JOINT STOCK COMPANY ,,KAUNO ENERGIJA"

To: Lithuanian Securities Commission 20 1 1 -&-Od Nr . APhjyg Konstitucijos av. 23, LT-08 105 Vilnius

To: AB NASDAQ OMX Vilnius Konstitucijos av. 7, 15 floor, LT-08105 Vilnius

CONFIRMATION FROM RESPONSIBLE PERSONS

Following the guidelines of 22 article of the Law on Securities Market of the Republic of Lithuania and Lithuanian Securities Commission periodical and additional information preparation and presentation regulations, we General Manager Rimantas Bakas and Chief Accountant Violeta StaSkaniene JSC ,,Kauno energija" approve, that according to our knowledge the JSC ,,Kauno energija" interim financial reporting of the 9 months of the year 201 1 is prepared according to the International Financial Reporting Standards, generally accreditated in European Union, satisfies actuality and correct indicate assets, liabilities, financial position and profit for time period of the enterprise.

ENCLOSING: JSC ,,Kauno energija" consolidated and company's financial statements for the 9 months of the year 201 1, prepared according to the International Financial Reporting Standards, 44 pages.

Yours respectfully

General Manager Rimantas Bakas

Chief Accountant Violeta StaSkiiniene

[email protected]

JOINT STOCK COMPANY ,,KAUNO ENERGIJA"

To: Lithuanian Securities Commission 20 1 1 -,&oa Nr . a- kgg Konstitucijos av. 23, LT-08 105 Vilnius

To: AB NASDAQ OMX Vilnius Konstitucijos av. 7, 15 floor, LT-08 105 Vilnius

CONFIRMATION FROM RESPONSIBLE PERSONS

Following the guidelines of 22 article of the Law on Securities Market of the Republic of Lithuania and Lithuanian Securities Commission periodical and additional information preparation and presentation regulations, we General Manager Rimantas Bakas and Chief Accountant Violeta StaSkiiniene JSC ,,Kauno energija" approve, that according to our knowledge the JSC ,,Kauno energija" interim financial reporting of the 9 months of the year 201 1 is prepared according to the International Financial Reporting Standards, generally accreditated in European Union, satisfies actuality and correct indicate assets, liabilities, financial position and profit for time period of the enterprise.

ENCLOSING: JSC ,,Kauno energija" consolidated and company's financial statements for the 9 months of the year 201 1, prepared according to the International Financial Reporting Standards, 44 pages.

Yours respectfully

General Manager Rimantas Bakas

Chief Accountant Violeta StaSkiiniene

AB "KAUNO ENERGIJA"

SET OF CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE 9 MONTHS OF THE YEAR 201 1, PREPARED ACCORDING TO INTERNATIONAL FINANCIAL REPORTING STANDARDS, AS ADOPTED BY THE EUROPEAN UNION

Balance Sheets

			Group	Company
		As of 30	As of 31	As of 30	As of 31
			September December	September	December
	Notes	2011	2010	201 1	2010
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Land and buildings
Structures and machinery
Vehicles
Equipment and tools
Construction in progress and
prepayments
Total property, plant and
equipment
Non-current financial assets
Investments into subsidiaries
on-current accounts receivable
Other financial assets
Total non-current financial assets
Total non-current assets
Current assets
Inventories and prepayments
Inventories
Prepayments
Total inventories and prepayments
Current accounts receivable
Trade receivables
Other receivables
Total accounts receivable
Cash and cash equivalents
Total current assets
Total assets		373,549	406,762	377,438	410,541

The accompanying notes are an integral part of these financial statements.

(cont'd on the next page)

Balance Sheets (cont'd)

		Group			Company
		Asof30	Asof31	As of 30	As of 31
		September Decembe			September December
	Notes	201 1	r 2010	201 1	2010
EQUITY AND LIABILITIES
Equity
Share capital
Legal reserve
Other reserve
Retained earnings (deficit)
Profit for the current year
Profit (loss) for the prior year
Total retained earnings (deficit)
Total equity
Liabilities
Non-current liabilities
Non-current borrowings
Financial lease obligations
Deferred tax liability
Grants (deferred income)
Employee benefit liability
Other non-current liabilities
Total non-current liabilities
current liabilities
Current portion of non-current
borrowings and financial lease
Current borrowings
Trade payables
Payroll-related liabilities
Advances received
Taxes payable
Derivative financial instruments
Current portion of employee benefit
liability	14	109	237	109	237
Other current liabilities
Total current liabilities
Total liabilities
Total equity and liabilities		373,549	406,762	377,438	410,541
					(the end)

Total equity and liabilities	373,549	377,438	410,541
	The accompanying notes are an integral part of these financial statements.			(the end)
General Manager	Rimantas Bakas			2 1 October 20 1 1
Chief Accountant	Violeta StaSkiiniene	I'	?*--	2 1 October 20 1 1

Statements of

		1







AB KAUNO ENERGIJA, Company's code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED
AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE FIRST HALF OF THE YEAR 2011 (all amounts are in LTL thousand unless otherwise stated)

Statements of
Comprehensive Income		Group
		111 quarter, months	01 - 09	I11 quarter, months	01 - 09
		Notes 2011	2011	2010	2010	2010	2009
Operating income Sales income	16	23,737	201,060	22,455	186,991	306,856	280,411
Other operating income	17	832	1,812	61 5	1,550	2,202	1,114
Total operating income		24,569	202,872	23,070	188,541	309,058	281,525
operating expenses Fuel and heat purchased			(23,043) (1 5 1,398)			(20,656) ( 137,429) (221,932)	(197,698)
Salaries and social
security Raw materials	14	(5,348) (508)	(16,067) (1,429)	(5,233) (427)	(1 5,343) (1,163)	(20,608) (1,674)	(23,236) (1,758)
Taxes other than income
tax Electricity
Depreciation and
amortisation	3 ,4
Repairs and maintenance Water
Change in allowance for
accounts receivable Change in allowance for	8
inventories	7
PetraSifinai power plant
operator expenses Heating and hot water	1
systems maintenance
expenses Other expenses		(266) (1,991)	(266) (7,682)	(2,046)	(6,909)	(9,598)	(8,908)
Other operating
expenses Total operating	17	(322)	(959) (39,447) (202,266)			(37,090) ( 184,935) (300,989)	(270,968)
expenses
Operating profit Income from financial		(14,878)	606	(14,020)	3,606	8,069	10,557
and investment activity	18	501	7,544	61 1	1,453	2,024	1,576
Expenses from financial
and investment activity Net profit for financial	19	(268)	1,088)
and investment activity		233	6,456	392	449	(381)	(2,035)
Profit before tax
Income tax							0
Net profit
Basic earnings per share (LTL)	20	(0,34)	0,17	(0,32)	0,09	0,lO	0,22
The accompanying notes are an integral part of these financial statements.
							21 October 201 1
General Manager Chief Accountant		Rimantas Bakas Violeta StaSkiiniene					2 1 October 20 1 1

Statements of Comprehensive Income

		Company
			01 - 09		01 - 09
			I11 quarter, months		I11 quarter, months
	Notes	2011	2011	2010	2010	2010	2009

Operating income
Sales income
Other operating income
Total operating income
Operating expenses
Fuel and heat purchased
Salaries and social security
Raw materials
Taxes other than income tax
Electricity
Depreciation and amortisation
Repairs and maintenance
Water
Change in allowance for
accounts receivable
Change in allowance for
inventories
Heating and hot water systems
supervision

PetraSitinai power plant
operatoi- expenses
Other expenses
Other operating expenses
Total operating expenses
Operating profit
Income from financial and
investment activity
Expenses from financial and
investment activity
Net profit for financial and
investment activity
Profit before tax
Income tax
Net profit
Basic earnings per share (LTL)		20 (0,34)	0,17	(0,32)	0,lO	0,09	0,16

The accompanying notes are an integral part of these financial statements.

General Manager	Rimantas Bakas	2 1 October 20 1 1
Chief Accountant	Violeta StaSkiiniene	2 1 October 20 1 1

Statements of Changes in Equity

Group	Notes	Share capital	Legal reserve	Other reserve	Retained earnings (accumulated deficit)	Total
Balance as of 31 December 2009		255,710	233		(6 1)	255,882
Total comprehensive income
(loss)					4,055	4,055
Transferred from reserves	10		(233)		233
Transferred to reserves	10		448		(448)
Payment of dividends	1				(3,589)	(3,589)
Increase in share capital	1	682	-		-	682
Balance as of 30 September 2010		256,392	448		190	270,030
Total comprehensive income
(loss)					112	112
Balance as of 31 December 2010
Transferred to reserves
Total comprehensive income
(loss)
Balance as of 30 September
201 1		256,392	635	3,468	3,709	264,204
					Retained earnings
Company	Notes	Share capital	Legal reserve	Other reserve	(accumulated deficit)	Total
Balance as of 31 December 2009
Total comprehensive income
(loss)
Transferred to reserves
Payment of dividends
Increase in share capital
Balance as of 30 September
2010
Total comprehensive income		-	-	-
(loss)					(367)	(367)
Balance as of 31 December
2010		256,392	448		3,745	260,585
Transferred to reserves Total comprehensive income	10		187	3,468	(3,655)
(loss)					7,116	7,116
Balance as of 30 September
2011		256,392	635	3,468	7,206	267,701
The accompanying notes are an integral part of these financial statements.						2 1 October 201 1

Chief Accountant		Violeta sta~kiinienk				21 October 201 1

Statements of Cash Flows

	Group		Company
	2011 months	2010 nonths	201 1 months	2010 months
Cash flows from (to) operating activities
Net profit
Adjustments for non-cash items: -
Depreciation and amortisation	13,359	13,027	1 3,247	12,897
Write-offs and change in allowance for accounts
receivable	2,911	3,061	2,911	3,061
Interest expenses	1,087	974	1,087	972
Income tax expenses
Change in fair value of derivatives	(1 28)	(174)	(128)	(174)
Loss (profit) from sale and write-off of
property, plant and equipment and impairment
loss	5 0	7 7	5 0	77
Change in allowance for inventories
(Amortisation) of grants (deferred income)
Change in accruals
Elimination of other financial and investing
activity results
Changes in working capital:
Decrease in inventories
(Increase) decrease in prepayments
(Increase) in trade receivables
(Increase) decrease in other receivables
Increase in other non-current liabilities
Increase (decrease) in current trade payables and
advances received	(33,197)	(22,788)	(33,186)	(22,798)
Increase (decrease) in payroll-related liabilities	496	1,079	435	554
(Decrease) increase in other liabilities to budget	(103)	(479)	(73)	(468)
(Decrease) in other current liabilities	2 1	(634)	25	(1 98)
Net cash flows from operating activities	35,229	16,926	35,238	16,955

(cont'd on the next page)

The accompanying notes are an integral part of these Jinancial statements.

