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ANNUAL REPORT OF

MERKUR, D. D.,

FOR THE FINANCIAL

YEAR 2010

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ANNUAL REPORT OF

MERKUR, D. D.,

FOR THE FINANCIAL

YEAR 2010

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Merkur 4

The Most Significant Events in Merkur, d. d., in 2010 7

Most Significant Events in Merkur, d. d., after the 2010 Financial Year 12

Report of the Management Board Chairman 14

Supervisory Board Report 16

Shares and Ownership Structure 18

Social Responsibility 19

Governance and Management System 20

Employees 21

Analysis of Business Performance of Merkur, d. d. 22

The Development Strategy 25

ACCOUNTING REPORT OF MERKUR, D. D., FOR THE FINANCIAL YEAR 2010 28

Audited Financial Statements of Merkur, d. d. 29

Notes to the Audited Financial Statements of Merkur, d. d. 36

Statement of Management Responsibility 102

Auditor’s Report 103

COMPANIES IN THE MERKUR DIVISION 106

TABLE OF CONTENTS

BUSINESS REPORT

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Merkur

Merkur has developed from a small shop opened by merchant and industrialist Peter Majdič in 1896 into a successful European chain store.

Quality products and services, and the “Merkur – prima kvaliteta” (Merkur – prime quality) brand, which was registered already in 1933, have been the foundations of Merkur’s mission.

We are the leading Slovenian provider of quality products for home, do-it-yourself goods, electro-installation, metal and construction materials, and technical products for professionals, and we keep developing and strengthening our brand on nearby foreign markets. We aim to exceed our customers’ expectations with a whole range of extra services.

Half of our sales revenue comes from wholesale, while end users know us best for our modern, well-stocked and user-friendly shopping centers.

Our goal is to grow further while not losing touch with our main goal: to create satisfaction among buyers, business partners and employees.

Merkur is the largest seller of products for home, garden and workshops, for end users, companies and craftsmen

The Merkur Division

The Merkur Division comprises parent company Merkur, d. d., and 7 other companies in 5 countries. Their core activity is selling products for home improvement and for skilled craftsmen.

The company is recognizable through its broad network of sales centers, which comprises 27 centers in Slovenia, 6 in Croatia, 3 in Serbia, and 1 in Bosnia and Herzegovina and Macedonia. Their main advantage is bringing together in one place the concept of successfully selling products for construction, renovation and maintenance, for entertainment, luxury and high-quality living. The demanding concept is also followed by Merkur’s 18 franchise stores in Slovenia, 1 in Bosnia and Herzegovina, and the online store www.merkur.si.

The Merkur Division supplies companies through three sales channels. Wholesale buyers can purchase goods at the sales centers, where they can view and try out the products, and immediately take them over personally. The majority of goods are sold to the companies by wholesale agents directly from central warehouses or through transit. The third channel is the MERKURPARTNER website, designed for wholesale business partners in Slovenia.

The most loyal buyers enjoy the benefits of Merkur’s loyalty card. At the end of 2010, the number of active loyalty card users stood at some 500,000. Similar cards are used in Croatia, Bosnia and Herzegovina, and Serbia.

The year 2010 was especially tough for Merkur. The audit of financial statements for 2009 and the first half of 2010 revealed insolvency, so we decided to restructure Merkur under court’s protection through compulsory settlement proceedings. In September, we officially declared insolvency and started drafting a Financial Restructuring Plan. We also started implementing operational restructuring measures prepared in collaboration with the consultancy company Roland Berger. On 26 October we filed all the required documents at the Kranj District Court, and on 3 November 2010 the compulsory settlement proceedings were officially launched.

Urgent operational and financial restructuring measures and measures for increasing trust through the compulsory settlement proceedings helped us gain liquidity and solvency of Merkur, d. d. The only strategy that we have followed in the past 12 months was the strategy of survival, which is still in full swing and is supported by appropriate documents. In May 2011, we recorded positive operating result and profit for the first time since the crisis began.

Merkur’s financial weakness remains the obstacle preventing the company from fully moving from the strategy of survival to a growth strategy. A lot of work and effort will be necessary to eliminate risks from the environment and the balance sheet. After the adopted compulsory settlement, Merkur’s capital adequacy will not be optimal, and it will be necessary to consider a capital injection in the company together with the development plans.

MissionWe provide satisfaction to our customers by offering them quality products and excellent advice.

Vision We will become the market leader in Southeast Europe in the sale of products for home, DIY goods, construction, electro-installation and metal materials and technical products for professional use.

Merkur’s ValuesThe key values of Merkur’s modern and flexible organizational culture are employees’ creativity, loyalty and enthusiasm. We carry on the 115-year tradition of success by adjusting to changes in the environment, with the ability to find and exploit market opportunities, and with the desire for constant development.

Merkur, d. d., Naklo

THE MERKUR DIvISION

Merkur Hrvatska, d. o. o., CroatiaMerkur Nekretnine, d. o. o., CroatiaMerkur International, d. o. o., SerbiaMerkur Čelik, d. o. o., SerbiaIntermerkur - Nova, d. o. o., Bosnia and HerzegovinaMerkur, d. o. o., MontenegroPerles Merkur Italia, s. r. l., Italy (In voluntary liquidation proceedings since 24 August 2010)

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The Most Significant Events in Merkur, d. d., in 2010

EvENTS RELATED TO THE COMPULSORY SETTLEMENT PROCEEDINGS

Decision on Insolvency of Merkur, d. d. At its session on 16 September 2010, the Management Board adopted a decision on insolvency of Merkur, d. d. Based on the re-audited annual report for 2009, financial statements from 30 June 2010, and documents produced by relevant support offices and consultants, the Management Board estimated that Merkur, d. d., met all the criteria for declaring insolvency as determined in Article 14 of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act, which defines long-term insolvency. The loss in that year and the losses brought forward have amounted to one half of the share capital and could not be covered with the profits brought forward or the reserves. The decision on insolvency is part of Merkur’s reorganization plan and presents legal protection of the company’s assets and the creditors’ receivables.

Management Board of Merkur, d. d., Files the Financial Restructuring Plan in CourtOn 26 October 2010 and within the deadline set by the court, Management Board of Merkur, d. d., filed the Financial Restructuring Plan in court. The Supervisory Board approved the plan in the session held on the same day.

In the last weeks before that, the Management Board of Merkur, d. d., harmonized the Financial Restructuring Plan with the banks, shareholders, creditors, suppliers and subsidiaries.

The Financial Restructuring Plan of Merkur, d. d., contains the following key elements: • A capital injection for Merkur, d. d, in the amount of at least EUR 85 million, which will be performed by converting creditors’ receivables into equity. This means that the creditors’ receivables will be converted into equity of Merkur, d. d. The price per share is EUR 57.5 for ordinary (unsecured) creditors, and EUR 40 per share for creditors with the right to separate settlement (secured). • The part of receivables of unsecured creditors, which the creditors do not choose to convert, will be evenly paid in the extent of 60% over the next 5 years.

The Court Issues a Decision on Launching Compulsory Settlement Proceedings in Merkur, d.d.On 3 November 2010, the Kranj District Court issued a decision on launching the compulsory settlement proceedings. The decision meant that we successfully passed a significant milestone in saving Merkur. The presented Financial Restructuring Plan provides legal protection for all the creditors and even repayment of due debts in a transparent way. This was also provided by Ladislav Hafner, a receiver appointed by the court, who monitored and approved all the transactions of Merkur, d. d., throughout the compulsory settlement proceedings. All important documents, including the Financial Restructuring Plan, are published on the AJPES website under the tab with published decisions and documents issued in insolvency proceedings. The AJPES website also contains all other notifications related to the compulsory settlement proceedings.

Merkur Gets Loan for Purchasing New StockOn 11 November 2010, the Management Board of Merkur, d. d., received a proposal from 15 banks, which would give a EUR 35 million syndicated loan to Merkur in the same month so that it could purchase new stocks and refill the shelves. On 15 November 2010, the proposal was first discussed by the creditors’ committee, which the court appointed in the compulsory settlement proceedings. The loan also requires a court’s approval, because Merkur’s Management Board is not allowed to manage any transactions independently during the compulsory settlement proceedings. In the Financial Restructuring Plan, the Management Board set the minimum amount of the loan required to revive the operations at EUR 40 million. After receiving EUR 35 million from the banks, the Management Board would try to get the remaining EUR 5 million from other sources. Getting the syndicated bank loan presents the second step necessary to successfully conclude the compulsory settlement proceedings in Merkur.

Merkur Companies’ Product PortfolioMerkur’s versatile product portfolio comprises over 900 product groups with over 150,000 products. Groups of products are combined in the following strategic programs:

Metal products: sheet metal, stainless sheet metal, girders and sections, welding and technical materials, steel rods and bars, wires, pipes, tool steels, reinforcing steel and mats, non-ferrous metal products.

Construction materials and wood: cement and lime, bricks and roofing, insulation materials, drywall systems, products for the garden, agriculture and forestry, wood and wooden products, doors and windows, wall panels and flooring.

Tools and hardware: locks, fittings and fasteners, power tools and accessories, grinding materials, tools and accessories, measuring devices, lifting and handling equipment, hand tools, industrial rubber products, protective clothing and equipment.

Electro and installation materials: electro-installation materials, lighting equipment, wires and cables, switching and protection devices, energy-related equipment, plumbing and fittings, tiles, bathroom ceramics and equipment, wellness program, heating, ventilation and air-conditioning systems, other installation and electro materials.

Consumer goods: audio and video equipment, small household appliances, big household appliances, heating appliances, kitchen utensils, office supplies and personal computers, telecommunication equipment, gardening program, agricultural and forestry program, other consumer goods.

Chemical and Paper Products: paint and chemical products, façade systems, industrial chemicals, plastic granulates, printing paper and materials, packaging materials.

Value Added Own LabelsPrivate labels BIvA, MTECH and MQ, which are managed by the Merkur Division, are gaining importance in the Merkur Group. BOF is meanwhile a brand of the Big Bang Division. Private labels offer the best quality in their price range. They are a synonym for products matching the products and brands of established manufacturers in quality, while having more affordable prices. Private labels are aimed at expanding and upgrading the existing product portfolio. Our vision is to bring high quality and esthetics closer to all consumers.

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new Management Board members of Merkur, d. d., for the term from 15 July 2010 to 1 July 2015: Blaž Pesjak was in charge of finance, investments and controlling, Rok Ponikvar of procurements, sales and logistics, and Uroš Zajc of marketing, product portfolio and development. Marjan Smrekar, the workers’ director, remained a member of the Management Board.

Management Board Chairman Bojan Knuplež Dies

On the evening of Thursday, 23 September 2010, Management Board Chairman of Merkur, d. d., Bojan Knuplež passed away at his home. The remaining four members of the Management Board kept their full mandate and continued performing the work necessary to revive Merkur’s operations.

Supervisory Board Appoints Temporary Management Board Chairman

On 29 September 2010, the Supervisory Board of Merkur, d. d., debated the half-year report and talks with the banks, and adopted decisions regarding the management of the company after the sudden death of Bojan Knuplež. The remaining four members of the Management Board kept their full mandate and continued performing the work necessary to revive Merkur’s operations. The Supervisory Board appointed the Management Board member in charge of finance, investments and controlling Blaž Pesjak as temporary Chairman of the Management Board. The Management Board’s priority is drafting a Financial Restructuring Plan.

OTHER EvENTS

Letter of Intent on Collaboration with the Mercator Group

On 5 May 2010, Merfin, d. o. o., the majority owner of Merkur, d. d., and Mercator, d. d., signed a letter of intent on including Merkur in the Mercator Group. With this, several procedures were launched, including due diligence in Merkur. According to plans, the Merkur Division would be excluded from the Merkur Group, and would be owned by Mercator, d. d. Mercator would preserve the Merkur brand, and merge Merkur and Mercator’s entire technical sales range under this name.

At the end of June 2010, with the banks’ support and after an agreement between Merkur’s owners and the Management Board, the option in which the Merkur Group preserves its integrity upon acquiring additional financial resources, proved the best solution for the future of Merkur Group and its business partners.

The National Investigation Bureau Investigates Transactions of Merkur’s Former Management Board

Early in the morning on 2 December 2010, the National Investigation Bureau visited Merkur’s premises in Naklo and Celje. It was investigating the operations under the previous Management board of Merkur, d. d.

The Management Board of Merkur, d. d., met the representatives of the National Investigation Bureau in a three-hour meeting and promised them full cooperation. They provided the detectives with information on the company’s operations during the time when Merkur was managed by the Management Board chaired by Bine Kordež. The investigation is focusing on business decisions made by the previous Management Board in the final years, especially decisions related to the company takeover. The National Investigation Bureau detectives finished the search in Merkur’s offices in Naklo late in the night, carrying with them numerous documents on Merkur’s operations under Bine Kordež’s management.

The Supervisory Board Approves the Loan Contract

On 24 November 2010, the Supervisory Board approved the loan contract between Merkur and the banks, under which Merkur would get a EUR 35 million syndicated loan earmarked solely for purchasing products and covering costs related to the purchase. In the following days, contracts were signed with all 11 banks participating in the loan. The banks must follow internal rules upon signing the contract and the appropriate internal bodies must examine it, so the date when Merkur would receive the funds has not been set yet. The loan is intended for purchasing goods and providing an appropriate range of products in Merkur’s sales centers also after the New Year season.

Payments to Former Merkur Employees

On 28 December 2010, Merkur paid out severance pay and compensation for wages to former employees based on the approval by receiver Ladislav Hafner.

After the parliament supported the authentic interpretation of a part of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act in a 57-0 vote at an extraordinary session on 23 December 2010, and the act was published in issue 106 of the Official Gazette of the Republic of Slovenia on 27 December 2010, receivers in both companies approved the payment. According to this interpretation, the unpaid severance pay to workers laid off before the compulsory settlement preferential receivables. Merkur paid EUR 453,000 to 50 former employees, EUR 10,900 of which was spent on compensations, wages and compensations for wages.

Merkur Gets the Syndicated Loan

On 28 December 2010, the Management Board of Merkur, d. d., signed the eagerly awaited approval for a EUR 35 million syndicated loan. The approval of the loan is one of the key elements of the Financial Restructuring Plan. Merkur should start drawing the loan in the first weeks of 2011, mostly for purchasing goods to provide a quality range of products in its retail network in 2011. The banks will monitor the drawing of the loan and fulfillment of the set goals annually until 2016, when the loan will be repaid.

PERSONNEL CHANGES

Agreement on Terminating Employment Agreement with Goran Čelesnik

At the extraordinary session on 22 March 2010, the Supervisory Board approved the agreement on consensually terminating the employment agreement with Management Board member – Director of Commerce Goran Čelesnik. On 1 April 2010, his tasks were taken over by Mersteel director Gregor Krajnik, who was however not appointed a Management Board member. After that, the management Board of Merkur, d. d., comprised three members: Bine Kordež, Milan Jelovčan and Marjan Smrekar. On 1 April 2010, Darko Gregorič, the director of Logistics in Mersteel, took over as the director of Mersteel.

New Supervisory Board Appointed

At the 21st general meeting on 23 June 2010, all shareholders of Merkur, d. d., unanimously supported the proposal to appoint a new Supervisory Board, after the members of the existing Supervisory Board tendered their resignations. Matevž Slapničar, the Risk Management Office Director at Gorenjska Banka, d. d., and Antonija Pirc, the Strategic Controlling Director at Sava, d. d., were appointed as representatives of the shareholders, with Slapničar becoming the new Supervisory Board chairman. Ana Hochkraut, the chairwoman of Merkur’s Workers’ Council, was appointed the workers’ representative in the Supervisory Board.

Former Management Board Chairman’s Term Ends, New Management Board Chairman and Members Appointed

The new Supervisory Board held its first session immediately after the General Meeting, on 23 June 2010. They approved the proposal filed by Albin Kordež on consensually terminating his term as the chairman of the Management Board on 1 July 2010, and appointed Bojan Knuplež, the director of Bing Bang, the new Management Board chairman for the term from 1 July 2010 to 1 July 2015. On 12 July 2010, the Supervisory Board appointed three

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Notification on Changes in Significant Interests

On 25 August 2010, Merfin, d. o. o., cut its stake in Merkur, d. d., by 120,145 shares or 9.15% of voting rights (from 67.41% to 58.26%), while Sava, d. d., increased its stake by the same percentage, from 10.01% to 19.17%.

On 19 October 2010, Iskratel, d. o. o., H&R, d. d., and GBD, d. d., received payment from the pledged securities in Merkur owned by Merfin, d.o.o. With this, Merfin’s stake in Merkur, d. d., decreased by 202,729 shares (from 58.26% to 42.81%). Iskratel, d. o. o., got 99,383 shares or 7.57% of votes in Merkur, d. d. H&R, d. d. got 58,600 shares or a 4.46% voting power in Merkur, d. d. GBD, d. d., got 44,746 shares or a 3.41% voting power in Merkur, d. d. These companies did not hold a stake in Merkur, d. d., before this transaction.

On 4 November 2010, Ananke Handels und Beteiligungs Gmbh received payment from Merkur’s pledged securities owned by Merfin, d. o. o. It acquired 328,145 shares or 25% of votes in Merkur, d. d., while Merfin’s stake in Merkur, d. d., decreased from 42.81% to 17.81%. Ananke Handels und Beteiligungs Gmbh did not own shares in Merkur, d. d., before this transaction.

On 24 November 2010, Merfin, d. o. o., decreased its stake in Merkur, d. d., from 17.81% to 11.71%. On the same day ML Inženiring, d. o. o., decreased its stake in Merkur, d. d., by 9,060 shares (from 0.69% to 0.00%). On 24 November 2010, Banka Koper, d. d., acquired 89,223 shares or 6.80% of votes in Merkur, d. d. After the transaction, Banka Koper has 165,488 shares or 12.61% of votes in Merkur, d. d.

On 21 December, Salonit Anhovo, d. d., received payment from Merkur’s pledged securities owned by Merfin, d. o. o. It acquired 38,000 shares or 2.90% of votes in Merkur, d. d., while Merfin’s stake in Merkur, d. d., decreased from 11.71% to 8.81%. Before this transaction, Salonit Anhovo, d. d., did not own shares in Merkur, d. d.

New Sales Center and Warehouses

New Sales Center in Škofja LokaOn 24 March 2010, Merkur opened a new, 14,000 m2 sales complex in Škofja Loka. Over 9,000 m2 large warehousing and sales facility with Merkur’s sales center also hosts EngroTuš’s supermarket, and Gorenjska banka.

Reissued Operating Permit for the Sales Center in VižmarjeMinistry of the Environment and Spatial Planning decided that the rejection of the operating permit for Merkur’s sales center in vižmarje was not justified. The Ministry decided that Merkur, as the investor, was not responsible for construction waste from the moment this was passed to the appropriate company that was to process it. Based on this decision, the administrative unit issued on 26 March 2010 an operating permit for the center, which was technically flawless from the beginning. We reopened the center on 9 April 2010.

Merkur Gets a New Franchise in IdrijaOn Tuesday, 6 April 2010, Kolektor Koling opened a 780 m2 franchise store MERKUR KOLING in Idrija. From then, people from Idrija and nearby places can find at one place everything they need to improve their home, garden or home workshop. The store is open for consumers as well as entrepreneurs and craftsmen.

Merkur Rodovita Opens in LendavaOn 29 May 2010, Semenarna Ljubljana opened a new MERKUR RODOvITA franchise store in Lendava. Now people from Lendava and nearby places can find at one place everything they need to improve their home, garden or home workshop. The store is open for consumers as well as entrepreneurs and craftsmen.

Merkur Launches State-of-the-Art Online StoreOn 13 December 2010, Merkur joined in the December shopping spirit by opening a new online store at www.merkur.si. In line with Merkur’s tradition, the store sells everything for home, garden, free time, construction and renovation.

The new online store follows the concept of user-friendly shopping, which is a characteristic of MERKUR sales centers, which have a carefully planned shopping routes, placed in a contemporary, elegantly designed environment. Instead of having a carefully designed shopping route, the online store is divided into ten virtual departments: seasonal products, appliances, household products, accessories, gardens, forests and farming, construction, heating and cooling, bathroom, workshop, and electronics. This also helps Merkur bring the sales range of its sales centers closer to the buyers, as the online store also presents a display window. To help users decide, the website also provides information on current special offers, benefits, and tips for do-it-yourself enthusiasts and home.

Prizes and Awards

Merkur Becomes “Respected Employer of 2009”At the end of 2009, the MojeDelo.com employment portal carried out an in-depth and professional survey on most respected employers in 2009, and published the results in January. Over 3,000 job seekers participated in the survey and by different criteria assessed the reputation that Slovenian companies have on the labor market. Merkur made it onto this elite list of respected employers and proved that it was a successful and stable company, which was recognized also by potential job candidates assessing the companies.

Merkur’s Private Label BIVA Wins Important International Award WoldaIn June 2010, Merkur’s private label BIvA, developed by creative director Aljoša Šenk (an internationally acknowledged designer with two Red Dot awards) and brand manager Blaž Bezek, received the Wolda “Best of Nation” award for the logo of high-tech protective coatings BIvA Nan∞. The quality of innovative protective coatings developed in Slovenia is thus also complimented with internationally acknowledged high-end design of Nan∞ products.

Wolda – Worldwide Logo Design Annual – is an internationally acknowledged award conferred by ICOGRAD (The international Council of Graphic Design Association – World body for professional communication design), and it presents the main authority in the field of assessing excellence in design of logos. In addition to this, Aljoša Šenk also received an acknowledgment for the logo of the THNTNK consultancy firm, which presents one half of the Wolda awards presented in Slovenia this year.

Merkur Wins Trusted Brand 2010 TitleOn 30 September 2010, Trusted Brand 2010 titles were conferred at Ljubljana’s Union hall. Forty winning companies took the stage, after readers of Reader’s Digest revealed in an independent survey that these are the brands they trust and like the most. Merkur received the title in the “Shopping centers for home and garden” category, where it got a total of 39.1% of all votes. We are also proud that Merkur’s brand was mentioned in the “Paints for home” category, where we were placed 4th–5th. This reflects our activities in developing our private label, which is resolutely entering Slovenian consumers’ memory with the BIvA Lestet and BIvA Freska brands.

Merkur’s Private Label BIVA Receives the Second International AwardMerkur’s creativity and dedication to bring the premium quality products closer to average buyers keeps catching international attention, and Merkur’s private label BIvA received another award in 2010.

After winning the WOLDA international award, which was conferred on the young team of Aljoša Šenk (creative director) and Blaž Bezek (brand manager) two months ago, the packaging of BIvA Nan∞ products also received the silver Creativity International Award. The BIvA Nan∞ high-tech protection coatings were the only Slovenian winner of the 40th Creativity International Awards.

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Most Significant Events in Merkur, d. d., after the 2010 Financial Year

EvENTS RELATED TO THE COMPULSORY SETTLEMENT PROCEEDINGS

Merkur Draws the LoanAfter signing the eagerly awaited approval for a EUR 35 million syndicated loan in December, Merkur, d. d., received a green light to start drawing the loan from the bank consortium on 4 February 2011. By the end of April, the company spent the new money on refilling its stocks in sales centers and warehouses, and on boosting the wholesale segment.

Shareholders at MERKUR’s 22nd General Meeting Support Capital InjectionAt the 22nd General Meeting of MERKUR, d. d., which was held on 25 February 2011, the shareholders unanimously supported a capital injection, which is extremely important for successfully completing the compulsory settlement proceedings. The capital injection performed by converting the creditors’ receivables is one of the key measures in Merkur’s financial restructuring. In order for the capital injection to succeed, the creditors must register and convert into stakes at least EUR 85 million of receivables within a month. At the General meeting, the shareholders adopted all the resolutions on the agenda with the necessary number of votes. The General Meeting resolutions related to the capital injection will step into force after the compulsory settlement is approved. The General Meeting, in which 82% of the shareholders were present, also elected two new Supervisory Board members: Miro Medvešek and vanja Jeraj Markoja.

Amended Financial Restructuring PlanOn 8 March 2011, the court published the amended Financial Restructuring Plan, and issued a decision on permitting changes to the Financial Restructuring Plan on the same day. The company amended the Financial Restructuring Plan and offered ordinary creditors more shares for a euro of their receivables than in the original financial restructuring plan. Every creditors that transferred its receivables onto the debtor, in line with the call on creditors to subscribe and pay new shares by paying in an in-kind contribution, received one share with the share capital of EUR 1 for every EUR 53.00 of converted ordinary receivables. The price for creditors with secured receivables remained the same at EUR 40.00 per share.

Umbrella Agreement on Rescheduling the LoanOn 31 March, the Management board of Merkur, d. d., signed an umbrella agreement with the consortium of banks on rescheduling the loan that was envisaged in the company’s Financial Restructuring Plan. Under the agreement, which is a key element for the success of the compulsory settlement, the interest rate will stand at 1% throughout the year 2011, and will be in accordance with the Financial Restructuring Plan later. The umbrella agreement on rescheduling the loan also determines that none of the secured principals, which are included in the rescheduling, will be due before 31 March 2016. After that, the principals will be due every three months until the year 2019. After the compulsory settlement is approved, annexes to the contract will be signed with the banks. Successful compulsory settlement proceedings now require subscribed capital injection in the amount of at least EUR 85 million, and the vote on compulsory settlement.

