AB "KAUNO ENERGIJA"

$\ddot{\phantom{a}}$

$\mathcal{A}$

SET OF CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE FIRST HALF OF THE YEAR 2011, PREPARED ACCORDING TO INTERNATIONAL FINANCIAL REPORTING STANDARDS, AS ADOPTED BY THE EUROPEAN UNION

Balance Sheets

Balance Sneets		Group			Company
	Notes	As ² of 30 June 2011	As of 31 December 2010	As of 30 June 2011	As of 31 December 2010
ASSETS
Non-current assets
Intangible assets	$\overline{\mathbf{3}}$	348	626	340	614
Property, plant and equipment
Land and buildings		28,448	28,654	27,005	27,184
Structures and machinery		271,058	273,796	271,078	273,819
Vehicles		342	466	317	404
Equipment and tools		11,101	5,548	11,025	5,456
Construction in progress and
prepayments		11,389	10,181	11,389	10,181
Total property, plant and equipment	$\overline{\mathbf{4}}$	322,338	318,645	320,814	317,044
Non-current financial assets					5,558
Investments into subsidiaries	$\mathbf{1}$			5,558 68	61
Non-current accounts receivable	5	68	61	237	237
Other financial assets	6	237	237
Total non-current financial assets		305	298	5,863	5,856
Total non-current assets		322,991	319,569	327,017	323,514
Current assets
Inventories and prepayments			5,270	5,277	5,144
Inventories	$\overline{7}$	5,406 702	507	774	598
Prepayments			5,777	6,051	5,742
Total inventories and prepayments		6,108
Current accounts receivable	8		72,245	24,975	71,989
Trade receivables		25,313	5,597	6,202	5,772
Other receivables		6,069		31,177	77,761
Total accounts receivable		31,382	77,842	6,905	3,524
Cash and cash equivalents	9	6,919	3,574	44,133	87,027
Total current assets		44,409	87,193
Total assets		367,400	406,762	371,150	410,541

(cont'd on the next page)

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

$\mathcal{L}_{\mathcal{L}}$

$\hat{r}$

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)

Balance Sheets (cont'd)

Dalance Sheets (cont u)		Group			Company
		As of 30	As of 31	As of 30	As of 31
		June	Decembe	June	December
	Notes	2011	r 2010	2011	2010
EQUITY AND LIABILITIES
Equity
Share capital	$\mathbf{1}$	256,392	256,392	256,392	256,392
Legal reserve	10	635	448	635	448
Other reserve	10	3,468		3,468
Retained earnings (deficit)
Profit for the current year		21,707	4,167	21,702	3,737
Profit (loss) for the prior year		(3,353)	(3,865)	90	8
Total retained earnings (deficit)		18,354	302	21,792	3,745
Total equity		278,849	257,142	282,287	260,585
Liabilities
Non-current liabilities
Non-current borrowings	11	35.033	31,811	35.033	31,811
Financial lease obligations	12	10	10
Deferred tax liability	21	5,551	5,551	6,220	6,220
Grants (deferred income)	13	16,738	16,790	16,738	16,790
Employee benefit liability	14	1,593	1,593	1,593	1,593
Other non-current liabilities		450	410	450	410
Total non-current liabilities		59,375	56,165	60,034	56,824
Current liabilities
Current portion of non-current
borrowings and financial lease	11,12	5,679	13,737	5,671	13,703
Current borrowings	11		15,023		15,023
Trade payables		19,375	60,981	19,371	60,977
Payroll-related liabilities		2,423	1,938	2,127	1,712
Advances received		935	570	935	571
Taxes payable		38	128		73
Derivative financial instruments	15	306	479	306	479
Current portion of employee benefit
liability	14	144	237	144	237
Other current liabilities		276	362	275	357
Total current liabilities		29,176	93,455	28,829	93,132
Total liabilities		88,551	149,620	88,863	149,956
Total equity and liabilities		367,400	406,762	371,150	410,541
					(the end)

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

General Manager	Rimantas Bakas		22 July 2011
Chief Accountant	Violeta Staškūnienė	Willen	22 July 2011

