CONTINGENCY PROVISIONS

The Company’s Management has significantly enhanced its contingency estimates. The provisions were adjusted to reflect updated estimates based on the advice of attorneys and law offices representing the Company in the pertinent proceedings.

The likelihood of losses (probable, possible, and unlikely) is presented pursuant to technical pronouncement CPC 25 – Provisions, Contingent Liabilities, and Contingent Assets.

a) On the dates of the financial statements, the Company had the following liabilities:

TYPE  2015  2014 

Labor  166,020 132,839

Civil  354,154 304,182

Tax  72 111

Total Contingencies  520,246 437,132

b) – The provisions executed in fiscal year 2015 is presented below:

TYPE  2014  Additional  Indexation Write‐offs 

2015 

Labor  132,839 28,420 12,367 (7,606)  166,020

Civil  304,182 1,132 48,840 ‐  354,154

Tax  111 ‐ 7 (46)  72

Total Contingencies  437,132 29,552 61,214 (7,652)  520,246

c) Principal contingencies:

The Company is a party to labor, civil, and tax proceedings and is discussing these questions in the administration and judicial spheres, which are subject to court deposits, as applicable. The respective contingency provisions were constituted based on estimates made by the respective attorneys in proceedings in which the likelihood of loss is deemed probable.

Turma da Rua Case

   

50  

Pursuant to the agreement executed with Metrus in October 1988, Metrus undertook responsibility for managing the Turma da Rua (Street Posse) program, with the Metro retaining primary responsibility for the related costs, as determined by the São Paulo State Government. To this end, the Metro transferred the required financial resources to Metrus.

Outsource labor was hired to execute the program through contracting of EMTEL – Recursos Humanos e Serviços Terceirizados Ltda.

The EMTEL contract expired on March 6, 1995, at which time management of the program was transferred back to the Metro on an emergency basis, as the respective services could not be suspended and extension of the existing contract was not permitted under law.

EMTEL and Metrus are currently involved in a court dispute involving a claim of approximately R$ 294,247 for labor wage compensation, plus court costs, indexation, late interest, and attorneys’ fees, which the Institute does not recognize.

In addition, EMTEL is currently party to a number of labor claims in respect of which Metrus could be held jointly liable.

Therefore, by virtue of the agreement between Metro and Metrus any obligations arising from these proceedings will, where the Institute is held liable, have to be borne by the Metro and the São Paulo State Government. The contingency was accrued by the Metro and updated on December 31, 2015, in the amount of R$ 294,247 (R$ 255,615 in 2014).

Other Contingencies

Line 2 Green – Train Cartel

One of the Company’s contracts was cited in a probe into the metro-rail market cartel and is currently subject to investigation. The specific instrument in question is contract No. 04193800-1, executed for purposes of implementing a section of the Line 2 system.

Measures adopted:

a) An Administrative Proceeding was established to determine whether to impose penalties on the private enterprises under the respective contract. The proceeding has not yet been completed.

b) The Company no longer accepts subcontractors that participated in the procurement procedure in question.

c) Through case 0031997-85.2013.8.26.0053 – Ordinary Proceedings, the 4th Court of the Public Treasury granted the initial complaint against Siemens Ltda. and others seeking reimbursement of the respective losses to the public coffers due to the overprice identified in the contracts and subcontracts executed between the Metro and CPTM in the period 1998-2009, as described in the court filing.

The Train Cartel case involving the Company is ongoing. However, no provisions were constituted for purposes of this matter, as the case attorneys reported that the Company itself was not subject to a direct claim and, as such, faced no exposure.

   

51  

Line 5 – Violet

An ongoing judicial proceeding is investigating allegations of administrative misconduct and losses to the public coffers in contracts connected to Line 5 projects. The matter is currently in the discovery phase. Injunctions were granted to remove the Metro’s CEO and suspend work on the partially complete project. The injunctions were subsequently overturned by the Court of Justice and the respective projects have been resumed. No provisions were constituted for this matter, as the case attorneys reported that the Company itself was not subject to a direct claim and, as such, faced no exposure. (d) Potential losses as-yet unfunded in the financial statements

On December 31, 2015, in addition to the amounts described, the total of R$ 2,677,092 (2014 – R$ 1,036,856), associated with pending labor, civil, and tax proceedings, was not included in the sums above, based on the conclusion by legal counsel that there was a potential likelihood for losses. As such, the corresponding amounts were not entered in the financial statements.