Conversion of Receivables Successfully Completed, According to Merkur’s InformationAccording to the information of Merkur, d. d., enough creditors sent statements on converging the receivables to the court by the deadline (8 April 2011), and at least EUR 85 million were provided for the capital injection. In line with the Financial Restructuring Plan, another important step was made towards successfully completing the compulsory settlement proceedings launched on 3 November 2010 with a decision by the Kranj District Court.

Voting in Merkur, d. d., StartsOn 26 May 2011, the Kranj District Court called on the creditors to vote on approving the compulsory settlement in Merkur, d. d. The creditors sent the voting ballots to the Kranj District Court within one months of the call.

Decision on Approving the Compulsory Settlement at Merkur, d. d.On 15 July 2011, the Kranj District Court issued a decision on adopted compulsory settlement in Merkur, d. d., which was launched on 3 November last year. By 26 June 2011, when the vote was closed, the compulsory settlement received support by a sufficient number of creditors (95.35%). The decision became final on 11 August 2011.

PERSONNEL CHANGES

Supervisory Board Member Miro Medvešek ResignsMiro Medvešek, Supervisory Board member elected in February, resigned from the post on 25 March 2011 due to conflict of interest.

Blaž Pesjak Appointed Chairman of the Management Board Until the End of the TermAt a late afternoon session on 9 June, the Supervisory Board of Merkur, d. d., unanimously appointed Blaž Pesjak as the Chairman of the Merkur, d. d., Management Board until the end of the term. The Management Board of Merkur, d. d., justified the trust bestowed on its members, and the temporary appointment of the Management Board chairman was revoked and Blaž Pesjak was appointed Chairman of the Management Board for the remaining part of the term until 30 June 2015. Uroš Zajc and Rok Ponikvar remain Management Board members. On 29 September 2010, the Supervisory Board appointed Blaž Pesjak as temporary Chairman of the Management Board, whose term started on 30 September 2010 and would finish when a new Supervisory Board chairman was appointed or on 30 June 2015. When this decision was taken, the composition of the Management Board was uncertain due to the sudden death of the former Management Board Chairman Bojan Knuplež. After the appointment, Merkur’s Management Board reached the agreements necessary to continue the company’s operations in the compulsory settlement proceedings, and at the same time adopted measures regarding the company’s operations and drew guidelines for restructuring the company and group’s operations.

OTHER EvENTS

The MERKUR Brand among si.Brand’s TOP 50 Brands in 2010At the end of January 2011, the si.Brand Consumer Association for classifying and defining product and service brands published the latest si.Brand TOP 50 list for 2010. Slovenian consumers selected 50 best Slovenian product and service brands in 2010, and Merkur was ranked 14th. By making it among the si.Brand TOP 50 brands in 2010, Merkur got the right to use the si.Brand 2011 logo for a year.

Merkur’s Sales Range Now Only Available in Medium-Sized and Large Sales CentersIn order to optimize the operations, and fulfill the reorganization plan and Financial Restructuring Plan, MERKUR, d. d., closed three smaller sales centers around Slovenia: Merkur Mojster Kranj Primskovo was closed at the end of February 2011, and Merkur Mojster Ljubljana Bežigrad and Merkur Mojster Ljubljana Jama were closed at the end of March 2011. As of April, the improved and more user-friendly sales range is only available in the existing medium-sized and large Merkur sales centers. Having only two sizes of sales centers (medium-sized with 3,000–4,000 m2 and large with 6,000–7,500 m2) makes them easier to manage, and makes the Merkur brand more visible and user friendly. All employees from sales centers that were closed have kept their jobs. They were relocated to other sales centers or posts in the Sales, and the vicinity of their homes was taken into account. All three buildings were owned by Merkur, and selling them will help reduce Merkur’s debt. Merkur’s sales center in Celje was the first to have its surface optimized. The entire sales center was moved to the ground floor, and its surface was reduced from 10,260 m2 to 6,100 m2, which proved to be a good business decision.

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Report of the Management Board Chairman

The year 2010 was doubtlessly the hardest in the 115-year history of the company. In the 1990s, Merkur set the right strategy of expanding from a wholesale company to a wholesaler and retailer, and unlike its rivals, it has constantly grown since then. It expanded its sales network throughout Slovenia, a large part of Croatia, and is also present in Bosnia and Herzegovina, Macedonia and Serbia. However, rapid growth in revenue also resulted in new costs and investments in new, increasingly larger sales centers, which turned out to be too expensive after the breakout of the economic crisis, especially from the aspect of financing cost. When the Management Board decided to carry out a management buyout in 2007 and started transferring the financial burden of the buyout onto Merkur, d. d., and its subsidiaries in the following years, the burden was too heavy and the company had to declare insolvency pursuant to the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act.

Our team thoroughly analyzed the reasons for the company’s problems and found out that Merkur’s financial crisis was above all caused by an outflow of over EUR 180 million, which were rerouted through HTC DvA, d. o. o., to Merfin, d. o. o., which carried out the MBO. In addition to this, the resources were flowing out of the company through different transaction with shares and real estate, derivative financial instruments, and through issuing sureties and guarantees for the acquiring company.

The second set of problems resulted from the wrong business model with extremely high costs, above all the overheads. A review of Merkur, in which the consultancy firm Roland Berger made an international comparison of the operations, revealed that Merkur sells too few products per a square meter of sales facilities, and that the cost of selling them was significantly too high. Added value per employee was thus significantly lower than at our rivals, and this was reflected in the profitability of the operations. Company’s business processes were not in line with good business practice in trade and resulted in extra, mostly cost burdens for the company.

The third set of problems was caused by the environment and is mostly linked with the global economic crisis. In sales, the crisis caused a drop in investment demand, and later general illiquidity in business. Both had a significant impact on Merkur’s performance, because the companies’ sales dropped and a large share of realized transactions was never paid. In sales in the retail sector changes arose in the size and structure of the consumption. The average amount per purchase spent in our stores dropped, and the structure of the average purchase changed from more expensive to cheaper products.

The Management Board chaired by late Mr. Knuplež prepared a plan for comprehensive restructuring of Merkur, d. d., and its subsidiaries. The program presented the basis for the company’s Financial Restructuring Plan, which has been actively implemented since it was filed on 26 October 2010. In 2010, we managed to provide basic conditions for the company’s survival and prevented its bankruptcy. Contrary to expectations, we managed to fill the shelves with products before the New Year shopping season through cost optimization and collection measures, showing to our creditors that a turnaround in operations is possible.

We carried out the operational and financial restructuring during the compulsory settlement proceedings, and successfully concluded the process on 11 August. We are still successfully meeting the goals from the program, and since March our cash flow has been positive. The sales are constantly increasing and the company’s role in the market is strengthening, so we remain the leading seller of technical products in Slovenia. Will Merkur succeed again? We believe it will, after all, we have been here for 115 years.

Blaž Pesjak, Chairman of the Management Board

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Supervisory Board Report

Dear shareholders!In the first half of 2010, the Supervisory Board of Merkur, d. d., comprised: Marta Bertoncelj (the Chairwoman), Jakob Piskernik (Deputy Chairman), and Branko Dernovšek (member – workers’ representative).

At the 21st General Meeting on 23 June 2010, where all shareholders of Merkur, d. d., were present, all three Supervisory Board members stepped down and a new Supervisory Board was elected for a four-year term. The new Supervisory Board comprises Matevž Slapničar (Chairman) and Antonija Pirc (Deputy Chairwoman) as shareholders’ representatives, and Ana Hochkraut as workers’ representative.

At the General Meeting on 23 June 2010, shareholders also adopted changes to the Articles of Association, increasing the number of Supervisory Board members from three to six. At the 3rd session of the Workers’ Council, which was held in Naklo on 22 July, its members elected Peter Fink as the second workers’ representative in the Supervisory Board.

At the company’s General Meeting held on 25 February 2011, vanja Markoja Jeraj and Miro Medvešek were appointed to the remaining two posts in the Supervisory Board as shareholders’ representatives. On 25 March 2011, Miro Medvešek resigned due to conflict of interest.

Work of the Supervisory BoardIn 2010, the Supervisory Board met in 19 (16+3) regular sessions, in which it discussed regular reports on the operations on Merkur, d. d., and Merkur Group, and other current topics and important issues.

At their 20th regular session on 10 May 2010, the Supervisory Board members listed in the first paragraph adopted the Annual Report of Merkur, d. d., for 2009, and the Consolidated Annual Report of Merkur Group for 2009.

At our first session on 23 June 2010, members of the new Supervisory Board were acquainted with the resignation of the Chairman of the Merkur, d. d., Management Board Bine Kordež, and appointed Bojan Knuplež as the new Chairman of the Management Board for the term from 1 July 2010 to 1 July 2015. The company is presented by the Chairman of the Management Board, and represented by two members of the Management Board, or a Management Board member and a procurator. The Management Board can issue one or more procurations. The Supervisory Board approves the appointment or recall of procurators.

At the second regular session on 7 July 2010, members of the Supervisory Board were informed about the company’s performance in the first six months of 2010. They were informed about the notification on withdrawal of the audit report, which director of the auditing company KPMG, d. o. o., Marjan Mahnič sent to the Chairman of the Management Board Bojan Knuplež on 1 July 2010. Based on the withdrawal, a new audit of the 2009 operations and the drafting of the third annual report were launched.

At the third regular session on 12 July 2010, we appointed Blaž Pesjak, Rok Ponikvar and Uroš Zajc as members of the Merkur, d. d., Management Board for the term from 15 July 2010 to 1 July 2015. Marjan Smrekar, the workers’ director, remained a member of the Management Board.

The fourth regular session on 15 July 2010 was carried out by correspondence. At this session we adopted the resignation of Milan Jelovèan, who prematurely terminated his term as a member of the Management Board on 15 July 2010.

At the fifth regular session on 12 August 2010, members of the Supervisory Board were informed about the company’s performance in July 2010.

At the sixth regular session on 20 September 2010, the Supervisory Board was acquainted with the audited annual report and issued a positive opinion. The Supervisory Board verified the Annual Report of Merkur, d. d., for 2009, and the Consolidated Annual Report of the Merkur Group for 2009, issued on 30 August 2010. At the same time, the Supervisory Board also revoked its decision from the session held on 10 May 2010, with which it verified the Annual Report of Merkur, d. d., for 2009, and the Consolidated Annual Report of the Merkur Group for 2009, which were issued on 30 April 2010.

At the seventh regular session on 29 September 2010, the Supervisory Board was informed that the term of Chairman of the Management Board Bojan Knuplež was terminated on 24 September 2010 due to death. The Supervisory Board appointed member of the Management Board Blaž Pesjak as the Chairman of the Management Board.

At its sessions in 2010, the Supervisory Board spent the most time on issues related to the operations and their restructuring in the parent company and the group. The majority of time was spent on preparing and monitoring the compulsory settlement proceedings, and related harmonization with all the stakeholders. The Financial Restructuring Plan, which was prepared as part of the compulsory settlement proceedings, which were launched on 3 November 2010, is being implemented and all the necessary procedures in the compulsory settlement proceedings are running according the deadlines set by the law. The compulsory settlement was made final by the Kranj District Court on 11 August 2011.

Alongside the compulsory settlement proceedings, the company also drafted a five-year plan and program of measures for meeting the targets, which was discussed by the Supervisory Board.

The Supervisory Board discussed several other issues related to the company and group’s current operations at its sessions.

All Supervisory Board members actively contributed to the board’s work by regularly attending the sessions and participating in the discussions, as well as by preparing proposals and comments on the discussed issues.

Examination of the Annual ReportOn 19 August 2011, the company’s Management Board presented to the Supervisory Board the 2010 Annual Report with audited financial statements of Merkur, d. d., and the auditor’s opinion. According to the auditor, the financial statements and explanatory notes present a true and fair picture of the company’s financial situation on 31 December 2010, and are compliant with the International Financial Reporting Standards adopted by the EU.

At the 20th regular session on 26 August 2011, the Supervisory Board discussed the audited Annual Report of Merkur, d. d., for the year 2010, which was audited by Deloitte Revizija, d. o. o. The auditing company issued a positive opinion to the Annual Report on 17 August 2011.

The Supervisory Board had no comments regarding the audit report by Deloitte Revizija, d. o. o. After carefully examining the audited Annual Report for the year 2010, the Supervisory Board did not have any comments regarding the report, and verified it unanimously at its session on 26 August 2011.

Proposal on Distributing the Distributable ProfitTogether with verifying the Annual Report for 2010, the Supervisory Board also established that the company did not generate distributable profit.

The Supervisory Board prepared this report for the General Meeting of shareholders in line with Article 282 of the Companies Act.

Conclusion Last year, the company’s excessive debt and tougher economic situation vitally impacted the performance and results, and the situation required that the company declared insolvency and launched compulsory settlement proceedings. Considering the significantly changed conditions in which Merkur, d. d., is operating, the company actively started implementing short-term measures and activities, and preparing a long-term business plan and strategic guidelines for the company’s operational and financial reorganization.

The Supervisory Board would like to thank the Management Board and all the employees for their contribution and effort in these difficult conditions. In the coming times we will have to face numerous big challenges, and we believe that with joint forces we can successfully overcome them and fulfill the planned goals.

Naklo, 26 August 2011 mag. Matevž Slapničar, Chairman of the Supervisory Board

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Shares and Ownership Structure

Until 6 March 2008, the share of Merkur, d. d., was a prime market share at the Ljubljana Stock Exchange with the symbol MER. Prime market shares only include shares of the most successful Slovenian joint-stock companies. At the 18th regular General Meeting on 17 January 2008, the shareholders of Merkur, d. d., voted on delisting the shares of Merkur, d. d., with the symbol MER. The decision was adopted with 99.99% of the votes present or represented at the meeting.

Information on Merkur’s SharesThe shares give the shareholder the right to: • one vote at the General Meeting, • proportional dividends paid out of profit, and • proportional share of the remaining assets if the company goes bankrupt or is liquidated.

All shares are freely transferable, ordinary, and bring the same dividend. Merkur, d. d., does not have preferred shares with fixed dividends. Every shareholder has the right to dividends, and to sell or transfer the shares to another person.

Key Information on Merkur’s Shares

Information 31 Dec. 2010 31 Dec. 2009 IndexNo. of shares* 1,312,585 1,312,585 100.0 No. of shareholders 17 7 242.9* 131,258 of these are treasury shares

Treasury Shares Merkur, d. d., owns 131,258 treasury shares, which presents 10% of all shares.

Ownership Structure on 31 December 2010

No. No. of All shares Name shareholders No. %1. Ananke Handels und Beteiligungs GmbH 1 328,145 25.002. Sava, d. d. 1 251,566 19.173. Banka Koper d. d. 1 147,298 11.224. Merkur, d. d. 1 131,258 10.005. Merfin d. o. o. 1 115,646 8.816. Iskratel, d. o. o. 1 99,383 7.577. Perutnina Ptuj d. d. 1 64,198 4.898. H & R d. d. 1 58,600 4.469. GBD d. d. 1 44,746 3.4110. Salonit Anhovo, d. d. 1 38,000 2.9011. Sam d. o. o. Domžale 1 8,268 0.6312. CP Murska Sobota d. d. 1 8,000 0.6113. Grafist d. o. o. 1 7,166 0.5514. Mura -vGP d. d. 1 4,000 0.3015. TAP d. o. o. 1 3,554 0.2716. P.G.M. inženiring d. o. o. 1 2,756 0.2117. ML inženiring d. o. o. 1 1 0.00 TOTAL 17 1,312,585 100.00

Shares Owned by Management or Supervisory Board Members on 31 December 2010On 31 December 2010 no old or new management or supervisory board members owned shares of Merkur, d. d.

Social Responsibility

Responsibility for Correct Business DecisionsWe carefully upgrade business and commercial processes in the Merkur Group. We use modern information technologies to provide good oversight over business events and fast access to important business information, and for high-quality risk management.

We have introduced the tested operational standards of the parent company throughout the Merkur Group. We control the subsidiaries through monthly financial reports, annual external audits, and regular monitoring of their financial operations, receivables and stocks.

In the times of difficult economic conditions, our main goal is to ensure stable operations and build foundations for new growth once the global economy picks up.

Responsibility towards People and EnvironmentProportionally to our performance, we support groups or individuals who need our help.

By using contemporary construction methods and carefully planning the logistics paths, Merkur avoids needless impact on the environment. We pay attention to selling environmentally-friendly products. We were among the first to join the Energija Si project. We have undertaken to promote energy-efficient products, and educate customers and employees on the importance and ways of conserving energy.

We are also a co-founder of ZEOS, d. o. o., the first and the largest Slovenian non-profit organization for waste electric and electronic equipment management. We were among the first Slovenian companies to introduce the option to return waste electric or electronic equipment free of charge upon purchasing new.

We have an in-house Ecology Office, which brings together related environmental issues. This gives us transparent overview and control over implementing environmental programs, and provides a more detailed definition of responsibility and faster adjustments to legal requirements. In our offices, we are especially careful about waste batteries, chemicals, oils, and office supplies, especially cartridges, glue, detergents, and paper.

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Governance and Management System

Merkur Group and its three divisions are managed by the holding company, Merkur, d. d. The Management Board of the Merkur, d. d., holding company is responsible for planning and realizing the strategic goals for all companies.

The Supervisory Board monitors the management board’s operations in line with the rules of the two-tier management structure. Up to four members of the Supervisory Board represent the interests of shareholders. They are elected by shareholders at a General Meeting. Up to two members of the Supervisory Board represent the interests of employees. By design this post is taken by the president of the Worker’s Council who may be joined by one of the members of the Worker’s Council.

The Management Board of Merkur, d. d. until 30 June 2010:Bine Kordež, president of the Management Board – the general director Goran Čelesnik, member of the Management Board – the director of commerce (until 22 March 2010) Milan Jelovčan, member of the Management Board – director of organization and IT (until 15 July 2010) Marjan Smrekar, workers’ director

The Management Board of Merkur, d. d. since 1 July 2010 (the term until 1 July 2015):Bojan Knuplež, president of the Management Board – the general director (until 24 September 2010) Blaž Pesjak, president of the Management Board (since 29 September 2010) Blaž Pesjak, member of the Management Board, director of finance, investments and controlling (17 July 2010–28 September 2010) Rok Ponikvar, member of the Management Board, director of procurement, sales and logistics (since 15 July 2010) Uroš Zajc, member of the Management Board, director of marketing, sales portfolio and development (since 15 July 2010)Marjan Smrekar, member of the Management Board – workers’ director (until 31 August 2013)

The Management Board’s term ends on 1 July 2015.

The Supervisory Board of Merkur, d. d. until 22 June 2010:Shareholders’ representatives: Employees’ representative:Marta Bertoncelj – the president Branko Dernovšek Jakob Piskernik – the vice-president

The Supervisory Board of Merkur, d. d. since 23 June 2010 (the term until 23 June 2014): Shareholders’ representatives: Matevž Slapničar, president of the Supervisory Board Antonija Pirc, vice-president Miro Medvešek, member (25 February 2011–25 March 2011) vanja Jeraj Markoja, member (25 February 2011–24 February 2015)

Employees’ representatives:Ana Hochkraut, member Peter Fratnik, member (since 22 July 2010-31 May 2014)

The Supervisory Board’s term ends on 23 June 2014.

Employees

The number of employees was reduced by more than 500 in 2010; we decided to systematically reduce the number of employees due to lower sales. In 2010 Merkur, d. d. began to prepare the program of discharging surplus employees and also carried our various “soft” methods of reducing employee numbers, namely by consensual termination and termination of employment with the right to compensation from the Employment Service of Slovenia. All surplus employees were granted the right to a severance pay in accordance with the law and the collective contract of Merkur, d. d.

We were aware of the sensitive nature of the issue of lowering the number of employees, and put extra effort into communication with employees, especially through joint workers’ council and the unions.

The numbers of employees were reduced in the parent company Merkur, d. d., as well as in the subsidies of the Merkur Division.

Employees by Companies of Merkur Division Number Employees by hours workedCompany 31 Dec. 2010 31 Dec. 2009 Index 2010 2009 IndexMERKUR DIVISION 2,918 3,686 79.2 3,225.6 3,493.8 92.3Merkur, d. d. 2,142 2,675 80.1 2,376.6 2,579.7 92.1Merkur Hrvatska, d. o. o. 380 517 73.5 458.0 495.1 92.5Merkur International Beograd, d. o. o. 291 339 85.8 262.0 264.0 99.2Intermerkur Nova, d. o. o., Sarajevo 101 139 72.7 118.0 140.0 84.3Perles Merkur Italia, s.r. l. 3 8 37.5 5.0 9.0 55.6Merkur, d. o. o., Cetinje 1 8 12.5 6.0 6.0 100.0

Educational Structure of Employees on 31 December 2010

The educational structure of employees did not change much in comparison with 2009. Due to the fact that the majority of employees terminated in 2010 had lower levels of education the most noticeable changes are in categories I, II, and III (unfinished primary school, primary school, and lower vocational education).

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0

I. II. III. IV. V. VI. VII. VIII. IX.

0.7 1.0

3.9 4.92.1

0.7

33.733.1

38.9 39.3

9.2 9.8 10.8 10.4

0.7 0.8 0.0 0.0

Merkur Division Merkur, d. d.

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Analysis of Business Performance of Merkur, d. d.

1 Business Performance of Merkur, d. d.

Overview of the Most Important Financial Indicators of Merkur, d. d.

Income from Operations and Gross Profit/loss from SalesMerkur, d. d., generated EUR 317 million in sales revenue in 2010, which is 37.1% less than in 2009. The share of sales carried out in Slovenia amounted to 90.1% and the sales in foreign markets to 9.9%. Wholesale contributed 29.7% of the sales revenue and retail the remaining 70.3%.

Other operating income reached EUR 9.6 million which is four times more than in 2009. Less than a third came from profits after selling real estate, devices and equipment, and a quarter from paid receivables.

Gross sales income fell by 31% compared to 2009 because of a drop in sales.

Operating Costs and Operating Profit/lossThe original costs fell by 8.3% compared to 2009. More than a half was generated by labor costs which in spite of the smaller number of employees fell by only 1.7% compared to 2009, because the discharged employees got their severance pay and compensations. The operating loss amounted to EUR 36,485 thousand.

Financial revenue and expensesWe had extremely high financial expenses in 2010 as well. These were mainly caused by impairments of investments into subsidiaries in the total amount of EUR 57,137 thousand (the biggest two are Mersteel, d. o. o., Naklo in the amount of EUR 34,916 thousand and Merkur Hrvatska, d. o. o., in the amount of EUR 13,302 thousand) and impairments of loans given in the amount of EUR 67,723 thousand (the most significant among these is the impairment of the loan given to HTC DvA, d. o. o., in the amount of EUR 42.134 thousand).

Among other significant financial expenses are also interests in the amount of EUR 30.853 thousand.

Nearly three quarters of financial income came from the interest receivables in the amount of EUR 13,487 thousand.

Other expenses in the amount of EUR 24,768 thousand went to provisions for given guarantees.

Profit or Loss for the Financial YearThe loss generated in the financial year amounted to EUR 220,483 thousand.

2 Assets, Equity and Liabilities of Merkur, d. d.

On 31 December 2010 the total equity and liabilities of Merkur, d. d., amounted to EUR 550,660 thousand. The total was lower largely due to the mentioned impairments of financial investments and issued loans, which consequently bring significantly lower company assets. According to the data of 31 December 2010 the current trade and financial liabilities made up nearly 80% of all liabilities. After the compulsory settlement is finalized, the financing structure will change significantly in favor of noncurrent sources as these will contribute to 85% of all liabilities, with only 15% of current liabilities.

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ANALYSIS OF BUSINESS PERFORMANCE OF MERKUR, D. D. 1 Business Performance of Merkur, d. d. Overview of the Most Important Financial Indicators of Merkur, d. d. In thousand EUR Item 2010 2009 Index 1 2 3=1/2

OPERATING INCOME 326,184 505,701 64.5 Sales revenue 316,574 503,147 62.9 Other operating income 9,610 2,554 376.3

OPERATING COSTS -362,670 -493,012 73.6 Costs -236,494 -387,153 61.1 Operational costs -126,175 -105,859 119.2 Costs by nature -94,131 -102,658 91.7 Costs of materials -4,971 -5,649 88.0 Costs of services -26,704 -34,254 78.0 Labor costs -49,982 -50,854 98.3 Amortization expense -9,782 -9,381 104.3 Long-term reservations 0 -302 - Other operating expense -2,693 -2,218 121.4 Other operating costs -32,044 -3,201 -

GROSS SALES INCOME 80,080 115,994 69.0

PROFIT/LOSS FROM PRINCIPAL ACTIVITIES -14,051 13,336 -

PROFIT/LOSS FROM OPERATIONS -36,485 12,689 -

NET FINANCIAL INCOME/EXPENSES -158,512 -150,595 105.3

Other expenses 24,768 0 -

PROFIT/LOSS BEFORE TAXES -219,765 -137,907 159.4

Tax on profit -718 -1,719 41.8 PROFIT/LOSS FOR THE FINANCIAL YEAR -220,483 -139,626 157.9

Income from Operations and Gross Profit/loss from Sales Merkur, d. d., generated EUR 317 million in sales revenue in 2010, which is 37.1% less than in 2009. The share of sales carried out in Slovenia amounted to 90.1% and the sales in foreign markets to 9.9%. Wholesale contributed 29.7% of the sales revenue and retail the remaining 70.3%. Other operating income reached EUR 9.6 million which is four times more than in 2009. Less than a third came from profits after selling real estate, devices and equipment, and a quarter from paid receivables. Gross sales income fell by 31% compared to 2009 because of a drop in sales. Operating Costs and Operating Profit/loss The original costs fell by 8.3% compared to 2009. More than a half was generated by labor costs which in spite of the smaller number of employees fell by only 1.7% compared to 2009, because the discharged employees got their severance pay and compensations. The operating loss amounted to EUR 36,485 thousand.

