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## Infrastructure – Utilities 

## District heating 

Capstone’s district heating utilities segment comprises a 33.3% interest in Värmevärden, located in Sweden. Capstone's investment includes loans receivable and equity. In 2012, the business completed a bond offering, resulting in repayment of a portion of the loans due to shareholders. Värmevärden's overall financial performance in 2013 was below 2012, primarily due to the use of alternative, more expensive heat production systems during periods when primary systems required maintenance. Overall, Värmevärden's cash flow to support interest and dividend payments to shareholders remained strong. 

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## Interest income 

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During the first four months of 2012, Värmevärden used the bond issuance proceeds to reduce Capstone's shareholder loan from$81,587 to $33,628. As a result, in 2013, Capstone received $495 less interest income. 

## Dividends 

Capstone received $1,103 higher dividends from Värmevärden in 2013. The increase was primarily due to distribution of surplus cash attributable to prior years' performance. 

## Equity accounted income (Loss) 

Equity accounted income (loss) included in Capstone's net income was $5,265 lower than in 2012, mostly due to a decrease in enacted tax rates that resulted in a deferred tax recovery. In addition, during 2013, more expensive heat production systems were used in periods when primary systems required maintenance. 

## Seasonality 

Heat production is typically highest during the first quarter, which coincides with the coldest months of the year. The first and fourth quarters combined have historically accounted for approximately 65% of Värmevärden’s annual revenue. 

## Outlook (1) 

Interest income from the shareholder loan is expected to be consistent with 2013 while dividends are expected to be higher in 2014, resulting in higher Adjusted EBITDA from the district heating segment compared with 2013. 

(1) See page 20 for a description of various other material factors or assumptions underlying our outlook. 

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