Statements of Comprehensive Income

		Group
		II quarter, I half,		II quarter, I half,			2009
	Notes 2011		2011	2010	2010	2010
Operating income							280,411
Sales income	17	34,094	177,323	28,458	164,536	306,856	1,114
Other operating income	18	575	980	439	935	2,202	281,525
Total operating income		34,669	178,303	28,897	165,471	309,058
Operating expenses							(197, 698)
Fuel and heat purchased			$(28, 646)$ $(128, 355)$		$(25,177)$ $(116,773)$	(221, 932)
Salaries and social							(23, 236)
security	14	(5, 461)	(10, 719)	(4,977)	(10, 110)	(20, 608)	(1,758)
Raw materials		(481)	(921)	(385)	(736)	(1,674)
Taxes other than income							(4,238)
tax		(1,063)	(2,127)	(1,032)	(2,066)	(4,350)
Electricity		(513)	(1, 387)	(466)	(1, 352)	(2, 558)	(2,558)
Depreciation and
amortisation	3,4	(3,903)	(7, 842)	(3,975)	(7,954)	(15,788)	(16,688)
Repairs and maintenance		(575)	(986)	(353)	(860)	(4,236)	(6,351)
Water		(288)	(626)	(143)	(310)	(825)	(692)
Change in allowance for
accounts receivable	8	(833)	(3,528)	(981)	(1, 467)	(17,289)	(6, 524)
Change in allowance for
inventories	$\overline{7}$					30	433
Petrašiūnai power plant
operator expenses	1			(340)	(680)	(812)	(1, 925)
Other expenses		(2,778)	(5,691)	(2, 154)	(4, 863)	(9, 598)	(8,908)
Other operating
expenses	18	(354)	(637)	(228)	(674)	(1, 349)	(825)
Total operating		(44, 895)	(162, 819)		$(40,211)$ $(147,845)$	(300, 989)	(270,968)
expenses
Operating profit		(10, 226)	15,484	(11, 314)	17,626	8,069	10,557
Income from financial
and investment activity	19	6,503	7,043	529	842	2,024	1,576
Expenses from financial
and investment activity	20	(392)	(820)	(119)	(785)	(2,405)	(3,611)
Net profit for financial
and investment activity		6,111	6,223	410	57	(381)	(2,035)
Profit before tax
		(4, 115)	21,707	(10, 904)	17,683	7,688	8,522
Income tax						(3,521)	(2,118)
Net profit		(4, 115)	21,707	(10, 904)	17,683	4,167	6,404
Basic earnings per share
	21	(0,10)	0,51	(0,26)	0,41	0,10	0,22
(LTL) The accompanying notes are an integral part of these financial statements.

General Manager	Rimantas Bakas		22 July 2011
Chief Accountant	Violeta Staškūnienė	wegun	22 July 2011

Statements of Comprehensive Income

		Company	I half,		II quarter, I half,	2010	2009
	Notes	II quarter, 2011	2011	2010	2010

Operating income
Sales income	17	33,776	176,674	28,110	163,839	305,441	279,548
Other operating income	18	453	788	387	857	1,935	1,164
Total operating income		34,229	177,462	28,497	164,696	307,376	280,712
Operating expenses
Fuel and heat purchased		(28, 646)	(128, 355)	$(25,177)$ $(116,773)$		(221, 932)	(197, 698)
Salaries and social security		14 (5,184)	(10, 176)	(4,683)	(9, 534)	(19, 416)	(21, 418)
Raw materials		(450)	(842)	(345)	(665)	(1,484)	(1,507)
Taxes other than income tax		(1,058)	(2,116)	(1,025)	(2,051)	(4,309)	(4,177)
Electricity		(510)	(1,380)	(463)	(1, 345)	(2, 546)	(2, 539)
Depreciation and amortisation		3,4 (3,884)	(7, 803)	(3,957)	(7, 914)	(15,709)	(16,510)
Repairs and maintenance		(577)	(987)	(295)	(860)	(4,236)	(6,619)
Water		(288)	(625)	(143)	(309)	(822)	(686)
Change in allowance for
accounts receivable	8	(833)	(3,528)	(981)	(1, 467)	(17, 289)	(6,524)
Change in allowance for
inventories	$\overline{7}$					30	433
Heating and hot water systems
supervision		(120)	(250)	(141)	(285)	(552)	(1,141)
Petrašiūnai power plant operator
expenses	1			(340)	(680)	(812)	(1, 925)
Other expenses		(2,693)	(5,557)	(2,105)	(4, 772)	(9,360)	(8,708)
Other operating expenses	18	(202)	(365)	(179)	(329)	(808)	(840)
Total operating expenses		(44, 445)	(161, 984)		$(39,834)$ $(146,984)$	(299, 245)	(269, 859)
Operating profit		(10,216)	15,478	(11, 337)	17,712	8,131	10,853
Income from financial and
investment activity	.19	6,503	7,043	529	842	2,024	1,576
Expenses from financial and
investment activity	20	(391)	(819)	(118)	(783)	(2,897)	(3,606)
Net profit for financial and		6,112	6,224	411	59	(873)	(2,030)
investment activity
Profit before tax		(4, 104)	21,702	(10, 926)	17,771	7,258	8,823
Income tax						(3,521)	(1, 895)
Net profit		(4, 104)	21,702	(10, 926)	17,771	3,737	6,928
Basic earnings per share (LTL)		21(0,10)	0,51	(0, 26)	0,42	0,09	0,24

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

$\ddot{\phantom{1}}$

General Manager	Rimantas Bakas		$-22$ July 2011
Chief Accountant	Violeta Staškūnienė	Muun	22 July 2011

Statements of Changes in Equity

$stat functions$ or Changes in Equaty		Share	Legal	Other	Retained earnings (accumulated
Group	Notes	capital	reserve	reserve	deficit)	Total
Balance as of 31 December 2009		255,710	233		(61)	255,882
Total comprehensive income					17,683	17,683
$(\text{loss})$ Transferred from reserves	10		(233)		233
Transferred to reserves	10		448		(448)
Payment of dividends	$\mathbf{1}$				(3,589)	(3, 589)
Increase in share capital	$\mathbf{1}$	682				682
Balance as of 30 June 2010		256,392	448		13,818	270,658
Total comprehensive income $(\text{loss})$					(13,516)	(13,516)
Balance as of 31 December 2010		256,392	448		302	257,142
Transferred to reserves	10		187	3,468	(3,655)
Total comprehensive income $(\text{loss})$					21,707	21,707
Balance as of 30 June 2011		256,392	635	3,468	18,354	278,849
		Share	Legal	Other	Retained earnings (accumulated
Company	Notes	capital	reserve	reserve	deficit)	Total
Balance as of 31 December 2009		255,710			4,045	259,755
Total comprehensive income $(\text{loss})$			448		17,771 (448)	17,771
Transferred to reserves	10				(3,589)	(3,589)
Payment of dividends	$\mathbf{1}$ $\mathbf{1}$	682				682
Increase in share capital Balance as of 30 June 2010		256,392	448		17,779	274,619
Total comprehensive income					(14, 034)	(14, 034)
$(\text{loss})$
Balance as of 31 December					3,745	260,585
2010	10	256,392	448	3,468
Transferred to reserves			187		(3,655)
Total comprehensive income $(\text{loss})$					21,702	21,702
Balance as of 30 June 2011		256,392	635	3,468	21,792	282,287