AB KAUNO ENERGIJA, Company's code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE FIRST HALF OF THE YEAR 201 1 (all amounts are in LTL thousand unless otherwise stated)

		Group	Company
	201 1	2010	201 1	2010
	01 - 09	01 - 09	01 - 09	01 - 09
	months	months	months	months
Cash flows from (to) the investing activities
(Acquisition) of tangible and intangible assets
proceeds from sale of tangible assets
Penalty interest and fines received
Penalties received
Increase in cash flows from non-current
accounts receivable
Interest received
Net cash (used in) investing activities
Cash flows from (to) financing activities
Proceeds from loans
(Repayment) of loans
Interest (paid)
Financial lease (payments)
Penalties and fines (paid)
Dividends
Received grants
Net cash flows from (used in) financing
activities
Net (decrease) increase in cash and cash
equivalents	(1,252)	(1,043)	(1,214)	(1,115)
Cash and cash equivalents at the beginning
of the year	3,574	3,131	3,524	3,094
Cash and cash equivalents at the end of the
year	2,322	2,088	2,310	1,979
				(the end)

Cash and cash equivalents at the end of the year		2,088	2,310	1,979
	The accompanying notes are an integral part of these financial statements.			(the end)
General Manager	Rimantas Bakas	-	-	2 1 October 201 1

Notes to the financial statements

1. General information

AB Kauno Energija (hereinafter the Company) is a public limited liability company registered in the Republic of Lithuania. The address of its registered office is as follows:

Raudondvario Rd. 84, Kaunas, Lithuania.

AB Kauno Energija consists of the Company's head office and the branch of Jurbarko Silurnos Tinklai.

The Company is involved in heat, electricity generation and distribution and maintenance of the heating and hot water systems. The Company was registered on 1 July 1997 after the reorganisation of AB Lietuvos Energija. The Company's shares are traded on the Baltic Secondary List of the NASDAQ OMX Vilnius.

As of 30 September 201 1 and of 3 1 December 2010 the shareholders of the Company were as follows:

	As of 30 September 2011		As of 31 December 2010
	Number of shares owned (unit)	Percentage of ownership (%)	Number of shares owned (unit)	Percentage of ownership (Oh)
Kaunas city municipality	39,665,892	92,82	39,665,892	92,82
Kaunas district municipality	1,606,168	3,76	1,606,168	3,76
Jurbarkas district municipality	746,405	1,75	746,405	1,75
Other minor shareholders	713,512	1,67	713,512	1,67
	42,73 1,977	100,OO	42,73 1,977	100,OO

All the shares with a par value of LTL 6 each are ordinary shares. The Company did not hold its own shares in 201 1 and 201 0.

On 23 July 2009 in the Company's shareholders meeting it was decided to increase the share capital by issuing 22,700,000 ordinary shares with the par value LTL 6 each. Priority right to acquire issued shares was granted to Kaunas city municipality. The issue price of shares is equal to their nominal value. For this share the Company received a contribution in-kind comprising manifolds in Kaunas city with the value of LTL 136,200 thousand which was established by the independent property assessors under the replacement cost method.

On 17 February 2010 in the Company's extraordinary shareholders meeting it was decided to increase the share capital by LTL 682 thousand (from LTL 255,710 thousand to LTL 256,392 thousand) issuing 113,595 ordinary shares with the par value LTL 6 each. The issue price of shares is equal to their nominal value. A building of a boiler house located in Kaunas city, owned by Kaunas City Municipality, and engineering networks located in Jurbarkas city, owned by Jurbarkas Region Municipality, were received as a non-monetary contribution in kind for these shares. The value of this non-monetary contribution as of the transfer date was determined under the replacement cost method.

All shares were fully paid as of 30 September 201 1

On 13 May 2010 The Annual General Meeting of Shareholders has made a decision to pay LTL 3,589 thousand, i.e. at 8.4 cents a share in dividends from the profit of the year 2009. Dividends were paid in accordance with law. The unpaid part of dividends amounting to LTL 4 thousand which was not paid without a company's fault is accounted for in other current liabilities in 30 September 201 1 and 31 December 201 0.

The Group and the Company also involved in maintenance of heating systems. On 1 July 2006 on the basis of Kaunas Energy Services Department AB Kauno Energija established the subsidiary UAB Pastaty Prieiiiiros Paslaugos (hereinafter the Subsidiary). The main activity of the Subsidiary is exploitation and maintenance of building heating network and heating consumption equipment, internal engineering networks and systems as well as building structures. After establishing of subsidiary the employees of the Company working at Kaunas Energy Services Department were dismissed from the Company and hired by Subsidiary. From 1 July 2006 the Company is contracting Subsidiary for permanent technical maintenance of heating and hot water supply systems.

The Group consists of the Company and the Subsidiary (hereinafter the Group):

Company	Registration address	Share held by the Group	Cost of invest ment	Loss for the reportin - g period	Total equity	Main activities
UAB Pastaty	Savanoriy					Maintenance
Prieiiiiros	Ave. 347,					of heating
Paslaugos	Kaunas	100%	6,5 18	(129)	5,429	systems

As of 30 September 2011 accumulated impairment loss on investment in UAB Pastaty Prieiiiiros Paslaugos amounted to LTL 960 thousand (3 1 December 2010: LTL 960 thousand) in the Company's profit or loss.

Operations of AB Kauno Energija are regulated by the Heating Law No. IX-1565 of 20 May 2003 of the Republic of Lithuania. Starting fiom 1 January 2008, the Law amending the Heating Law No. X-1329 of 20 November 2007 of the Republic of Lithuania came in to force.

According to the Heating Law of the Republic of Lithuania, the Company's activities are licensed and regulated by the State Price Regulation Commission of Energy Resources (hereinafter the Commission). On 26 February 2004 the Commission granted the Company the heat distribution license. The license has indefinite maturity, but is subject to meeting certain requirements and may be revoked based on the respective decision of the Commission. The Commission also sets price cap for the heat supply. On 12 September 2008 by the decision of the Commission, the territory in which the Company can provide heat distribution activity was re-defined, as the Company sold Paliai boiler house in Marijarnpole district.

The Company's generation capacity includes a power plant in PetraSiiinai, 3 district boiler-houses in Kaunas integrated network, 7 regional boiler-houses in Kaunas region, 1 regional boiler-house in Jurbarkas city, 14 isolated networks and 37 local gas burning boiler-houses in Kaunas.

Total installed heat and electricity generation capacity is 496'2.00 MW and 8.75 MW, respectively, out of which 254.8 MW of heat generation and 8 MW of electric capacity are located at the power plant in PetraSiiinai. 27 MW of heat generation capacity is located in Jurbarkas city. The total Company's power generation capacity is 504,95 MW.

In 2003 the Company sold part of the assets of the subdivision Kauno Elektrine to UAB Kauno Termofikacijos Elektrine (hereinafter KTE) and committed to purchase at least 80% of the annual demand

of the integrated heating network in Kaunas from this company. The contract is valid for 15 years from the sales agreement date. The contract established that the purchase price of heat energy from KTE would not increase during the first 5 years from the date of signing the contract. New heat sale price for KTE and the Company was approved by the Commission and became effective starting 1 December 2008. The Company participates as a third party in administrative litigation between KTE and the Commission.

On 8 June 2006 AB Kauno Energija signed the agreement with UAB Energijos Sistemy Servisas regarding the operation of PetraSiiinai power plant and its assets located at Jegaines Str. 12, Kaunas. The contract was valid for a period of three years. Starting from 4 July 2006, UAB Energijos Sistemy Servisas started to provide operation services of PetraSiiinai power plant. A new contract valid until 4 August 2010 for a purchase of this service was signed with UAB Energijos Sistemy Servisas on 3 July 2009. After the end of agreement, the Company did not prolong a term of agreement and operates power plant itself.

In the year 201 1 the average number of employees at the Group was 645 (622 employees in 2010). In the year 201 1 the average number of employees at the Company was 586 (558 employees in 20 10).

On 14 October 2009, an administration of AB "Kauno energija" has been allowed by the decision No. 2009- 23-2 of the Managing Board of the Company to announce a rent tender of the buildings, which are situated at the site of PetraSiCmai power plant in order to attract an external and additional finance for installation / building 1 reconstruction of biofuel facilities, buildings with steam turbine producing heat and electricity and for reconstruction of buildings. On 5 November 2009 this tender has been terminated by the decision of AB "Kauno energija" Managing Board and considering the recommendation of Economy and Energy Committee of Kaunas City Council No MU-34 of 27 October 2009 and the decision of AB "Kauno energija" supervisory council No 2009-04 of 2 November 2009.

On 19 April 2010 the College of the Kaunas City Council discussed the issue of establishing of the joint venture and has made a decision to agree in principle and to recommend to the Managing Board of AB "Kauno energija" to start the negotiations with UAB "Fortum Heat Lietuva" regarding the construction of the new local fuel-fired power plant and the establishment of the new joint venture. A working group for negotiations with UAB "Forturn Heat Lietuva" has been formed.

On 3 November 2010 the College of Kaunas City Council discussed the issue of the cooperation of AB "Kauno energija" and AB "Lietuvos energija" and decided to recommend to the Managing Board of AB "Kauno energija" to start the negotiations with AB "Lietuvos energija" regarding the construction of a new local fuel-fired power plant and the establishment of the new joint venture at the site of the present PetraSiCmai power plant. On 24 November 2010 the Managing Board of AB "Kauno energija" has made a decision No 201 0-33-2 "Regarding establishment of the joint venture with AB "Lietuvos energija".

On 18 August 201 1 the negotiations with UAB "Fortum Heat Lietuva" were terminated by the decision No 201 1-22-1 of Company's Managing Board due to the not forthcoming tenders. The decision No 2010-14-2.2 "Regarding the establishment of negotiations group" of 29 April 20 10 and the decision No 201 0-21-1 "Regarding the specification of consist of negotiations group, authorized to negotiate with UAB "Fortum Heat Lietuva" regarding establishment of joint venture, and regarding the confirmation of its working regulation" has been recognized as spent.