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Financial revenue and expenses We had extremely high financial expenses in 2010 as well. These were mainly caused by impairments of investments into subsidiaries in the total amount of EUR 57,137 thousand (the biggest two are Mersteel, d. o. o., Naklo in the amount of EUR 34,916 thousand and Merkur Hrvatska, d. o. o., in the amount of EUR 13,302 thousand) and impairments of loans given in the amount of EUR 67,723 thousand (the most significant among these is the impairment of the loan given to HTC DVA, d. o. o., in the amount of EUR 42.134 thousand). Among other significant financial expenses are also interests in the amount of EUR 30.853 thousand. Nearly three quarters of financial income came from the interest receivables in the amount of EUR 13,487 thousand. Other expenses in the amount of EUR 24,768 thousand went to provisions for given guarantees. Profit or Loss for the Financial Year The loss generated in the financial year amounted to EUR 220,483 thousand. 2 Assets, Equity and Liabilities of Merkur, d. d. In thousand EUR

Item 31 December

2010 31 December

2009 Index 1 2 3=1/2 Property, plant, equipment and intangible assets 207,956 252,732 82.3 Financial assets, investment property and other noncurrent assets 252,974 340,812 74.2

Total noncurrent assets 460,930 593,543 77.7 Inventory 39,111 62,717 62.4 Current financial assets and cash at bank 5,584 4,684 119.2 Current trade and other receivables and other assets 45,035 204,466 22.0

Total current assets 89,730 271,866 33.0

TOTAL ASSETS 550,660 865,409 63.6

Total equity -100,446 124,246 -

Total noncurrent liabilities 131,571 177,081 74.3 Current financial liabilities 368,910 325,603 113.3 Current trade and other liabilities 150,624 238,479 63.2 Total current liabilities 519,534 564,082 92.1 Total liabilities 651,105 741,164 87.2

TOTAL EQUITY AND LIABILITIES 550,660 865,409 63.6 On 31 December 2010 the total equity and liabilities of Merkur, d. d., amounted to EUR 550,660 thousand. The total was lower largely due to the mentioned impairments of financial investments and issued loans, which consequently bring significantly lower company assets. According to the data of 31 December 2010 the current trade and financial liabilities made up nearly 80% of all liabilities. After the compulsory settlement is finalized, the financing structure will change significantly in favor of noncurrent sources as these will contribute to 85% of all liabilities, with only 15% of current liabilities.

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3 Cash Flow of Merkur, d. d. The Development Strategy

The development strategy is aimed towards expanding our offer of high quality products and services in order to provide customer satisfaction.

The key values of a modern and flexible organizational culture are employee innovation, loyalty and dedication. By adapting to the changes in the environment, discovering and exploiting market opportunities, and being driven to constant development we’ve been able to uphold the 115-year old tradition of successful business operations. Our goal is to become the number one seller of home products, DIY products, construction, electro-technical and professional technical equipment in Southeast Europe.

Merkur’s range of products comprises high quality products of established brands by Slovenian and foreign manufacturers. Whichever market we operate in, we aim to connect local and global suppliers with consumers and business customers. We’re expanding our offer by developing our own quality product brands BIvA, MTECH and MQ.

We’ll achieve our goals by finishing the reorganization in terms of operations and content as planned, and by starting and concluding the said operational and content reorganization throughout the entire group. We aim to establish the conditions that would help strengthen Merkur’s position in the region. We will achieve them by enforcing the following strategies: expansion, adapting to marketing trends, future positioning of Merkur, changing and unifying the format of sales centers.

The Expansion Strategy

1. Expanding to new markets: • Analyze the buying power of the bigger cities in the region, • Invest in new sales premises, • Invest in the sales program, • Expand the franchise network in Bosnia and Herzegovina, and Serbia.

2. Increasing our presence in capital cities and bigger economic centers: • Invest in up to two sales centers in Zagreb, • Invest in a sales center in Belgrade, • Invest in a sales center in Niš or Novi Sad, • Invest in a sales center in Ljubljana.

3. Carry the B2B operations over to other markets of the region: • Additional human resources in subsidiaries, • Identify the appropriate sales programs, • Increase sales.

Adapting to Marketing Trends

The future positioning of Merkur is defined by the following assumptions:

a) Customers need solutions: instead of comfort, nice atmosphere and a wide range of products, the customers of the sales centers look for ecologically sound and sustainable solutions and services.

b) Split demand: Customers want high quality product brands by established manufacturers at sensible prices on one hand and cheaper own brand products on the other.

c) Market segments: the biggest growth is expected in the “renovations” market.

d) Converged sales channels: bring together the ranges of specialized stores and DIY sellers, FMCG sellers enter the technical sector, internet growing increasingly important as a sales and communications channel (multichannel retailing).

e) Sales premises: further growth of total sales premise surfaces and average size of DIY centers.

f) Prices: continue to push the prices down. Customers expect the best price.

g) Consolidation: further consolidation of DIY sellers. The principle formats will gain from consolidation.

h) Concept as the key factor to success: the concept will present the key competitive advantage. Having just the lowest prices will no longer suffice.

Due to the market conditions in 2010 the company’s cash flow from operations dropped by two thirds compared to the year before. All of the positive cash flow from operations and investments was used to pay interests on loans and repaying the loans.

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3 Cash Flow of Merkur, d. d. In thousand EUR Item 2010 2009 CASH FLOW FROM OPERATIONS Financial result for the financial year -220,483 -139,626 Adjustments for non-cash items in profit or loss 215,341 163,837 Change in net operating current assets and provisions 33,108 92,686 Return/payment of income tax 2,775 -6,416 Net cash flow from operations 30,740 110,481 CASH FLOW FROM INVESTMENTS Net cash flow from investments 8,374 -124,907 CASH FLOW FROM FINANCING Net cash flow from financing -33,862 14,399

Due to the market conditions in 2010 the company's cash flow from operations dropped by two thirds compared to the year before. All of the positive cash flow from operations and investments was used to pay interests on loans and repaying the loans.

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The future positioning of Merkur

Merkur must get closer to professionals and the DIY customers. The company’s presentation must feature a greater emphasis on the design and presentation of solutions. This is especially important in the DIY segment. The key to increasing traffic and frequency of the sales centers is a live green (gardening) program.

Changing and Unifying the Format of Sales Centers

Retail is Merkur’s main activity; 75% of sales are carried out through the sales centers (both B2B and B2C sales). Thus the sales center format is one of the key components of the company strategy as it defines its operations in the long run. In July 2010 Merkur’s sales network comprised 32 sales centers in Slovenia, 8 in Croatia, 1 in Bosnia and Herzegovina, 3 in Serbia, and 1 sales center in Macedonia. The surface area of the sales centers was extremely heterogeneous as was the graphic design and the building type.

Hybrid Model of Sales Centers We decided to standardize the image of sales centers and thus simplify the product range management and provide a uniform shopping experience for our customers. Taking into account the global trends that were aimed towards combining sales centers for consumers and sales centers for businesses in the last decade, and also analyzing consumer habits and following our competition at home as well as abroad, we decided on a hybrid model of sales centers combining the MERKURDOM and MERKURMOJSTER sales center types. The new guidelines also include the classic DIY and the more consumer-oriented sales centers (so called soft DIY) that also market items for home and garden, which also fits in with the future format of Merkur’s sales centers. The format is also adapted to the future investment projects that strive for lower investment costs for a square meter of surface because it does not include building garages on the ground floors of sales centers.

Sales Center Size Looking at the existing centers and available surfaces we decided to close all centers smaller than 3,000 m2. We grouped the mid-sized sales centers for the 3,000–4,500 m2 format, this size is suitable for towns and mid-sized cities, while the larger centers were grouped in the 6,000–7,500 m2 format, which we think is suitable for bigger cities. On the basis of the existing surfaces we made a plan of downsizing or growing of sales centers so that we can use them for one of the two selected formats.

Hybrid Merkur Sales Centers – exterior:

Hybrid Merkur Sales Centers – interior and the paths for customers

According to the new format and center standardization plan we already downsized the SC (shopping centre) Merkur Hudinja center and expanded the surface of the SC Merkur Primskovo in the first half of 2011. In the second half of 2011 we plan to renovate or combine the centers in Nova Gorica (combine the centers), and in Novo Mesto, downsize the SC Merkur Murska Sobota and expand the product range in SC Merkur Rudnik (adding the construction and the professional range). In the future we plan to renovate the remaining centers, and invest in a new center in Koper at the Semedela location (and consequently close three existing centers: SC Koper, SC Izola, SC Lucija). We also feel that in the future, the model of classic lease should be used for new centers, because due to the simultaneous financial rehabilitation the investments in new centers will not be possible. We plan to implement this model when expanding our operations on Croatian, Bosnian, and Serbian markets.

Companies/professionals

Hobby, DIY/standard users

HORNBACH

BAUHAUS

PRAKTIKER

OBI

BAUMAX

MERKUR

MERKUR

TARG

ET C

UST

OM

ERS

Functionalities and products presentation

Design and solution presentation

Drive throughSales to consumers – B2C entrance

Sales to companyes – B2B entrance

B2CB2B

Drive th

rough

Entrance B2C

Entrance B2B

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Audited Financial Statements of Merkur, d. d.

All derived data (totals, differences, ratios and indices) have been calculated from a value in euros and not in thousands of euros.

Balance Sheet of Merkur, d. d., as on 31 December 2010

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

ACCOUNTING REPORT

OF MERKUR, D. D.,

FOR THE FINANCIAL YEAR 2010

36

Audited Financial Statements of Merkur, d. d. All derived data (totals, differences, ratios and indices) have been calculated from a value in euros and not in thousands of euros. Balance Sheet of Merkur, d. d., as on 31 December 2010 In thousand EUR

Item Note 31 Dec. 2010 31 Dec. 2009

Corrected 31 Dec. 2008

Corrected Property, plant and equipment 5.1 206,984 251,452 201,396 Intangible assets 5.2 971 1,280 1,562 Investment property 5.3 36,162 16,646 16,822 Investments in subsidiaries 5.4 73,983 134,973 152,087 Noncurrent financial assets 5.6 130,795 183,986 186,614 Loans given 5.7 11,805 1,388 2,519 Other noncurrent receivables 5.8 229 75 85 Deferred tax assets 5.21 0 3,743 4,725 Total noncurrent assets 460,930 593,543 565,811 Inventories 5.9 39,111 62,717 73,315 Current financial assets 5.10 0 4,351 5,126 Loans given 5.11 15,407 55,562 103,770 Current tax receivable 0 3,048 0 Current trade receivables and other assets 5.12 29,628 145,856 171,002 Cash and cash equivalents 5.13 5,584 332 359 Total current assets 89,730 271,866 353,573

TOTAL ASSETS 550,660 865,409 919,384

Issued capital 54,773 54,773 54,773 Capital reserves 0 0 76,701 Revenue reserves 53,159 54,189 68,054 Own shares (as a deductible item) -53,159 -53,159 -53,159 Retained earnings/losses -218,080 1,373 50,398 Fair value reserve 62,861 67,069 86,080 Total equity 5.14 -100,446 124,246 282,848 Noncurrent financial liabilities 5.15 41,880 96,848 114,549 Noncurrent liabilities from financial leases 5.16 55,463 57,602 51,194 Deferred tax liabilities 5.21 0 14,659 12,694 Other noncurrent liabilities 5.17 40 63 70 Long-term provisions 5.18 34,189 7,908 9,845 Total noncurrent liabilities 131,571 177,081 188,352 Current financial liabilities 5.19 366,700 323,547 269,261 Current liabilities from financial leases 5.16 2,211 2,056 517 Trade and other liabilities including derived financial instruments 5.20 150,064 237,962 173,256 Short-term provisions 5.18 560 517 2,534 Total current liabilities 519,534 564,082 448,184 Total liabilities 651,105 741,164 636,536

TOTAL EQUITY AND LIABILITIES 550,660 865,409 919,384 The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

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Income Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

Other Comprehensive Income Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

Cash Flow Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

37

Income Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010 In thousand EUR

Item Note 2010 2009

Corrected REVENUE 6.1 316,574 503,147 Cost of sold items -236,494 -387,153 GROSS SALES INCOME 80,080 115,994 Other operating income 6.2 9,610 2,554 Distribution expenses 6.3 -68,224 -74,053 Administrative expenses 6.3 -25,907 -28,604 Other operating expenses 6.4 -32,044 -3,201 OPERATING PROFIT/LOSS -36,485 12,689 Financial income 6.5 17,273 27,957 Financial expenses 6.5 -175,785 -178,553 NET FINANCIAL COSTS -158,512 -150,595 Other expenses 6.6 -24,768 0 LOSS BEFORE TAX -219,765 -137,907

Income tax expense 6.7 -718 -1,719 PROFIT/LOSS FOR THE FINANCIAL TERM -220,483 -139,626

The accounting notes and explanations are an integral part of financial statements and should be read accordingly. Other Comprehensive Income Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010 In thousand EUR

Item Note 2010 2009

Corrected

Net profit/loss for the financial year -220,483 -139,626 Other comprehensive income in the financial year Changes in the fair value of property 7.1 - 39,798

Changes in the fair value of available-for-sale financial assets 7.2 -19,363 -48,097

Eliminated/changed value of derived financial instruments for cash flow hedging 7.3 3,513 185 Disposal of available-for-sale financial assets - -8,882 Effects of eliminating deferred tax assets and liabilities 7.4 11,641 -1,980

Total other comprehensive income in the financial year -4,208 -18,976 Total comprehensive income for the financial year -224,691 -158,602

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

37

Income Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010 In thousand EUR

Item Note 2010 2009

Corrected REVENUE 6.1 316,574 503,147 Cost of sold items -236,494 -387,153 GROSS SALES INCOME 80,080 115,994 Other operating income 6.2 9,610 2,554 Distribution expenses 6.3 -68,224 -74,053 Administrative expenses 6.3 -25,907 -28,604 Other operating expenses 6.4 -32,044 -3,201 OPERATING PROFIT/LOSS -36,485 12,689 Financial income 6.5 17,273 27,957 Financial expenses 6.5 -175,785 -178,553 NET FINANCIAL COSTS -158,512 -150,595 Other expenses 6.6 -24,768 0 LOSS BEFORE TAX -219,765 -137,907

Income tax expense 6.7 -718 -1,719 PROFIT/LOSS FOR THE FINANCIAL TERM -220,483 -139,626

The accounting notes and explanations are an integral part of financial statements and should be read accordingly. Other Comprehensive Income Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010 In thousand EUR

Item Note 2010 2009

Corrected

Net profit/loss for the financial year -220,483 -139,626 Other comprehensive income in the financial year Changes in the fair value of property 7.1 - 39,798

Changes in the fair value of available-for-sale financial assets 7.2 -19,363 -48,097

Eliminated/changed value of derived financial instruments for cash flow hedging 7.3 3,513 185 Disposal of available-for-sale financial assets - -8,882 Effects of eliminating deferred tax assets and liabilities 7.4 11,641 -1,980

Total other comprehensive income in the financial year -4,208 -18,976 Total comprehensive income for the financial year -224,691 -158,602

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

38

Cash Flow Statement of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010 In thousand EUR

Item 2010 2009

Corrected

CASH FLOW FROM OPERATING ACTIVITIES Profit/loss for the financial year -220,483 -139,626 Adjustments for: 215,341 163,837 Amortization of property, plant and equipment 9,343 8,882 Amortization of intangible assets 439 499 Impairment of assets 22,400 1,957 Reservation expense 28,522 0 Profit/loss from disposal of property, plant and equipment, and investment property 2,279 -118 Investment expenditure 122,350 125,602 Financial expenses 30,853 25,476 Foreign exchange profit/loss -40 -174 Fall/increase in long-term provisions -1,523 302 Income taxes paid 718 1,719 Change in net working capital and provisions 33,108 92,686 Decrease in trade and other receivables 97,526 20,245 Decrease in inventories 21,475 9,965 Increase/decrease in trade and other payables -86,047 66,732 Increase/decrease in accruals and provisions 154 -4,256 Cash flow from operating activities 27,966 116,897 Return/payment of income tax 2,775 -6,416 Net cash flow from operating activities 30,740 110,481

CASH FLOW FROM INVESTMENT ACTIVITIES

Interest received 7,705 15,519 Foreign exchange gains received 81 150 Dividends received 3,463 3,303 Proceeds from sale of property, plant and equipment 9,196 41,604 Proceeds from sale of investment property 323 131 Proceeds from sale of investments 37,116 27,886 Proceeds from paid loans 4,396 147,737 Proceeds from return of later payments 4,000 0 Acquisition of property, plant and equipment -3,405 -60,551 Acquisition of intangible assets -110 -247 Acquisition of investment property -135 0 Acquisitions of investments in subsidiaries -183 0 Acquisition of financial investments -10,751 -74,990 Acquisition of received loans -43,324 -225,449 Net cash flow used in investing activities 8,374 -124,907

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from loans taken 213,552 468,013 Costs of repaying taken loans -227,353 -428,481 Payment of foreign exchange differences -123 34 Interest paid -19,939 -25,167 Net cash flow used in financing activities -33,862 14,399

INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS 5,252 -27

Cash and cash equivalents at the beginning of the financial term 332 359 Cash and cash equivalents at the end of the financial term 5,584 332

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Statement of Changes in Equity of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010

The items of other comprehensive income are shown in the net worth minus the deferred taxes.

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

40

Statement of Changes in Equity of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010

In thousand EUR

Item Share

capital Legal

reserves

Reserves for own shares

Own shares

Retained earnings Net loss

Fair value reserve – land and

buildings

Fair value

reserve – financial

assets

Interest rate

swap reserve

TOTAL EQUITY

Balance on 31 December 2009 54,773 1,030 53,159 -53,159 1,373 0 31,928 37,952 -2,811 124,246 Comprehensive income for the financial year

Net profit/loss for the financial year - - - - - -220,483 - - - -220,483

Other comprehensive income in the financial year - - - - - - 8,089 -15,108 2,811 -4,208

Total comprehensive income for the financial year 0 0 0 0 1,373 -220,483 8,089 -15,108 2,811 -224,691

Transactions with owners

Purchase of own shares - - - -3,812 - - - - - -3,812

Sale of own shares - - - 3,812 - - - - - 3,812 Covering the total loss from the financial year by the decision of the management board - -1,030 - - -1,373 2,403 - - - 0 Balance on 31 December 2010 54,773 0 53,159 -53,159 0 -218,080 40,017 22,844 0 -100,446

The items of other comprehensive income are shown in the net worth minus the deferred taxes.

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

40

Statement of Changes in Equity of Merkur, d. d., for the Period between 1 January 2010 and 31 December 2010

In thousand EUR

Item Share

capital Legal

reserves

Reserves for own shares

Own shares

Retained earnings Net loss

Fair value reserve – land and

buildings

Fair value

reserve – financial

assets

Interest rate

swap reserve

TOTAL EQUITY

Balance on 31 December 2009 54,773 1,030 53,159 -53,159 1,373 0 31,928 37,952 -2,811 124,246 Comprehensive income for the financial year

Net profit/loss for the financial year - - - - - -220,483 - - - -220,483

Other comprehensive income in the financial year - - - - - - 8,089 -15,108 2,811 -4,208

Total comprehensive income for the financial year 0 0 0 0 1,373 -220,483 8,089 -15,108 2,811 -224,691

Transactions with owners

Purchase of own shares - - - -3,812 - - - - - -3,812

Sale of own shares - - - 3,812 - - - - - 3,812 Covering the total loss from the financial year by the decision of the management board - -1,030 - - -1,373 2,403 - - - 0 Balance on 31 December 2010 54,773 0 53,159 -53,159 0 -218,080 40,017 22,844 0 -100,446

The items of other comprehensive income are shown in the net worth minus the deferred taxes.

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

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Statement of Changes in Equity of Merkur, d. d., for the Period between 1 January 2009 and 31 December 2009

The items of other comprehensive income are shown in the net worth minus the deferred taxes.

The accounting notes and explanations are an integral part of financial statements and should be read accordingly.

* The amendments to the equity items for 31 December 2008 are explained in chapter 3.6 Errors in the previous financial years.

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Statement of Changes in Equity of Merkur, d. d., for the Period between 1 January 2009 and 31 December 2009

In thousand EUR

Item Share

capital Capital

reserves Legal

reserves

Reserves for own shares

Other reserves

from earnings

Own shares

Retained earnings Net loss

Fair value

reserve – land and

buildings

Fair value

reserve – financial

assets

Interest rate

swap reserve

TOTAL EQUITY

Balance on 31 December 2008 – amended* 54,773 76,701 5,551 53,159 9,344 -53,159 50,398 0 169 88,869 -2,959 282,848 Comprehensive income for the financial year Net profit/loss for the financial year - - - - - - - -139,626 - - - -139,626 Other comprehensive income in the financial year - - - - - - 34 31,759 -50,917 148 -18,976 Total comprehensive income for the financial year 0 0 0 0 0 0 34 -139,626 31,759 -50,917 148 -158,602 Transactions with owners Covering the total loss from the financial year by the decision of the management board - -76,701 -4,521 - -9,344 - -49,378 139,945 - - - 0 Balance on 31 December 2009 54,773 0 1,030 53,159 0 -53,159 1,054 319 31,928 37,952 -2,811 124,246

The items of other comprehensive income are shown in the net worth minus the deferred taxes. The accounting notes and explanations are an integral part of financial statements and should be read accordingly. * The amendments to the equity items for 31 December 2008 are explained in chapter 3.6 Errors in the previous financial years.

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Statement of Changes in Equity of Merkur, d. d., for the Period between 1 January 2009 and 31 December 2009

In thousand EUR

Item Share

capital Capital

reserves Legal

reserves

Reserves for own shares

Other reserves

from earnings

Own shares

Retained earnings Net loss

Fair value

reserve – land and

buildings

Fair value

reserve – financial

assets

Interest rate

swap reserve

TOTAL EQUITY

Balance on 31 December 2008 – amended* 54,773 76,701 5,551 53,159 9,344 -53,159 50,398 0 169 88,869 -2,959 282,848 Comprehensive income for the financial year Net profit/loss for the financial year - - - - - - - -139,626 - - - -139,626 Other comprehensive income in the financial year - - - - - - 34 31,759 -50,917 148 -18,976 Total comprehensive income for the financial year 0 0 0 0 0 0 34 -139,626 31,759 -50,917 148 -158,602 Transactions with owners Covering the total loss from the financial year by the decision of the management board - -76,701 -4,521 - -9,344 - -49,378 139,945 - - - 0 Balance on 31 December 2009 54,773 0 1,030 53,159 0 -53,159 1,054 319 31,928 37,952 -2,811 124,246

The items of other comprehensive income are shown in the net worth minus the deferred taxes. The accounting notes and explanations are an integral part of financial statements and should be read accordingly. * The amendments to the equity items for 31 December 2008 are explained in chapter 3.6 Errors in the previous financial years.

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Notes to the Audited Financial Statements of Merkur, d. d.

1 The Reporting Company

Merkur, trgovina in storitve, d. d. (hereinafter referred to as the Company) is registered in Slovenia at the following address: Cesta na Okroglo 7, 4202 Naklo. The financial statements and the annual report have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU (hereinafter referred to as IFRS) and the Companies Act (ZGD-1). The financial year coincides with the calendar year.

The principal Company activities comprise wholesale and retail of technical products, construction materials and wood, consumer products, chemicals, fitting materials end energetics.

The management board confirmed the financial statements on 16 August 2011.

2 Controlling the Company

MERFIN, Holding Company, d. o. o., registered at verovškova ulica 55, 1000 Ljubljana, Slovenia, lost its control over Merkur, d. d. in 2010 because its ownership share dropped to 8.81% (9.79% voting rights) according to the balance on 31 December 2010. On 31 December 2009 MERFIN, d. o. o., had a 67.50% ownership or 75% of voting rights. On 30 June 2010 the company still had a 68.60% share, but had no influence on decision making since 1 July 2010 after the new management board of Merkur, d. d., started its term. In the second half of 2010 the creditors of MERFIN, d. o. o., were selling the seized shares of Merkur, d. d., this is why the ownership changed significantly compared to the last day of 2009 (see item Shares and the ownership structure in the Business report), but none of the owners have a controlling share. The bankruptcy procedure of MERFIN, d. o. o., Ljubljana was launched on 3 June 2011.

3 The Grounds for Compiling Financial Statements

3.1 Assumption of an Operating CompanyThe financial statements are prepared on the assumption that the company in question is an operating one, which means that the assets are gained and sold and that the payables are covered on conditions of standard operations. Financial statements do not include the adjustments that would be necessary if the assumption of an operating company was not true, except in including the noncurrent receivables and payables of deterred taxes. These were eliminated entirely, and that is explained in item 5.21 Deferred taxes.