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

General Manager	Rimantas Bakas		22 July 2011
Chief Accountant	Violeta Staškūnienė	Yuu	22 July 2011

Statements of Cash Flows

	Group		Company
	2011	2010	2011	2010
	I half	I half	I half	I half
Cash flows from (to) operating activities
Net profit	21,707	17,683	21,702	17,771
Adjustments for non-cash items:	5,504	9,627	5,428	9,538
Depreciation and amortisation	8,777	8,697	8,696	8,609
Write-offs and change in allowance for accounts
receivable	3,541	1,467	3,541	1,467
Interest expenses	819	758	819	756
Income tax expenses
Change in fair value of derivatives	(173)	(47)	(173)	(47)
Loss (profit) from sale and write-off of	39			(4)
property, plant and equipment and impairment
loss		(4)	39
Change in allowance for inventories
(Amortisation) of grants (deferred income)	(432)	(315)	(432)	(315)
Change in accruals	(197)	(161)	(192)	(160)
Elimination of other financial and investing
activity results	(6, 870)	(768)	(6, 870)	(768)
Changes in working capital:	(1, 824)	(9,779)	1,915	(9,682)
Decrease in inventories	(121)	(353)	(118)	(363)
(Increase) decrease in prepayments	(195)	67	(176)	101
(Increase) in trade receivables	43,385	17,578	43,467	17,533
(Increase) decrease in other receivables	(466)	(6,200)	(424)	(6,043)
Increase in other non-current liabilities	33	12	33	12
Increase (decrease) in current trade payables and
advances received	(41,241)	(20, 119)	(41,242)	(20,063)
Increase (decrease) in payroll-related liabilities	490	1,101	415	533
(Decrease) increase in other liabilities to budget	(90)	(1,245)	(73)	(1,227)
(Decrease) in other current liabilities	29	(620)	33	(165)
Net cash flows from operating activities	29,035	17,531	29,045	17,627

(cont'd on the next page)

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

$\bar{z}$

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)

	Group		Company
	2011	2010	2011	2010
	I half	I half	I half	I half
Cash flows from (to) the investing activities
(Acquisition) of tangible and intangible assets	(12, 257)	(11, 142)	(12, 257)	(11, 137)
Proceeds from sale of tangible assets	11	9	11	9
Penalty interest and fines received	1,440	784	1,440	784
Penalties received	5,420		5,420
Increase in cash flows from non-current
accounts receivable	(7)	(7)	(7)	(148)
Interest received	10	10	10	10
Net cash (used in) investing activities	(5, 383)	(10, 346)	(5,383)	(10, 482)

Cash flows from (to) financing activities
Proceeds from loans	628	22,320	628	11,917
(Repayment) of loans	(20, 461)	(27,085)	(20, 461)	(16,682)
Interest (paid)	(828)	(812)	(828)	(810)
Financial lease (payments)	(26)	(25)
Penalties and fines (paid)		(26)		(26)
Dividends		(3,589)		(3,589)
Received grants	380	1,148	380	1,148
Net cash flows from (used in) financing
activities	(20, 307)	(8,069)	(20, 281)	(8,042)

Net (decrease) increase in cash and cash
equivalents	3,345	(884)	3,381	(897)

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	6,919	2,247	6,905	2,197
				(the end)

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

$\sim$

General Manager	Rimantas Bakas		$22$ July 2011
Chief Accountant	Violeta Staškūnienė	Weller	22 July 2011

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 Šilumos 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 June 2011 and of 31 December 2010 the shareholders of the Company were as follows:

	As of 30 June 2011		As of 31 December 2010
	Number of shares owned (unit)	Percentage оf ownership (%)	Number of shares owned (unit)	Percentage оf ownership (%)
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
	42,731,977	100,00	42,731,977	100,00

All the shares with a par value of LTL 6 each are ordinary shares. The Company did not hold its own shares in 2010 and 2009.

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 June 2011.

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 June 2011 and 31 December 2010.

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 Pastatu Priežiūros 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.

Share Loss for held the Cost of Total Main Registration by the invest reportin Company activities address Group ment g period equity Maintenance UAB Pastatu Savanorių of heating Ave. 347, Priežiūros Kaunas 100% 6,518 $(45)$ 5,514 systems Paslaugos

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

As of 30 June 2011 accumulated impairment loss on investment in UAB Pastatu Priežiūros Paslaugos amounted to LTL 960 thousand (31 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 from 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 Marijampolė district.