On 18 August 201 1 by the decision No 201 1-22-1 of AB "Kauno energija" Managing Board has been recognized as spent:

the decision No 2010-33-2 of 24 November 2010 "Regarding the establishment of joint venture with AB "Lietuvos energija", by which the repartition of the shares and of the ensured votes at the General meeting of shareholders of established joint venture (hereinafter - Project Company) has been decided;

the decision No 201 1-4- 1 of 2 1 February 201 1 "Regarding the modification and addition of decision No 2010-33-2 of 24 November 2010 of AB "Kauno energija" Managing Board "Regarding establishment of joint venture", by which has been decided that it will be other repartition of the shares and of the ensured votes of the Project Company at the General meeting of shareholders (hereinafter - GMS); to plan in the project of prepared statute of the Project Company, that a qualified majority of votes at GMS of established Project Company, which is necessary in order to make decisions, indicated in part 1 of chapter 28 of the Lithuanian law of Joint-stock companies (hereinafter - AB), must be no less than 314 of all the votes of all shareholders taking part in shareholders meeting, and must be no less than 415 of all the votes of all shareholders taking part in shareholders meeting when the decisions indicated in part 2 of chapter 28 of the Lithuanian law of Joint-stock companies are made;
the decision No 201 1-8-1 of 16 March 201 1 "Regarding establishment documents of PetraSiiiny energija UAB", by which a further procedures of documents approximation of above mentioned company with representatives of AB "Lietuvos energija" has been assigned to working group, formed for establishment documents of "PetraSiiiny energija" UAB preparation, ensuring that AB "Kauno energijayy would be an equal partner to AB "Lietuvos energija" in establishing "PetraSiiiny energija" UAB, taking part in management of the newly established company and developing project, and to eliminate the other provisions from draft texts of agreements which are discriminatory in respect of AB "Kauno energija";
the decision No 201 1-1 1-1 of 13 April 201 1 "Regarding establishment documents of "PetraSiiiny energija" UAB", by which has been decided to correct additionally the project of "PetraSiiiny energija" UAB shareholders' agreement.

Assessing the above mentioned information about the decisions of Kaunas City Council College, unsuccessful negotiations with UAB "Fortum Heat Lietuva" and AB "Lietuvos energija", the decisions of AB "Kauno energija" Managing Board from the period of 2009 - 201 1 regarding biofuel usage in PetraSiiinai power plant, the Company's managing Board by its decision No 201 1-22-1 of 18 August 201 1 has allowed the administration to start a procedures of the lease of part of the buildings I structures situated at the site of PetraSiiinai power plant in order to attract investors for development of biofuel burned power plant construction project.

The Group and the Company invested LTL 29,854 thousand in the own property within nine months of the year 201 1 (over nine months of the year 2010 - LTL 22,353 thousand).

2. Accounting principles

2.1. Application of new and revised International Financial Reporting Standards

Standards and Interpretations effective in the current period

The adoption of these amendments to the existing standards has not led to any changes in the Group and the Company accounting policies.

2.2. Statement of compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (hereinafter EU).

2.3. Basis of the preparation of financial statements

The financial statements have been prepared on a cost basis, except for certain financial instruments, which are stated at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The financial year of the Company and other Group companies coincides with the calendar year.

Items included in the financial statements of the Group and the Company are measured using the currency of the primary economic environment in which they operate (the 'functional currency'). The amounts shown in these financial statements are measured and presented in the local currency of the Republic of Lithuania, litas (LTL) which is a functional and presentation currency of the Company and its subsidiary and all values are rounded to the nearest thousand except when otherwise indicated.

Starting from 2 February 2002, Lithuanian litas is pegged to EUR at the rate of 3.4528 litas for 1 euro, and the exchange rates in relation to other currencies are set daily by the Bank of Lithuania.

2.4. Principles of consolidation

Principles of consolidation

The consolidated financial statements of the Group include AB Kauno Energija and its subsidiary. The financial statements of the subsidiary are prepared for the same reporting period as the Company. Consolidated financial statements are prepared on the basis of the same accounting principles applied to similar transactions and other events under similar circumstances.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Subsidiary is the company which is directly or indirectly controlled by the parent company. The control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company's share capital or otherwise has power to govern the financial and operating policies of an enterprise so as to benefit from its activities.

Changes in the Group's ownership interests in existing subsidiaries

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

2.5. Investments in subsidiaries

Investments in subsidiaries in the Company's balance sheet are recognized at cost. The dividend income fiom the investment is recognized in the profit or loss.

2.6. Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising fiom derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

Licenses

Amounts paid for licenses are capitalised and then arnortised over useful life (3 - 4 years).

Software

The costs of acquisition of new software are capitalised and treated as an intangible asset if these costs are not an integral part of the related hardware. Software is amortised over a period not exceeding 3 years.

Costs incurred in order to restore or maintain the future economic benefits of performance of the existing software systems are recognised as an expense for the period when the restoration or maintenance work is carried out.

2.7. Accounting for emission rights

The Group and the Company apply a 'net liability' approach in accounting for the emission rights received. It records the emission allowances granted to it at nominal amount, as permitted by IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Liabilities for emissions are recognised only as emissions are made (i.e. provisions are never made on the basis of expected future emissions) and only when the reporting entity has made emissions in excess of the rights held.

When applying the net liability approach, the Group and the Company have chosen a system that measures deficits on the basis of an annual allocation of emission rights.

The outright sale of an emission right is recorded as a sale at the value of consideration received. Any difference between the fair value of the consideration received and its carrying amount is recorded as a gain or loss, irrespective of whether this creates an actual or an expected deficit of the allowances held. When a sale creates an actual deficit an additional liability is recognised with a charge to the profit or loss.

2.8. Property, plant and equipment

Property, plant and equipment are stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of such property, plant and equipment when that cost is incurred if the asset recognition criteria are met.

Properties in the course of construction for production, supply or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group's and the Company's accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

The useful lives are reviewed annually to ensure that the period of depreciation is consistent with the expected pattern of economic benefits from the items in property, plant and equipment. Depreciation periods'were revised as of 1 September 2008, as further described in Note 2.24.

Depreciation is computed on a straight-line basis over the following estimated useful lives:

	Years
Buildings	7 - 50
Structures and machinery	5 - 70
Vehicles	3 - 10
Equipment and tools	2 - 20

Freehold land is not depreciated.

The Group and the Company capitalizes property, plant and equipment purchases with useful life over one year and an acquisition cost above LTL 500.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognized.

Subsequent repair costs are included in the asset's carrying amount, only when it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are recognized in profit or loss in the period in which they are incurred.

Lease hold improvement expenses related to property under rental and/or operating lease agreements which prolong the estimated useful life of the asset are capitalized and depreciated during the term of rental and/or operating lease agreements.

Construction-in-progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs. Construction-in-progress is not depreciated until the relevant assets are completed and put into operation.

2.9. Impairment of property, plant and equipment and intangible assets excluding goodwill

At each statement of financial position date, the Group and the Company reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is'estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group and the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, Group's and Company's assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the. asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

2.10. Financial assets

According to IAS 39 "Financial Instruments: Recognition and Measurement" financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables or available-for-sale financial assets, as appropriate. All purchases and sales of financial assets are recognised on the trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Effective interest rate method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the 'other gains and losses' line item in the statement of comprehensive income.

~inancial assets available for sale

Available-for-sale financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.

Listed redeemable notes held by the Group and the Company that are traded in an active market are classified as available-for-sale and are stated at fair value. The Group and the Company also has investments in unlisted shares that are not traded in an active market but that are also classified as available-for-sale financial assets and stated at fair value (because the directors consider that fair value can be reliably measured). Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognized in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group's and the Company's right to receive the dividends is established.

The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Gains or losses are recognized in profit or loss when the asset value decreases or it is amortized.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, including redeemable notes classified as AFS and finance lease receivables, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becomes probable that the borrower will enter bankruptcy or financial re-organization.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's and the Company's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

Dereco~nition of financial assets

The Group and the Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group and the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group and the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group and the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group and the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

2.11. Derivative financial instruments

The Group and the Company uses derivative financial instruments such as interest rate swaps to hedge its interest rate risks. Such derivative financial Instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently premeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the year are taken directly to the profit (loss) for the period if they do not qualify for hedge accounting.

The fair value of interest rate swap contracts is determined by the reference to market values for similar instruments.

2.12. Inventories

Inventories are stated at the lower of cost or net realizable value. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Costs of inventories are determined on a first-in, first-out (FIFO) basis.

The cost of inventories is net of volume discounts and rebates received from suppliers during the reporting period but applicable to the inventories still held in stock.

2.13. Provisions

Provisions are recognized when the Group and the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group and the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

2.14. Cash and cash equivalents

Cash includes cash on hand, cash at banks and cash in transit. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, cash with banks, cash in transit, deposits held at call with banks, and other short-term highly liquid investments.

2.15. Employee benefits

Contributions to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses that exceed 10 percent of the greater of the present value of the Group's and the Company's defined benefit obligation and the fair value of plan assets as at the end of the prior year are amortized over the expected average remaining working lives of the participating employees. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

2.16. Borrowings

Borrowings are initially recognized at fair value, less the costs of transaction. They are subsequently carried at amortized cost, the difference between the value at the inception and redemption value being recognised in the net profit or loss over the period of the borrowings using effective interest rate method.

Borrowings are classified as current liabilities unless the Group and the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet.

orr row in^ costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

2.17. Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group and the Company are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'. Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

Other financial liabilities

Other financial liabilities (including borrowings) are subsequently measured at mortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Derecoanition of financial liabilities

The Group and the Company derecognises financial liabilities when, and only when, the Group's and the Company's obligations are discharged, cancelled or they expire.

2.18. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group and the Com~anv as lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group's and the Company's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's and the Company's net investment outstanding in respect of the leases.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

The Group and the Company as lessee

Assets held under finance leases are initially recognised as assets of the Group and the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group's and the Company's general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straightline basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

2.19. Grants (deferred income)

Government grants are not recognised until there is reasonable assurance that the Group and the Company will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group and the Company recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group and the Company should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Grants received in the form of non-current assets or intended for the purchase, construction or other acquisition of non-current assets are considered as asset-related grants. Assets received free of charge are also allocated to this group of grants. The amount of the grants related to assets is recognized as deferred income and is credited to profit or loss in equal annual amounts over the expected useful life of related asset. In the statement of comprehensive income, a relevant expense account is reduced by the amount of grant amortisation.

Assets received free of charge are initially recognised at fair value.

Grants received as a compensation for the expenses or unearned income of the current or previous reporting period, also, all the grants, which are not grants related to assets, are considered as grants related to income. The income-related grants are recognised as used in parts to the extent of the expenses incurred during the reporting period or unearned income to be compensated by that grant.

The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.

The balance of unutilised grants is shown in the caption "Grants (deferred income)" in the balance sheet.