On 16 September the Management Board of Merkur, d. d., established that the Company is insolvent and must therefore observe the regulations of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act (hereinafter referred to as ZFPPIPP). The Management Board also notified the Supervisory Board. In accordance with the ZFPPIPP, since the day when the insolvency was established, the Company settled its due obligations according to the said act. Merkur, d. d., filed a bankruptcy petition on 30 September 2010, which included a financial restructuring plan (FRP). The court issued a decision to launch the compulsory settlement and appointed the Official Receiver. The compulsory settlement procedure is described in item 9 Business events after the balance sheet date

According to Article 40 of the ZFPPIPP the regulations of the act are used after compulsory settlement is confirmed and final, and until the debtor does not pay all its creditors for whom the compulsory settlement is in action. In accordance with the confirmed compulsory settlement the planned deadline for paying the creditors is 31 December 2015.

In the event that the Company fails to fulfill the obligations of the financial reorganization plan the ability of the Company to continue its activities as an operating company will become uncertain.

3. 2 Declaration of ComplianceThe financial statements have been prepared in accordance with the IFRS as adopted by the EU. The accounting and reporting rules of the IFRS and the Companies Act were observed in the process.

New Standards and Notes that have not yet stepped into Force

In preparing the financial statements for 2010 the standards and notes that have not been in force yet on 31 December 2010 or their use was not mandatory in 2010 were not applied. • IAS 24 Related Party Disclosure – simplifies the demands for the disclosure of companies related to the government, and explains the definitions of related parties (applies for financial years starting on 1 January 2011 or later). • IAS 32 Financial Instruments: Presentation – calculates the issuing of shareholders’ rights (applies for financial years starting on 1 February 2010 or later). • IFRS 1 First Time Adoption of International Financial Reporting Standards – additional exemptions for the first adoption (applies for financial years starting on 1 July 2010 or later). • IFRIC 14 and IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – advance payment of the minimum funding requirements (applies for financial years starting on 1 January 2011 or later). • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (applies for financial years starting on 1 July 2010 or later).

The Company estimates that changes to these standards, corrections and notes will not significantly affect the financial statements in the initial stages of their use.

The IFRS adopted by the EU are currently not significantly different from those adopted by the International Accounting Standards Committee, except for the following standards and notes that have not yet been approved on 31 December 2010:

• IFRS 9 Financial Instruments (applies for financial years starting on 1 January 2013 or later). • IFRS 7 Financial Instruments: Disclosures – the transfer of financial assets (applies for financial years starting on 1 July 2011 or later). • Changes to standards and notes: IFRS Amendments (2010) – the amendments to IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13, mainly to clear the inconsistencies and explanations (most of the changes apply to financial years starting on 1 January 2011 or later).

The Company estimates that the adoption of these standards, changes and notes will not significantly affect the financial statements in the initial stages of their use.

However, accounting the risk protection related to the financial assets and liabilities portfolio remains unregulated as the EC has not adopted it yet.

The Company estimates that using the accounting of the risk protection related to the financial assets and liabilities in accordance with the obligations of IAS 39: Financial Instruments: recognition and measurement, would not significantly affect the financial statements of the company if used on the date of the balance.

3. 3 The Grounds for Measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following items that are measured at fair value: • Property, • Investment property, • Available-for-sale financial assets, • Derivative financial instruments.

The methods used to measure fair value are described in notes related to these assets, namely: • 4.3 Property • 4.5 Investment property • 4.6 Financial assets • 4.2 Financial instruments

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3. 4 Functional and Presentation Currency

These financial statements are presented in euros (EUR), which is the Company’s functional currency. All financial information presented in EUR has been rounded to the nearest thousand. Rounding may cause slight differences when adding the values.

3. 5 The Use of Estimates and Judgments

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The estimates and assumptions are regularly revised. Revisions to accounting estimates are recognized in the period in which the estimate is revised.

Important assessments of uncertainty and critical judgment that the management discussed in the process of preparing the accounting policies and that affect the values in the financial statements the most apply to the classification of leases, valuations of property and financial assets, impairments of given loans and receivables from customers and reservation estimates.

3. 6 Errors in the Previous Financial Years

Merkur, d. d., corrects the errors from previous financial years retrospectively in accordance with IAS 8 in the first financial statements approved for publication following the discovery of errors. The errors are corrected by: • recalculating the comparative values for the presented previous term or terms in n which the errors occurred, • recalculating the initial balance of assets, debts and equity for the first presented previous term if the error occurred before the first presented previous term.

In 2010 Merkur, d. d., corrected an error from the previous terms occurred in classification of leases for certain sales centers in Slovenia. The management adopted this decision based on the acquired documentation which shows that certain business leases are treated as financial leases because of the existence of contractual rights or obligations towards lease givers for buying the property after the lease term expires.

The error correction affects the financial position of the Company and also the balance because property is amortized based on the same amortization rates as apply for this group of assets according to accounting policies of the Company, this is why the amortization cost increased, as did the interest cost while the cost of leases dropped.

Because correcting the error in the year it occurred would not be sensible and cost-efficient, the error is corrected by recalculating the starting balance of assets, debts and equity for the first presented previous term, that is, 31 December 2008. The errors from the previous terms are explained below.

The Effect of the Error Correction on the Financial Position of Merkur, d. d.

Reclassification of Costs and Income in Connection to Operating Receivables

In its financial statements for 2010 Merkur, d. d., recognized the costs of value impairment and write-off of operating receivables as other operating expenses, and the income from paid receivables as other operating income. For better data comparison the Company also reclassified the said categories from financial costs to operating costs and from financial income to operating income respectively. The reclassification does not affect the profit/loss from the term, which is also shown in the bellow balance sheet of Merkur, d. d., for 2009.

The Effect of Error Correction and Reclassification of Costs and Income in Connection with Operating Receivables on the Profit/loss of Merkur, d. d., for 2009:

4 Significant Accounting Policies

The company has strictly followed the below listed accounting policies in all periods presented in the attached financial statements.

4.1 Foreign Currency Translation

Foreign Currency Transactions

Transactions in foreign currency are translated to the respective functional currency of the company at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the ECB exchange date at that date. The foreign currency gain or loss is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for the active interests and payments during the period, and the amortized cost in foreign currency translated at the ECB

40

45

The Effect of the Error Correction on the Financial Position of Merkur, d. d. In thousand EUR 31 Dec. 2008

Asset/equity item 31 Dec. 2008

Corrected Previously published

The difference because of correction

Property, plant and equipment 201,396 159,994 41,402 Liabilities from financial lease 51,194 10,846 40,348 Retained earnings 50,398 49,344 1,054

31 Dec. 2009

Asset/equity item 31 Dec. 2009

Corrected Previously published

The difference because of correction

Property, plant and equipment 251,452 210,609 40,843 Liabilities from financial lease 58,603 19,133 39,470 Retained earnings 50,398 49,344 1,054 Profit from 2009 139,626 139,945 319

Reclassification of Costs and Income in Connection to Operating Receivables In its financial statements for 2010 Merkur, d. d., recognized the costs of value impairment and write-off of operating receivables as other operating expenses, and the income from paid receivables as other operating income. For better data comparison the Company also reclassified the said categories from financial costs to operating costs and from financial income to operating income respectively. The reclassification does not affect the profit/loss from the term, which is also shown in the bellow balance sheet of Merkur, d. d., for 2009. The Effect of Error Correction and Reclassification of Costs and Income in Connection with Operating Receivables on the Profit/loss of Merkur, d. d., for 2009: In thousand EUR

Item 2009

Corrected

2009 Previously published

The difference because of correction

The difference because of the

reclassification of costs and income

REVENUE 503,147 503,147 - 0 Cost of sold items -387,153 -387,153 - 0 GROSS SALES INCOME 115,994 115,994 - 0 Other operating income 2,554 1,539 - 1,014 Distribution expenses -74,053 -75,480 1,427 0 - of which property amortization 9,381 8,822 -559 0 - of which leases for sales centers 7,024 9,010 1,986 Administrative expenses -28,604 -28,604 - 0 Other operating expenses -3,201 -1,878 - -1,323 OPERATING PROFIT/LOSS 12,689 11,572 1,427 -310 Financial income 27,957 28,972 - -1,014 Financial expenses -178,553 -178,769 -1,107 1,323 - of which interests 25,167 24,060 -1,107 NET FINANCIAL COSTS -150,595 -149,797 -1,107 310 PROFIT/LOSS BEFORE TAXES -137,907 -138,226 319 0

Tax on profit -1,719 -1,719 - PROFIT/LOSS FOR THE FINANCIAL TERM -139,626 -139,945 319 0

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The Effect of the Error Correction on the Financial Position of Merkur, d. d. In thousand EUR 31 Dec. 2008

Asset/equity item 31 Dec. 2008

Corrected Previously published

The difference because of correction

Property, plant and equipment 201,396 159,994 41,402 Liabilities from financial lease 51,194 10,846 40,348 Retained earnings 50,398 49,344 1,054

31 Dec. 2009

Asset/equity item 31 Dec. 2009

Corrected Previously published

The difference because of correction

Property, plant and equipment 251,452 210,609 40,843 Liabilities from financial lease 58,603 19,133 39,470 Retained earnings 50,398 49,344 1,054 Profit from 2009 139,626 139,945 319

Reclassification of Costs and Income in Connection to Operating Receivables In its financial statements for 2010 Merkur, d. d., recognized the costs of value impairment and write-off of operating receivables as other operating expenses, and the income from paid receivables as other operating income. For better data comparison the Company also reclassified the said categories from financial costs to operating costs and from financial income to operating income respectively. The reclassification does not affect the profit/loss from the term, which is also shown in the bellow balance sheet of Merkur, d. d., for 2009. The Effect of Error Correction and Reclassification of Costs and Income in Connection with Operating Receivables on the Profit/loss of Merkur, d. d., for 2009: In thousand EUR

Item 2009

Corrected

2009 Previously published

The difference because of correction

The difference because of the

reclassification of costs and income

REVENUE 503,147 503,147 - 0 Cost of sold items -387,153 -387,153 - 0 GROSS SALES INCOME 115,994 115,994 - 0 Other operating income 2,554 1,539 - 1,014 Distribution expenses -74,053 -75,480 1,427 0 - of which property amortization 9,381 8,822 -559 0 - of which leases for sales centers 7,024 9,010 1,986 Administrative expenses -28,604 -28,604 - 0 Other operating expenses -3,201 -1,878 - -1,323 OPERATING PROFIT/LOSS 12,689 11,572 1,427 -310 Financial income 27,957 28,972 - -1,014 Financial expenses -178,553 -178,769 -1,107 1,323 - of which interests 25,167 24,060 -1,107 NET FINANCIAL COSTS -150,595 -149,797 -1,107 310 PROFIT/LOSS BEFORE TAXES -137,907 -138,226 319 0

Tax on profit -1,719 -1,719 - PROFIT/LOSS FOR THE FINANCIAL TERM -139,626 -139,945 319 0

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exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the functional currency at the exchange rate at the date when the fair value was determined. Foreign currency losses or gains are recognized in profit or loss, except for differences arising on retranslation of available-for-sale equity instruments, or a non-financial liability designated as cash flow hedges, which are recognized directly in equity.

4.2 Financial Instruments

Non-Derivative Financial Instruments

The company’s non-derivative financial instruments comprise: investments in equity of subsidiaries, available-for-sale financial assets, loans given and taken, and receivables and liabilities.

Non-derivative financial instruments are recognized at their fair value, plus any costs directly attributable to the transaction on the date they are incurred, or on the day the company becomes a party to the contractual terms of the instrument. The company derecognizes a financial instrument when all contractual rights to receive cash flows expire, or when it transfers the contractual rights to receive cash flows from a non-derivative financial instrument with a transaction transferring all the risks and benefits of owning the non-derivative financial instrument. Any share in the transferred financial asset, which the company makes or transfers, is recognized as individual asset or liability. Non-derivative financial assets and liabilities are offset, and the net amount is reported in the balance sheet when, and only when the company has the legally enforceable right to set off the recognized amounts and there is an intention to settle on the net basis, or to realize the asset and settle the liability simultaneously.

After the initial recognition, non-derivative financial instruments are measured as described below under individual categories of financial instruments.

Accounting for financial revenue and expense is described under item 4.20 Financial Revenue and Expense.

Derivative Financial Instruments

Merkur, d. d., holds derivative financial instruments in order to hedge its interest rate risk exposure, and holds options for purchasing shares.

Derivatives are recognized initially at their fair value and attributable transaction costs are recognized in profit or loss when incurred. Subsequently, derivatives are measured at their fair value, and changes therein are accounted for as described below. Interest rate risk management is successful if it remains between 80 and 125%.

Determining Fair Value

The fair value of interest rate swaps is based on broker quotes. Adequacy of these quotes is tested by using discounted net cash flow analysis based on the terms of each contract, and using market interest rates for similar instruments at the valuation date.

Cash Flow Hedges

For a derivative designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially recognized at fair value as a component of other comprehensive income, and is disclosed as hedge reserve, which is an item of equity. The amount recognized in equity is excluded and included in profit or loss in the same period in which the hedged cash flow affected profit or loss, and is recorded under the same item as the hedged item in the financial statement. Any ineffective portion of changes in the fair value of the derivative is recognized directly in profit or loss. The company discontinues hedge accounting, if the hedging instrument no longer meets the criteria for hedge accounting, or the hedging instrument is sold, terminated or exercised, or if the company revokes the hedge designation. The cumulative gain or loss recognized in other comprehensive income remains presented in the hedging reserve as long as the forecast transaction does not affect profit or loss.

Since the company is in compulsory settlement proceedings, hedge accounting was discontinued in accordance with contract provisions, and the company recognized the cumulative effect in the profit and loss statement for 2010.

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4.3 Property, Plant and Equipment

Initial Measurement

An item of property, plant and equipment (hereinafter: PPE) is initially recorded at cost, which comprises their purchase price, import duties and non-refundable purchase taxes, and any costs necessary to bring the asset to working condition for its intended use. The cost also comprises borrowings costs (interest) related to the construction of an item of property, plant and equipment until the item is brought into use.

Subsequent or agreed investments and improvements made to assets held under finance or operating lease are recognized as property, plant and equipment, or their part.

Subsequent Costs

Costs of replacing a part on a PPE are recognized in the book value of the asset, if it is probable that the company will enjoy economic benefits from the part of the asset in the future, and if the cost can be measured reliably. Subsequent expenditures on repairs and maintenance of PPE, the purpose of which is the restoration or maintenance of future economic benefits, are, on the basis of the originally estimated rate of efficiency and the service life of the asset, recognized as maintenance costs in the financial statements and as expenditure in the period when they are incurred.

Revaluation of Property, Plant and Equipment

After recognition as an asset, an item of property, plant and equipment is carried under the cost model, except for property that is carried under the revaluation model, which is based on the fair value less any subsequent depreciation and accumulated impairment losses. Revaluation is performed at least every five years. The company revaluated its real estate on 31 December 2009. It also checked the values at the end of 2010, and carried out revaluation on 31 December 2010 where necessary.

If an asset’s book value is increased as a result of a revaluation, the increase is recognized in other comprehensive income as revaluation reserve under equity. Any decrease is recognized in other comprehensive income as a decrease in the revaluation reserve if the amount related to certain property was recognized as surplus under equity before, while the remaining loss is recognized directly in the profit or loss.

Determining Fair Value of Real Estate Carried Under Revaluation Model

The fair value of property is based on the market value. The market value of a property is the estimated amount for which a property could be exchanged on the date of valuation between knowledgeable, willing parties in an arm’s length transaction.

Derecognizing Property, Plant and Equipment

When an asset is derecognized (disposed of or withdrawn from use), the revaluation reserve included in equity is transferred directly to retained earnings.

Depreciation, Depreciation Methods, and Useful Lives

Depreciation of PPE items begins on the first day of the month following the month when they are available for use. Depreciation is calculated on a straight-line basis over the estimated useful lives of each item of property, plant and equipment, and is recognized in the profit and loss statement. The estimated useful lives of assets are as follows:

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Type of property, plant and equipment Useful lifeBusiness premises, shops, warehouses 40 years Auxiliary warehouses and other facilities 30 years External surfaces and rail tracks 25 years Warehouse tents, containers, greenhouses 10 years Warehouse equipment 5–20 years Technological equipment, work devices, and machines 6–16 years Shop, office and other equipment 4–10 years Small tools above EUR 500 4 years Computer and telecommunications equipment 3–5 years

Land, advances for PPE, PPE under construction or in process of acquisition, and art works are not depreciated.

4.4 Intangible Assets

Assets recognized as intangible assets include non-monetary intangible assets, such as computer software, long-term patents and licenses.

Cost of internal research and development, brands and similar items are not recognized as intangible assets, but are immediately recognized as cost or operating expenses in the period when they are incurred.

Intangible assets are carried at cost, less any amortization, and any accumulated impairment loss (see accounting policy Impairment of Assets).

Amortization

Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, and is recognized in the profit and loss statement. Amortization of intangible assets begins when the asset is available for use. Estimated useful lives are as follows:

Type of intangible assets Useful lifeSoftware 5 years Long-term licenses According to contract

Derecognizing Intangible Assets

An intangible asset is derecognized on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss upon derecognizing an intangible asset is the difference between any net disposal proceeds and book value of the asset. It is recognized in profit or loss when derecognition occurs.

4.5 Investment Property

Investment properties are properties which the company holds either to earn rental income, or for capital appreciation, or for both.

Initial Measurement

An investment property is initially measured at its cost, comprising the purchase price and transaction costs. These costs include legal fees, property transfer taxes, and other transaction related costs.

If it needs to be determined whether an asset is an investment property or property, the asset is deemed investment property if over 80% of its total value is used for renting out.

Measurement Subsequent to Initial Recognition

Subsequent to initial recognition, investment property is measured at fair value. Fair value of the property reflects the market conditions on the balance sheet day. The company revaluated the investment properties on 31 December 2010. The valuation of fair values of investment properties is performed by an authorized appraiser and in line with the prescribed methodology. Gains or losses arising from a change in the fair value of investment property are recognized in profit or loss for the period in which they arise.

Determining Fair Value

An external independent appraiser valuates the company’s investment portfolio. The fair value of a property is based on the market value, which is the estimated amount for which a property could be exchanged on the date of valuation between knowledgeable, willing parties in an arm’s length transaction.

In case it is impossible to determine current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

Derecognizing Investment Property

An investment property is derecognized on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal should be calculated as the difference between the net disposal proceeds and the book value of the asset and should be recognized in profit or loss.

4.6 Financial Assets

Available-for-Sale Financial Assets

The majority of company’s financial assets are classified as available for sale. Initially, financial assets and liabilities should be measured at fair value on the date of acquisition. Subsequently, they should be measured at fair value, which is based on the market value. The fair value of financial instruments that are quoted in an active market is their uniform bid price at the balance sheet date; the fair value of financial instruments that are not quoted in an active market is the weighted average price of securities from the transactions in the period, or a value based on a valuation model. Changes in fair value are recognized directly in other comprehensive income.

When the asset is derecognized, the cumulative gain or loss is recognized in profit or loss. Impairment losses and foreign exchange gains or losses on available-for-sale financial assets are recognized in profit or loss.

On disposal of financial assets, the company uses the weighted average price method.

Determining Fair Value

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

When determining the fair value, the company follows the following hierarchy: • The first level presents quoted market prices in an active market on 31 December (unadjusted) for assets or liabilities of the same class; • Level two measurements use market based inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. • The third level presents inputs on assets and liabilities that are not based on observable market data.

The company uses quoted market prices as the basis for determining the fair value of financial assets. If the financial instrument is not listed, or the market is deemed inactive, the company determines the fair value of the financial instrument by using inputs from levels two and three.

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Financial Investments in Subsidiaries

Financial investments in subsidiaries are accounted for at cost in the company’s financial statements. After acquisition, these investments are not revaluated due to exchange rate changes (if the investment was made into a company abroad), or due to increased value of the proportionate part of the equity of the company in which the company has invested. If the evaluation of the recoverable amount of the investment in a subsidiary shows that the book value exceeds the recoverable amount, the investment needs to be impaired to the recoverable amount.

Financial Investments in Associated Undertakings

Financial investments in associated enterprises are accounted for at cost in the company’s financial statements.

4.7 Loans Given

Loans given are initially measured at their fair value, and subsequently at amortized cost. Any differences between the fair value and amortized cost are recorded in the financial statements over the period of the loan repayment. The effective interest method is applied.

4.8 Impairment of Assets

An asset is impaired when its book value exceeds its recoverable amount.

At each balance sheet date, all assets are reviewed to look for any indication that an asset may be impaired. If there is an indication that an asset may be impaired, then the company must calculate the asset’s recoverable amount.

The recoverable amount is the asset’s fair value less costs to sell, or its value in use, depending on which is higher.

If the asset’s book value must be decreased, impairment loss is recognized in profit or loss for the period, unless it can be offset against revaluation reserve from past revaluations of the same asset.

Financial Assets (Including Receivables)

A financial asset is impaired, and impairment losses are recognized, if there is objective evidence that as a result of one or more events that occurred after the initial recognition of the asset the estimated cash flow from the asset has decreased, and this can be reliably measured.

Objective evidence on impairment of assets can be: debtor’s failure to fulfill obligations or breach of contract; restructuring of the amount that debtors owe to the company in agreement with the company; indications that the debtor will go bankrupt; the disappearance of active market for the security.

In case of equity securities, the objective evidence on the impairment includes a significant and prolonged drop of the fair value below the purchase price.

Impairment of Receivables and Loans Given

The company can assess the evidence of impairment individually or collectively. All significant receivables are assessed individually for specific impairment. If it is assessed that the book value of receivables exceeds their fair value, i.e. the recoverable amount, the receivables are impaired. If it is assumed that the receivables will not be settled by the set date of payment or in their full amount, they are deemed doubtful. If court proceedings have been launched, they are deemed disputed.

Receivables of smaller values are assessed for impairment collectively, by grouping together receivables with similar risk characteristics. Receivables are grouped together by maturity. When assessing collective impairment, the company uses past trends of the probability of default, time required to collect the receivables and the losses incurred, adjusted for management’s assessment as to whether the actual losses are likely to be higher or lower than suggested by historical trends considering current economic and credit conditions.

Considering experience from the previous years and the difficult economic situation in 2010, the Management Board assessed that the possibility to recover the receivables has decreased significantly and decided to amend the estimation regarding the recoverable amount. The receivables are adjusted by 100% of their book value if their maturity has expired by over 180 days. Receivables for which a collection procedure has been launched in court, and receivables in compulsory settlement proceedings, are adjusted by 100%. Until 2009, receivables have been impaired by different percentages by groups or based on individual assessments and supported by bad debt insurance. Previous assessments on recoverability of receivables are explained in more detail under 1.13 of the Accounting Report for 2009.

The company evaluates evidence about the impairment of loans individually for each significant loan.

An impairment loss of a financial asset measured at amortized cost is calculated as the difference between its book value and the estimated future cash flows discounted at the original effective interest rate. Losses are recognized in profit or loss. Part of the impaired asset thus continues to be recognized through the unwinding of the discount. When a subsequent event results in a decrease of impairment loss, the decrease in impairment loss is reversed through profit or loss.

Impairment of Available-for-Sale Financial Assets

The company assesses evidence on impairment of available-for-sale financial assets for each asset individually.

If the impairment in the fair value of an available-for-sale financial asset was recognized directly as revaluation surplus and there is objective evidence that the assets was long-term impaired, the impairment loss is recognized as a financial expense in the profit and loss statement.

Objective evidence of impairment of an investment for a listed company is a prolonged or significant decrease of the financial investment’s fair value below its book value. A prolonged decrease is a decrease of over 9 months, and a significant decrease means that the fair value dropped under the book value by 40% or more.

Non-Financial Assets

The company reviews at each reporting date the book value of significant non-financial assets, except for deferred tax assets, to determine whether there is any indication of impairment. If such indication exists, the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the higher of its value in use and its fair value less costs to sell. The asset’s value in use is estimated by discounting the estimated future cash flows 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 the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit).

The impairment of an asset or a cash-generating unit is recognized if its book value exceeds its recoverable amount. Impairment is recognized in the profit and loss statement. Impairment losses recognized in respect of a cash-generating unit are allocated first to reduce the book value of any goodwill allocated to the unit, and then to reduce the book values of the other assets in the unit (group of units) on a pro rata basis.

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4.9 Inventories

Measurement of Inventories

Inventories must be stated at the lower of historical cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling.

The company determines the cost of inventories by using the weighted average cost method.

The cost of purchase of inventories comprises the purchase price, import duties and other taxes (other than those subsequently recoverable from the tax authorities), and transport, handling and other costs directly attributable to the acquisition of goods or materials. Trade discounts, rebates and other similar items are deducted in determining the cost of purchase.

When inventories are sold, their book value is recognized as an expense in the period in which the related revenue was accounted for.

Net Realizable Value of Inventories

The cost of inventories may not be recoverable if the inventories are damaged, or have become wholly or partially obsolete, or if their selling prices have dropped. The cost of inventories may also not be recoverable if the estimated costs of completing or selling them have increased. The practice of writing inventories down below cost to net realizable value is consistent with the view that assets should not be carried in excess of amounts expected to be realized from their sale or use. The amount of any write-down of inventories to net realizable value and all inventory related losses are recognized as an expense in the period in which write-down or losses occur.