The Company's generation capacity includes a power plant in Petrašiūnai, 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 Petrašiūnai. 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 Elektrinė (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 Petrašiūnai power plant and its assets located at Jégainés Str. 12, Kaunas. The contract was valid for a period of three years. Starting from 4 July 2006, UAB Energijos Sistemu Servisas started to provide operation services of Petrašiūnai power plant. A new contract valid until 4 August 2010 for a purchase of this service was signed with UAB Energijos Sistemu Servisas on 3 July 2009. After the end of agreement, the Company did not prolong a term of agreement and operates power plant itself.

As of 30 June 2011 the average number of employees at the Group was 647 (622 employees in 2010). In 30 June 2010 the average number of employees at the Company was 585 (558 employees in 2010).

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 Fortum Heat Lietuva was formed.

On 24 of September, 2010 a cooperation agreement regarding possibility of use of integrated renewable energy resources with AB Lietuvos Energija was signed.

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 noncontrolling 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 from 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 from 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 amortised 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.

Financial 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.

Derecognition 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.

Borrowing 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 amortised 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.

Derecognition 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 Company 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 straight-line 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 costs 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 June 2011		As of 31 December 2010
1 EUR-	$= 3,4528$ Lt	1 EUR	$=$ 3.4528 Lt
1 USD	$= 2,4013$ Lt	1 USD	$= 2.6099$ Lt
l GBR	$= 3,8429$ 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.

Property, plant and equipment - useful life

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 considered 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 June 2011, carrying value of all contribution in-kind amounted to LTL 132,760 LTL thousand. (134,345 LTL - 31 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 5,419,809 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 2010 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 2011 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 12,351,600 from defendant KTE due to the improper fulfilment of the Investments agreement. On 18 of February, 2011 a preliminary session of VCAC took place, and on 17 of June, 2011 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 No. 162 of VCAC were needed. Further progress of the case is described in chapter 26.

As of 30 June, 2011 and of 31 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 of August, 2010 KTE placed a preventive claim to Vilnius Commercial Arbitration court applying to forbid to the Company to terminate ex-parte a purchase agreement of Power plant, an agreement of purchase of Heat energy and the Investments agreement until defendant will terminate his contrary liability breach according to 14 chapter of Heat energy purchase agreement and the decision regarding a compensation of plaintiff and his shareholders lesion, which could be made by defendant's contrary liability breach, including but not limiting an acceptance and implementation of decision, which can be made by ad hoc negotiations or by investment issue order, will be made, a preliminary session of Vilnius Commercial Arbitration Court took place on 21 of January 2011 and the

court session in which the case is planned to be investigated substantially, is appointed on 16 of May 2011. On 21 of January 2011 Kaunas city vicinity court by it's decision used interim measures (hereinafter - IM) on behalf of KTE and obligated the Company to restrain from unilateral (not appealing to the court) terminating of above mentioned agreements while investigation of the arbitration case is going on.

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. Postbalance 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 chief-operating 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

Amortisation 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 June 2011 (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 June 2011 amounts to LTL 8,517 thousand and LTL 8,439 thousand, respectively (2010: LTL 16,724 thousand and LTL 16,560 thousand respectively). The amounts of LTL 7,833 thousand and LTL 7,798 thousand (2010: 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 June 2011 (LTL 87,212 thousand as of 31 December 2010) but were still in active use.

As of 30 June 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 June 2011 property, plant and equipment of the Group and the Company with the net book value of LTL 125,944 thousand (LTL 123,319 thousand as of 31 December 2010) was pledged to banks as a collateral for loans (Note 11).

During the year 2011 I half the amount of capitalized interest equals to LTL 222 thousand. (31 December 2010 - LTL 173 thousand). The interest for the year 2009 was not capitalized due to the insignificant influence. During the year 2011 I half the capitalization rate varied from 3.52% to 5.75%. $(31$ December 2010 – from 3.5% to 5.65%).

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

		Group	Company
	As of $30^{\circ}$	As of 31		As of 30 As of 31 December
		June 2011 December 2010 June 2011		2010
Vehicles		29	-	۰

5. Non-current accounts receivable

	Group			Company
	As of 31 As of 30 December			As of 31
				As of 30 December
	June 2011	2010	June 2011	2010
Long-term loans granted to the Company's employees	61	61	61	61
Other	7	$\overline{\phantom{0}}$
	68	61	68	61

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

As of 30 of June 2011 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	As of 31 June 2011 December 2010	As of 30	As of 31 June 2011 December 2010
Available-for-sale financial assets
Ordinary shares – unquoted	433	433	433	433
Impairment loss	196)	(196)	(196	(196)
Fair value of shares	つつ	237	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	As of 31 June 2011 December 2010	As of 30	As of 31 June 2011 December 2010
Technological fuel	3,398	3,409	3,398	3,409
Spare parts	1,199	1,211	1,199	1,211
Materials	1,020	861	891	735
	5,617	5,481	5,488	5,355
Less: impairment of realisable value at
the end of the period	(211)	(211)	(211)	(211)
Carrying amount of inventories	5,406	5,270	5,277	5,144

The acquisition cost of the Group's and the Company's inventories accounted for at net realisable value as of 30 June 2011 amounted to LTL 211 thousand (LTL 211 thousand as of 31 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 $30$	As of 31 June 2011 December 2010	As of $30$	As of $31$ June 2011 December 2010
Trade receivables, gross	70,742	114,131	70.404	113,875
Less: impairment of doubtful receivables	(45, 429)	(41, 886)	(45, 429)	(41, 886)
	25,313	72,245	24,975	71.989