2.20. Basic and diluted earnings per share

Basic earnings per share are calculated by dividing the net profit attributable to the shareholders by the weighted average of ordinary registered shares issued. Since there are no instructions reducing earnings per share, there is no difference between the basic and diluted earnings per share.

2.21. Revenue recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognised net of VAT and discounts.

Revenue from sales of heat energy is recognised based on the bills issued to residential and other customers for heating and heating-up of cold water. The customers are billed monthly according to the readings of heat meters.

Revenue from the sale of goods is recognised when all the following conditions are satisfied:

the Group and the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
the Group and the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group and the Company; and
the cost incurred or to be incurred in respect of the transaction can be measured reliably.

Late payment interest income from overdue receivables is recognised upon receipt.

Dividend revenue from investments is recognised when the shareholder's right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the Company and the amount of revenue can be measured reliably).

Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the Company and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Rental income

The Group's and the Company's policy for recognition of revenue from operating leases is described in Note 2.18 below.

2.22. Expense recognition

Expenses are recognised on the basis of accrual and revenue and expense matching principles in the reporting period when the income related to these expenses was earned, irrespective of the time the money was spent. In those cases when the costs incurred cannot be directly attributed to the specific income and they will not bring income during the future periods, they are expensed as incurred.

The amount of expenses is usually accounted for as the amount paid or due, excluding VAT. In those cases when a long period of payment is established and the interest is not distinguished, the amount of expenses is estimated by discounting the amount of payment using the market interest rate.

2.23. Foreign currencies

In preparing the financial statements of the individual entities of the Group, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

The presentation currency is Litas (LTL). All transactions had functional currency other than LTL translated into LTL at the official Bank of Lithuania exchange rate on the date of the transaction, which approximates the prevailing market rates. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Gains and losses arising on exchange are included in profit or loss for the period.

The applicable rates used for principal currencies were as follows:

	As of 30 September 2011		As of 31 December 2010
1 EUR 1 USD	= 3,4528 Lt = 2,5383 Lt	1 EUR 1 USD	= 3.4528 Lt = 2.6099 Lt
1 GBR	= 3,9643 Lt	10 EEK	= 4,0494 Lt

Exchange differences are recognised. in profit or loss in the period in which they arise except for:

exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
exchange differences on transactions entered into in order to hedge certain foreign currency risks; and
exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

2.24. Use of estimates in the preparation of financial statements

The preparation of financial statements requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingencies, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Proper@, plant and equipment - useful lrfe

The key assumptions concerning determination the useful life of property, plant and equipment are as follows: expected usage of the asset, expected physical wear and tear, technical or commercial obsolescence arising from changes or improvements in the services, legal or similar limits on the use of the asset, such as the expiry dates of related leases.

The Group and the Company has considerzd the actual useful life of property, plant and equipment and increased a depreciation rate for the heating connections from 20 years to 30 years and for the heating stations from 10 years to 15 years respectively starting from 1 September 2008.

Carrying value of non-current assets received as a contribution in kind

In 2009 for a new shares issue manifolds in Kaunas city were received as a contribution in-kind. Market value of assets estimated upon their transfer by local independent qualified valuators using depreciated replacement costs method amounted to LTL 136 mln.

In 2010 a new emission of shares was issued and it was paid by non-monetary contribution: it is building boiler-house in Kaunas city and networks system in Jurbarkas city. Market value of the asset upon their transfer was determined by the local independent qualified valuators by using depreciated replacement costs method and amounted to LTL 0.682 mln.

Management has no information available about possible fair value of these non-current assets if they would be evaluated by using other valuation methods. As of 30 of September 201 1, carrying value of all contribution in-kind amounted to LTL 132,858 LTL thousand. (1 34,345 LTL - 3 1 December 2010).

Allowances for accounts receivable

The Group and the Company makes allowances for doubtful accounts receivable. Significant judgment is used to estimate doubtful accounts. In estimating doubtful accounts historical and anticipated customer performance are considered. Changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in the financial statements.

Litigations

On 17 February 2010 Vilnius Court of Commercial Arbitration investigated the civil case regarding the fulfilment of the investment agreement between the Company and UAB Kauno Termofikacijos Elektrine (hereinafter - KTE) and passed the ruling to award a fine of LTL 5 420 thousand in favour of the Company. KTE has placed a complaint to Lithuanian Court of Appeal regarding this decision. The Court of Appeal denied this appeal by it's ruling from 19 October 201 0 and has left the ruling of the Court of Commercial Arbitration unchanged. On 8 of November, 2010 KTE has applied a cassation complaint to the Lithuanian Supreme Court regarding a repeal of rulings of the Commercial Arbitration court and of the Court of appeal. On 14 of March 201 1 the Lithuanian Supreme Court has dismissed a cassation complaint of KTE by its final decision and has left unchanged the decision of Vilnius Commercial Arbitration Court from 17 of February 2010 and the decision of Lithuanian Court of Appeal from 19 of October 2010. The penalty received has been accounted in financial statements of the Group and The Company as an income from financial activity.

On 3 of November, 2010 the Company placed a second claim to Vilnius Commercial Arbitration Court (hereafter - VCAC) regarding additional forfeit in amount LTL 12,352 thousand from defendant KTE due to the improper fulfilment of the Investments agreement. On 18 of February, 201 1 a preliminary session of VCAC took place, and on 17 of June, 201 1 a need of additional explanations came up during session of the court where the case has been started to investigate essentially. The explanations due to the sameness of the second claim to the first one from the year 2009 which has been placed due to the forfeit in already closed case of VCAC were needed. Additional written explanations were placed to the court on 1 July 201 1, and the main session of the case assigned on 25 October 201 1.

As of 30 September, 201 1 and of 3 1 December, 2010 the accrual for the sum of claims was not been made in financial statements of the Group and the Company, because the income from fines and penalties is shown in those statements only when it is paid-in.

On 24 August, 2010 KTE placed a preventive claim to Vilnius Commercial Arbitration court applying to forbid to the Company to terminate ex-parte and not appealing to the court a Power plant purchase agreement, also a Heat energy purchase agreement and the Investments agreement. On 12 August 201 1 this preventive claim was rejected by the arbitration court after the case has been investigated. KTE is still able to place a complaint to the Lithuanian court of Appeal until 12 November 201 1.

On 21 January 201 1 Kaunas city district court has applied by its decision a temporary protection remedy (TPR) in behalf of KTE and has obliged the Company to restrain from termination ex-parte and not appealing to the court of above mentioned agreements while the investigation of arbitration case is taking place. Notwithstanding the decision is appealed to the Kaunas county court, a TPR are applied since the moment of making the decision and the bailiffs precept regarding implementation of this obligation is already delivered to the Company. But on 11 March 201 1 the Kaunas county court has complied with the particular complaint of AB "Kauno Energija" regarding this district court decision and has cancelled it, therefore any restrictions to terminate the above mentioned agreements as it is stated in them are not applied.

On 12 August 2010 The Securities commission of the Republic of Lithuania (further - Commission) has made a decision. "Regarding the case of breaking the law" and has decided to fine the Company of LTL 50 thousand for breaking the part 4 of chapter 5 of Lithuanian Securities law (further - SL). By this decision the Commission obliged the Company to evaluate the long term assets received as nonmonetary contribution at their true value in accordance with requirements of chapter 24 of 16 IAS "Immovable property, equipment and machinery". The Commission has also obliged the Company to use motivated and reasonably chosen assets evaluation methods, appropriate for this kind of assets and goals. And if there will be estimated, that the Company's financial statements and consolidated financial statements of the year 2009 are not in character with 16 IAS provisions, to correct in retrospect financial statements in accordance to chapter 24 of 16 IAS "Immovablt: property, equipment and machinery" when the Company's financial statements and consolidated financial statements of the year 2010 will be prepared.

The Company has disagreed with this decision of Commission and has placed a complaint to Vilnius regional administrative court. On 24 January 201 1 this complaint was rejected by the court. On 7 February 201 1 the Company placed an appeal regarding this decision to the Supreme Administrative Court of Lithuania. The session took place on 16 August 201 1, but the court has not made a final decision and has decided to renew investigation of the case in essence. The session of the court is appointed on 6 December 201 1.

2.25. Subsequent events

Post-balance sheet events that provide additional information about the Group's and the Company's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post-balance sheet events that are not adjusting events are disclosed in the notes when material.

2.26. Offsetting and comparative figures

When preparing the financial statements, assets and liabilities, as well as revenue and expenses are not set off, except the cases when certain IFRS specifically require such set-off.

2.27. Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chiefoperating decision-maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.

The activities of the Group and the Company are organised in one operating segment therefore further information on segments has not been disclosed in these financial statements

3. Intangible assets

Arnortisation expenses of intangible assets are included in the operating expenses in the statement of comprehensive income.

Part of the non-current intangible assets of the Group and the Company with the acquisition cost of LTL 3,055 thousand as of 30 September 201 1 (LTL 3,177 thousand as of 31 December 2010) were fully amortised but were still in active use.

4. Property, plant and equipment

The depreciation charge of the Group's and Company's property, plant and equipment for 30 September 20 1 1 amounts to LTL 12.325 thousand and LTL 12.21 8 thousand, respectively (20 10: LTL 16,724 thousand and LTL 16,560 thousand respectively). The amounts of LTL 12.257 thousand and LTL 12.150 thousand (201 0: LTL 15,849 thousand and LTL 15,778 thousand respectively) were included into operating expenses in the Group's and the Company's statement of comprehensive income. The remaining amounts were included into other operating expenses caption.

Part of the property, plant and equipment of the Group and the Company with acquisition cost of LTL 88,566 thousand were fully depreciated as of 30 September 201 1 (LTL 87,212 thousand as of 31 December 2010) but were still in active use.

As of 30 September 2011 and of 31 December 2010 the major part of the Group's and Company's construction in progress consisted of heat supply networks reconstruction and repair works.

As of 30 September 201 1 property, plant and equipment of the Group and the Company with the net book value of LTL 128,667 thousand (LTL 123,3 19 thousand as of 3 1 December 20 10) was pledged to banks as a collateral for loans (Note 1 1).

During 9 months of the year 20 1 1 the amount of capitalized interest equals to LTL 4 17 thousand (LTL 173 thousand in 2010). The interest for the year 201 1 was not capitalized due to the insignificant influence. During 9 months of the year 20 1 1 the capitalization rate varied from 3.52% to 5.79% (in 20 1 0 - from 3.5% to 5.65%).