Write-offs or partial write-offs of damaged, expired or unserviceable inventories are performed regularly during the year or during the inventory by individual items. Based on a detailed review of the inventories through the criteria of the turnover and age in 2010, the Management Board estimated that the realizable value of slow-selling inventories is extremely low, and decided to amend the estimated realizable value of inventories, based on which a flat-rate correction was carried out in the amount of 100% of the book value of articles with zero turnover and inventories over one year old on the balance sheet day. Until 2009, lower criteria were used in estimating the inventories’ realizable value and the inventories were impaired by 5–80% of their book value, depending on the type of the product. Previous estimations on inventories’ realizable value are explained in more detail under 1.12 of the Accounting Report for 2009.

4.10 Trade and Other Receivables

Measuring the Receivables

At initial recognition, trade receivables are measured at amounts evident from the relevant documents under the assumption that the amounts owed will also be collected. As a rule, trade and other receivables are measured at amortized cost calculated under the effective interest method. Current trade receivables are not discounted at the balance sheet date.

Impairment of Trade Receivables

If there is objective evidence of an impairment of receivables, the loss is measured as the difference between the book value and the expected recoverable amount of receivables.

Impairment of receivables is described in more detail under 4.8 Impairment of Assets

Writing of receivables requires appropriate supporting documents: rejection of statement of balances of receivables, court decision, conclusion of compulsory settlement, conclusion of bankruptcy, and other appropriate documents.

4.11 Cash and Cash EquivalentsCash and cash equivalents comprise cash on hand and in the bank, and demand deposits. Automatic bank overdrafts are not cash but a short-term financial liability.

4.12 EquityTotal equity of the company is the total of its liabilities to owners that fall due if the enterprise discontinues its operations. It is defined by the amounts invested by owners and the amounts generated during operations that belong to owners, and reduced by loss from operations, repurchased treasury shares, and withdrawals (payouts). Total equity includes share capital, capital reserves, revenue reserves, retained earnings, fair value reserves, and treasury shares as a deductible item.

Repurchase of Share Capital (Treasury Shares)

When own shares or stakes recognized as part of the share capital are repurchased, the amount paid, which includes directly attributable costs and is net of any tax effects, is recognized as a deduction from equity. Repurchased shares or stakes are classified as treasury shares and are deducted from total equity. When treasury shares are sold or reissued, the amount received is recognized as an increase in share capital, and the resulting surplus or deficit on the transaction is transferred to retained earnings or capital reserves.

Dividends

Dividends are recognized as the company’s liability towards shareholders in the financial statements in the period in which the shareholders’ meeting adopted a resolution on paying dividends.

4.13 Loans Taken

Loans taken are initially recognized at fair value, which is not reduced by attributable transaction costs. Subsequent to initial recognition, loans are stated at amortized cost, and any difference between historical cost and amortized cost is recognized in the profit and loss statement over the period of the loan on an effective interest basis.

4.14 Trade and Other Payables

As a rule, trade and other payables are measured at amortized cost calculated under the effective interest method. Current trade payables are not discounted at the balance sheet date.

Trade and other payables are initially recognized at amounts evident from the relevant documents, which show the receipt of a product or a service, performed work or charged cost, or expense, or a share in profit or loss.

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4.15 Provisions

Provisions are recognized when a present legal or constructive obligation has arisen as a result of a past event, and it is probable that settling the obligation will require an outflow of resources embodying economic benefits. The effect of the time value of money is material, so the amount of a provision equals the present value of the expenditures expected to be required to settle the obligation.

Provisions for Severance Pay and Anniversary Bonuses

In accordance with the legal requirements and the collective agreement, the company must pay anniversary bonuses and severance pay upon retirement to employees. There are no other liabilities in respect of pension and retirement plans.

Provisions for State Subsidies

The company carries provisions from retained subsidies for employing a surplus quota of disabled persons. The company uses the provisions for improving working conditions for disabled persons.

Provisions for Lawsuits and Other Possible Obligations

The company has provisions for lawsuits in which it is a defendant. Annually, the company reviews the need for setting aside provisions based on the situation in the dispute and expected outcome.

The company also has provisions set aside for other obligations, for which there is a probability of settlement in the future, i.e. for issued sureties and for a decision issued by tax inspectors.

Short-Term Employee Income

Obligations for short-term employee income are measured on an undiscounted basis and are recognized as expenses as the work in question is performed. A liability is recognized for the amount expected to be paid within twelve months after the period expires if the company has a present legal or constructive obligation to make this payment for a past service provided by the employee and the obligation can be reliably measured (e.g. obligation for a unspent annual leave).

4.16 Leases

Types of Leases

Leases where Merkur, d. d., assumes all the significant risks and benefits arising from ownership are classified as finance leases. Other leases are classified as operating leases. Leased assets are not recognized in the company’s balance sheet.

Finance Leases

Initially, finance leases are recognized as assets and liabilities in the balance sheets at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum sum of lease payments, each determined at the inception of the lease. Subsequent to initial recognition, the asset is accounted for in compliance with the accounting policies applied to such an asset.

Operating Leases

Payments made under operating leases are recognized on a straight-line basis over the term of the lease.

4.17 Income Tax

Income tax comprises current and deferred tax. Income tax is recognized as expense in the profit and loss statement, except to the extent that it refers to items recognized directly in comprehensive income, in which case it is recognized in equity.

Current tax payable is the tax expected to be paid on the taxable income for the financial year, using tax rates applicable at the balance sheet date, and any adjustment to tax payable related to previous periods.

Deferred tax is recognized using the balance sheet liability method, based on temporary differences between the book values and tax bases for individual assets and liabilities. The amount of deferred tax is based on the expected manner of realization or settlement of the book value of assets and liabilities, using tax rates applicable at the balance sheet date, or tax rates in the period in which elimination of deferred tax assets or liabilities is expected.

A deferred tax asset is recognized to the extent that it is probable that taxable profits will be available against which it can be utilized in the future. Deferred tax assets are reduced to the extent that it is no longer probable that it will be possible to utilize the benefit of that deferred tax asset.

4.18 Revenue

Revenue from Sale of Goods

Sales revenue from sale of goods and products is recognized at the fair value of the consideration received or receivable, less returns, and trade and quantity discounts. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, there is certainty about the recovery of the consideration and the associated costs, or possible return of goods and products, and when the amount of revenue can be measured reliably.

The Customer Loyalty System

The company issues Merkur’s Loyalty Card to its customers. The card is used to record every purchase in sales centers or franchise stores, which brings extra benefits to card holders. Every three months card holders receive a discount coupon, which they can use upon their next purchase. Depending on the total value of all purchases made in the three months, card holders receive a credit in the extent of 2–5% of the total value of purchases. Revenue from rewarding loyal customers is deferred based on the fair value of the awards and the awards expected to be redeemed, until the awards are actually redeemed.

Revenue from Services Rendered

Revenue from services rendered is recognized in the profit and loss statement in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is estimated by reviewing the performed work.

Rental Income and Finance Leases

Rental income from investment property is recognized as revenue on a straight-line basis over the term of the lease. Payments made under finance lease are recognized as revenue on a straight-line basis over the term of the lease.

Other Operating Revenue

Other operating revenue includes income arising from disposal of property, plant and equipment, and investment property as a surplus of their sales value over their book value, and revaluation of investment property to fair value, and revenue from recovered receivables (including reversal of impairment loss from receivables).

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4.19 Expenses

Operating ExpensesOperating expenses are classified according to their function as cost of goods sold, selling cost, general and administrative expenses (administration and purchases), and other operating expenses that are not classified as costs.

Cost of Goods SoldThe reposting of cost of inventories of merchandise to cost of goods sold is made on the basis of the weighted average price method. The cost of goods sold is directly decreased by rebates and super-rebates that are subsequently granted by the suppliers. Rebates are partly included in the cost of goods sold.

Selling Cost (Including Depreciation)Selling cost (including depreciation) includes all costs related to the sale of products and services. Since these costs are no longer held in inventories, they are recognized in their total amount under operating expenses in the accounting period in which they were incurred.

Administrative Expenses (Including Depreciation)General and administrative expenses (including depreciation) include costs related to purchases and administration, including auxiliary activities. They are recognized in their total amount as operating expenses in the period in which they were incurred.

Costs by NatureCost of materials and cost of services are amounts stated in the suppliers’ invoices and other documents, less discounts granted upon the sale or subsequently, also due to an early payment.

Depreciation/amortization is calculated per unit at rates taking into account the shortest useful life of an item of a tangible or intangible asset.

Labor costs include gross wages and salaries under the collective agreement and the individual employment contracts, contributions and taxes paid by the employer, voluntary additional pension insurance, other labor costs (holiday allowance, transport allowance, meals allowance, etc.).

Other operating expenses arise in connection with impairment losses or write-downs and upon disposal of property, plant and equipment, and investment property due to loss on disposal.

Other expenses are included in the presentation of the profit and loss statement due to significant one-off expenses, which however did not impact the profit or loss.

4.20 Financial Income and Expenses

Financial Income

Financial income comprises interest income from investments and trade receivables, foreign exchange gains, dividend income, and gains on the disposal of available-for-sale financial assets.

Interest income is recognized in profit or loss as it accrues using the effective interest method. Dividend income is recognized in profit or loss on the date that the shareholder’s right to receive payment is realized, which in the case of listed securities is the ex-dividend date.

Financial Expenses

Financial expenses comprise borrowing costs, unwinding of the discount on provisions, impairment losses and write-offs related to financial assets, and losses on hedging instruments that are recognized in profit or loss. All borrowing costs are recognized in profit or loss using the effective interest method, unless they are attributed to property, plant and equipment under construction. Foreign exchange gains and losses are reported on a net basis. Financial expenses are recognized when accounted for, irrespective of related payments.

4.21 Cash Flow Statement The cash flow statement has been prepared using the indirect method and based on data from the balance sheet as on 31 December 2009 and 31 December 2010, and data from the profit and loss statement for 2009. Cash and cash equivalents in the cash flow statement present cash on hand and in bank accounts, and bank deposits with original maturity of up to three months.

4.22 Financial Risk Management In relation to exposure to business risks, Merkur, d. d., follows the current situation in world markets. The unsuccessful management buyout and the economic crisis had the most significant negative impact on the company’s operations, and the most negative consequence was losing the trust of our partners – especially banks and suppliers – liabilities towards which were increased to the extent that we were unable to repay them fully in the originally agreed deadlines. For this reason, we pay special attention to financial, especially credit and liquidity risks.

With the beginning of economic crisis new reporting methods have come to the forefront, which focus not only on numbers but also different scenarios and analyses, while risk has become a fact we must be aware of, monitor and manage. In managing financial risks we follow the adopted financial policy, which includes guidelines for efficient and systematic financial risk management. The aims of active risk management are: • Achieving stability of operations and reducing the exposure to individual risks to an acceptable level, • Increasing the market value of Merkur, d. d., its competitiveness and credit rating, • Having more predictable cash flows and profit, • Reducing tax liabilities, and • Reducing the impact of extremely harmful events.

Merkur, d. d., estimates financial risks by the following groups: • Credit risks include the risk that customers or other business partners might fail to settle their liabilities to the company thus reducing the company’s economic benefits; • Market risks include the interest rate risk, foreign currency risk, inflation risk, liquidity risk, and risk of changes in the market prices of securities; • Insolvency risk is the risk of short-term and long-term inability to settle the liabilities on time.

In the Notes to Financial Statements, risks are also quantified.

Credit Risk

The exposure of Merkur, d. d., to credit risk depends on partners and economic situations in their countries of origin.

Merkur, d. d., has adopted a policy of active credit risk management, which comprises the regular monitoring of outstanding receivables, limiting exposure to individual customers through cap system, offering incentives for early settlements, charging penalty interest, bad debt insurance, and a policy of collecting receivables.

Because of the increased volatility of the global market, Merkur has been implementing risk management measures even more dynamically and consistently than in the past in order to reduce the impact of extraordinary and unpredictable harmful events. Smaller customers have also been monitored more intensively.

Partners that were granted loans are also subject to credit risk monitoring. If there is risk of default, we make allowances for doubtful debts.

At the beginning of September, we transferred the finance responsibility processes from the financial to the commercial department and modernized the ABC credit ranking of partners, thus improving the awareness on the importance of credit risk management in the company, and updated the main measures for efficiently managing the credit risk, which are:

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• Any future receivables must be insured already upon concluding the contract, and the credit rating of new and existing customers is evaluated by the credit rating office. Collateral can be in the form of a mortgage, securities, a bank guarantee or a letter of credit for customers with high risk. • A special team monitors receivables of individual debtors. The team also coordinates the operations’ dynamics in advance and examines the adequacy of risk exposure, and based on this increases or decreases the cap in collaboration with the credit rating office. • A cap is set for regular customers based on estimated turnover (depending on the credit rating and acquired collateral). • A procedure for collecting receivables (including through court) from customers is in place..

ABC credit rating is static and performed at least once a year based on financial statements, or more frequently, depending on the partner’s size and activity. In addition, depending on the partner’s importance, the company also uses independent risk assessments and recommendations on the cap amount by an external, independent provider, information on current financial soundness, daily information on blocked bank accounts and ten-year history of transactions with Merkur, d. d., together with the activities of partners’ founders, owners and representatives and their involvement in critical procedures.

The Management Board of Merkur, d. d., believes that despite these risk management measures the exposure to risks remains high, especially due to high impairments, and that the trend is not changing.

Market Risk

The market risk is the risk that changes in market prices, such as those of foreign exchange rates, interest rates, or equity, will affect the revenue of Merkur, d. d, or value of its financial instruments. Market risk management is aimed at managing and controlling exposure to market risks within reasonable limits while at the same time optimizing the profit.

Merkur, d. d., used derivatives to minimize the fluctuations in profit or loss due to market risks, however their validity expired when the compulsory settlement proceedings were launched.

Interest Rate Risk

The interest rate risk is a risk that the value of the financial instrument might fluctuate due to changes in market interest rates. Two thirds of loans of Merkur, d. d., are indexed with the EURIBOR variable interest rate, so the company’s operations are exposed to interest rate risk.

As the recession started, the EURIBOR rate became very unpredictable. After record high levels at the end of 2008, the reference level dropped to a record low level in the first half of 2009 and continued to drop slowly until the end of the first quarter of 2010, when it started growing again. As the market interest rates were decreasing, margins and bank costs were increasing, so the borrowing costs did not actually drop. On the other hand, we should not expect the margins to decrease now that the reference interest rate started increasing again.

To avoid risks caused by the extreme volatility of interest rates, Merkur, d. d., adjusts the asset related interest rates to the interests from liabilities. The company also decided to hedge interest rate risk with derivative financial instruments based on the financial institutions’ forecasts on medium-term changes in interest rates.

In 2010, Merkur, d. d., also hedged interest rate risks with interest rate swaps, which it applied to one fifth of the exposure to interest rate risks, however, the instrument was no longer valid once the compulsory settlement proceedings were launched.

The share of loans indexed with the variable interest rate, and the trend of reference interest rates shifting from the record high levels indicate increased interest rate risk in Merkur, d. d. However, in line with the Financial Restructuring Plan and as part of the compulsory settlement proceedings, Merkur, d. d., will sign loan rescheduling contracts for the major part of its loans, which will bring a fixed interest rate, and return the interest rate risks within reasonable limits. The Management Board estimates that the exposure to interest rate risk in 2010 was moderate.

Currency Risk

Currency risk is a risk that the economic benefits of the company will decrease as a result of changes in the foreign currency exchange rates.

In 2009, Merkur, d. d., continued to hedge interest rate risks with the EUR/CHF cross-currency swap, which it concluded in December 2007. To mitigate the expected loss, Merkur prolonged the instrument until March 2015 at the end of 2009. The instrument was no longer valid once the compulsory settlement proceedings were launched.

Most of transactions of Merkur, d. d., are made in its functional currency, so the Management Board estimates that the company’s exposure to currency risk is unchanging and low.

Risk of Changes in Market Prices of Securities

Merkur, d. d., has equity shares in its portfolio. The most significant risk regarding equity shares is a decrease in their market price, which changes according to supply and demand, which are based on the market participants’ expectations regarding the companies’ future.

The market value of a security mostly depends on the issuer and its operations and other activities (for example mergers or restructuring). Market conditions can also be largely affected by changes in the legislation, especially regarding money and capital markets regulation, international operations and taxes.

An investment into securities should be impaired, when there is objective evidence indicating that one or more events resulted in a decrease of estimated future cash flows from the investment. The evidence must be measurable, and in case of investments in equity securities the evidence can be significant or prolonged drop of the fair value below the cost.

The most exposed investments of Merkur, d. d., in this group are shares of Gorenjska banka, d. d., Kranj, Sava, d. d., Kranj and Perutnina, d. d., Ptuj.

Based on the above facts, the company’s Management Board assesses that the exposure to the risk of changes in market prices of securities is unchanging and considerable.

Insolvency Risk

The insolvency risk is a risk that the company may have difficulties in obtaining sufficient funds to settle its financial obligations. The company managed this risk with an active policy of liquidity management. The aim was to eliminate discrepancies between cash inflows and outflows. The policy comprised: • A system of caps determining the lowest amount of cash and highly liquid assets available to the company at all times, • Centralized management of cash transactions to provide liquidity and solvency, • Dispersed external financial sources, • Dispersed maturity dates for liabilities, • Credit risk management policy ensuring regular settlement of receivables, • Credit lines available at the banks enabling the company to draw loans when needed, • The option of activating short-term investments.

The constant inflow of retail payments makes risk management easier.

The company is subject to international economic trends, which was the reason why it shortened the currency deadlines for suppliers due to decreased liquidity in the market as soon as the economic activity slowed down. The crisis was also reflected in smaller supply of loans and banks’ demand to increase collaterals and in higher margins for new loans.

Due to lower inflows, we adopted several measures as the crisis started: • Postponement of non-urgent investments, • Redefinition of strategic decisions that required funding, and • Stricter implementation of internal regulations in planning and collecting receivables from major customers.

Nevertheless, despite the listed measures, the company’s solvency deteriorated, above all due to excessive liabilities arising from unsuccessfully performed MBO in 2010, to the point where the company was unable to fully settle its liabilities towards banks and suppliers within originally agreed deadlines. This also resulted in one of most problematic consequences of difficult operating conditions – the loss of trust from our partners (above all credit insurance companies, banks and suppliers).

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In the middle of the year, after new supervisory and management boards were appointed, the company started talks on financial restructuring with creditors and suppliers. The first step in the process was signing an agreement on mutual relations with the major creditor banks, in which we agreed on a grace period on the repayment of the principle until 30 September 2010, after which the consortium of banks would make a decision on the options and means of financial restructuring based on a presentation on Merkur’s reorganization and revitalization prepared by the Management Board with the support of the strategic consultancy firm Roland Berger.

Based on the re-audited annual report for 2009, financial statements from 30 June 2010, and documents produced by relevant support offices and consultants, the Management Board estimated on 16 September 2010 that Merkur, d. d., met all the criteria for declaring insolvency as determined in Article 14 of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act. The decision on insolvency was included in Merkur’s reorganization plan and presented legal protection of the company’s assets and the creditors’ receivables.

On 3 November 2010, the Kranj District Court issued a decision on launching the compulsory settlement proceedings. The procedure is described in detail in the Financial Restructuring Plan, which defines the following measures among the key points: • Acquiring a long-term liquidity loan to purchase stocks – a contract for a loan in the amount of EUR 35 million was signed with the consortium of banks on 28 December 2010, • Capital injection in the amount of at least EUR 85 million, • Repaying 60% of ordinary claims in five years, • Reschedule of all loans.

After the compulsory settlement, which is a necessary but not sufficient condition for decreasing the insolvency risk, is approved, we will have to regain trust of our customers, suppliers and banks with successful operations, payments made in time, and well-stocked stores. This will be a long process and only strict implementation of the plan will revive the operations and relieve the solvency crisis.

Based on the listed hedge measures and the current situation, the Management Board of Merkur, d. d., estimates that the exposure to insolvency risk is high, and the trend is currently unchanging.

Property, Plant and Equipment of Merkur, d. d., – by Type

Changes in Property, Plant and Equipment (PPE) in Merkur, d. d., in 2009 and 2010

5 Notes to the Balance Sheet

5.1 Property, Plant and EquipmentFI

NA

NCI

AL

CREDIT

MARKET

INSOLVENCY

credit

Trend

interest rate

Trend

Foreign currency

Trend

change in the market prices of securities

Trend

Inflation

Trend

insolvency

Trend

high

moderate

considerable

considerable

high

–

–

S

S

KEY:ExPOSURE TO RISK

Low

Moderate

Considerable

High

Does not exist –

Change

Trend

Increasing

Unchanging

Decreasing

S

Exposure to risk is a product of the impact on business risk and the probability and frequency of possible hazards.

56 Exposure to risks in 2010 Merkur, d. d.

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5 Notes to the Balance Sheet 5.1 Property, Plant and Equipment Property, Plant and Equipment of Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Property, plant and equipment 206,984 251,452 Land and buildings 184,579 213,874 - land 81,552 95,207 - buildings 103,027 118,667 Plant and equipment 11,486 14,423 Property, plant and equipment under construction 10,920 23,155

Changes in Property, Plant and Equipment (PPE) in Merkur, d. d., in 2009 and 2010 In thousand EUR

Land Buildings Plant and

equipment PPE under

construction Property, plant and

equipment Item Cost on 1 January 2009 68,125 148,745 46,557 20,018 283,445 Acquisitions 15,070 22,809 3,947 18,725 60,551 Revaluation recognized in equity 20,490 39,587 - 3,548 63,626 Revaluation recognized in profit/loss – impairment -583 -227 - - -810 Disposal – write-offs -7,895 -14,781 -2,943 -19,137 -44,756 Cost on 31 December 2009 95,207 196,133 47,561 23,155 362,056

Cost on 1 January 2010 95,207 196,133 47,561 23,155 362,056 Acquisitions through business combinations - - 113 - 113 Acquisitions 1 46 1,032 2,191 3,270 Transfer to investment property -10,206 -20,362 - - -30,568 Transfer to intangible assets - - -22 - -22 Revaluation recognized in profit/loss – impairment -3,235 -1,260 - -383 -4,878 Disposal – write-offs -216 -1,137 -3,493 -14,042 -18,889 Cost on 31 December 2010 81,552 173,420 45,190 10,920 311,082

Revaluation on 1 January 2009 0 50,323 31,726 0 82,049 Amortization - 4,579 4,304 - 8,882 Revaluation recognized in equity - 23,828 - - 23,828 Revaluation recognized in profit/loss – impairment - -50 - - -50 Disposal – write-offs - -1,214 -2,891 - -4,105 Revaluation on 31 December 2009 0 77,466 33,138 0 110,604

Revaluation on 1 January 2010 0 77,466 33,138 0 110,604 Amortization - 5,651 3,692 - 9,343 Transfer to investment property - -11,797 - - -11,797 Transfer to intangible assets - - -2 - -2 Revaluation recognized in profit/loss – impairment - -75 - - -75 Disposal – write-offs - -852 -3,123 - -3,975 Revaluation on 31 December 2010 0 70,393 33,704 0 104,098

Carrying amount on 1 January 2009 68,125 98,422 14,832 20,018 201,396 Carrying amount on 31 December 2009 95,207 118,667 14,423 23,155 251,452 Carrying amount on 31 December 2010 81,552 103,027 11,486 10,920 206,984

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5 Notes to the Balance Sheet 5.1 Property, Plant and Equipment Property, Plant and Equipment of Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Property, plant and equipment 206,984 251,452 Land and buildings 184,579 213,874 - land 81,552 95,207 - buildings 103,027 118,667 Plant and equipment 11,486 14,423 Property, plant and equipment under construction 10,920 23,155

Changes in Property, Plant and Equipment (PPE) in Merkur, d. d., in 2009 and 2010 In thousand EUR

Land Buildings Plant and

equipment PPE under

construction Property, plant and

equipment Item Cost on 1 January 2009 68,125 148,745 46,557 20,018 283,445 Acquisitions 15,070 22,809 3,947 18,725 60,551 Revaluation recognized in equity 20,490 39,587 - 3,548 63,626 Revaluation recognized in profit/loss – impairment -583 -227 - - -810 Disposal – write-offs -7,895 -14,781 -2,943 -19,137 -44,756 Cost on 31 December 2009 95,207 196,133 47,561 23,155 362,056

Cost on 1 January 2010 95,207 196,133 47,561 23,155 362,056 Acquisitions through business combinations - - 113 - 113 Acquisitions 1 46 1,032 2,191 3,270 Transfer to investment property -10,206 -20,362 - - -30,568 Transfer to intangible assets - - -22 - -22 Revaluation recognized in profit/loss – impairment -3,235 -1,260 - -383 -4,878 Disposal – write-offs -216 -1,137 -3,493 -14,042 -18,889 Cost on 31 December 2010 81,552 173,420 45,190 10,920 311,082

Revaluation on 1 January 2009 0 50,323 31,726 0 82,049 Amortization - 4,579 4,304 - 8,882 Revaluation recognized in equity - 23,828 - - 23,828 Revaluation recognized in profit/loss – impairment - -50 - - -50 Disposal – write-offs - -1,214 -2,891 - -4,105 Revaluation on 31 December 2009 0 77,466 33,138 0 110,604

Revaluation on 1 January 2010 0 77,466 33,138 0 110,604 Amortization - 5,651 3,692 - 9,343 Transfer to investment property - -11,797 - - -11,797 Transfer to intangible assets - - -2 - -2 Revaluation recognized in profit/loss – impairment - -75 - - -75 Disposal – write-offs - -852 -3,123 - -3,975 Revaluation on 31 December 2010 0 70,393 33,704 0 104,098

Carrying amount on 1 January 2009 68,125 98,422 14,832 20,018 201,396 Carrying amount on 31 December 2009 95,207 118,667 14,423 23,155 251,452 Carrying amount on 31 December 2010 81,552 103,027 11,486 10,920 206,984

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Key Changes in Property, Plant and Equipment in 2010

In 2010 the investments in property, plant and equipment reached EUR 3,270 thousand which were allocated as follows: • Land activation 1 • Building activation 46 • Plant and equipment purchase 1,032 • Current investments: buildings and equipment 2,191 TOTAL 3,270

These were the biggest drops in property, plant and equipment in 2010: • Land sale 216 • Building sale 284 • Sale and destruction of plant and equipment 370 • Artwork write-off 2 • Sale of current investments 13,167 • Write-off of current investments 875 TOTAL 14,913

The company carried out the property revaluation on 31 December 2009. It also revised the value at the end of 2010 and carried out a revaluation or impairment to the profit or loss in the amount of EUR 4,803 thousand for those properties that had their book value higher than the fair value acquired by means of valuation.

