62 CAPSTONE INFRASTRUCTURE CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Provisions Provisions are recognized when the Corporation has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured using management's best estimate of the expenditure required to settle the obligation at the end of the reporting period, and are discounted to present value where the effect is material. The Corporation performs evaluations to identify onerous contracts and, where applicable, records provisions for such contracts. The Corporation operates both defined contribution and defined benefit pension plans through its subsidiaries. The employees of Bristol Water and Cardinal participate in a defined contribution plan. The defined benefit plan is provided through Bristol Water's membership in the Water Companies'  Pension Scheme (“WCPS”) via a separate section. Costs of defined contribution pension plans are charged to the consolidated statement of income in the period in which they fall due. Administration  costs of defined contribution plans are borne by Bristol Water and Cardinal. Defined benefit plan liabilities are measured by an independent actuary using the projected unit credit method and discounted at the current rate of  return on high quality corporate bonds of equivalent term and currency to the liability. The increase in the present value of the liabilities of Bristol Water's defined benefit pension plan expected to arise from employee service in the period is charged to operating expenses. The net pension surplus is increased by applying an interest rate, equal to the discount rate used to measure the plan liabilities, to the net pension surplus. This  increase is included in net pension interest income or expense. The net asset or liability recognized in the consolidated statement of financial position represents the present value of the defined benefit obligation less the fair value of the plan's assets. Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and  amendments to pension plans are recognized in full in the period in which they occur in the consolidated statement of comprehensive income. Past service costs are recognized immediately to income. When a settlement or a curtailment occurs the change in the present value of the plan  liabilities and the fair value of the plan assets reflects the gain or loss which is recognized in the consolidated statement of income. Losses are  measured at the date that Bristol Water becomes demonstrably committed to the transaction and gains when all parties whose consent is required  are irrevocably committed to the transaction. The Corporation recognizes a provision for the future retirement obligations associated with its operating plants. These obligations are initially  measured at fair value, which is the discounted future cost of the liability. A reassessment of the expected costs associated with these liabilities is  performed annually with changes in the estimates of timing or amount of cash flows added or deducted from the cost of the related asset. The  liability grows until the date of expected settlement of the retirement obligations. Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a reduction in equity. On October 1, 2013, Capstone assumed the obligations under ReD's previously issued flow-through common shares. These shares transfer the tax  deductibility of qualifying expenditures to the holders of the shares for expenditures incurred prior to December 31, 2013 up to $12,142. Any shortfall from the $12,142 results in Part XII.6 penalty tax which is recognized as a current income tax liability included accounts payable and  other liabilities on consolidated statement of financial position and a current income tax expense on the consolidated statement of income.  The Class B exchangeable units issued by MPT LTC Holding LP meet the criteria to be presented as equity, as set out in IAS 32. The Corporation classifies its series A preferred shares as equity for reporting purposes given that the preferred shares may be converted into a fixed  number of the Corporation's own equity instruments and there is no settlement required at a future date. Incremental costs directly attributable to  the issuance of shares are recognized as a reduction in equity. The irredeemable preferred shares of Bristol Water have been classified as debt in accordance with IAS 39. On the acquisition of ReD, Capstone issued replacement warrants to the existing warrant holders of ReD and recorded them at fair value. The  warrants reserve is non-distributable and will be transferred to share capital upon the exercise of warrants at the carrying value. In addition, holders of the ReD warrants will also receive $0.001 dollars in cash upon the exercise of each warrant. On expiry, the unexercised warrants are transferred to contributed surplus. Warrants Reserve Preferred Shares Exchangeable Securities Share Capital Asset Retirement Obligations Retirement Benefit Plans