The assets leased by the Group under finance lease contracts consist of vehicles:

		Group		Company
	As of 30 September	As of 31 December	As of 30 September	As of 31 December
Vehicles

5. Non-current accounts receivable

		Group	Company
	As of 30	As of 31	As of 30	As of 31
		September December	September December
	201 1	2010	2011	2010
Long-term loans granted to the Company's employees	43	6 1	43	6 1
Other

Long-term loans granted to the employees of the Company for the period from 1997 to 2023 are non-interest bearing, These loans are accounted for at discounted value using 10.4% interest rate.

As of 30 of September 201 1 and 31 of December 2010 the repayment term of non-current accounts receivable is not yet due and valuation allowance is not determined.

6. Other financial assets

		Group	Company
	As of 30 September 2011	As of 31 December 2010	As of 30 September 2011	As of 31 December 2010
Available-for-sale financial assets
- Ordinary shares unquoted	43 3	43 3	433	433
Impairment loss	(196)	(1 96)	(196)	(1 96)
Fair value of shares	23 7	23 7	237	237

The Management of the Group and the Company evaluated the financial condition of the entity that shares were acquired, and determined impairment loss. Impairment loss accounted in the Group's and the Company's profit or loss.

7. Inventories

		Group		Company
	As of 30 Sentember 2011 December 2010	As of 31	As of 30	As of 31 Sentember 2011 December 2010
Technological fuel
Spare parts
Materials

Less: impairment of realisable value at
the end of the period	(21 1)	(21 1)
Carrying amount of inventories	5,679	5,270

The acquisition cost of the Group's and the Company's inventories accounted for at net realisable value as of 30 September 201 1 amounted to LTL 21 1 thousand (LTL 21 1 thousand as of 3 1 December 2010). Changes in the valuation allowance for inventories for the year 2010 was listed into change in inventories allowance caption in the Group's and the Company's statement of comprehensive income.

8. Current accounts receivable

		Group	Company
	As of 30 September 2011	AS of 31 December 2010	As of 30 September 201 1	As of 31 December 2010
Trade receivables, gross	63,847	114,131	63,612	11 3,875
Less: impairment of doubtful receivables	(44,539)	(41,886)	(44,539)	(41,886)

Change in impairment of doubtful receivables in 20 1 1 and 20 10 is included into the caption of write-offs and change in allowance for accounts receivables in the Group's and the Company's statements of comprehensive income.

Movements in the allowance for impairment of the Group's and the Company's receivables were as follows:

	Impairment loss
Balance as of 31 December 2009	25,177
Additional allowance formed	17,194
Write-off	(485)
Balance as of 31 December 2010	41,886
Additional allowance formed	2,657
Write-off	(4)
Balance as of 30 September 2011	44,539

In the year 201 1 the Group and the Company wrote off LTL 4 thousand of bad debts (in the year 2010 - LTL 485 thousand). During 9 months of the year 201 1 the Group and the Company also recovered LTL 15 thousand of doubtful receivables (in 2010 - LTL 32 thousand), which were written off in the previous periods.

The ageing analysis of the Group's net value of trade receivables as of 30 September 201 1 and 31 December 2010 is as follows:

		Trade receivables past due
	Trade receivables neither	Less than				60 - 150 151 - 240 241 - 360 More than
	past due nor impaired	60 days	days	days	days	360 days	Total
201 1	9,776	2,529	2,385	4,395	223	-	19,308
2010	60,05 1	8,991	1,236	1,398	569	-	72,245

The ageing analysis of the Company's net value of trade receivables As of 30 September 201 1 and 31 December 2010 is as follows:

			Trade receivables past due
	Trade receivables neither	Less than				60 - 150 151 - 240 241 - 360 More than
	past due nor impaired	60 days	days	days	days	360 days	Total
201 1	9,54,1	2,529	2,385	4,395	223	-	19,073

Trade receivables are non-interest bearing and the terms are usually 30 days or agreed individually.

Other Group's and the Company's receivables consisted of:

	Group		Company
	As of 30 September 201 1	As of31 December 2010	As of 30 September 2011	As of 31 December 2010
Taxes	7,209	2,737	7,209	2,737
Other receivables Less: value impairment of doubtful	3,521	3,579	3,642	3,754
receivables	(979)	(7 19)	(979)	(719)
	9,751	5,597	9,872	5,772

Movements in the allowance for impairment of the Group's and the Company's other receivables were

as follows:

	Impairment loss
Balance as of 31 December 2009	592
Additional allowance formed
~alanck as of 31 December 2010
Additional allowance formed
Balance as of 30 September 2011

As of 30 September 201 1 and 31 December 2010 the major part of the Group's and the Company's other receivables consisted of compensations from municipalities for low income families, receivables from sold inventories (metals, heating equipments) and services supplied (transportation and permanent maintenance of collectors).

The ageing analysis of the Group's net value of other receivables (excluding taxes) as of 30 September 201 1 and 3 1 December 20 10 is as follows:

					Other receivables past due but
	Other receivables neither	Less than		60 - 150 151 - 240 241 - 360		More than
	past due nor impaired	60 days	days	days	days	360 days	Total
201 1	642	289	965	63 8	8	-	2,542
2010	1,850	709	273	20	8	-	2,860

The ageing analysis of the Company's net value of other receivables (excluding taxes) as of 30 September 201 1 and 3 1 December 201 0 is as follows:

					Other receivables ~ast due but
	Other receivables neither	Less than		60 - 150 151 - 240 241 - 360		More than
	past due nor impaired	60 days	days	days	days	360 days	Total
201 1	763	289	965	638	8	-	2,663

The Group's and the Company's other receivables are non-interest bearing and the terms are usually 30 - 45. According to the management opinion, there are no indications as of the reporting date that the debtors will not meet their payment obligations regarding trade receivables and other receivables that are neither impaired nor past due.

9. Cash and cash equivalents

		Group As of 30 As of 31 September December 201 1 2010	Company
			As of 30 September 2011	As of 31 December 2010
Cash in transit	863	1,95 1	863	1,95 1
Cash at bank	1,426	1,592	1,4.15	1,542
Cash on hand	33	3 1	32	3 1
	2,322	3,574	2,310	3,524

The Group's and the Company's accounts in national currency in banks amounting to LTL 1,406 thousand as of 30 September 201 1 (31 December 2010- LTL 951 thousand) are pledged as collateral for the loans (Note 11).

10. Reserves

Legal and other reserves

A legal reserve is a compulsory reserve under Lithuanian legislation. Annual transfers of not less than 5% of net profit calculated in accordance with IFRS are compulsory until the reserve reaches 10% of the share capital. The legal reserve cannot be distributed as dividends but can be used to cover any losses.

On 28 April 2009, based on the decision of the shareholders the Company transferred an amount of LTL 2,808 thousand from legal reserve to cover losses of 2008.

On 4 March 2010, based on the decision of the shareholders the Subsidiary transferred an amount of LTL 233 thousand from legal reserve to cover losses of 2009.

On 13 May 2010 the company transferred LTL 448 thousand from retained earnings to legal reserve by the decision of shareholders.

In 2010 Group's net transfers from retained earnings to legal reserve amount to LTL 215 thousand.

On 29 April 201 1 the Company transferred LTL 187 thousand from retained earnings to legal reserve and LTL 3.468 thousand to other reserves by the decision of shareholders. Reserve for investments was formed.

11. Borrowings

		Group	Company
	As of 30 September 201 1	As of 31 December 2010	As of 30 September 201 1	As of 31 December 2010
Non-current borrowings
Non-current borrowings	39,739	31,811	39,739	31,811
Current portion of non-current borrowings	2,023	13,703	2,023	13,703
Current borrowings (including credit line)	4,171		4,171	8,808
Other interest bearing liabilities		6,2 15		6,2 15
Current borrowings	6,194	28,726	6,194	28,726
	45,933	60,537	45,933	60,537

Terms of repayment of non-current borrowings are as follows (all loans are with variable interest rate):

Group		Company
As of 30 September	As of 31 December	As of 30 September	As of 31 December

Weighted average of interest rates (in %) of borrowings outstanding at the year-end were as follows:

	Group			Company
	As of 30 September 201 1	As of 31 December 2010	As of 30 September 2011	As of 31 December 2010
Current borrowings	2,18	3,3	2,18	3,3
Non-current borrowings	3,73	3,3	3,73	3,3

Borrowings at the end of the year in national and foreign currencies were as follows:

		Group		Company
	As of 30 September 2011	As of 31 December 2010	As of 30 September 201 1	As of 31 December 2010
Currency of the loan:
EUR
LTL

On 1 August 2005 the Group and the Company signed a long-term loan agreement with ,,Swedbank", AB for the amount of LTL 5,000 thousand. The maturity date of the last portion of the loan is 1 August 2012. As of 30 September 201 1 the outstanding balance of the loan amounted to LTL 634 thousand of which LTL 208 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 6-month VILIBOR plus 0.77% annual interest rate.

On 23 August 2005 the Group and the Company signed a long-term loan agreement with AB SEB Bank for the amount of EUR 8,776 thousand (the equivalent of LTL 30,300 thousand). The maturity date of the last portion of the loan is 31 December 2014. The outstanding balance of the loan amounted to EUR 2,353 thousand (the equivalent of LTL 8,125 thousand) as of 30 September 201 1, of which LTL 625 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 6-month EUR LIBOR plus 1.9% annual interest rate.

On 1 December 2006 the Group and the Company signed a long-term loan agreement with Nordea Bank Finland Plc. Lithuanian branch for the amount of LTL 2,090 thousand. On 18 April 2007 the loan amount increased up to LTL 6,090 thousand. The maturity date of the last portion of the loan is 3 1 December 201 5. As of 30 September 201 1 the outstanding balance of the loan amounted to LTL 3,519 thousand, of which LTL 210 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 3-month VILIBOR plus 0.45% annual interest rate.

On 21 December 2006 the Group and the Company signed a long-term loan agreement with AB SEB Bank for the amount of EUR 2,059 thousand (the equivalent of LTL 7,108 thousand). The maturity date of the last portion of the loan is 30 November 2016. As of 30 September 201 1 the outstanding balance of the loan amounted to EUR 5 15 thousand (the equivalent of LTL 1,780 thousand), of which LTL 99 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 6-month EUR LIBOR plus 0.4% annual interest rate.

On 14 November 2007 the Group and the Company signed a long-term loan agreement with AB DnB NORD Bank for the amount of EUR 576 thousand (the equivalent of LTL 1,989 thousand). The maturity date of the last portion of the loan is 31 December 2016. As of 30 September 201 1 the outstanding balance of the loan amounted to EUR 378 thousand (the equivalent of LTL 1,305 thousand), of which LTL 62 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 12-month EUR LIBOR plus 0.59% annual interest rate.

