MANAGEMENT’S DISCUSSION AND ANALYSIS Restricted cash Cash flow The restricted cash increase of $10,318 was due to $7,864 for debt service and maintenance reserve accounts of Glace Bay and ReD. Restricted  cash represents reserve accounts of $13,609 and $9,695 at the power segment and Bristol Water, respectively, and corporate cash of $6,243 required to support letters of credit. Capstone’s consolidated cash and cash equivalents decreased by $3,831 in 2013 compared with a decrease of $7,988 in 2012. The components of  the decrease, as presented in the consolidated statement of cash flows, are summarized as follows: For the year ended Dec 31, 2013 Dec 31, 2012 Operating activities 135,676 114,678 Investing activities (129,257) (4,949) Financing activities (excluding dividends to shareholders) 14,705 (92,503) Dividends paid to shareholders (25,446) (26,131) Effect of exchange rate changes on cash and cash equivalents 491 917 Change in cash and cash equivalents (3,831) (7,988) Cash flow from operating activities generated  s $20,998 more cash and cash equivalents than in 2012. Operating cash flow increased by $20,306 and $9,937 at the power and utilities - water segments, respectively. This was partially offset by decreases of operating cash flow of $8,625 and  $620 for corporate and Värmevärden, respectively. The power segment increase was primarily attributable to revenue increases as well as $7,437 of  cash flow from ReD's operating facilities since acquisition on October 1, 2013. Cash flow from the utilities - water segment increased primarily in response to higher revenue. Cash flow used for investing activities  increased by  s $124,308 primarily because Bristol Water used $69,639 in cash to fund the capital expenditure program. This included a $9,006 reduction in accounts payable related to capital expenditures. In addition, the 2012 use of cash was net of $47,964 of proceeds received from the Värmevärden recapitalization. Cash flow from (used by) financing activities was a use of funds in 2012 and a source of funds in 2013. During the year, Bristol Water increased its debt by $70,896 to fund the capital expenditure program. This was partially offset by a $22,558 reduction of Bristol Water's revolving bank loan using surplus cash and $6,972 use of cash for the redemption of ReD debentures. In 2012, cash flow used by financing activities included corporate  and power refinancing activities, which resulted in a net reduction of debt of $135,066. These uses of funds were offset by $68,952 from the partial  sale of Bristol Water. In addition, scheduled debt repayments were $18,351 in 2013 and $17,624 in 2012. Dividends paid to shareholders  were $685 lower than in 2013 primarily due to reduction of Capstone's common share dividend since the second quarter of 2012. This was partially offset by higher dividends for the increase in shares for the acquisition of ReD on October 1, 2013. Capstone considers shareholders’ equity and long-term debt (proportionately attributable to Capstone’s shareholders), both the current and non-current portions, to be the basis of its capital structure. Capstone measures its capitalization ratio based on the fair values of long-term debt and  shareholders’ equity. Capstone’s capitalization ratio using fair values and carrying values was as follows: Capital Structure Dec 31, 2013 Dec 31, 2012 As at Fair Value Carrying Value Fair Value Carrying Value Long-term debt Power (1) 346,244 349,807 305,497 297,792 Utilities – water (1) 313,816 288,017 259,830 237,324 Corporate 81,694 80,107 44,416 40,631 Deferred financing fees — (7,446) — (7,884) 741,754 710,485 609,743 567,863 Equity Shareholders’ equity (2) 388,058 529,550 363,248 418,848 Total capitalization 1,129,812 1,240,035 972,991 986,711 Debt to capitalization 65.7% 57.3% 62.7% 57.6% (1) Only Capstone's proportionate interest in the long-term debt has been included in the calculation. (2) The carrying value of shareholders’ equity does not include the amount attributed to the non-controlling interest. 36 CAPSTONE INFRASTRUCTURE CORPORATION