16. NET EQUITY

a) Capital Subscription and Pay-in

Total subscribed and paid-in capital on December 31, 2015, was R$ 31,769,613, corresponding to (27,367,637,306) ordinary single class nominatives shares, without a nominal value and one vote each.

The Authorized Capital is R$ 39,845,226, pursuant to the Ordinary and Extraordinary General Assembly of April 28, 2010.

b) Advances for Capital Increases

The financial resources received by the Company were deposited in an escrow account, the operation and use of which is only authorized when effective proof of the execution of civil works is presented through Metro share issues to the São Paulo Municipal Government in a quantity equivalent to the financial sum used under Agreement No. 0262880201, dated October 15, 2008.

In 2014, the remaining balance on the advance from the São Paulo Municipal Government, in the amount of R$ 171,528, was transferred to the Company’s paid-in capital.

c) Adjustment in Asset Valuation

The adjustment stemmed from a reduction in the investment evaluation in the amount of (R$ 213,999), variations in deferred taxes in the amount of R$ 72,760, and variations in the benefit plan evaluation in the amount of R$ 9,396.

   

52  

The Company is a party to labor, civil, and tax proceedings and is discussing these questions in the administration and judicial spheres, which are subject to court deposits, as applicable. The respective contingency provisions were constituted based on estimates made by the respective attorneys in proceedings in which the likelihood of loss is deemed probable.

Turma da Rua Case

Pursuant to the agreement executed with Metrus in October 1988, Metrus undertook responsibility for managing the Turma da Rua (Street Posse) program, with the Metro retaining primary responsibility for the related costs, as determined by the São Paulo State Government. To this end, the Metro transferred the required financial resources to Metrus.

Outsource labor was hired to execute the program through contracting of EMTEL – Recursos Humanos e Serviços Terceirizados Ltda.

The EMTEL contract expired on March 6, 1995, at which time management of the program was transferred back to the Metro on an emergency basis, as the respective services could not be suspended and extension of the existing contract was not permitted under law.

EMTEL and Metrus are currently involved in a court dispute involving a claim of approximately R$ 294,247 for labor wage compensation, plus court costs, indexation, late interest, and attorneys’ fees, which the Institute does not recognize.

In addition, EMTEL is currently party to a number of labor claims in respect of which Metrus could be held jointly liable.

Therefore, by virtue of the agreement between Metro and Metrus any obligations arising from these proceedings will, where the Institute is held liable, have to be borne by the Metro and the São Paulo State Government. The contingency was accrued by the Metro and updated on December 31, 2015, in the amount of R$ 294,247 (R$ 255,615 in 2014).

Other Contingencies

Line 2 Green – Train Cartel

One of the Company’s contracts was cited in a probe into the metro-rail market cartel and is currently subject to investigation. The specific instrument in question is contract No. 04193800-1, executed for purposes of implementing a section of the Line 2 system.

Measures adopted:

a) An Administrative Proceeding was established to determine whether to impose penalties on the private enterprises under the respective contract. The proceeding has not yet been completed.

b) The Company no longer accepts subcontractors that participated in the procurement procedure in question.

   

53  

c) Through case 0031997-85.2013.8.26.0053 – Ordinary Proceedings, the 4th Court of the Public Treasury granted the initial complaint against Siemens Ltda. and others seeking reimbursement of the respective losses to the public coffers due to the overprice identified in the contracts and subcontracts executed between the Metro and CPTM in the period 1998-2009, as described in the court filing.

The Train Cartel case involving the Company is ongoing. However, no provisions were constituted for purposes of this matter, as the case attorneys reported that the Company itself was not subject to a direct claim and, as such, faced no exposure.

Line 5 – Violet

An ongoing judicial proceeding is investigating allegations of administrative misconduct and losses to the public coffers in contracts connected to Line 5 projects. The matter is currently in the discovery phase. Injunctions were granted to remove the Metro’s CEO and suspend work on the partially complete project. The injunctions were subsequently overturned by the Court of Justice and the respective projects have been resumed. No provisions were constituted for this matter, as the case attorneys reported that the Company itself was not subject to a direct claim and, as such, faced no exposure. (d) Potential losses as-yet unfunded in the financial statements

On December 31, 2015, in addition to the amounts described, the total of R$ 2,677,092 (2014 – R$ 1,036,856), associated with pending labor, civil, and tax proceedings, was not included in the sums above, based on the conclusion by legal counsel that there was a potential likelihood for losses. As such, the corresponding amounts were not entered in the financial statements.