On 3 1 July 2008 the Group and the Company signed a long-term investment credit agreement with Danske Bank A/S Lithuania Branch for the amount of EUR 984 thousand (the equivalent of LTL 3,398 thousand). The maturity date of the last portion of the loan is 201 8. As of 30 September 201 1 the outstanding balance of the investment credit amounted to EUR 542 thousand (the equivalent of LTL 1,872 thousand), of which LTL 87 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 3-month EURIBOR plus 0.385% annual interest rate.

On 31 July 2008 the Group and the Company signed a long-term investment credit agreement with Danske Bank A/S Lithuania Branch for the amount of EUR 1,158 thousand (the equivalent of LTL 4,000 thousand). The maturity date of the last portion of the loan is 31 December 2017. As of 30 September 2011 the outstanding balance of the investment credit amounted to EUR 957 thousand (the equivalent of LTL 3,306 thousand), of which LTL 150 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 3-month EURIBOR plus 0.7% annual interest rate.

On 22 September 2008 the Group and the Company signed a long-term loan agreement with AB SEB Bank for the amount of EUR 3,333 thousand (the equivalent of LTL 11,508 thousand). The maturity date of the last portion of the loan is 3 1 December 201 1. As of 17 September, 2010 the outstanding balance of the loan was refinanced through Lithuanian branch of Nordea Bank Finland Plc. The loan was bear 1-month EUR LIBOR plus 0.7% annual interest rate.

On 25 September 2009 the Group and the Company signed a loan agreement with ,,Swedbank, AB for the amount of EUR 2,896 thousand (the equivalent of LTL 10,000 thousand), with the maturity date of 25 September 2012. As of 30 September 201 1 the Group and the Company's balance of used loan was EUR 915 thausand (the equivalent of LTL 3,158 thousand) which was accounted as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 6-month ELTRIBOR plus 3.85% annual interest rate.

On 2 December 2009 the Group and the Company signed a loan agreement with ,,Swedbank, AB for the amount of EUR 3,8 15 thousand (the equivalent of LTL 13,171 thousand), with the maturity date of the last portion of the loan on 2 December 2016. As of 30 September 201 1 the balance of used loan was EUR 1,801 thousand (the equivalent of LTL 6,219 thousand), of which LTL 301 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 6-month EURIBOR plus 4.5% annual interest rate.

On 9 April 2010 the Group and the Company signed a credit agreement with the Lithuanian Ministry of Finance regarding the loan of EUR 2,410 thousand (the equivalent of LTL 8,323 thousand). The term of repayment of the last part of the loan is 15 March 2034. As of 30 September 201 1 the balance of used loan was EUR 645 thousand (the equivalent of LTL 2,229 thousand), which was accounted for within long term borrowings in the financial statements of the Group and the Company. The loan bears 3.948% annual interest.rate until 3 1 March 201 9.

On 21 June 2010 the Group and the Company signed a credit agreement with ,,Swedbank", AB regarding the loan of EUR 649 thousand (the equivalent of LTL 2,240 thousand). The term of repayment of the last part of the loan is 21 June 2017. As of 30 September 201 1 the outstanding balance of the credit amounted to EUR 417 thousand (the equivalent of LTL 1,440 thousand), of which 33 thousand LTL is accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears 6-month EURIBOR plus 4% annual interest rate.

On 17 September, 2010 the Group and the Company signed a long-term credit agreement with Nordea Bank Finland Plc Lithuanian Branch for the amount of EUR 1,625 thousand (the equivalent of LTL 5,611 thousand). The maturity date of the last portion of the loan is 3 1 May, 2016. As of 30 September 201 1 the outstanding balance of the credit amounted to EUR 1,337 thousand (the equivalent of LTL 4,615 thousand), of which LTL 248 thousand was accounted for as the current portion of long term borrowings in the financial statements of the Group and the Company. The loan bears l-month EURIBOR plus 0.7% annual interest rate.

On 4 June 1999 the Group and the Company signed a credit line agreement with AB SEB Bankas for the amount of LTL 7,000 thousand, with the maturity date of 19 July 2009. As of 3 1 December 2009 the Group and the Company's balances of used credit line was LTL 1,560 thousand. On 19 August 2009 the agreement was prolonged until 19 July 201 0. The credit line bears 1 -month VILIBOR plus 2.4% annual interest rate.

On 8 July 2004, the Group and the Company signed an overdraft agreement with AB DnB NORD Bank for the amount of LTL 18,000 thousand and for the term expiring on 3 1 May 2008. On 27 May 2008, the limit of the overdraft line of credit was reduced to the amount of LTL 10,000 thousand and the repayment term was extended until 31 May 2009. On 29 May 2009, the validity term of the agreement was extended until 29 May 2010 by changing the overdraft limit to EUR 2,896 thousand (LTL 9,999 thousand). On 31 May 2010 the validity term of the agreement was extended until 23 June 2010 and on 22 June 2010 the validity term of the agreement was extended until 30 May 201 1. The overdraft bears 1 -month EURIBOR plus 3% annual interest rate.

On 23 August 2010 the Group and the Company signed a credit line agreement with AB SEB Bank for the amount of LTL 10,000 thousand, with the maturity date of 23 August 201 1. The credit line was bears 1 month VILIBOR plus 1.49% annual interest rate.

On 19 October 201 0 the Company signed a trilateral agreement with AB Okio bankas for the factoring of UAB Kauno Termofikacijos Elektrine on the deferral of the payment for heat energy for an additional term of 30 days thus amending the original term established in the Heat energy purchase and sale agreement as described in Note 1. The agreement of factoring expires as of 3 1 July, 201 1.

On 9 December, 2010 the Company signed an agreement with AB DnB NORD bank for the factoring of heat selling to the institutions financed from Kaunas municipality. The limit of the factoring is LTL 8,440 thousand. The term of factoring is 9 December 201 1. As of 30 September 201 1 the limit of factoring is used LTL 73 thousand. Annual interest of 3-months VILIBOR plus 2.85% is payable on the used limit.

On 26 October 2010 the Group and the Company signed a credit agreement with the Lithuanian Ministry of Finance regarding the loan of EUR 807 thousand (the equivalent of LTL 2,788 thousand). The term of repayment of the last part of the loan is 15 March 2034. The loan is still not used as of date of these statements. The loan bears 3.948% annual interest rate until 3 1 March 20 19.

On 2 September 201 1 the Group and the Company signed a credit agreement with Nordea Bank Finland Plc Lithuanian Branch regarding the loan of EUR 921 thousand (the equivalent of LTL 3,180 thousand). The term of repayment of the last part of the loan is 30 April 2019. The loan is still not used as of date of these statements. The loan bears EURIBOR + 2.1% annual interest rate.

On 7 June 201 1, the Group and the Company signed an overdraft agreement with Nordea Bank Finland Plc Lithuanian Branch for the amount of EUR 2.896 thousand (the equivalent of LTL 10.000 thousand) for the term expiring on 3 1 May 2012. As of 30 September 201 1 the limit of overdraft is not used. The overdraft bears EONIA + 0.92 % annual interest rate.

On 20 June 201 1 the Group and the Company signed a credit agreement with the AB SEB bank regarding the loan of EUR 1.031 thousand (the equivalent of LTL 3,560 thousand). The term of repayment of the last part of the loan is 10 February 2019. As of 30 September 201 1 the balance of used loan was EUR 1,03 1 thousand (the equivalent of LTL 3,560 thousand), which was accounted for within long term borrowings in the financial statements of the Group and the Company. The loan bears 6-month EUR LIBOR plus 2.7% annual interest rate.

On 23 August 201 1 the Group and the Company signed a credit line agreement with AB SEB Bank for the amount of LTL 10,000 thousand, with the maturity date of 22 August 2012. As of 30 September 201 1 the Group and the Company balances of used credit line was LTL 4,171 thousand. The credit line bears 1-month VILIBOR plus 0.63% annual interest rate.

On 2 September 201 1 the Group and the Company signed a credit agreement with the Lithuanian Ministry of Finance regarding the loan of EUR 1,672 thousand (the equivalent of LTL 5,773 thousand). The term of repayment of the last part of the loan is 1 September 2034. The loan is still not used as of date of these statements. The loan bears 4.123% annual interest rate until 10 September 2019.

The property, plant and equipment (Note 4) and accounts in banks (Note 9) of the Group and the Company were pledged as collateral for the borrowings.

12. Finance lease obligations

The assets leased by the Group under finance lease contracts mainly consist of vehicles. The terms of financial lease are from 2 to 5 years. As of 30 June 201 1 the interest rate on the financial lease obligations is fixed and variable. Fixed interest rate is equal to 3.99%. The variable interest rate varies depending on 6 month EURIBOR plus 1.5%.

All finance lease agreements are in EUR. Future minimal lease payments were:

		Group		Company
	As of 30 September 2011	As of 31 December 2010	As of 30 September 2011	As of 31 December 2010
Within one year	5	3 5
From one to five years	10	10
Total financial lease obligations	15	4 5
Interest	(1)	(1)
Present value of financial lease obligations	14	44
Financial lease obligations are accounted for as:
- current	4	34
- non-current	10	10

13. Grants (deferred income)

	Group		Company
	Asof30	Asof31	Asof30	Asof31
		September December	September December
	201 1	2010	2011	2010
Balance at the beginning of the reporting period	16,790	11,832	16,790	11,832
Received during the year	1,889	5.590	1,889	5.590
Amortisation	(654)	(632)	(654)	(632)
Balance at the end of the reporting period	18,025	16.790	18,025	16.790

In 2008 the group and the Company received the heating network located in iiemgaliq Str. and Raudondvario Rd. for free, fair value of which at the date of the transfer amounted to LTL 149 thousand. As well, in

2008 the Group and the Company received telecommunication equipment, the fair value of which at the date of the transfer amounted to LTL 140 thousand.

On 10 October 2008 the branch of the Company Jurbarko Silumos Tinklai received LTL 600 thousand subsidies for the change of the boiler burned by fuel oil to the boiler burned by gas from vSJ Lietuvos Aplinkos Apsaugos Investicijq Fondas (LAAIF). As of 31 December 2008 the vSJ LAAIF transferred LTL 360 thousand to the Company, the remaining part of LTL 240 thousand was accounted for by the Group and the Company under other accounts receivable caption as of 31 December 2008. As at 31 December 2009 vSJ LAAIF fully settled its liability to the Company.

On 15 October 2009, the Group and the Company signed the agreement on the financing and administration of the project Renovation of Centralised Heat Networks in the Kaunas City by Installing Advanced Technologies (Reconstruction of Heat Supply Networks at Kreves Ave. 82 A.l18H, Kaunas) according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 6,000 thousand after terms and conditions of the agreement are fulfilled. The Company received the financial support in the amount of LTL 5,566 thousand by 30 September 201 1. The remaining part of' LTL 277 thousand was accounted for by the Group and the Company under other accounts receivable caption as of 30 September 20 1 1.