The calculated amortization included in the operating costs for 2010 amounted to EUR 9,343 thousand and EUR 8,882 thousand for 2009 respectively.

On 31 December the Company corrected the error of incorrect classification of leases for certain sales centers. Note 3.6 (Errors from the previous terms) provides more information on the issue.

Property, Plant and Equipment of Merkur, d. d. Acquired under Financial Lease

Currently the Company leases 5 properties:

We also have a financial lease on 4 vehicles; their carrying value on 31 December 2010 was EUR 128 thousand. We sold 3 vehicles in 2010, and their carrying value was EUR 70 thousand.

The carrying value of mortgages on the property owned by Merkur, d. d., on 31 December 2010 was EUR 116,581 thousand.

5.2 Intangible Assets

Intangible Assets of Merkur, d. d.

Changes in Property, Plant and Equipment (PPE) in Merkur, d. d., in 2009 and 2010

5.3 Investment Property

Investment Property, Plant and Equipment of Merkur, d. d., – by Type

The investment property leased by the Company generates a constant rental income throughout the lease period. The rental income from lease of investment property amounted to EUR 444 thousand in 2010 and EUR 369 thousand in 2009.

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Key Changes in Property, Plant and Equipment in 2010 In 2010 the investments in property, plant and equipment reached EUR 3,270 thousand which were allocated as follows:

Land activation 1

Building activation 46

Plant and equipment purchase 1,032

Current investments: buildings and equipment 2,191

TOTAL 3,270 These were the biggest drops in property, plant and equipment in 2010:

Land sale 216

Building sale 284

Sale and destruction of plant and equipment 370

Artwork write-off 2

Sale of current investments 13,167

Write-off of current investments 875

TOTAL 14,913 The company carried out the property revaluation on 31 December 2009. It also revised the value at the end of 2010 and carried out a revaluation or impairment to the profit or loss in the amount of EUR 4,803 thousand for those properties that had their book value higher than the fair value acquired by means of valuation. The calculated amortization included in the operating costs for 2010 amounted to EUR 9,343 thousand and EUR 8,882 thousand for 2009 respectively. On 31 December the Company corrected the error of incorrect classification of leases for certain sales centers. Note 3.6 (Errors from the previous terms) provides more information on the issue. Property, Plant and Equipment of Merkur, d. d. Acquired under Financial Lease In thousand EUR

Item 31 December

2010 31 December

2009 31 December

2008

Total 61,581 62,715 45,183 Property 61,453 62,445 45,183 Plant and equipment 128 270 -

Currently the Company leases 5 properties: In thousand EUR

Sales center Year of contract Carrying amount TC Bršljin Novo mesto 2002 3,568 TC Murska Sobota 2009 17,641 TC Hudinja 2002 16,816 TC Ljubljana Rudnik 2001 8,973 TC Škofja Loka 2010 14,455

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Key Changes in Property, Plant and Equipment in 2010 In 2010 the investments in property, plant and equipment reached EUR 3,270 thousand which were allocated as follows:

Land activation 1

Building activation 46

Plant and equipment purchase 1,032

Current investments: buildings and equipment 2,191

TOTAL 3,270 These were the biggest drops in property, plant and equipment in 2010:

Land sale 216

Building sale 284

Sale and destruction of plant and equipment 370

Artwork write-off 2

Sale of current investments 13,167

Write-off of current investments 875

TOTAL 14,913 The company carried out the property revaluation on 31 December 2009. It also revised the value at the end of 2010 and carried out a revaluation or impairment to the profit or loss in the amount of EUR 4,803 thousand for those properties that had their book value higher than the fair value acquired by means of valuation. The calculated amortization included in the operating costs for 2010 amounted to EUR 9,343 thousand and EUR 8,882 thousand for 2009 respectively. On 31 December the Company corrected the error of incorrect classification of leases for certain sales centers. Note 3.6 (Errors from the previous terms) provides more information on the issue. Property, Plant and Equipment of Merkur, d. d. Acquired under Financial Lease In thousand EUR

Item 31 December

2010 31 December

2009 31 December

2008

Total 61,581 62,715 45,183 Property 61,453 62,445 45,183 Plant and equipment 128 270 -

Currently the Company leases 5 properties: In thousand EUR

Sales center Year of contract Carrying amount TC Bršljin Novo mesto 2002 3,568 TC Murska Sobota 2009 17,641 TC Hudinja 2002 16,816 TC Ljubljana Rudnik 2001 8,973 TC Škofja Loka 2010 14,455

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We also have a financial lease on 4 vehicles; their carrying value on 31 December 2010 was EUR 128 thousand. We sold 3 vehicles in 2010, and their carrying value was EUR 70 thousand. The carrying value of mortgages on the property owned by Merkur, d. d., on 31 December 2010 was EUR 116,581 thousand. 5.2 Intangible Assets Intangible Assets of Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009

Intangible assets 971 1,280 Property rights (software licenses) 971 1,280

Changes in Property, Plant and Equipment (PPE) in Merkur, d. d., in 2009 and 2010

In thousand EUR

Item Intangible assets Cost on 1 January 2009 3,955 Acquisitions 247 Disposals and write-offs -80 Cost on 12 December 2009 4,122 Acquisitions 110 Transfer from property, plant and equipment 22 Cost on 31 December 2010 4,254 Revaluation on 1 January 2009 2,393 Amortization 499 Disposals and write-offs -50 Revaluation on 31 December 2009 2,842 Amortization 439 Transfer from property, plant and equipment 2 Revaluation on 31 December 2010 3,282

Carrying amount on 1 January 2009 1,562 Carrying amount on 31 December 2009 1,280 Carrying amount on 31 December 2010 971

5.3 Investment Property Investment Property, Plant and Equipment of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009

Investment Property 36,162 16,646 Land 18,443 9,594 Buildings 17,719 7,052

The investment property leased by the Company generates a constant rental income throughout the lease period. The rental income from lease of investment property amounted to EUR 444 thousand in 2010 and EUR 369 thousand in 2009.

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We also have a financial lease on 4 vehicles; their carrying value on 31 December 2010 was EUR 128 thousand. We sold 3 vehicles in 2010, and their carrying value was EUR 70 thousand. The carrying value of mortgages on the property owned by Merkur, d. d., on 31 December 2010 was EUR 116,581 thousand. 5.2 Intangible Assets Intangible Assets of Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009

Intangible assets 971 1,280 Property rights (software licenses) 971 1,280

Changes in Property, Plant and Equipment (PPE) in Merkur, d. d., in 2009 and 2010

In thousand EUR

Item Intangible assets Cost on 1 January 2009 3,955 Acquisitions 247 Disposals and write-offs -80 Cost on 12 December 2009 4,122 Acquisitions 110 Transfer from property, plant and equipment 22 Cost on 31 December 2010 4,254 Revaluation on 1 January 2009 2,393 Amortization 499 Disposals and write-offs -50 Revaluation on 31 December 2009 2,842 Amortization 439 Transfer from property, plant and equipment 2 Revaluation on 31 December 2010 3,282

Carrying amount on 1 January 2009 1,562 Carrying amount on 31 December 2009 1,280 Carrying amount on 31 December 2010 971

5.3 Investment Property Investment Property, Plant and Equipment of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009

Investment Property 36,162 16,646 Land 18,443 9,594 Buildings 17,719 7,052

The investment property leased by the Company generates a constant rental income throughout the lease period. The rental income from lease of investment property amounted to EUR 444 thousand in 2010 and EUR 369 thousand in 2009.

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We also have a financial lease on 4 vehicles; their carrying value on 31 December 2010 was EUR 128 thousand. We sold 3 vehicles in 2010, and their carrying value was EUR 70 thousand. The carrying value of mortgages on the property owned by Merkur, d. d., on 31 December 2010 was EUR 116,581 thousand. 5.2 Intangible Assets Intangible Assets of Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009

Intangible assets 971 1,280 Property rights (software licenses) 971 1,280

Changes in Property, Plant and Equipment (PPE) in Merkur, d. d., in 2009 and 2010

In thousand EUR

Item Intangible assets Cost on 1 January 2009 3,955 Acquisitions 247 Disposals and write-offs -80 Cost on 12 December 2009 4,122 Acquisitions 110 Transfer from property, plant and equipment 22 Cost on 31 December 2010 4,254 Revaluation on 1 January 2009 2,393 Amortization 499 Disposals and write-offs -50 Revaluation on 31 December 2009 2,842 Amortization 439 Transfer from property, plant and equipment 2 Revaluation on 31 December 2010 3,282

Carrying amount on 1 January 2009 1,562 Carrying amount on 31 December 2009 1,280 Carrying amount on 31 December 2010 971

5.3 Investment Property Investment Property, Plant and Equipment of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009

Investment Property 36,162 16,646 Land 18,443 9,594 Buildings 17,719 7,052

The investment property leased by the Company generates a constant rental income throughout the lease period. The rental income from lease of investment property amounted to EUR 444 thousand in 2010 and EUR 369 thousand in 2009.

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Changes in Investment Property of Merkur, d. d., in 2009 and 2010

The Company revised the fair value of investment property and carried out a revaluation on 31 December 2010. The result of the revaluation for land amounts to EUR -1,332 thousand and EUR 1,747 thousand for buildings.

The value of mortgages on the investment property of Merkur, d. d., on 31 December 2010 was EUR 24,961 thousand.

5.4 Financial Investments in Subsidiaries

Financial Investments of Merkur, d. d., in Its Subsidiaries

*The company was erased from the Register of companies based on a simple liquidation.

The data on the equity of subsidiaries and their balance in 2010 is presented in the table below.

Equity of Subsidiaries on 31 December 2010 and Their Profit/Loss in 2010

* Kovinotehna, d. o. o., Celje was liquidated on 30 September 2010.

Long-term Investments of Merkur, d. d., in Subsidiaries in 2009 and 2010

According to the assessment of the recoverable value of investments in subsidiaries the Company found that the book value of the investments exceeds their recoverable value on 31 December 2010. This is why the investments were impaired to the estimated recoverable value and recognized the financial expense in the amount of EUR 57,137 thousand. The investments in the following subsidiaries were impaired: • Mersteel, d. o. o., Naklo in the amount of EUR 34,916 thousand, • Merkur Hrvatska, d. o. o., Zagreb in the amount of EUR 13,302 thousand, • Intermerkur Nova, Sarajevo d. o. o., Sarajevo in the amount of EUR 4,256 thousand, • Merkur Intrernational Beograd in the amount of EUR 4,043 thousand, • Perles Merkur Italia in the amount of EUR 416 thousand, and • Merkur, d. o. o., Cetinje in the amount of EUR 205 thousand.

Changes in Investments in Subsidiaries in 2010

There were no significant changes in the financial investment structure or the ownership stakes of Merkur, d. d., in subsidiary companies. Perles Merkur Italia, s. r. l., received a capital injection by means of a non-cash contribution (operating receivables), and the Company bought a stake of the minority owner Merkur, d. o. o., Cetinje.

60

66

Changes in Investment Property of Merkur, d. d., in 2009 and 2010

In thousand EUR

Item Land Buildings Investment

Property Value on 1 January 2009 9,692 7,130 16,822 Disposals -97 -78 -175 Value on 31 December 2009 9,594 7,052 16,646 Acquisitions through business combinations - 220 220 Acquisitions - 135 135 Adjustment to fair value -1,332 1,747 415 Transfer from property, plant and equipment 10,206 8,565 18,771 Disposals -25 - -25 Value on 31 December 2010 18,443 17,719 36,162

The Company revised the fair value of investment property and carried out a revaluation on 31 December 2010. The result of the revaluation for land amounts to EUR -1,332 thousand and EUR 1,747 thousand for buildings. The value of mortgages on the investment property of Merkur, d. d., on 31 December 2010 was EUR 24,961 thousand. 5.4 Financial Investments in Subsidiaries Financial Investments of Merkur, d. d., in Its Subsidiaries In thousand EUR

Item 31 December 2010 31 December 2009

Investments in subsidiaries 73,983 134,973

In thousand EUR

Company Ownership

share since

Ownership share in %

31 Dec. 2010

Ownership share in %

31 Dec 2009

Value of investment

31 Dec. 2010

Value of investment

31 Dec. 2009 Investments in shares and stakes in subsidiaries in Slovenia - Kovinotehna, d. o. o., Celje* 1999 - 100 - 36 - Big Bang, d. o. o., Ljubljana 1999 100 100 11,191 15,191 - Mersteel, d. o. o., Naklo 2008 100 100 4,982 39,898 Investments in shares and stakes in subsidiaries abroad - Merkur Hrvatska Zagreb, d. o. o., Croatia 1994 100 100 3,624 16,926 - Merkur International Beograd, d. o. o.,

Serbia 1994 100 100 48,302 52,345 - Perles Merkur Italia, s.r.l., Italy 1994 100 100 - 286 - Merkur Čelik, d.o.o., Beograd, Serbia 2007 66,16 66,16 5,883 5,883 - Merkur, d. o. o., Cetinje, Montenegro 2008 100 76 - 152 - Intermerkur Nova, Sarajevo d. o. o.,

Bosnia and Herzegovina 2007 100 100 - 4,256 Total 73,983 134,973

*The company was erased from the Register of companies based on a simple liquidation. The data on the equity of subsidiaries and their balance in 2010 is presented in the table below.

66

Changes in Investment Property of Merkur, d. d., in 2009 and 2010

In thousand EUR

Item Land Buildings Investment

Property Value on 1 January 2009 9,692 7,130 16,822 Disposals -97 -78 -175 Value on 31 December 2009 9,594 7,052 16,646 Acquisitions through business combinations - 220 220 Acquisitions - 135 135 Adjustment to fair value -1,332 1,747 415 Transfer from property, plant and equipment 10,206 8,565 18,771 Disposals -25 - -25 Value on 31 December 2010 18,443 17,719 36,162

The Company revised the fair value of investment property and carried out a revaluation on 31 December 2010. The result of the revaluation for land amounts to EUR -1,332 thousand and EUR 1,747 thousand for buildings. The value of mortgages on the investment property of Merkur, d. d., on 31 December 2010 was EUR 24,961 thousand. 5.4 Financial Investments in Subsidiaries Financial Investments of Merkur, d. d., in Its Subsidiaries In thousand EUR

Item 31 December 2010 31 December 2009

Investments in subsidiaries 73,983 134,973

In thousand EUR

Company Ownership

share since

Ownership share in %

31 Dec. 2010

Ownership share in %

31 Dec 2009

Value of investment

31 Dec. 2010

Value of investment

31 Dec. 2009 Investments in shares and stakes in subsidiaries in Slovenia - Kovinotehna, d. o. o., Celje* 1999 - 100 - 36 - Big Bang, d. o. o., Ljubljana 1999 100 100 11,191 15,191 - Mersteel, d. o. o., Naklo 2008 100 100 4,982 39,898 Investments in shares and stakes in subsidiaries abroad - Merkur Hrvatska Zagreb, d. o. o., Croatia 1994 100 100 3,624 16,926 - Merkur International Beograd, d. o. o.,

Serbia 1994 100 100 48,302 52,345 - Perles Merkur Italia, s.r.l., Italy 1994 100 100 - 286 - Merkur Čelik, d.o.o., Beograd, Serbia 2007 66,16 66,16 5,883 5,883 - Merkur, d. o. o., Cetinje, Montenegro 2008 100 76 - 152 - Intermerkur Nova, Sarajevo d. o. o.,

Bosnia and Herzegovina 2007 100 100 - 4,256 Total 73,983 134,973

*The company was erased from the Register of companies based on a simple liquidation. The data on the equity of subsidiaries and their balance in 2010 is presented in the table below.

66

Changes in Investment Property of Merkur, d. d., in 2009 and 2010

In thousand EUR

Item Land Buildings Investment

Property Value on 1 January 2009 9,692 7,130 16,822 Disposals -97 -78 -175 Value on 31 December 2009 9,594 7,052 16,646 Acquisitions through business combinations - 220 220 Acquisitions - 135 135 Adjustment to fair value -1,332 1,747 415 Transfer from property, plant and equipment 10,206 8,565 18,771 Disposals -25 - -25 Value on 31 December 2010 18,443 17,719 36,162

The Company revised the fair value of investment property and carried out a revaluation on 31 December 2010. The result of the revaluation for land amounts to EUR -1,332 thousand and EUR 1,747 thousand for buildings. The value of mortgages on the investment property of Merkur, d. d., on 31 December 2010 was EUR 24,961 thousand. 5.4 Financial Investments in Subsidiaries Financial Investments of Merkur, d. d., in Its Subsidiaries In thousand EUR

Item 31 December 2010 31 December 2009

Investments in subsidiaries 73,983 134,973

In thousand EUR

Company Ownership

share since

Ownership share in %

31 Dec. 2010

Ownership share in %

31 Dec 2009

Value of investment

31 Dec. 2010

Value of investment

31 Dec. 2009 Investments in shares and stakes in subsidiaries in Slovenia - Kovinotehna, d. o. o., Celje* 1999 - 100 - 36 - Big Bang, d. o. o., Ljubljana 1999 100 100 11,191 15,191 - Mersteel, d. o. o., Naklo 2008 100 100 4,982 39,898 Investments in shares and stakes in subsidiaries abroad - Merkur Hrvatska Zagreb, d. o. o., Croatia 1994 100 100 3,624 16,926 - Merkur International Beograd, d. o. o.,

Serbia 1994 100 100 48,302 52,345 - Perles Merkur Italia, s.r.l., Italy 1994 100 100 - 286 - Merkur Čelik, d.o.o., Beograd, Serbia 2007 66,16 66,16 5,883 5,883 - Merkur, d. o. o., Cetinje, Montenegro 2008 100 76 - 152 - Intermerkur Nova, Sarajevo d. o. o.,

Bosnia and Herzegovina 2007 100 100 - 4,256 Total 73,983 134,973

*The company was erased from the Register of companies based on a simple liquidation. The data on the equity of subsidiaries and their balance in 2010 is presented in the table below.

67

Equity of Subsidiaries on 31 December 2010 and Their Profit/Loss in 2010 In thousand EUR

Company

Total equity

31 Dec. 2010 Profit/loss

2010 Total equity 31 Dec. 2009

Profit/loss 2009

- Mersteel, d. o. o., Naklo -13,421 -54,018 39,898 -69,382 - Big Bang, d. o. o., Ljubljana 7,517 -6,009 17,525 1,695 - Kovinotehna, d. o. o., Celje* 0 -42 810 37 - Merkur Hrvatska, d. o. o., Zagreb 3,624 -10,068 13,718 -2,993 - Merkur International Beograd, d. o. o. 48,299 -2,180 56,937 407 - Perles Merkur Italia, s.r.l. -2,349 -2,765 286 -730 - Merkur Čelik, d. o. o., Beograd 10,627 -239 12,277 -143 - Merkur, d. o. o., Cetinje -442 -355 -87 -286 - Intermerkur Nova d. o. o., Sarajevo -1,163 -2,394 1,231 -1,114

* Kovinotehna, d. o. o., Celje was liquidated on 30 September 2010. Long-term Investments of Merkur, d. d., in Subsidiaries in 2009 and 2010 In thousand EUR

Item Long-term investments in subsidiaries Net value on 1 January 2009 152,087 Acquisitions 1,545 Impairment of financial investments in subsidiaries -18,659 Net value on 31 December 2009 134,973 Capital increase of a subsidy 130 Purchase of additional stake 53 Return of subsequent payments -4,000 Liquidation of a subsidiary -36 Impairment of financial investments in subsidiaries -57,137 Net value on 31 December 2010 73,983

According to the assessment of the recoverable value of investments in subsidiaries the Company found that the book value of the investments exceeds their recoverable value on 31 December 2010. This is why the investments were impaired to the estimated recoverable value and recognized the financial expense in the amount of EUR 57,137 thousand. The investments in the following subsidiaries were impaired:

Mersteel, d. o. o., Naklo in the amount of EUR 34,916 thousand, Merkur Hrvatska, d. o. o., Zagreb in the amount of EUR 13,302 thousand, Intermerkur Nova, Sarajevo d. o. o., Sarajevo in the amount of EUR 4,256 thousand, Merkur Intrernational Beograd in the amount of EUR 4,043 thousand, Perles Merkur Italia in the amount of EUR 416 thousand, and Merkur, d. o. o., Cetinje in the amount of EUR 205 thousand.

Changes in Investments in Subsidiaries in 2010 There were no significant changes in the financial investment structure or the ownership stakes of Merkur, d. d., in subsidiary companies. Perles Merkur Italia, s. r. l., received a capital injection by means of a non-cash contribution (operating receivables), and the Company bought a stake of the minority owner Merkur, d. o. o., Cetinje. Subsidiary Capital Injection in 2010 In thousand EUR

Company name Date Capital injection

amount Non-cash

contribution

Perles Merkur Italia, s.r.l. 29 June 2010 130 130

67

Equity of Subsidiaries on 31 December 2010 and Their Profit/Loss in 2010 In thousand EUR

Company

Total equity

31 Dec. 2010 Profit/loss

2010 Total equity 31 Dec. 2009

Profit/loss 2009

- Mersteel, d. o. o., Naklo -13,421 -54,018 39,898 -69,382 - Big Bang, d. o. o., Ljubljana 7,517 -6,009 17,525 1,695 - Kovinotehna, d. o. o., Celje* 0 -42 810 37 - Merkur Hrvatska, d. o. o., Zagreb 3,624 -10,068 13,718 -2,993 - Merkur International Beograd, d. o. o. 48,299 -2,180 56,937 407 - Perles Merkur Italia, s.r.l. -2,349 -2,765 286 -730 - Merkur Čelik, d. o. o., Beograd 10,627 -239 12,277 -143 - Merkur, d. o. o., Cetinje -442 -355 -87 -286 - Intermerkur Nova d. o. o., Sarajevo -1,163 -2,394 1,231 -1,114

* Kovinotehna, d. o. o., Celje was liquidated on 30 September 2010. Long-term Investments of Merkur, d. d., in Subsidiaries in 2009 and 2010 In thousand EUR

Item Long-term investments in subsidiaries Net value on 1 January 2009 152,087 Acquisitions 1,545 Impairment of financial investments in subsidiaries -18,659 Net value on 31 December 2009 134,973 Capital increase of a subsidy 130 Purchase of additional stake 53 Return of subsequent payments -4,000 Liquidation of a subsidiary -36 Impairment of financial investments in subsidiaries -57,137 Net value on 31 December 2010 73,983

According to the assessment of the recoverable value of investments in subsidiaries the Company found that the book value of the investments exceeds their recoverable value on 31 December 2010. This is why the investments were impaired to the estimated recoverable value and recognized the financial expense in the amount of EUR 57,137 thousand. The investments in the following subsidiaries were impaired:

Mersteel, d. o. o., Naklo in the amount of EUR 34,916 thousand, Merkur Hrvatska, d. o. o., Zagreb in the amount of EUR 13,302 thousand, Intermerkur Nova, Sarajevo d. o. o., Sarajevo in the amount of EUR 4,256 thousand, Merkur Intrernational Beograd in the amount of EUR 4,043 thousand, Perles Merkur Italia in the amount of EUR 416 thousand, and Merkur, d. o. o., Cetinje in the amount of EUR 205 thousand.

Changes in Investments in Subsidiaries in 2010 There were no significant changes in the financial investment structure or the ownership stakes of Merkur, d. d., in subsidiary companies. Perles Merkur Italia, s. r. l., received a capital injection by means of a non-cash contribution (operating receivables), and the Company bought a stake of the minority owner Merkur, d. o. o., Cetinje. Subsidiary Capital Injection in 2010 In thousand EUR

Company name Date Capital injection

amount Non-cash

contribution

Perles Merkur Italia, s.r.l. 29 June 2010 130 130

Annu

al R

epor

t Mer

kur,

d. d

., 201

0

62

Annu

al R

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t Mer

kur,

d. d

., 201

0

Subsidiary Capital Injection in 2010

Purchase of Additional Stakes from Minority Owners in Subsidiaries in 2010

Partial Return of Subsequent Payments from Subsidiary Big Bang, d. o. o.