Change in impairment of doubtful receivables in 2011 and 2010 is included into the caption of writeoffs 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: $\mathbf{A}$

	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	3,547
Write-off	$\left( 4\right)$
Balance as of 30 June 2011	45.429

In the year 2011 the Group and the Company wrote off LTL 4 thousand of bad debts (in the year 2010 - LTL 485 thousand). In 2011 I half the Group and the Company also recovered LTL 13 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 June 2011 and 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 davs	davs	davs	davs	360 days	Total
2011	7.980	4.922	9.122	3,226	63	25,313 $\blacksquare$
2010	60,051	8.991	1.236	1,398	569	72.245 $\sim$

The ageing analysis of the Company's net value of trade receivables As of 30 June 2011 and 31 December 2010 is as follows:

			Trade receivables past due
	Trade receivables neither past due nor impaired	60 days	davs	davs	davs	Less than 60 - 150 151 - 240 241 - 360 More than 360 days	Total
2011	7,642	4.922	9.122	3.226	63		$-24,975$
2010	59,795	8.991	1.236	1.398	569		71.989

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 June 2011	As of 31 December 2010	As of $30$	As of $31$ June 2011 December 2010
Taxes	2,327	2,737	2,327	2,737
Other receivables	4,456	3,579	4,589	3,754
Less: value impairment of doubtful	(714)	(719)	(714)	(719)
receivables	6,069	5,597	6,202	5,772

Movements in the allowance for impairment of the Group's	Impairment loss
and the Company's other receivables were as follows:
Balance as of 31 December 2009	592
Additional allowance formed	127
Balance as of 31 December 2010	719
Additional allowance formed	(5)
Balance as of 30 June 2011	714

As of 30 June 2011 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 and heating systems).

The ageing analysis of the Group's net value of other receivables (excluding taxes) as of 30 June 2011 and 31 December 2010 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	davs	davs	davs	360 days	Total
2011	280	L059	2.347			26	3.742
2010	.850	709	273	20		$\blacksquare$	2.860

The ageing analysis of the Company's net value of other receivables (excluding taxes) as of 30 June 2011 and 31 December 2010 is as follows:

	Other receivables past due but
	Other receivables neither past due nor impaired	60 days	davs	davs	davs	Less than 60 - 150 151 - 240 241 - 360 More than 360 days	Total
2011	413	L.059	2.347	25		26	3,875
2010	2,025	709	273	20.		$\blacksquare$	3.035

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		Company
	As of $31$	As of 31	As of 31	As of 31
		March 2011 December 2010		March 2011 December 2010
Cash in transit	1,248	1,951	1.248	1,951
Cash at bank	5,648	1,592	5,637	1,542
Cash on hand	23	31	20	31
	6,919	3,574	6,905	3,524

The Group's and the Company's accounts in national currency in banks amounting to LTL 4.435 thousand as of 30 June 2011 (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 future 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 2011 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

TT' DOITOMINES		Group		Company
	As of 30	As of $31$ June 2011 December 2010	As of $30$	As of 31 June 2011 December 2010
Non-current borrowings
Non-current borrowings	35,033	31,811	35,033	31,811
Current portion of non-current borrowings	5,671	13,703	5,671	13,703 8,808
Current borrowings (including credit line) Other interest bearing liabilities		6,215		6,215
Current borrowings	5,671	28,726	5,671	28,726
	40,704	60,537	40,704	60,537

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

	Group		Company
	As of 30 June 2011	As of 31 December 2010	As of 30 June 2011	As of $31$ December 2010
2011	5,671	13,703	5,671	13,703
2012	11,112	11,174	11,112	11,174
2013	7,528	7,590	7,528	7,590
2014	7,528	7,093	7,528	7,093
2015	4,674	3,471	4,674	3,471
2016	3,137	1,757	3,137	1,757
2017	793	726	793	726
2018	261		261
	40,704	45,514	40,704	45,514

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

		Group	Company
	As of 30	As of 31		As of 30 As of 31 December 2010
		June 2011 December 2010	June 2011
Current borrowings	з×,	3,3		3,3
Non-current borrowings	3.6	3.3	3.6	3,3

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

		Group	Company
	As of $30$	As of 31 June 2011 December 2010	June 2011	As of 30 As of 31 December 2010
Currency of the loan: EUR	36,133 4,571	50,485 10,052	36,133 4,571	50,485 10,052
LTL	40,704	60,537	40,704	60,537