On 15 October 2009, the Group and the Company signed the agreement on the financing and administration of the project Modernisation of Kaunas City Integrated Network Centre Main (4T) according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 5,990 thousand after terms and conditions of the agreement are fulfilled. The Company received the financial support in the amount of LTL 1,044 thousand by 30 September 201 1.

On 15 October 2009, the Group and the Company signed the agreement on the financing and administration of the project Kaunas City Main Heat Supply Networks 6T at Kur3iq St. 49C, Jonavos St. between NA-7 and NA-9 and Networks under the Bridge through the river Neris in the auto-highway Vilnius-Klaipeda near Kaunas city, Complex Reconstruction for the Increase of Reliability by Installing Advanced Technologies according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 2,333 thousand after terms and conditions of the agreement are fulfilled. The Company received the financial support in the amount of LTL 1,137 thousand by 30 September 20 1 1.

On 21 July 2010, the Group and the Company signed the agreement on the financing and administration of the project "The development of centralized heat supply by building a new heat supply trace (heat supply network from A. JuozapaviEiaus ave. 23A to A. JuozapaviEiaus ave. 90)" according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 1,566 thousand after terms and conditions of the agreement are fulfilled. As of 31 December 2010 financing in amount LTL 844 thousand has been received, LTL 582 thousand was accounted for by the Group and the Company under other accounts receivable caption as of 3 1 December 201 0. As of day of issuing of these statements the Lithuanian Ministry of Finance fully settled its liability to the Company.

On 21 July 201 0, the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of ialiakalnis main of Kaunas integrated network (42)" according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 2,788 thousand after terms and conditions of the agreement are fulfilled.

On 21 July 201 1, the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Dainava area main of Kaunas integrated network (IT)" according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 1,560 thousand after terms and conditions of the agreement are fulfilled.

On 21 July 201 1, the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of AukStieji \$an~iai area main of Kaunas integrated network (22)" according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 1,618 thousand after terms and conditions of the agreement are fulfilled.

On 21 July 201 1, the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Vilijampole area heating network of Kaunas integrated network (9K)" according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 595 thousand after terms and conditions of the agreement are fulfilled.

On 21 July 201 1, the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Pramone area main of Kaunas integrated network (12)" according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 2,000 thousand after terms and conditions of the agreement are fulfilled.

In 201 1 the Group and the Company received computer equipment, the fair value of which at the date of the transfer amounted to LTL 142 thousand.

14. Employee benefit liability

According to Lithuanian legislation and the conditions of the collective employment agreement, each employee of the Group and the Company is entitled to 1 - 6 month salary payment when leaving the job at or after the start of the pension period. The Group's and the Company's total employee benefit liability is stated below:

	Group			Company
	Asof30 Asof31		Asof30	Asof31
	September December		September December
	201 1	2010	201 1	2010
Employee benefit liability at the beginning of the year	1,830	2,476	1,830	2,476
Paid	(128)	(284)	(128)	(284)
Formed		(362)		(362)
Employee benefit liability at the end of the period	1,702	1,830	1,702	1,830
Employee benefit liability accounted as:
Non-current employee benefit liability	1,593	1,593	1,593	1,593
Current employee benefit liability	109	237	109	237

During the year, ended 30 September 201 1, the total amount of the benefit paid to the employees by the Group and the Company amounted to LTL 128 thousand (LTL 284 thousand for the year, ended 31 December 2010) and are included in the caption of salaries and social security expenses in the Group's and the Company's statement of comprehensive income.

The principal assumptions used in determining pension benefit obligation for the Group's and the Company's plan is shown below:

	As of 30 September 201 1	As of 31 December 2010
Discount rate	7.0%	7.0%
Employee turnover rate
Expected average annual salary increases

15. Derivative financial instruments

On 9 April 2009, the Group and the Company concluded an interest rate swap agreement. For the period from 24 August 2009 to 22 August 20 14 the Group and the Company set a fixed interest rate at 4.15% for a floating interest rate at 6-month EUR LIBOR. The nominal amount of the transaction was EUR 2,353 thousand (the equivalent of LTL 8,125 thousand) as at 30 September 201 1 (EUR 2,896 thousand (the equivalent of LTL 10,000 thousand) as at 31 December 2010). Market value of swap agreement as of 30 ~e~tember 20 1 1 amounted to LTL 3 5 1 thousand (LTL 479 thousand as of 3 1 December 20 10).

16. Sales income

The Group's and the Company's activities are heat energy supply, electricity production, maintenance of heating and hot water supply systems, electricity production and other activities. In the year 2010 a part of inhabitants chose the Company as the hot water supplier. Those activities are inter-related, consequently for management purposes the Group's and the Company's activities are organised as one main segment - heat energy supply. The Group's and the Company's sales by activities are stated below:

			Group
	201 1		201 1
	01-09 months	2010	01-09 months	2010
Heat energy	196,108	302,546	196,139	302,602
Maintenance of the heating and hot water supply systems of the buildings	1,108	2,037	383	566
Hot water supply	2,684	1,485	2,684	1,485
Maintenance of manifolds	672	439	672	439
Electric energy	455	349	455	349
Maintenance of the hot water accounting devices	33		33
	201.060	306.856	200.366	305.441

17. Other activities income and expenses

	Group		Company
	201 1		2011
	01-09 months	2010	01-09 months	2010
Income from other operating activities
Miscellaneous services
Materials sold
Gain from sale of non-current assets
Other

Expenses from other operating activities
Cost of miscellaneous services
Cost of materials sold
Write off of non-current assets
Loss from sale of non-current assets
Other

18. Finance income

	Group		Company
	201 1		201 1
	01-09 months	2010	01-09 months	2010
Interest from late payment of accounts receivable	1,972	1,704	1,972	1,704
Bank interest	20	2	20	2
Penalties	5,420		5,420
Change in fair value of derivative financial
instruments
Other

19. Finance costs

			Group
	2011		201 1
	01-09 months	2010	01-09 months	2010
Interest on bank loans and overdrafts	(1,087)	(2,177)	(1,087)	(2,175)
Impairment loss of non-current financial assets		(196)		(69 1)
Penalties	(1)	(30)		(30)
Other		(2)		(1)
			(1,087)	(2,897)

20. Basic and diluted earnings (loss) per share

Calculations of the basic and diluted earnings per share of the Group are presented below:

	Group		Company
	2011		201 1
	01-09 months	2010	01-09 months	2010
Net profit	7,062	4,167		7,1163,737
Number of shares (thousand), opening balance	42,732	42,618	42,732	42,618
Number of shares (thousand), closing balance	42,732	42,732	42,732	42,732
Average number of shares (thousand)	42,732	42,706	42,732	42,706
Basic and diluted earnings per share (LTL)	0,17	0,lO	0,17	0,09

21. Financial assets and liabilities and risk management

Credit risk

The Group and the Company do not have any credit concentration risk because they work with a large number of customers.

Customers number	30 September 2011		31 December 2010
	Group	Company	Group	Company
Citizens	1 15,066	114,861	1 15,093	1 14,929
Other	2,122	2,039	2,130	2,028
Municipalities and other government instit.	339	332	362	325
	1 17,527	117,232	1 17,585	1 17,282

Considering trade and other accounts receivables, the terms of which is still not expired and their depreciation as of date of financial statements is not determined, according to Management opinion there is no indications that debtors will not fulfil their payment liabilities, because a balance of receivables are controlled constantly. The Group and the Company considers that maximum risk is equal to the sum of receivables from buyers and other receivables, less recognized impairment losses as of thebalance sheet date (note 8).

ratings*):		30 September 201 1	--- 31 December 2010
	Group	Co mpany	Group	Company
A	1,080	1,069	1,420	1,370
A+	69	69	100	100
AA-	149	149	3	3
B+	8	8	7	7
-	120	120	62	62
	1,426	1,415	1,592	1,542

With respect to credit risk arising from the other financial assets of the Group and the Company, which comprise cash and cash equivalents and available-for-sale financial investments, the Group's and the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

Interest rate risk

All of the Group's and the Company's borrowings are at variable interest rates, therefore the Group and the Company faces an interest rate risk. In 20 10 and 2009 to manage variable rate risk the Company has entered into interest rate swap agreements, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts as described in Note 15, calculated by the reference to an agreed upon notional principal amount.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates (increase and decrease in basis points was determined based on Lithuanian economic environment and the Group's and the Company's historical experience), with all other variables held constant, of the Group's and the Company's profit before tax (through the impact on floating rate borrowings). There is no impact on the Group's and the Company's equity, other than current year profit impact.

	Increaseldecrease in basis points	Effect on profit before tax
201 1
LTL	+200	(166)
LTL	-200	166
EUR	+50	(177)
EUR	-50	177
2010
LTL	+200	(20 1)
LTL	-200	20 1
EUR	+5 0	(198)
EUR	-50	198

Liquidity risk

The Group's and the Company's policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of overdrafts and committed credit facilities to meet its commitments at a given'date in accordance with its strategic plans. The Group's liquidity (total current assets 1 total current liabilities) and quick ((total current assets - inventories) 1 total current liabilities) ratios as of 30 September 201 1 were l,00 and 0,85 respectively (0.93 and 0.88 as of 31 December 2010). The Company's liquidity and quick ratios as of 30 September 201 1 were 1,00 and 0,85, respectively (0.93 and 0.88 as of 31 December 20 10).

To solve all liquidity issues the Group and the Company implement the following action plan:

The price effective from 1 December 2008 and the price effective from 1 June 2009 include costs for fuel and heat energy purchased that were actually incurred during the previous period but not yet covered. From 1 October 2009, the heat price for consumers is calculated using two components. A constant component of the heat price remains unchanged for the period during which the recalculated heat price is valid. Only a variable component changes depending on changes in fuel prices thus allowing the Company to reduce possible losses in case of rise in fuel prices.
The Company attempts to receive part of investments funds from the EU Structural Funds (50% of the cost of the project, but not more than LTL 6 million). The Company has submitted 9 projects. Support agreements for all of them has been signed as it is described in notes 13;
on-priority investments are suspended;
Considering the current situation the Group and the Company started reduce expenses: the plan of reducing production and supply losses is being currently implemented;
The analysis of cash flows are done regularly, fulfilment of finance needs is planned and organized.

The table below summarises the maturity profile of the Group's financial liabilities as of 30 September 201 1 and 2010 based on contractual undiscounted payments (scheduled payments including interest).