16. NET EQUITY

a) Capital Subscription and Pay-in

Total subscribed and paid-in capital on December 31, 2015, was R$ 31,769,613, corresponding to (27,367,637,306) ordinary single class nominatives shares, without a nominal value and one vote each.

The Authorized Capital is R$ 39,845,226, pursuant to the Ordinary and Extraordinary General Assembly of April 28, 2010.

b) Advances for Capital Increases

The financial resources received by the Company were deposited in an escrow account, the operation and use of which is only authorized when effective proof of the execution of civil works is presented through Metro share issues to the São Paulo Municipal Government in a

   

54  

quantity equivalent to the financial sum used under Agreement No. 0262880201, dated October 15, 2008.

In 2014, the remaining balance on the advance from the São Paulo Municipal Government, in the amount of R$ 171,528, was transferred to the Company’s paid-in capital.

c) Adjustment in Asset Valuation

The adjustment stemmed from a reduction in the investment evaluation in the amount of (R$ 213,999), variations in deferred taxes in the amount of R$ 72,760, and variations in the benefit plan evaluation in the amount of R$ 9,396.

17. TRANSACTIONS WITH ASSOCIATED PARTIES

The table below presents the principal balances in the period for transactions with associated parties:

2015 2014

Associated Parties Asset Liability Expense Asset Liability Expense

Key Management Personnel - - 1,779 - - 1,865

São Paulo State Government 136,601 - - 333,411 - -

CBTU/STU/BH/DEMETRO - 249,920 - - 253,794 -

The receivables from the São Paulo State Government are recorded in the accounts receivable item. See details on the nature of this balance in Explanatory Note 6 – Accounts receivable.

Payables to CBTU/STU/BH/DEMETRO refer to amounts in connection with signed agreements. For further details, see Explanatory Note 14 – Agreements, contracts, and others.

Compensation to Company Directors and the members of the Board of Directors corresponding to short-term benefits totaled $ 1,779 (R$ 1,865 in 2014).

18. NET OPERATING REVENUES

2015 2014

Gross Operating Revenues

Service Revenues 1,991,886 1,829,761

Social Action Program – GESP *

Gratuities 264,424 289,297

Deductions on Gross Revenues

PASEP and COFINS (17,214) (16,783)

ISS on Tariff Revenues - (A) - 179,699

Other deductions (35,703) (37,107)

NET OPERATING REVENUE 2,203,393 2,244,867

   

55  

(A) – As part of the judicial proceeding in which the São Paulo Metropolitan Company – Metro claimed exemption from the assessment, the respective tax payments were deposited with the Court. The res judicata decision of 2014 in favor of the Company resulted in reversion of the Municipal Service Tax (ISS) provision in the amount of R$ 179,699.

* SOCIAL ACTION PROGRAM – GESP

In the fiscal year, a total of R$ 264,424 (R$ 289,297 in 2014) was received from the São Paulo State Government, an 8.60% decrease.

19. SERVICE DELIVERY COSTS

2015 2014

Labor (1,201,637) (1,066,571)

Materials (53,693) (55,078)

General Expenses (419,470) (378,633)

Depreciation (269,008) (260,320)

TOTAL (1,943,808) (1,760,602)

Represented by approximately 7,317 employees, 78% of the total. Service delivery costs encompass employees engaged in the operations and maintenance units.

a) Labor:

The principal items are represented by the following:

1- Employee compensation;

2- Vacation pay;

3- Mandatory Social Contributions (INSS, FGTS, and Bonus Salary).

b) General Expense:

The principal items are represented by the following:

1- Electric power;

2- Cleaning and Hygiene:

3- Employee Profit Sharing (PLR).

   

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20. GENERAL AND ADMINISTRATIVE EXPENSES

2015 2014

Personnel (254,036) (237,041)

Materials (1,994) (1.965)

General Expenses (560,923) (132,752)Provision / Reversion of Estimated Losses from Doubtful Credits (PECLD) 300,636 (332,711)

Provision / Reversion of Contingencies (83,299) 191,869

TOTAL (599,616) (512,600)

21. OTHER OPERATING REVENUE (EXPENSES)

2015 2014

COFINS / PASEP (2,077) (2,311)

Contractual Penalties (162) (2,600)

Asset Gains / Losses (1,770) (16,215)

Revenue from Investments (1) 149,555 5,083

Other Revenue 45,481

-

TOTAL 191,027 (16,043)(1) Variation stemming from sale of shares in electric power companies in 2015.