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 June 2011 the outstanding balance of the loan amounted to LTL 842 thousand of which LTL 416 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month VILIBOR plus 0.77% 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 2,534 thousand (the equivalent of LTL 8,750 thousand) as of 30 June 2011, of which LTL 1,250 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month EUR LIBOR plus 1.9% 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 31 October 2015. As of 30 June 2011 the outstanding balance of the loan amounted to LTL 3,729 thousand, of which LTL 420 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 3-month VILIBOR plus 0.45% 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 June 2011 the outstanding balance of the loan amounted to EUR 544 thousand (the equivalent of LTL 1,878 thousand), of which LTL 197 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month EUR LIBOR plus 0.4% 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 June 2011 the outstanding balance of the loan amounted to EUR 396 thousand (the equivalent of LTL 1,367 thousand), of which LTL 186 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 12-month EUR LIBOR plus 0.59% 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 984 thousand (the equivalent of LTL 3,398 thousand). The maturity date of the last portion of the loan is 2018. As of 30 June 2011 the outstanding balance of the investment credit amounted to EUR 552 thousand (the equivalent of LTL 1,905 thousand), of which LTL 174 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 3-month EURIBOR plus 0.385% 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 June 2011 the outstanding balance of the investment credit amounted to EUR 1,001 thousand (the equivalent of LTL 3,455 thousand), of which LTL 300 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 3-month EURIBOR plus 0.7% 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 31 December 2011. As of 17 September, 2010 the outstanding balance of the loan was refinanced through Lithuanian branch of Nordea Bank Finland Plc. The loan beared 1-month EUR LIBOR plus 0.7% 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 June 2011 the Group and the Company's balance of used loan was EUR 1,395 thousand (the equivalent of LTL 4,818 thousand), of which 1,660 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month EURIBOR plus 3.85% interest rate.

On 2 December 2009 the Group and the Company signed a loan agreement with "Swedbank", AB for the amount of EUR 3,815 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 June 2011 the balance of used loan was EUR 1,888 thousand (the equivalent of LTL 6,520 thousand), of which LTL 602 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month EURIBOR plus 4.5% 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 June 2011 the balance of used loan was EUR 329 thousand (the equivalent of LTL 1,137 thousand), which was accounted for within non-current borrowings in the financial statements of the Group and the Company. The loan bears 3.948% annual interest rate until 30 June2019.

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 June 2011 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 non-current 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 31 May, 2016. As of 30 June 2011 the outstanding balance of the credit amounted to EUR 1,408 thousand (the equivalent of LTL 4,863 thousand), of which LTL 495 thousand was accounted for as the current portion of noncurrent borrowings in the financial statements of the Group and the Company. The loan bears 1-month EURIBOR plus 0.7% 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 31 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 2010. The credit line bears 1-month VILIBOR plus 2.4% 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 31 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 2011. As at 30 June 2011 the used amount of the overdraft by the Group and the Company was EUR 7 thousand (LTL 23 thousand) (31 December 2010: LTL 1,206 thousand). The overdraft bears 1-month EURIBOR plus 3% annual interest.

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 2011. As of 30 June 2011 the credit line funds were not used. The credit line bears 1-month VILIBOR plus 1.49% interest rate.

On 19 October 2010 the Company signed a trilateral agreement with AB Ukio bankas for the factoring of UAB Kauno Termofikacijos Elektrinė 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 31 July, 2011. As of 30 June 2011 an outstanding factorised balance is EUR 1,800 thousand (LTL 6,215 equivalent). Annual interest of 6-months EURIBOR plus 2.5% but not less than 3,6% is payable on the amount outstanding.

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 2011. As of 30 June, 2011 the limit of factoring is used LTL 924 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 30 June2019.

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 2011 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 $30$	As of 31 June 2011 December 2010	As of $30$	As of 31 June 2011 December 2010
Within one year		35
From one to five years	ŧО	10
Total financial lease obligations	19	45
Interest
Present value of financial lease obligations		44
Financial lease obligations are accounted for as:
- current		34
- non-current		10

13. Grants (deferred income)

Group		Company
			As of 31
			As of 30 December
June 2011	2010	June 2011	2010
16,790	11,832	16,790	11,832
380	5.590	380	5.590
(432)	(632)	(432)	(632)
16.738	16.790	16.738	16.790
		As of 31 As of 30 December

In 2008 the group and the Company received the heating network located in Žiemgalių 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 Šilumos Tinklai received LTL 600 thousand subsidies for the change of the boiler burned by fuel oil to the boiler burned by gas from VŠI Lietuvos Aplinkos Apsaugos Investiciju Fondas (LAAIF). As of 31 December 2008 the VŠI 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 VŠĮ 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.118H, 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 June 2011.

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.

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 Kuršių St. 49C, Jonavos St. between NA-7 and NA-9 and Networks under the Bridge through the river Neris in the autohighway Vilnius--Klaipėda 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 June 2011.

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. Juozapavičiaus ave. 23A to A. Juozapavičiaus 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 30 June 2011 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 31 December 2010. As of day of issuing of these statements the Lithuanian Ministry of Finance fully settled its liability to the Company.

On 21 July 2010, the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Žaliakalnis main of Kaunas integrated network (4Ž)" 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 March 30, 2011, the Company has received a confirmation from VI Lietuvos verslo paramos agentūra (Lithuanian agency of business support) on anticipatory financing of LTL 5.773 thousand from European regional development fund for four heating network modernization projects which will be executed in the period of 2012 - 2013. The more detailed description appears in note 26.

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
		As of 31		As of 31
		As of 30 December		As of 30 December
	June 2011	2010	June 2011	2010
Employee benefit liability at the beginning of the year	1,830	2,476	1,830	2,476
Paid	(92)	(284)	(92)	(284)
Formed		(362)		(362)
Employee benefit liability at the end of the period	1,738	1,830	1,738	1,830
Employee benefit liability accounted as:
Non-current employee benefit liability	1,594	1,593	1,594	1,593
Current employee benefit liability	144	237	144	237

During the year, ended 30 June 2011, the total amount of the benefit paid to the employees by the Group and the Company amounted to LTL 92 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: $\cdots$

	As of 30 June 2011	As of 31 December 2010
Discount rate	7.0%	$7.0\%$
Employee turnover rate	18.9%	$18.9\%$
Expected average annual salary increases	$3.0\%$	$3.0\%$

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 2014 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 2,534 thousand (the equivalent of LTL 8,750 thousand) as at 30 June 2011 (EUR 2,896 thousand (the equivalent of LTL 10,000 thousand) as at 31 December 2010). Market value of swap agreement as of 30 June 2011 amounted to LTL 306 thousand (LTL 479 thousand as of 31 December 2010).

