MANAGEMENT’S DISCUSSION AND ANALYSIS Corporate Corporate activities primarily comprise growth initiatives, capital structure expenses not specifically attributed to the businesses, and costs to  manage, oversee and report on the businesses. For the year ended Dec 31, 2013 Dec 31, 2012 Administrative expenses (10,369) (11,070) Project development costs (4,361) (342) Interest income 179 18 Adjusted EBITDA (14,551) (11,394) Interest paid (5,182) (5,988) Dividends paid on Capstone’s preferred shares (3,750) (3,750) Income taxes (paid) recovery (2,534) (612) AFFO (26,017) (21,744) Administrative expenses For the year ended Dec 31, 2013 Dec 31, 2012 Staff costs 6,133 6,749 Other administrative expenses 4,236 4,321 10,369 11,070 Staff costs decreased by $616, or 9.1%, primarily due to the CEO's deferral of short-term incentive plan ("STIP") amounts, which were taken as a  grant under the long-term incentive plan ("LTIP"). The LTIP grant is recognized in net income over the period up to vesting, whereas STIP payments are accrued in the year earned. This decrease was partially offset by higher LTIP expense for new grants since January 2013 and the addition of  corporate staff who joined following the ReD acquisition on October 1, 2013. Other administrative expenses increased by $85, or 2.0%, primarily including expenses for audit fees, investor relations costs, office administration and premises costs and professional fees other than for business development. Other administrative expenses also include costs assumed by  Capstone following the ReD acquisition on October 1, 2013. Project development costs  increased by s $4,019, primarily due to $4,278 in costs related to the acquisition of ReD. Interest income  increased by e $161, or 894%, primarily due to higher average cash balances in 2013. Interest paid  decreased by $806, or 13.5%, primarily due to a $112,375 reduction in corporate debt during the first six months of 2012. The debt was repaid from the proceeds of the Värmevärden recapitalization, new debt on the hydro power facilities and sale of a 20% interest in Bristol Water  in the first six months of 2012. This interest decrease was partially offset by $1,146 of interest paid on the new ReD Debentures. Dividends on Capstone's preferred shares are paid quarterly equivalent to a fixed rate of 5.0% per year. Taxes paid relate to the preferred share  dividends and are available to offset future income taxes of the Corporation. Taxes paid in 2013 were $1,922, or 314%, higher than in 2012. The increase primarily reflected $1,100 paid in the first quarter of 2013 for the final installment for 2012 taxes on the preferred share dividends. The remaining difference is attributable to all installments for 2013 being made in the year. Preferred share dividends paid and taxes paid Outlook  (1) In 2014, Capstone expects financial results for corporate to reflect: • Lower corporate project development expenses than in 2013 when ReD was acquired; • Higher staffing costs as the corporate team expanded following the ReD acquisition; and • Higher professional fees than in 2013 due to ongoing transition and integration for the ReD acquisition. • Higher interest paid due to assumption of the ReD convertible debentures and refinancing of credit facility previously in the power segment. Overall, Capstone expects these factors to result in slightly higher corporate expenses compared with 2013. 34 CAPSTONE INFRASTRUCTURE CORPORATION (1) See page 20 for a description of various other material factors or assumptions underlying our outlook.