Based on the decision of the only partner, Merkur, d. d., The Company received a partial return of subsequent equity payments to subsidiary Big Bang, d. o. o., on 21 January 2010 in the amount of EUR 4,000 thousand.

In the register of companies, the hypothecation of ownership stakes in favor of the banks for securing the loans received by Merkur, d. d., has been entered for the following companies: • Big Bang, d. o. o., Ljubljana in the amount of 100%, • Merkur Hrvatska Zagreb, d. o. o., Croatia in the amount of 100%, • Merkur International Beograd, d. o. o., Serbia in the amount of 100%.

5.5 Financial Investments in Associate Enterprises

Noncurrent Financial Investments in Associate Enterprises

Kemo Niš d. o. o., Niš, Serbia, is an associated enterprise in the process of liquidation that was not yet completed in 2010.

5.6 Noncurrent Financial Assets

Noncurrent Financial Assets of Merkur, d. d., – by type

Available-for-sale Financial Assets in Merkur, d. d., in 2009 and 2010

The Company assessed the fair value of available-for-sale financial assets on 31 December 2010. The valuation showed that the fair value of important investments is below their book value, and the value of investments was impaired to their fair value. The effect of the impairment in the amount of EUR 19,363 thousand was recognized in the other comprehensive income statement, namely as a reduction of reserve for fair value. A large part of the change recognized in the other comprehensive income comes from the investment in the shares of Gorenjska banka, d. d., Kranj in the amount of EUR 19,390 thousand.

The value of financial assets for which the Company had not previously recognized the reserves for fair value, was impaired and burdened the profit or loss for EUR 10,665 thousand. A greater part of this amount comes from impairment of the investment in the shares of Sava, d. d., in the amount of EUR 8,959 thousand.

On 31 December 2010 the Company recognizes the fair value of the investment in the shares of Gorenjska banka, d. d. at EUR 1,550 per share, and that corresponds to the value according to the valuation model. In addition, an agreement has been reached between Merkur and Sava, d. d., based on which the companies commit that they will sell the joint 57.9% stake in Gorenjska banka (Sava owns 152,110 shares which corresponds to a 45.9% equity stake).

In 2010 the Company decided to use the valuation model to measure the fair value of financial investment in the shares of Sava, d. d., Kranj, which is listed on the stock exchange, instead of the official market price on 31 December 2010, because to the low market liquidity the market price does not reflect the true value of the financial investment. For the purposes of the accounting reporting the recognized price of Sava, d. d., Kranj shares was EUR 175 per share (the official market value on 31 December 2010 was EUR 89.50 per share).

62

67

Equity of Subsidiaries on 31 December 2010 and Their Profit/Loss in 2010 In thousand EUR

Company

Total equity

31 Dec. 2010 Profit/loss

2010 Total equity 31 Dec. 2009

Profit/loss 2009

- Mersteel, d. o. o., Naklo -13,421 -54,018 39,898 -69,382 - Big Bang, d. o. o., Ljubljana 7,517 -6,009 17,525 1,695 - Kovinotehna, d. o. o., Celje* 0 -42 810 37 - Merkur Hrvatska, d. o. o., Zagreb 3,624 -10,068 13,718 -2,993 - Merkur International Beograd, d. o. o. 48,299 -2,180 56,937 407 - Perles Merkur Italia, s.r.l. -2,349 -2,765 286 -730 - Merkur Čelik, d. o. o., Beograd 10,627 -239 12,277 -143 - Merkur, d. o. o., Cetinje -442 -355 -87 -286 - Intermerkur Nova d. o. o., Sarajevo -1,163 -2,394 1,231 -1,114

* Kovinotehna, d. o. o., Celje was liquidated on 30 September 2010. Long-term Investments of Merkur, d. d., in Subsidiaries in 2009 and 2010 In thousand EUR

Item Long-term investments in subsidiaries Net value on 1 January 2009 152,087 Acquisitions 1,545 Impairment of financial investments in subsidiaries -18,659 Net value on 31 December 2009 134,973 Capital increase of a subsidy 130 Purchase of additional stake 53 Return of subsequent payments -4,000 Liquidation of a subsidiary -36 Impairment of financial investments in subsidiaries -57,137 Net value on 31 December 2010 73,983

According to the assessment of the recoverable value of investments in subsidiaries the Company found that the book value of the investments exceeds their recoverable value on 31 December 2010. This is why the investments were impaired to the estimated recoverable value and recognized the financial expense in the amount of EUR 57,137 thousand. The investments in the following subsidiaries were impaired:

Mersteel, d. o. o., Naklo in the amount of EUR 34,916 thousand, Merkur Hrvatska, d. o. o., Zagreb in the amount of EUR 13,302 thousand, Intermerkur Nova, Sarajevo d. o. o., Sarajevo in the amount of EUR 4,256 thousand, Merkur Intrernational Beograd in the amount of EUR 4,043 thousand, Perles Merkur Italia in the amount of EUR 416 thousand, and Merkur, d. o. o., Cetinje in the amount of EUR 205 thousand.

Changes in Investments in Subsidiaries in 2010 There were no significant changes in the financial investment structure or the ownership stakes of Merkur, d. d., in subsidiary companies. Perles Merkur Italia, s. r. l., received a capital injection by means of a non-cash contribution (operating receivables), and the Company bought a stake of the minority owner Merkur, d. o. o., Cetinje. Subsidiary Capital Injection in 2010 In thousand EUR

Company name Date Capital injection

amount Non-cash

contribution

Perles Merkur Italia, s.r.l. 29 June 2010 130 130

68

Purchase of Additional Stakes from Minority Owners in Subsidiaries in 2010

In thousand EUR

Company name Date

Company equity on

day of purchase

Acquired stake

Purchased equity

Payment for acquired

stake

Merkur, d. o. o., Cetinje date of purchase (purchased by Merkur, d. d., Naklo) 25 March 2010 -138 24.00 -33 53

Partial Return of Subsequent Payments from Subsidiary Big Bang, d. o. o. Based on the decision of the only partner, Merkur, d. d., The Company received a partial return of subsequent equity payments to subsidiary Big Bang, d. o. o., on 21 January 2010 in the amount of EUR 4,000 thousand. In the register of companies, the hypothecation of ownership stakes in favor of the banks for securing the loans received by Merkur, d. d., has been entered for the following companies:

Big Bang, d. o. o., Ljubljana in the amount of 100%, Merkur Hrvatska Zagreb, d. o. o., Croatia in the amount of 100%, Merkur International Beograd, d. o. o., Serbia in the amount of 100%.

5.5 Financial Investments in Associate Enterprises Noncurrent Financial Investments in Associate Enterprises In thousand EUR

Ownership stake since

Ownership stake in %

Investment value

Ownership stake in %

Investment value

Relevant financial information of the company

31 December

2010

31 December

2010

31 December

2009

31 December

2009 Investments in the stake in associated enterprise:

Kemo Niš d.o.o., Niš, Serbia 1991 30 - 30 - Kemo Niš d. o. o., Niš, Serbia, is an associated enterprise in the process of liquidation that was not yet completed in 2010. 5.6 Noncurrent Financial Assets Noncurrent Financial Assets of Merkur, d. d., – by type

In thousand EUR

Item 31 December

2010 31 December

2009

Noncurrent Financial Assets 130,795 183,986 Available-for-sale financial assets 128,650 172,999 Deposits and collateral 2,145 10,988

68

Purchase of Additional Stakes from Minority Owners in Subsidiaries in 2010

In thousand EUR

Company name Date

Company equity on

day of purchase

Acquired stake

Purchased equity

Payment for acquired

stake

Merkur, d. o. o., Cetinje date of purchase (purchased by Merkur, d. d., Naklo) 25 March 2010 -138 24.00 -33 53

Partial Return of Subsequent Payments from Subsidiary Big Bang, d. o. o. Based on the decision of the only partner, Merkur, d. d., The Company received a partial return of subsequent equity payments to subsidiary Big Bang, d. o. o., on 21 January 2010 in the amount of EUR 4,000 thousand. In the register of companies, the hypothecation of ownership stakes in favor of the banks for securing the loans received by Merkur, d. d., has been entered for the following companies:

Big Bang, d. o. o., Ljubljana in the amount of 100%, Merkur Hrvatska Zagreb, d. o. o., Croatia in the amount of 100%, Merkur International Beograd, d. o. o., Serbia in the amount of 100%.

5.5 Financial Investments in Associate Enterprises Noncurrent Financial Investments in Associate Enterprises In thousand EUR

Ownership stake since

Ownership stake in %

Investment value

Ownership stake in %

Investment value

Relevant financial information of the company

31 December

2010

31 December

2010

31 December

2009

31 December

2009 Investments in the stake in associated enterprise:

Kemo Niš d.o.o., Niš, Serbia 1991 30 - 30 - Kemo Niš d. o. o., Niš, Serbia, is an associated enterprise in the process of liquidation that was not yet completed in 2010. 5.6 Noncurrent Financial Assets Noncurrent Financial Assets of Merkur, d. d., – by type

In thousand EUR

Item 31 December

2010 31 December

2009

Noncurrent Financial Assets 130,795 183,986 Available-for-sale financial assets 128,650 172,999 Deposits and collateral 2,145 10,988

68

Purchase of Additional Stakes from Minority Owners in Subsidiaries in 2010

In thousand EUR

Company name Date

Company equity on

day of purchase

Acquired stake

Purchased equity

Payment for acquired

stake

Merkur, d. o. o., Cetinje date of purchase (purchased by Merkur, d. d., Naklo) 25 March 2010 -138 24.00 -33 53

Partial Return of Subsequent Payments from Subsidiary Big Bang, d. o. o. Based on the decision of the only partner, Merkur, d. d., The Company received a partial return of subsequent equity payments to subsidiary Big Bang, d. o. o., on 21 January 2010 in the amount of EUR 4,000 thousand. In the register of companies, the hypothecation of ownership stakes in favor of the banks for securing the loans received by Merkur, d. d., has been entered for the following companies:

Big Bang, d. o. o., Ljubljana in the amount of 100%, Merkur Hrvatska Zagreb, d. o. o., Croatia in the amount of 100%, Merkur International Beograd, d. o. o., Serbia in the amount of 100%.

5.5 Financial Investments in Associate Enterprises Noncurrent Financial Investments in Associate Enterprises In thousand EUR

Ownership stake since

Ownership stake in %

Investment value

Ownership stake in %

Investment value

Relevant financial information of the company

31 December

2010

31 December

2010

31 December

2009

31 December

2009 Investments in the stake in associated enterprise:

Kemo Niš d.o.o., Niš, Serbia 1991 30 - 30 - Kemo Niš d. o. o., Niš, Serbia, is an associated enterprise in the process of liquidation that was not yet completed in 2010. 5.6 Noncurrent Financial Assets Noncurrent Financial Assets of Merkur, d. d., – by type

In thousand EUR

Item 31 December

2010 31 December

2009

Noncurrent Financial Assets 130,795 183,986 Available-for-sale financial assets 128,650 172,999 Deposits and collateral 2,145 10,988

69

Available-for-sale Financial Assets in Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Available-for-sale financial assets Net value on 1 January 2009 184,470 Acquisitions 70,351 Change of fair value in other comprehensive income -48,097 Disposals and write-offs -25,763 Impairment loss through profit/loss -8,085 Impairment write-off 123 Net value on 31 December 2009 172,999 Acquisitions 10,739 Change of fair value in other comprehensive income -19,363 Disposals -25,106 Impairment loss through profit/loss -10,665 Impairment write-off 46 Net value on 31 December 2010 128,650

The Company assessed the fair value of available-for-sale financial assets on 31 December 2010. The valuation showed that the fair value of important investments is below their book value, and the value of investments was impaired to their fair value. The effect of the impairment in the amount of EUR 19,363 thousand was recognized in the other comprehensive income statement, namely as a reduction of reserve for fair value. A large part of the change recognized in the other comprehensive income comes from the investment in the shares of Gorenjska banka, d. d., Kranj in the amount of EUR 19,390 thousand. The value of financial assets for which the Company had not previously recognized the reserves for fair value, was impaired and burdened the profit or loss for EUR 10,665 thousand. A greater part of this amount comes from impairment of the investment in the shares of Sava, d. d., in the amount of EUR 8,959 thousand. On 31 December 2010 the Company recognizes the fair value of the investment in the shares of Gorenjska banka, d. d. at EUR 1,550 per share, and that corresponds to the value according to the valuation model. In addition, an agreement has been reached between Merkur and Sava, d. d., based on which the companies commit that they will sell the joint 57.9% stake in Gorenjska banka (Sava owns 152,110 shares which corresponds to a 45.9% equity stake). In 2010 the Company decided to use the valuation model to measure the fair value of financial investment in the shares of Sava, d. d., Kranj, which is listed on the stock exchange, instead of the official market price on 31 December 2010, because to the low market liquidity the market price does not reflect the true value of the financial investment. For the purposes of the accounting reporting the recognized price of Sava, d. d., Kranj shares was EUR 175 per share (the official market value on 31 December 2010 was EUR 89.50 per share). The largest financial investments of Merkur, d. d., according to their value on 31 December 2010 are listed below: In thousand EUR

Investment

Number of shares on

31 Dec. 2010 Stake in % on 31 Dec. 2010

Investment value

Investment revaluation

Corrected investment

value Gorenjska banka Kranj 43,089 13.00 44,313 22,475 - Perutnina Ptuj d. d. 1,434,485 24.26 25,821 - - Cimos Koper 500,000 3.00 7,789 - -4,375 Sava d. d. Kranj 134,923 6.72 32,571 - -8,959

The financial investments in the equity of Perutnina, d. d., Ptuj in which the Company has a 24.26% stake and of Kopitarna, d. d., Sevnica in which the company has a 24.20% stake are classified as investments available for sale. The Company does not influence the operations or decision making in these two companies, because of the mentioned uncertainty about ownership the investment in Perutnina Ptuj is not treated as an investment in an associated enterprise, and there is an ongoing dispute about the repurchase right described further on.

Annu

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t Mer

kur,

d. d

., 201

0

64

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kur,

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., 201

0

The largest financial investments of Merkur, d. d., according to their value on 31 December 2010 are listed below:

The financial investments in the equity of Perutnina, d. d., Ptuj in which the Company has a 24.26% stake and of Kopitarna, d. d., Sevnica in which the company has a 24.20% stake are classified as investments available for sale. The Company does not influence the operations or decision making in these two companies, because of the mentioned uncertainty about ownership the investment in Perutnina Ptuj is not treated as an investment in an associated enterprise, and there is an ongoing dispute about the repurchase right described further on.

Merkur and Perutnina Ptuj, d. d. entered a “Protocol on mutual assistance – a mutual agreement” on the repurchase rights for their shares. Perutnina owns 64,198 MER shares valued at EUR 26,000 thousand and Merkur owns 1,434,485 PPTG shares valued at EUR 25,821 thousand. Based on the protocol the repurchase rights must be exercised simultaneously by entering a contract on the double purchase and sale of shares. If one of the parties demands it, the other is obliged to realize the option immediately. The PPTG shares are further burdened with the ban on the right to dispose of shares.

On 18 July 2010 Perutnina Ptuja sent a note to Merkur about its intentions of realizing the option contract for switching Perutnina Ptuj shares with Merkur shares. The Merkur management dismissed this based on the legal opinion that the said contract could possibly be illegal and therefore void as, based on it, Merkur would gain own shares in conflict with the legal restrictions.

Disposal of Financial Assets Available for Sale in 2010

In 2010 the Company disposed of the following available-for-sale financial assets:

• 51,577 shares of Sava, d. d., Kranj (SAvA shares) in three transactions at average price of EUR 221.23 per share; the total value of transactions was EUR 11,410 thousand. The book value of the shares was EUR 12,273 thousand, so the sale generated a loss of EUR 863 thousand.

• 26,748 shares of NLB, d. d., Ljubljana at EUR 225 per share; the total value of the transaction was EUR 6,018 thousand. The sale generated a loss of EUR 67 thousand.

• 11,000 shares of Gradis skupina G d. d., Ljubljana (GRSR shares) at EUR 40.00 per share; the total value of the transaction was EUR 440 thousand. The sale was carried out by the book value of the shares.

• 64,940 shares of Zavarovalnica Triglav, d. d., Ljubljana (ZTvG shares) at EUR 78.70 per share; the total value of the transaction was EUR 5,111 thousand. The Company acquired the shares in 2009 priced at EUR 73.30 per share. Based on the note from viator & vektor, d. d., on exercising the option, the purchase agreement was signed on 13 September 2010.

• 22,576 shares of ETI, d. d., Izlake (ETIG shares) at EUR 57.06 per share; the total value of the transaction was EUR 1,288 thousand. The company had a Contract on relationship regulation for these shares which regulated the sale of shares at EUR 53.30 per share. On 16 August 2010 a deal was reached with Gorenje, d. d., velenje on the sale of shares, by which the option contract was executed.

On 31 December 2010 the following securities of the Company were pledged: • 43,000 shares of Gorenjska banka, Kranj, book value at EUR 66,650 thousand, • 1,434,485 shares of Perutnina Ptuj, book value at EUR 25,821 thousand, • 130.000 shares of Maksima Invest Ljubljana, book value at EUR 384 thousand, and • 133,547 shares of Sava, d. d., Kranj, book value at EUR 23,371 thousand.

The interest rate for long-term deposits is EURIBOR + 1.6 % markup a year.

5.7 Loans Given

Long-term Loans Given by Merkur, d. d., – by Type

Receivables from Assets of the Merkur, d. d., Loaned under Financial Lease – by Maturity

* Recognized in short-term trade receivables.

64

69

Available-for-sale Financial Assets in Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Available-for-sale financial assets Net value on 1 January 2009 184,470 Acquisitions 70,351 Change of fair value in other comprehensive income -48,097 Disposals and write-offs -25,763 Impairment loss through profit/loss -8,085 Impairment write-off 123 Net value on 31 December 2009 172,999 Acquisitions 10,739 Change of fair value in other comprehensive income -19,363 Disposals -25,106 Impairment loss through profit/loss -10,665 Impairment write-off 46 Net value on 31 December 2010 128,650

The Company assessed the fair value of available-for-sale financial assets on 31 December 2010. The valuation showed that the fair value of important investments is below their book value, and the value of investments was impaired to their fair value. The effect of the impairment in the amount of EUR 19,363 thousand was recognized in the other comprehensive income statement, namely as a reduction of reserve for fair value. A large part of the change recognized in the other comprehensive income comes from the investment in the shares of Gorenjska banka, d. d., Kranj in the amount of EUR 19,390 thousand. The value of financial assets for which the Company had not previously recognized the reserves for fair value, was impaired and burdened the profit or loss for EUR 10,665 thousand. A greater part of this amount comes from impairment of the investment in the shares of Sava, d. d., in the amount of EUR 8,959 thousand. On 31 December 2010 the Company recognizes the fair value of the investment in the shares of Gorenjska banka, d. d. at EUR 1,550 per share, and that corresponds to the value according to the valuation model. In addition, an agreement has been reached between Merkur and Sava, d. d., based on which the companies commit that they will sell the joint 57.9% stake in Gorenjska banka (Sava owns 152,110 shares which corresponds to a 45.9% equity stake). In 2010 the Company decided to use the valuation model to measure the fair value of financial investment in the shares of Sava, d. d., Kranj, which is listed on the stock exchange, instead of the official market price on 31 December 2010, because to the low market liquidity the market price does not reflect the true value of the financial investment. For the purposes of the accounting reporting the recognized price of Sava, d. d., Kranj shares was EUR 175 per share (the official market value on 31 December 2010 was EUR 89.50 per share). The largest financial investments of Merkur, d. d., according to their value on 31 December 2010 are listed below: In thousand EUR

Investment

Number of shares on

31 Dec. 2010 Stake in % on 31 Dec. 2010

Investment value

Investment revaluation

Corrected investment

value Gorenjska banka Kranj 43,089 13.00 44,313 22,475 - Perutnina Ptuj d. d. 1,434,485 24.26 25,821 - - Cimos Koper 500,000 3.00 7,789 - -4,375 Sava d. d. Kranj 134,923 6.72 32,571 - -8,959

The financial investments in the equity of Perutnina, d. d., Ptuj in which the Company has a 24.26% stake and of Kopitarna, d. d., Sevnica in which the company has a 24.20% stake are classified as investments available for sale. The Company does not influence the operations or decision making in these two companies, because of the mentioned uncertainty about ownership the investment in Perutnina Ptuj is not treated as an investment in an associated enterprise, and there is an ongoing dispute about the repurchase right described further on.

Additional burdens on securities with the ban on the right to dispose: • 1,434,485 shares of Perutnina Ptuj, • 3,000 shares of Gorenjska banka Kranj – already pledged, and • 63,500 shares of Sava, d. d., Kranj – already pledged.

On 31 December 2010 the entire securities portfolio was subject to a claim for execution of financial receivables, which was partially lifted in 2011. More on this is explained in item 8.3. Lawsuits against Merkur, d. d.

71

Deposits and Collateral of Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Deposit provided Net value on 1 January 2009 2,145 Increase 8,843 Net value on 31 December 2009 10,988 Decrease -8,843 Net value on 31 December 2010 2,145 Net value on 1 January 2009 2,145 Net value on 31 December 2009 10,988 Net value on 31 December 2010 2,145

The interest rate for long-term deposits is EURIBOR + 1.6 % markup a year. 5.7 Loans Given Long-term Loans Given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans given 11,805 1,388 Loans given to other companies 11,805 1,274 Receivables from financial lease - 114

Receivables from Assets of the Merkur, d. d., Loaned under Financial Lease – by Maturity In thousand EUR Maturity of receivables from assets loaned under financial lease: 31 December 2010 31 December 2009 due in less than a year* 42 328 due between 1 to 5 years - 114 Total 42 442 * Recognized in short-term trade receivables.

Long-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Loans given Receivables from

financial lease Item Gross value on 1 January 2009 3,270 420 Acquisitions 10,623 76 Interest 80 - Repayment -11,564 -383 Foreign exchange differences 35 - Gross value on 31 December 2009 2,443 114 Transfer from short-term to long-term given loans 157,500 - Acquisitions 29,759 - Interest 35 - Repayment -8,179 -114 Gross value on 31 December 2010 181,560 0 Revaluation on 1 January 2009 1,171 0 Full write-off -13 - Value impairment during the year 14 - Impairment write-off -3 - Revaluation on 31 December 2009 1.169 0 Transfer of correction from short-term to long-term loans 126,395 - Full write-off -5 - Value impairment during the year 42,196 - Impairment write-off -1 - Revaluation on 31 December 2010 169,705 0 Net value on 1 January 2009 2,099 420 Net value on 31 December 2009 1,274 114 Net value on 31 December 2010 11,805 0

Deposits and Collateral of Merkur, d. d., in 2009 and 2010

71

Deposits and Collateral of Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Deposit provided Net value on 1 January 2009 2,145 Increase 8,843 Net value on 31 December 2009 10,988 Decrease -8,843 Net value on 31 December 2010 2,145 Net value on 1 January 2009 2,145 Net value on 31 December 2009 10,988 Net value on 31 December 2010 2,145

The interest rate for long-term deposits is EURIBOR + 1.6 % markup a year. 5.7 Loans Given Long-term Loans Given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans given 11,805 1,388 Loans given to other companies 11,805 1,274 Receivables from financial lease - 114

Receivables from Assets of the Merkur, d. d., Loaned under Financial Lease – by Maturity In thousand EUR Maturity of receivables from assets loaned under financial lease: 31 December 2010 31 December 2009 due in less than a year* 42 328 due between 1 to 5 years - 114 Total 42 442 * Recognized in short-term trade receivables.

Long-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Loans given Receivables from

financial lease Item Gross value on 1 January 2009 3,270 420 Acquisitions 10,623 76 Interest 80 - Repayment -11,564 -383 Foreign exchange differences 35 - Gross value on 31 December 2009 2,443 114 Transfer from short-term to long-term given loans 157,500 - Acquisitions 29,759 - Interest 35 - Repayment -8,179 -114 Gross value on 31 December 2010 181,560 0 Revaluation on 1 January 2009 1,171 0 Full write-off -13 - Value impairment during the year 14 - Impairment write-off -3 - Revaluation on 31 December 2009 1.169 0 Transfer of correction from short-term to long-term loans 126,395 - Full write-off -5 - Value impairment during the year 42,196 - Impairment write-off -1 - Revaluation on 31 December 2010 169,705 0 Net value on 1 January 2009 2,099 420 Net value on 31 December 2009 1,274 114 Net value on 31 December 2010 11,805 0

71

Deposits and Collateral of Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Deposit provided Net value on 1 January 2009 2,145 Increase 8,843 Net value on 31 December 2009 10,988 Decrease -8,843 Net value on 31 December 2010 2,145 Net value on 1 January 2009 2,145 Net value on 31 December 2009 10,988 Net value on 31 December 2010 2,145

The interest rate for long-term deposits is EURIBOR + 1.6 % markup a year. 5.7 Loans Given Long-term Loans Given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans given 11,805 1,388 Loans given to other companies 11,805 1,274 Receivables from financial lease - 114

Receivables from Assets of the Merkur, d. d., Loaned under Financial Lease – by Maturity In thousand EUR Maturity of receivables from assets loaned under financial lease: 31 December 2010 31 December 2009 due in less than a year* 42 328 due between 1 to 5 years - 114 Total 42 442 * Recognized in short-term trade receivables.