22. NET INCOME

2015 2014 Financial Expenses Monetary Variance Expense (503) (17,518)Interest Expense (1,951) (1,093) (2,454) (18,611)Financial Revenue Financial Investments 71,132 100,001Monetary Variance Income 2,366 59,308Interest Income 2,490 1,266Discounts Obtained 81 177

76,069 160,752

TOTAL 73,615 142,141Financial expenses correspond to interest charges, monetary variance on liabilities.

   

57  

23. INCOME TAX AND MANDATORY SOCIAL CONTRIBUTIONS

2015 2014

CSLL IRPJ CSLL IRPJ

Corporate Income (93,345) (93,345) 86.800 86.800

Exclusion of Taxes

IR and CSLL 17,956 10,963

IR 11,685 6,575

Income before mandatory social contributions (75,389) - 97,763 -

Income before income tax - (81,660) - 93,375

Additional 632,859 611,171 526,167 500,960

Exclusions (458,108) (458,109) (554,278) (554,278)

Income before offsets 99,362 71,402 69,652 40,057

Offset of tax losses (29,808) (20,956) (20,896) (12,017)

Calculation basis 69,554 50,446 48,756 28,040

Income tax (15%)

- 7,567

- 4,206

Additional income tax (10%)

- 4,865

- 2,780

Mandatory Social Contribution (9%) 6,271

- 4,388

-

(-) tax incentives

- (747)

- (411)

Total tax 6,271 11,685 4,388 6,575

a) Deferred Taxes

Deferred income tax and mandatory social contributions are computed on the corresponding time difference between the tax calculation bases on assets and liabilities and the book values reflected in the financial statements.

The respective tax rates presently in force for purposes of tax deferrals are 25% for income tax and 9% for mandatory social contributions.

Active deferred taxes are recognized to the extent it is likely future taxable profit will be available for use to offset the time differences, based on future income forecasts entered and

   

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internal assumptions and future economic scenarios subject to change.

On December 31, 2015, the Company registered R$ 2,642,097 (R$ 1,398,959 in 2014) in deferred taxes which were not constituted on temporarily non-deductible expenses and carry forwards, and, additionally, tax losses from the computation of taxable income, as the Company does not currently have a taxable profit forecast for the coming fiscal years.

Deferred expense tax amounts as of December 31, 2015, in the amount of R$ 9,064 (R$ 81,823 in 2014) refer to the taxes computed through evaluation of the fair investment value.

24. INSURANCE

The Metro maintains insurance policies with the country’s leading insurance operators, contracted through bid procedures. The coverage takes into account the nature and level of the risk involved. On December 31, 2015, the Metro maintained fire, civil liability, and multiple risk plans for its property, plant, and equipment, users, and facilities in amounts deemed sufficient by Management to cover potential losses. Because of their nature, the assumptions adopted in respect of the various risks do not fall under the scope of financial statement audits and, consequently, were not examined by our independent auditors.

25. COMPENSATION TO MANAGERS AND EMPLOYEES

Based on the base month of December 21015, the table below presents the highest and lowest compensation payments* and the average salary in fiscal year 2015. The consideration and benefits effectively paid to personnel were computed according to the Company’s wage and salary policies.

The highest compensation in the period, pursuant to Decree Law No. 2,355/1987 and Law No. 8,852/1994, was R$ 20,590,00, for statutory directors (in accordance with CODEC Opinion No. 003/2013) and R$ 25,373.37, for non-statutory directors.

in Brazilian Real (R$)

December-15 December-14

Compensation paid to employees (*) Highest 25,373.37 23,686.11

Lowest 1,134.76

1,047.88

Average salary in the fiscal year 5,877.54 5,198.27

(*) Monthly Metro work hours vary from 120 hours (minimum) to 200 hours (maximum).