$\ddot{\phantom{0}}$

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		Company
	2011 I half	2010	2011 I half	2010
Heat energy	173,859	302,546	173,890	302,602
Maintenance of the heating and hot water supply systems of the buildings	939	2,037	259	566
Hot water supply	1,801	1,485	1,801	1,485
Maintenance of manifolds	464 $\mathbf{r}$	439	464	439
Electric energy	250	349	250	349
Maintenance of the hot water accounting devices	10		10
	177,323	306,856	176,674	305,441

17. Other activities income and expenses

Finance income

	Group		Company
	2011 I half	2010	2011 I half	2010
Income from other operating activities
Miscellaneous services	770	1,785	586	1,530
Materials sold	102	377	100	377
Gain from sale of non-current assets	2	6	2	6
Other	106	34	100	22
	980	2,202	788	1,935
Expenses from other operating activities
Cost of miscellaneous services	(588)	(1,180)	(319)	(645)
Cost of materials sold	(4)	(29)	(4)	(29)
Write off of non-current assets	(24)	(119)	(24)	(119)
Loss from sale of non-current assets	(17)		(17)
Other	$\left( 4\right)$	(21)	-11	(15)
	(637)	(1, 349)	(365)	(808)

	Group		Company
	2011 I half	2010	2011 I half	2010
Interest from late payment of accounts receivable	1,440	1,704	1,440	1,704
Bank interest	10		10	2
Penalties	5,420		5,420
Change in fair value of derivative financial
instruments	173	308	173	308
Other		10		10
	٠ 7,043	2.024	7.043	2.024

19. Finance costs

	Group		Company
	2011 I half	2010	2011 I half	2010
Interest on bank loans and overdrafts	(819)	(2,177)	(819)	(2,175)
Impairment loss of non-current financial assets		(196)		(691)
Penalties		(30)		(30)
Other		(2)
	(820	(2, 405)	(819)	(2,897)

20. Basic and diluted earnings (loss) per share

$\sim$ $\sim$

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

	Group		Company
	2011 I half	2010	2011 I half	2010
Net profit	21,707	4.167	21.702	3.737
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)	0,51	0.10	0,51	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 June 2011		31 December 2010
	Group	Company	Group	Company
Citizens	115,132	114,927	115,093	114,929
Other	2,135	2.037	2,130	2,028
Municipalities and other government instit.	359	326	362	325
	117,626	117,290	117,585	117,282

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 the balance sheet date (note 8).

Cash and cash equivalents in banks, which were evaluated in accordance with long-term borrowing $ratings^*)$ :

		30 June 2011		31 December 2010
	Group	Co mpany	Group	Company
$\boldsymbol{A}$	4,422	1,776	4,411	1,370
$A+$	1,059	233	1,059	100
AA-				3
$B+$		23	17	7
	143	144	143	62
	5,648	2.179	5,637	1,542

*- external credit ratings set by Fitch Ratings agency.

The Group and the Company do not guarantee obligations of the other parties in 2011 and in 2010.

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 2010 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.

	Increase/decrease in basis points	Effect on profit before tax
2011
LTL	$+200$	(91)
LTL	$-200$	91
EUR	$+50$	(175)
EUR	$-50$	175
2010
LTL	$+200$	(201)
LTL	$-200$	201
EUR	÷ $+50$	(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 / total current liabilities) and quick ((total current assets - inventories) / total current liabilities) ratios as of 30 June 2011 were 1.52 and 1.34 respectively (0.93 and 0.88 as of 31 December 2010). The Company's liquidity and quick ratios as of 30 June 2011 were 1.53 and 1.35, respectively (0.93 and 0.88 as of 31 December 2010).

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 and 26;
Non-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 June 2011 and 2010 based on contractual undiscounted payments (scheduled payments including interest).

	Less than 3 months	4 to 6 months	1 to $5$ vears	More than 5 years	Total
Interest bearing loans and borrowings Trade payables	4,026 18,820	2,372 519	33,494 36	4,301	44,193 19,375
Balance As of 30 June 2011	22,846	2,891	33,530	4,301	63,568
	Less than 3 months	4 to 12 months	$1$ to 5 vears	More than 5 years	Total
Interest bearing loans and borrowings Trade payables	$\rightarrow$ 11,054 60,524	19,196 454	31,073	2,525	63,848 60,981
Balance As of 31 December 2010	71,578	19,650	31,076	2,525	124,829

The table below summarises the maturity profile of the Company's financial liabilities As of 30 June 2011 and 31 December 2010 based on contractual undiscounted payments (scheduled payments including interest).