	Less than 3 months	up to one year	1 to 5 years	More than 5 years	Total
Interest bearing loans and
borrowings -	6,632	12,680	27,3 18	3,504	50,134
Trade payables	27,257	6,353	13	-	33,623
Balance As of 30 September 201 1	33,889	19,033	27,331	3,504	83,757
	Less than 3 months	4 to 12 months	1 to 5 years	More than 5 years	Total
Interest bearing loans and
borrowings	11,054	19,196	3 1,073	2,525	63,848
Trade payables	60,524	454	3		60,98 1
Balance As of 31 December 2010	71,578	19,650	3 1,076	2,525	124,829

The table below summarises the maturity profile of the Company's financial liabilities As of 30 September 201 1 and 31 December 2010 based on contractual undiscounted payments (scheduled payments including interest).

	Less than 3 months	up to one year	1 to 5 years	More than 5 years	Total
Interest bearing loans and
borrowings	6,628	12,669	27,3 18	3,504	50,119
Trade payables	27,265	6,353	13	-	33,631
Balance As of 30 September 201 1	33,893	19,022	27,331	- 3,504	83,750

	Less than 3	4 to 12	1 to 5	More than
	months	months	years	5 years	Total
Interest bearing loans and
borrowings Trade payables	11,045 60,520	19,170 454	3 1,063 3	2,525	63,803 60,977

Foreign currency risk

All sales and purchases transactions as well as the financial debt portfolio of the Group and the Company are denominated in LTL and EUR. As litas is pledged to euro, therefore, material foreign currency risk is not incurred

Monetary assets and liabilities denominated in local and foreign currencies as of 30 September 201 1 were as follows (stated in LTL):

		Group		Company
	Assets	Liabilities	Assets	Liabilities
LTL	3 1,265	46,569	31,187	46,306
EUR	166	37,622	166	37,608
	31,431	84,191	3 1,353	83,914

Fair value of financial instruments

The Company's principal financial instruments accounted for at amortised cost are trade and other current and non-current receivables, trade and other payables, long-term and short-term borrowings. The net book value of these amounts is similar to their fair value.

Fair value is defined as the amount at which the instrument could be exchanged between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

The carrying amount of current trade accounts receivable, current trade accounts payable, other receivables and other payables and current borrowings approximate their fair value.
The fair value of trade and other payables, long-term and short-term borrowings is based on the quoted market price for the same or similar issues or on the current rates available for borrowings with the same maturity profile. The fair value of non-current borrowings with variable and fixed interest rates approximates their carrying amounts.

Capital management

The primary objectives of the Group's and the Company's capital management are to ensure that the Group and the Company comply with externally imposed capital requirements and that the Group and the Company maintains healthy capital ratios in order to support its business and to maximise shareholders' value.

The Group and the Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Group and the Company may issue new shares, adjust the dividend payment to shareholders and return capital to shareholders. No changes were made in the objectives, policies or processes of capital management during the years ended 30 September 20 1 1 and 3 1 December 20 10, except for increase in share capital paid by contributions in kind as disclosed in Note 1.

The Group and the Company is obliged to upkeep its equity of not less than 50% of its share capital, as imposed by the Law on Companies of Republic of Lithuania. The Group and the Company complies with equity requirements imposed by the Law on Companies of Republic of Lithuania. There were no other externally imposed capital requirements on the Group and the Company.

The Group and the Company monitor capit.al using debt to equity ratio. Capital includes ordinary shares, reserves and retained earnings attributable to the equity holders of the parent. There is no specific debt to equity ratio target set out by the Group's and the Company's management, however current ratios presented below are treated as sustainable performance indicators:

	Group		Company
	As of 30 September 201 1	As of 31 December 2010	As of 30 September December 201 1	As of 31 2010
Non-current liabilities (including deferred tax
and grants (deferred income))	7 1,698	56,165	72,357	56,824
Current liabilities	37,647	93,455	37,380	93,132
Liabilities	109,345	149,620	109,737	149,956
Equity	264,204	257,142	267,701	260,585
Debt* to equity ratio (%)	41,39	58,19	40,99	57,55

* Debt contains all non-current (including deferred income tax liability and grants (deferred revenues)) and current liabilities.

Market risk

External risk factors that make influence the Group's and the Company's main activity:

Economy crisis,
Increase of fuel prices,
Unfavourable law and legal acts of Government and other institutions, decisions of local municipality,
The politics of selling production prices,
Inflation and common economy recession that reduces the income of heat consumers,
The cycle of activity,
Environmental requirements.

22. Commitments and contingencies

On 30 June2003 the Investment agreement between the Company and KTE was signed. As KTE fails to fulfil obligations assumed with regard to the amount of investments in due time and according to this agreement KTE is committed to pay to the Company a fine of LTL 17,7 million of the amount of unimplemented investments, the parties initiated negotiations with the purpose of amending the investment agreement and the term of investments. As at 3 1 of December, 2009 an agreement acceptable to both parties regarding the amendment of the investment agreement was not reached. The dispute over the amount of LTL 17.7 million is being solved in the Arbitration Court at the Association International Chamber of Commerce - Lithuania. The decision adopted in these proceedings is described in Note 2.24.

23. Related parties transactions

The parties are considered related when one party has the possibility to control the other or have significant influence over the other party in making financial and operating decisions.

In 201 1 and 2010 the Group and the Company did not have any significant transactions with the other companies controlled by Kaunas city municipality except for the purchases or sales of the utility services. The services provided to the Kaunas city municipality and the entities controlled by the Kaunas city municipality were executed at market prices.

In 201 1 and 2010 the Group's and the Company's transactions with Jurbarkas city municipality, Kaunas city municipality and the entities, financed and controlled by Kaunas city municipality and the balances at the end of t'he year were as follows:

AB KAUNO ENERGIJA, Company's code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE FIRST HALF OF THE YEAR 2011 (all amounts are in LTL thousand unless otherwise stated)

2011 01 - 09 months	Purchases	Sales	Receivables	Payables
Kaunas city municipality and entities financed and controlled by Kaunas city municipality	1,154	22,110	10,783	263
Jurbarkas city municipality		1,487	20
2010	Purchases	Sales	Receivables	Payables
Kaunas city municipality and entities financed and controlled by Kaunas city municipality	974	30,383	20,23 1	185
Jurbarkas city municipality	4	2,168	716

In 201 1 and 2010 the Company's transactions with the subsidiary and the balances at the end of the year were as follows:

2011 01 - 09 months	Purchases		Sales Receivables	Payables
"Pastatq prieiiiiros paslaugos" UAB	762	84	285	145
2010	Purchases	Sales	Receivables	Payables
"Pastatq prieiiiiros paslaugos" UAB	1,247	133	308	80

Remuneration of the management and other payments

As at 30 September 201 1 and 2010 the Group's and the Company's management team comprised 6 and 4 persons respectively.

	Group		Company
	As of 30 September	As of 31 December	As of 30 September	As of 31 December
Key management remuneration
		Group	Company
	As of 30 September	As of 31 December	As of 30 September	As of 31 December
	201 1	2010	2011	2010
Calculated post-employment benefits	5 3	53	5 3	53

In 201 1 and 2010 the management of the Group and the Company did not receive any loans or guarantees; no other payments or property transfers were made or accrued.

24. Post balance sheet events

On 13 October 201 1 the Group and the Company signed a credit agreement with AB bank regarding the loan of EUR 290 thousand (the equivalent of LTL 1.000 thousand). The term of repayment of the last part of the loan is 30 November 20 19. The loan bears 1 -month EURIBOR plus 1.9 % annual interest rate.

On 13 October 201 1 the change of Heat Economy law has been announced. It was determined by this change of the law, that heating and hot water systems of blocks of flats must be maintained irrespective of ownership of these systems by a respectively qualified supervisor, who must be unrelated to a heat and hot water supplier and who must be chosen by the residents of block of flats. This new law of change of the Heat Economy law No. X-1613 will take effect on 1 November 20 1 1.

AI Terminal

Kauno Energija

2256_ir_2011-11-02_2da951b5-2f90-43d7-8a36-18d8d2ef589c.pdf

JOINT STOCK COMPANY ,,KAUNO ENERGIJA"

CONFIRMATION FROM RESPONSIBLE PERSONS

JOINT STOCK COMPANY ,,KAUNO ENERGIJA"

CONFIRMATION FROM RESPONSIBLE PERSONS

AB "KAUNO ENERGIJA"

Balance Sheets

Balance Sheets (cont'd)

Statements of

Statements of Comprehensive Income

Statements of Changes in Equity

Statements of Cash Flows

AB KAUNO ENERGIJA, Company's code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE FIRST HALF OF THE YEAR 201 1 (all amounts are in LTL thousand unless otherwise stated)

Notes to the financial statements

1. General information

2. Accounting principles

2.1. Application of new and revised International Financial Reporting Standards

2.2. Statement of compliance

2.3. Basis of the preparation of financial statements

2.4. Principles of consolidation

Principles of consolidation

Changes in the Group's ownership interests in existing subsidiaries

2.5. Investments in subsidiaries

2.6. Intangible assets

Intangible assets acquired separately

Derecognition of intangible assets

Licenses

Software

2.7. Accounting for emission rights

2.8. Property, plant and equipment

2.9. Impairment of property, plant and equipment and intangible assets excluding goodwill

2.10. Financial assets

Effective interest rate method

Financial assets at FVTPL

~inancial assets available for sale

Loans and receivables

Impairment of financial assets

Dereco~nition of financial assets

2.11. Derivative financial instruments

2.12. Inventories

2.13. Provisions

2.14. Cash and cash equivalents

2.15. Employee benefits

2.16. Borrowings

2.17. Financial liabilities and equity instruments

Classification as debt or equity

Equity instruments

Financial liabilities

Other financial liabilities

Derecoanition of financial liabilities

2.18. Leasing

The Group and the Com~anv as lessor

The Group and the Company as lessee

2.19. Grants (deferred income)

2.20. Basic and diluted earnings per share

2.21. Revenue recognition

Rental income

2.22. Expense recognition

2.23. Foreign currencies

2.24. Use of estimates in the preparation of financial statements

Estimates and assumptions

Proper@, plant and equipment - useful lrfe

Carrying value of non-current assets received as a contribution in kind

Allowances for accounts receivable

Litigations

2.25. Subsequent events

2.26. Offsetting and comparative figures

2.27. Segments

3. Intangible assets

4. Property, plant and equipment

5. Non-current accounts receivable

6. Other financial assets

7. Inventories

8. Current accounts receivable

9. Cash and cash equivalents

10. Reserves

Legal and other reserves

11. Borrowings