   

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BOARD OF DIRECTORS

Chair: CLODOALDO PELISSIONI Members: ALBERTO GOLDMAN ALMINO MONTEIRO ÁLVARES AFFONSO MARCOS ANTÔNIO DE ALBUQUERQUE FRANCISCO DAS CHAGAS FRANCILINO RUY MARTINS ALTENFELDER SILVA PAULO MENEZES FIGUEIREDO

MANAGEMENT BOARD

CEO: PAULO MENEZES FIGUEIREDO Director of Finance: JOSÉ CARLOS BAPTISTA DO NASCIMENTO Director of Operations: MÁRIO FIORATTI FILHO Director of Planning and Expansion of Metropolitan Transportation ALBERTO EPIFANI Director of Engineering and Construction: PAULO SÉRGIO AMALFI MECA Director of Corporate Affairs: ALFREDO FALCHI NETO

CICERA S. FIGUEIREDO CARVALHO Financial Control Manager Regional Board of Accounting – CRC 1SP-216.989/O-6 CÍCERO IZIDORO ALVES Account Regional Board of Accounting – CRC 1SP-170.689/O-1

   

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REPORT OF THE AUDIT COMMITTEE Pursuant to article 163, sub-sections II and IV, of Federal Law No. 6,404/76, it is the Opinion of the members of the Audit Committee of the São Paulo Metropolitan Company (Companhia do Metropolitano de São Paulo – METRÔ), having examined the Management Report, Financial Statements, as required by Law, and Explanatory Notes for the fiscal year ended December 31, 2015, as per the INDEPENDENT AUDIT REPORT OF MACIEL AUDITORES S/S, dated March 9, 2016, and the information obtained from the Company’s Management, that the Management Report and Financial Statements above are sufficient and satisfactory for purposes of submission to review by the Company’s Shareholders in a specific General Assembly convened to this end and concur with the emphasis cited in the Independent Audit Report, as described in Explanatory Note No. 15.

São Paulo, March 18, 2016

AMAURI GAVIÃO ALMEIDA MARQUES DA SILVA ROBERTO KAZUSHI TAMURA ROGÉRIO CERON DE OLIVEIRA RUBENS PERUZIN

   

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(Convenience translation into English from the original previously issued in Portuguese)

INDEPENDENT AUDITORS 'REPORT ON THE FINANCIAL STATEMENTS

To

Shareholders and Management of

COMPANHIA DO METROPOLITANO DE SÃO PAULO - METRÔ

São Paulo – SP

We have audited the financial statements of COMPANHIA DO METROPOLITANO DE SÃO PAULO - METRÔ ( "Company") which comprise the balance sheet as of December 31, 2015 and the related statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management's responsibility for the financial statements

The Company's management is responsible for the preparation and fair presentation of financial statements in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board - IASB and in accordance with accounting practices adopted in Brazil, as well as the controls internal she determines is necessary to enable the preparation of free from material misstatement financial statements, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these financial statements based on our audit, conducted in accordance with Brazilian and international auditing standards. Those standards require that we comply with ethical requirements by the auditors and that the audit is planned and performed in order to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of risks of material misstatement in the financial statements, whether due to fraud or error. In this risk assessment, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements 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 internal controls Company. An audit also includes evaluating the appropriateness of accounting

   

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policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements taken as a whole.

We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of COMPANHIA DO METROPOLITANO DE SÃO PAULO - METRÔ on December 31, 2015, the performance of its operations and its cash flows for the year then ended, in accordance with international financial reporting standards (IFRS) issued by the International accounting standards Board - IASB and in accordance with accounting practices adopted in Brazil.

Emphasis

As described in Note 15 (Provision for contingencies), the Company is part of ongoing processes related to Lines 2 - Green and 5 - Lilac, whose position likelihood of loss according to the company's lawyers are not likely, therefore no provision was recorded in the financial statements. Our opinion does not contain modifications depending on these issues.

Other issues

Statement of Value Added

We also examine the Statement of Value Added (DVA) for the year ended December 31, 2015, prepared under management's responsibility, whose presentation is required by Brazilian corporate legislation for listed companies, and as supplemental information for IFRS that does not require the presentation of DVA. This statement was submitted to the same audit procedures described above and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole.

Social Balance

Our exams were conducted for the purpose of expressing an opinion on the aforementioned financial statements, taken as a whole. The financial information contained in the social report for the year

   

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ended December 31, 2015, represent supplementary information to those statements and are not required by accounting practices adopted in Brazil and are presented to facilitate additional analysis. These supplementary information were subject to the same audit procedures applied to the financial statements and, in our opinion, are presented fairly, in all material respects in relation to the financial statements taken as a whole.

The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.

São Paulo, March 9, 2016.

MACIEL AUDITORS S / S

2CRC 5460 RS / O-0 - S - SP

ROGER DE OLIVEIRA MACIEL

1CRC 71,505 RS / O-3 - O - SP

Technical Manager

ROSANGELA PEREIRA PEIXOTO

1CRC 65,932 RS / O-7 - S - SP