	Less than 3 months	4 to 6 months	$1$ to 5 vears	More than 5 years	Total
Interest bearing loans and borrowings Trade payables	4,021 18,816	2,368 519	33,484 36	4,301	44,174 19,371
Balance As of 30 June 2011	22,837	2,887	33,520	4,301	63,545
	Less than 3 months	4 to 12 months	$1$ to $5$ years	More than 5 years	Total
Interest bearing loans and borrowings Trade payables	11,045 60,520	19,170 454	31,063 3	2,525	63,803 60,977
Balance As of 31 December 2010	71,565	19,624	31,066	2,525	124,780

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 June 2011 were as follows (stated in LTL):

$\mathbf{L}$

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)

		Group		Company
	Assets	Liabilities	Assets	Liabilities
	38,356	28,625	38,137	28,268
LTL EUR		36,155		36,155
	38,369	64,780	38,150	64,423

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 $\bullet$ 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 June 2011 and 31 December 2010, 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 capital 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:

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)

	Group As of 30 June 2011	As of $31$ December 2010	Company As of 30 June 2011	As of $31$ December 2010
Non-current liabilities (including deferred tax and grants (deferred income))	59,375 29,176	56,165 93,455	60,034 28,829	56,824 93,132
Current liabilities Liabilities Equity $\sim$ $(0/\lambda)$	88,551 278,849 31.76	149,620 257,142 58,19	88,863 282,287 31,47	149,956 260,585 57,55

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

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

Economical 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 economical recession that reduces the income of heat consumers,
$\bullet$ The cycle of activity, $\bullet$
Environmental requirements. $\bullet$

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 31 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 2011 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 2011 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 the 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)

	Purchases	Sales	Receivables Payables
2011 I half Kaunas city municipality and entities financed and controlled by Kaunas city municipality		834 12,801	14,599	276
Jurbarkas city municipality	Purchases	Sales	Receivables	Payables
2010 Kaunas city municipality and entities financed and controlled by Kaunas city municipality		974 30,383 2,168	20,231 -716	185
Jurbarkas city municipality				$\sim$ $\sim$ $\sim$ $\sim$

$\mathbf{u}$

$\sim$

In 2011 and 2010 the Company's transactions with the subsidiary and the balances at the end of the year were as follows:

year were as follow			Sales Receivables	Payables
2011 I half	Purchases 448		271	85
"Pastatų priežiūros paslaugos" UAB 2010	Purchases	Sales 133	Receivables 308	Pavables 80
"Pastatų priežiūros paslaugos" UAB	. 247

Remuneration of the management and other payments

As at 30 June 2011 and 2010 the Group's and the Company's management team comprised 6 and 4 أوجاه والمرواني

persons respectively.		Group	Company
	As of 30	As of 31 June 2011 December 2010	As of 30	As of 31 June 2011 December 2010
Key management remuneration	291	450	233	350 Company
	As of 30 53	Group As of $31$ June 2011 December 2010 53	As of 30	As of $31$ June 2011 December 2010 53
$\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$

Calculated post-employment benefits

In 2011 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 3 of November 2010 the Company have placed a second claim to VCAC due to the adjudgement of additional forfeit in amount LTL 12,352 from KTE for inappropriate implementation of liabilities according to Investments agreement. Additional written explanations were presented to the court on 1 of July 2011. The next session of the court is appointed to the 22 of August 2011.

On 14 of July 2011 Kaunas City Council approved the corrected investment plan for the years 2008 -2011 and investment plan for the years $2012 - 2015$ , according to which the investments to the Company's assets in amount of LTL 257,74 million are planned during the period of the years 2012 – 2015.

On 21 of July 2011 the Group and the Company signed an agreement on the financing and administration of the project "The modernisation of Dainava main of Kaunas integrated network (1T)" according to which the Company will be provided with financing from the European Regional Development Fund in amount of LTL 1,560 thousand after terms and conditions of the agreement will be fulfilled.

On 21 of July 2011 the Group and the Company signed an agreement on the financing and administration of the project "The modernisation of Aukštieji Šančiai main of Kaunas integrated network (2Ž)" according to which the Company will be provided with financing from the European Regional Development Fund in amount of LTL 1,618 thousand after terms and conditions of the

agreement will be fulfilled. On 21 of July 2011 the Group and the Company signed an agreement on the financing and administration of the project "The modernisation of Viljampole main of Kaunas integrated network (9K)" according to which the Company will be provided with financing from the European Regional Development Fund in amount of LTL 595 thousand after terms and conditions of the agreement will

On 21 of July 2011 the Group and the Company signed an agreement on the financing and administration of the project "The modernisation of Pramones distr. main of Kaunas integrated network (1Ž)" according to which the Company will be provided with financing from the European Regional Development Fund in amount of LTL 2,000 thousand after terms and conditions of the

$***$

agreement will be fulfilled.

AI Terminal

Kauno Energija

2256_ir_2011-08-12_b744cc2b-eca9-4127-a0e4-2d9907abef67.pdf

AB "KAUNO ENERGIJA"

Balance Sheets

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

Balance Sheets (cont'd)

Statements of Comprehensive Income

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 CONSOLIDATEDAND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE FIRST HALF OF THE YEAR 2011 (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

Financial assets available for sale

Loans and receivables

Impairment of financial assets

Derecognition 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

Financial liabilities at FVTPL

Other financial liabilities

Derecognition of financial liabilities

2.18. Leasing

The Group and the Company 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

Property, plant and equipment - useful life

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

12. Finance lease obligations

13. Grants (deferred income)

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)

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)