Long-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Loans given Receivables from

financial lease Item Gross value on 1 January 2009 3,270 420 Acquisitions 10,623 76 Interest 80 - Repayment -11,564 -383 Foreign exchange differences 35 - Gross value on 31 December 2009 2,443 114 Transfer from short-term to long-term given loans 157,500 - Acquisitions 29,759 - Interest 35 - Repayment -8,179 -114 Gross value on 31 December 2010 181,560 0 Revaluation on 1 January 2009 1,171 0 Full write-off -13 - Value impairment during the year 14 - Impairment write-off -3 - Revaluation on 31 December 2009 1.169 0 Transfer of correction from short-term to long-term loans 126,395 - Full write-off -5 - Value impairment during the year 42,196 - Impairment write-off -1 - Revaluation on 31 December 2010 169,705 0 Net value on 1 January 2009 2,099 420 Net value on 31 December 2009 1,274 114 Net value on 31 December 2010 11,805 0

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66

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0

Long-term Loans Given by Merkur, d. d., in 2009 and 2010

The short-term loan given to HTC DvA, d. o. o., in the amount of EUR 147,500 thousand was converted to a long-term loan with 2–5 year maturity on 23 April 2010. The Company took the receivables of the loan taker due from Merfin in the amount of the principal value as collateral. In addition, HTC DvA, d. o. o., assumed the debt that Factor družba za svetovanje, trgovino in leasing, d. o. o., Ljubljana owed to Merkur in the amount of EUR 10,000 thousand, maturity: 28 March 2013.

In 2010 HTC DvA, d. o. o., was given another loan in the amount of EUR 29,681 thousand. After the start of the bankruptcy proceedings of HTC DvA, d. o. o., was announced on 4 November 2010, the value of the loan was further impaired in the amount of EUR 42,134 thousand. The management speculates that as a creditor in the process of compulsory settlement or bankruptcy they can challenge the debtor’s legal actions from the year before the bankruptcy. The management is discussing whether to file a challenging action for disputable transactions that are the subject of a special audit.

On 31 December the company recorded the long-term loan given to HTC DvA, d. o. o., with the gross value of EUR 179.390 thousand, the correction for this loan stands at EUR 168,528 thousand, and so the loan given is worth EUR 10,862 thousand.

Collateral for Long-term Loans given by Merkur, d. d.

Maturity of Long-term Loans given by Merkur, d. d.

Long-term Loans given by Merkur, d. d., – by Currency and Interest Rate

5.8 Other Noncurrent Receivables

Other Noncurrent Receivables of Merkur, d. d., – by Type

5.9 Inventories

Inventories of Merkur, d. d.

At the end of 2010, the net realizable value of inventories, determined on the basis of estimated net sales prices of items minus the direct cost of sale, exceeded the carrying amount of inventories. The inventories are subject to pledge worth EUR 37,110 thousand (EUR 2,825 thousand of this amount went to loans of the subsidiary Mersteel, d. o. o.).

6671

Deposits and Collateral of Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Deposit provided Net value on 1 January 2009 2,145 Increase 8,843 Net value on 31 December 2009 10,988 Decrease -8,843 Net value on 31 December 2010 2,145 Net value on 1 January 2009 2,145 Net value on 31 December 2009 10,988 Net value on 31 December 2010 2,145

The interest rate for long-term deposits is EURIBOR + 1.6 % markup a year. 5.7 Loans Given Long-term Loans Given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans given 11,805 1,388 Loans given to other companies 11,805 1,274 Receivables from financial lease - 114

Receivables from Assets of the Merkur, d. d., Loaned under Financial Lease – by Maturity In thousand EUR Maturity of receivables from assets loaned under financial lease: 31 December 2010 31 December 2009 due in less than a year* 42 328 due between 1 to 5 years - 114 Total 42 442 * Recognized in short-term trade receivables.

Long-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Loans given Receivables from

financial lease Item Gross value on 1 January 2009 3,270 420 Acquisitions 10,623 76 Interest 80 - Repayment -11,564 -383 Foreign exchange differences 35 - Gross value on 31 December 2009 2,443 114 Transfer from short-term to long-term given loans 157,500 - Acquisitions 29,759 - Interest 35 - Repayment -8,179 -114 Gross value on 31 December 2010 181,560 0 Revaluation on 1 January 2009 1,171 0 Full write-off -13 - Value impairment during the year 14 - Impairment write-off -3 - Revaluation on 31 December 2009 1.169 0 Transfer of correction from short-term to long-term loans 126,395 - Full write-off -5 - Value impairment during the year 42,196 - Impairment write-off -1 - Revaluation on 31 December 2010 169,705 0 Net value on 1 January 2009 2,099 420 Net value on 31 December 2009 1,274 114 Net value on 31 December 2010 11,805 0

72

The short-term loan given to HTC DVA, d. o. o., in the amount of EUR 147,500 thousand was converted to a long-term loan with 2–5 year maturity on 23 April 2010. The Company took the receivables of the loan taker due from Merfin in the amount of the principal value as collateral. In addition, HTC DVA, d. o. o., assumed the debt that Factor družba za svetovanje, trgovino in leasing, d. o. o., Ljubljana owed to Merkur in the amount of EUR 10,000 thousand, maturity: 28 March 2013. In 2010 HTC DVA, d. o. o., was given another loan in the amount of EUR 29,681 thousand. After the start of the bankruptcy proceedings of HTC DVA, d. o. o., was announced on 4 November 2010, the value of the loan was further impaired in the amount of EUR 42,134 thousand. The management speculates that as a creditor in the process of compulsory settlement or bankruptcy they can challenge the debtor’s legal actions from the year before the bankruptcy. The management is discussing whether to file a challenging action for disputable transactions that are the subject of a special audit. On 31 December the company recorded the long-term loan given to HTC DVA, d. o. o., with the gross value of EUR 179.390 thousand, the correction for this loan stands at EUR 168,528 thousand, and so the loan given is worth EUR 10,862 thousand. Collateral for Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Total 11,805 1,274 Mortgages 95 107 Bills surety - 100 Other securities 843 1,049 - movable property 78 78 - insurance companies 315 400 - guarantors 412 526 - other forms of collateral 38 45 Without collateral 10,867 18

Maturity of Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Loans given 11,805 1,274 Mature in 1–2 years 11,147 446 Mature in 2–5 years 402 470 Mature in more than 5 years 256 358

Long-term Loans given by Merkur, d. d., – by Currency and Interest Rate

Currency Value in

thousand EUR Interest

rate from Interest rate to

EUR 11,805 1.59% 5.50% Total 11,805

5.8 Other Noncurrent Receivables Other Noncurrent Receivables of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009

Other noncurrent receivables 229 75 Trade receivables 229 75

72

The short-term loan given to HTC DVA, d. o. o., in the amount of EUR 147,500 thousand was converted to a long-term loan with 2–5 year maturity on 23 April 2010. The Company took the receivables of the loan taker due from Merfin in the amount of the principal value as collateral. In addition, HTC DVA, d. o. o., assumed the debt that Factor družba za svetovanje, trgovino in leasing, d. o. o., Ljubljana owed to Merkur in the amount of EUR 10,000 thousand, maturity: 28 March 2013. In 2010 HTC DVA, d. o. o., was given another loan in the amount of EUR 29,681 thousand. After the start of the bankruptcy proceedings of HTC DVA, d. o. o., was announced on 4 November 2010, the value of the loan was further impaired in the amount of EUR 42,134 thousand. The management speculates that as a creditor in the process of compulsory settlement or bankruptcy they can challenge the debtor’s legal actions from the year before the bankruptcy. The management is discussing whether to file a challenging action for disputable transactions that are the subject of a special audit. On 31 December the company recorded the long-term loan given to HTC DVA, d. o. o., with the gross value of EUR 179.390 thousand, the correction for this loan stands at EUR 168,528 thousand, and so the loan given is worth EUR 10,862 thousand. Collateral for Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Total 11,805 1,274 Mortgages 95 107 Bills surety - 100 Other securities 843 1,049 - movable property 78 78 - insurance companies 315 400 - guarantors 412 526 - other forms of collateral 38 45 Without collateral 10,867 18

Maturity of Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Loans given 11,805 1,274 Mature in 1–2 years 11,147 446 Mature in 2–5 years 402 470 Mature in more than 5 years 256 358

Long-term Loans given by Merkur, d. d., – by Currency and Interest Rate

Currency Value in

thousand EUR Interest

rate from Interest rate to

EUR 11,805 1.59% 5.50% Total 11,805

5.8 Other Noncurrent Receivables Other Noncurrent Receivables of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009

Other noncurrent receivables 229 75 Trade receivables 229 75

72

The short-term loan given to HTC DVA, d. o. o., in the amount of EUR 147,500 thousand was converted to a long-term loan with 2–5 year maturity on 23 April 2010. The Company took the receivables of the loan taker due from Merfin in the amount of the principal value as collateral. In addition, HTC DVA, d. o. o., assumed the debt that Factor družba za svetovanje, trgovino in leasing, d. o. o., Ljubljana owed to Merkur in the amount of EUR 10,000 thousand, maturity: 28 March 2013. In 2010 HTC DVA, d. o. o., was given another loan in the amount of EUR 29,681 thousand. After the start of the bankruptcy proceedings of HTC DVA, d. o. o., was announced on 4 November 2010, the value of the loan was further impaired in the amount of EUR 42,134 thousand. The management speculates that as a creditor in the process of compulsory settlement or bankruptcy they can challenge the debtor’s legal actions from the year before the bankruptcy. The management is discussing whether to file a challenging action for disputable transactions that are the subject of a special audit. On 31 December the company recorded the long-term loan given to HTC DVA, d. o. o., with the gross value of EUR 179.390 thousand, the correction for this loan stands at EUR 168,528 thousand, and so the loan given is worth EUR 10,862 thousand. Collateral for Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Total 11,805 1,274 Mortgages 95 107 Bills surety - 100 Other securities 843 1,049 - movable property 78 78 - insurance companies 315 400 - guarantors 412 526 - other forms of collateral 38 45 Without collateral 10,867 18

Maturity of Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Loans given 11,805 1,274 Mature in 1–2 years 11,147 446 Mature in 2–5 years 402 470 Mature in more than 5 years 256 358

Long-term Loans given by Merkur, d. d., – by Currency and Interest Rate

Currency Value in

thousand EUR Interest

rate from Interest rate to

EUR 11,805 1.59% 5.50% Total 11,805

5.8 Other Noncurrent Receivables Other Noncurrent Receivables of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009

Other noncurrent receivables 229 75 Trade receivables 229 75

72

The short-term loan given to HTC DVA, d. o. o., in the amount of EUR 147,500 thousand was converted to a long-term loan with 2–5 year maturity on 23 April 2010. The Company took the receivables of the loan taker due from Merfin in the amount of the principal value as collateral. In addition, HTC DVA, d. o. o., assumed the debt that Factor družba za svetovanje, trgovino in leasing, d. o. o., Ljubljana owed to Merkur in the amount of EUR 10,000 thousand, maturity: 28 March 2013. In 2010 HTC DVA, d. o. o., was given another loan in the amount of EUR 29,681 thousand. After the start of the bankruptcy proceedings of HTC DVA, d. o. o., was announced on 4 November 2010, the value of the loan was further impaired in the amount of EUR 42,134 thousand. The management speculates that as a creditor in the process of compulsory settlement or bankruptcy they can challenge the debtor’s legal actions from the year before the bankruptcy. The management is discussing whether to file a challenging action for disputable transactions that are the subject of a special audit. On 31 December the company recorded the long-term loan given to HTC DVA, d. o. o., with the gross value of EUR 179.390 thousand, the correction for this loan stands at EUR 168,528 thousand, and so the loan given is worth EUR 10,862 thousand. Collateral for Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Total 11,805 1,274 Mortgages 95 107 Bills surety - 100 Other securities 843 1,049 - movable property 78 78 - insurance companies 315 400 - guarantors 412 526 - other forms of collateral 38 45 Without collateral 10,867 18

Maturity of Long-term Loans given by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Loans given 11,805 1,274 Mature in 1–2 years 11,147 446 Mature in 2–5 years 402 470 Mature in more than 5 years 256 358

Long-term Loans given by Merkur, d. d., – by Currency and Interest Rate

Currency Value in

thousand EUR Interest

rate from Interest rate to

EUR 11,805 1.59% 5.50% Total 11,805

5.8 Other Noncurrent Receivables Other Noncurrent Receivables of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009

Other noncurrent receivables 229 75 Trade receivables 229 75

73

5.9 Inventories Inventories of Merkur, d. d.

In thousand EUR

Item 31 December 2010 31 December 2009 Inventories 39,111 62,717 Materials 78 111 Merchandise: 39,033 62,606 - in store 7,275 19,287 - in shops 31,396 41,985 - in transit 363 1,333

At the end of 2010, the net realizable value of inventories, determined on the basis of estimated net sales prices of items minus the direct cost of sale, exceeded the carrying amount of inventories. The inventories are subject to pledge worth EUR 37,110 thousand (EUR 2,825 thousand of this amount went to loans of the subsidiary Mersteel, d. o. o.). Inventory Surplus and Shortage after Stocktaking of Merkur, d. d.

In thousand EUR

Item 2010 2009 Merchandise – net -375 -618 surplus 462 385 shortage 837 1,003

No significant surplus or shortages were discovered during the interim stocktaking. Corrections of Inventory Value due to the Adjustment to Realizable Value in Merkur, d. d., in 2009 and 2010 In thousand EUR

Item 2010 2009

Status on 1 January 1,020 855 Corrections during the year 2.130 634 Inventory write-off -619 -469

Status on 31 December 2,531 1,020 Based on the changed accounting estimate regarding the realizable value of inventory (see item 4.9) an additional correction of the value was made in 2010 in the amount of EUR 2,130 thousand debiting the balance sheet. 5.10 Current Financial Assets Current Financial Assets of Merkur, d. d., – by Type

In thousand

EUR Item 31 December 2010 31 December 2009 Current financial assets 0 4,351 Deposits, collateral and advances - 4,351

The commercial paper of GBD d. d. that the Company recognized at the end of last year in the amount of EUR 4,351 thousand, decreased in 2010 with the handover of 625,670 Maksima Invest shares worth EUR 3,441 thousand based on the “Agreement on covering the liabilities of the commercial paper”, and by purchasing the shares of Gorenjska banka valued at EUR 720 thousand and shares of Kopitarna Sevnica valued at EUR 190 thousand.

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Inventory Surplus and Shortage after Stocktaking of Merkur, d. d.

No significant surplus or shortages were discovered during the interim stocktaking.

Corrections of Inventory Value due to the Adjustment to Realizable Value in Merkur, d. d., in 2009 and 2010

Based on the changed accounting estimate regarding the realizable value of inventory (see item 4.9) an additional correction of the value was made in 2010 in the amount of EUR 2,130 thousand debiting the balance sheet.

5.10 Current Financial Assets

Current Financial Assets of Merkur, d. d., – by Type

The commercial paper of GBD d. d. that the Company recognized at the end of last year in the amount of EUR 4,351 thousand, decreased in 2010 with the handover of 625,670 Maksima Invest shares worth EUR 3,441 thousand based on the “Agreement on covering the liabilities of the commercial paper”, and by purchasing the shares of Gorenjska banka valued at EUR 720 thousand and shares of Kopitarna Sevnica valued at EUR 190 thousand.

5.11 Given Short-term Loans and Financial Lease

Short-term Loans and Financial Lease given by Merkur, d. d., – by Type

Collateral for Short-term Loans given by Merkur, d. d.

Short-term Loans Given by Merkur, d. d., – by Currency and Interest Rate

Short-term Loans Given by Merkur, d. d., in 2009 and 2010

* Explanation in item 5.7.

68

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5.9 Inventories Inventories of Merkur, d. d.

In thousand EUR

Item 31 December 2010 31 December 2009 Inventories 39,111 62,717 Materials 78 111 Merchandise: 39,033 62,606 - in store 7,275 19,287 - in shops 31,396 41,985 - in transit 363 1,333

At the end of 2010, the net realizable value of inventories, determined on the basis of estimated net sales prices of items minus the direct cost of sale, exceeded the carrying amount of inventories. The inventories are subject to pledge worth EUR 37,110 thousand (EUR 2,825 thousand of this amount went to loans of the subsidiary Mersteel, d. o. o.). Inventory Surplus and Shortage after Stocktaking of Merkur, d. d.

In thousand EUR

Item 2010 2009 Merchandise – net -375 -618 surplus 462 385 shortage 837 1,003

No significant surplus or shortages were discovered during the interim stocktaking. Corrections of Inventory Value due to the Adjustment to Realizable Value in Merkur, d. d., in 2009 and 2010 In thousand EUR

Item 2010 2009

Status on 1 January 1,020 855 Corrections during the year 2.130 634 Inventory write-off -619 -469

Status on 31 December 2,531 1,020 Based on the changed accounting estimate regarding the realizable value of inventory (see item 4.9) an additional correction of the value was made in 2010 in the amount of EUR 2,130 thousand debiting the balance sheet. 5.10 Current Financial Assets Current Financial Assets of Merkur, d. d., – by Type

In thousand

EUR Item 31 December 2010 31 December 2009 Current financial assets 0 4,351 Deposits, collateral and advances - 4,351

The commercial paper of GBD d. d. that the Company recognized at the end of last year in the amount of EUR 4,351 thousand, decreased in 2010 with the handover of 625,670 Maksima Invest shares worth EUR 3,441 thousand based on the “Agreement on covering the liabilities of the commercial paper”, and by purchasing the shares of Gorenjska banka valued at EUR 720 thousand and shares of Kopitarna Sevnica valued at EUR 190 thousand.

73

5.9 Inventories Inventories of Merkur, d. d.

In thousand EUR

Item 31 December 2010 31 December 2009 Inventories 39,111 62,717 Materials 78 111 Merchandise: 39,033 62,606 - in store 7,275 19,287 - in shops 31,396 41,985 - in transit 363 1,333

At the end of 2010, the net realizable value of inventories, determined on the basis of estimated net sales prices of items minus the direct cost of sale, exceeded the carrying amount of inventories. The inventories are subject to pledge worth EUR 37,110 thousand (EUR 2,825 thousand of this amount went to loans of the subsidiary Mersteel, d. o. o.). Inventory Surplus and Shortage after Stocktaking of Merkur, d. d.

In thousand EUR

Item 2010 2009 Merchandise – net -375 -618 surplus 462 385 shortage 837 1,003

No significant surplus or shortages were discovered during the interim stocktaking. Corrections of Inventory Value due to the Adjustment to Realizable Value in Merkur, d. d., in 2009 and 2010 In thousand EUR

Item 2010 2009

Status on 1 January 1,020 855 Corrections during the year 2.130 634 Inventory write-off -619 -469

Status on 31 December 2,531 1,020 Based on the changed accounting estimate regarding the realizable value of inventory (see item 4.9) an additional correction of the value was made in 2010 in the amount of EUR 2,130 thousand debiting the balance sheet. 5.10 Current Financial Assets Current Financial Assets of Merkur, d. d., – by Type

In thousand

EUR Item 31 December 2010 31 December 2009 Current financial assets 0 4,351 Deposits, collateral and advances - 4,351

The commercial paper of GBD d. d. that the Company recognized at the end of last year in the amount of EUR 4,351 thousand, decreased in 2010 with the handover of 625,670 Maksima Invest shares worth EUR 3,441 thousand based on the “Agreement on covering the liabilities of the commercial paper”, and by purchasing the shares of Gorenjska banka valued at EUR 720 thousand and shares of Kopitarna Sevnica valued at EUR 190 thousand.

73

5.9 Inventories Inventories of Merkur, d. d.

In thousand EUR

Item 31 December 2010 31 December 2009 Inventories 39,111 62,717 Materials 78 111 Merchandise: 39,033 62,606 - in store 7,275 19,287 - in shops 31,396 41,985 - in transit 363 1,333

At the end of 2010, the net realizable value of inventories, determined on the basis of estimated net sales prices of items minus the direct cost of sale, exceeded the carrying amount of inventories. The inventories are subject to pledge worth EUR 37,110 thousand (EUR 2,825 thousand of this amount went to loans of the subsidiary Mersteel, d. o. o.). Inventory Surplus and Shortage after Stocktaking of Merkur, d. d.

In thousand EUR

Item 2010 2009 Merchandise – net -375 -618 surplus 462 385 shortage 837 1,003

No significant surplus or shortages were discovered during the interim stocktaking. Corrections of Inventory Value due to the Adjustment to Realizable Value in Merkur, d. d., in 2009 and 2010 In thousand EUR

Item 2010 2009

Status on 1 January 1,020 855 Corrections during the year 2.130 634 Inventory write-off -619 -469

Status on 31 December 2,531 1,020 Based on the changed accounting estimate regarding the realizable value of inventory (see item 4.9) an additional correction of the value was made in 2010 in the amount of EUR 2,130 thousand debiting the balance sheet. 5.10 Current Financial Assets Current Financial Assets of Merkur, d. d., – by Type

In thousand

EUR Item 31 December 2010 31 December 2009 Current financial assets 0 4,351 Deposits, collateral and advances - 4,351

The commercial paper of GBD d. d. that the Company recognized at the end of last year in the amount of EUR 4,351 thousand, decreased in 2010 with the handover of 625,670 Maksima Invest shares worth EUR 3,441 thousand based on the “Agreement on covering the liabilities of the commercial paper”, and by purchasing the shares of Gorenjska banka valued at EUR 720 thousand and shares of Kopitarna Sevnica valued at EUR 190 thousand.

74

5.11 Given Short-term Loans and Financial Lease Short-term Loans and Financial Lease given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Given Short-term Loans and Financial Lease 15,407 55,562 Loans given to subsidiaries 15,165 15,165 Loans given to other companies 200 40,069 - short-term part of given long-term loans 200 465 - given short-term loans - 39,604 Receivables from financial lease 42 328

Collateral for Short-term Loans given by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Total 15,365 55,234 Mortgages 14 19 Bills surety 15,165 52,780 Other securities 186 233 - with insurance companies 83 115 - guarantors 103 118 Without collateral - 2,202

Short-term Loans Given by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 15,365 1.59% 5.50% Total 15,365

Short-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item

Short-term loans given to

subsidiaries

Short-term loans given to

other companies

Receivables from financial

lease Gross value on 1 January 2009 14,854 89,819 758 Short-term maturity of long-term loans -5,200 -1,870 -758 Acquisitions 15,165 199,626 - Short-term maturity of long-term loans - 465 328 Repayment -9,654 -119,915 - Gross value on 31 December 2009 15,165 168,124 328 Transfer from short-term to long-term given loans* 0 -157,500 0 Acquisitions - 43,381 - Repayment - -25,735 -286 Gross value on 31 December 2010 15,165 28,270 42 Revaluation on 1 January 2009 - 1,660 0 Value impairment during the year - 126,395 - Revaluation on 31 December 2009 0 128,055 0 Value impairment during the year - 25,500 - Transfer of correction from short-term to long-term loans - -126,395 - Impairment write-off - 910 - Revaluation on 31 December 2010 0 28,070 0 Net value on 1 January 2009 14854 88,159 758 Net value on 31 December 2009 15,165 40,069 328 Net value on 31 December 2010 15,165 200 42

* Explanation in item 5.7.

74

5.11 Given Short-term Loans and Financial Lease Short-term Loans and Financial Lease given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Given Short-term Loans and Financial Lease 15,407 55,562 Loans given to subsidiaries 15,165 15,165 Loans given to other companies 200 40,069 - short-term part of given long-term loans 200 465 - given short-term loans - 39,604 Receivables from financial lease 42 328

Collateral for Short-term Loans given by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Total 15,365 55,234 Mortgages 14 19 Bills surety 15,165 52,780 Other securities 186 233 - with insurance companies 83 115 - guarantors 103 118 Without collateral - 2,202

Short-term Loans Given by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 15,365 1.59% 5.50% Total 15,365

Short-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item

Short-term loans given to

subsidiaries

Short-term loans given to

other companies

Receivables from financial

lease Gross value on 1 January 2009 14,854 89,819 758 Short-term maturity of long-term loans -5,200 -1,870 -758 Acquisitions 15,165 199,626 - Short-term maturity of long-term loans - 465 328 Repayment -9,654 -119,915 - Gross value on 31 December 2009 15,165 168,124 328 Transfer from short-term to long-term given loans* 0 -157,500 0 Acquisitions - 43,381 - Repayment - -25,735 -286 Gross value on 31 December 2010 15,165 28,270 42 Revaluation on 1 January 2009 - 1,660 0 Value impairment during the year - 126,395 - Revaluation on 31 December 2009 0 128,055 0 Value impairment during the year - 25,500 - Transfer of correction from short-term to long-term loans - -126,395 - Impairment write-off - 910 - Revaluation on 31 December 2010 0 28,070 0 Net value on 1 January 2009 14854 88,159 758 Net value on 31 December 2009 15,165 40,069 328 Net value on 31 December 2010 15,165 200 42

* Explanation in item 5.7.

74

5.11 Given Short-term Loans and Financial Lease Short-term Loans and Financial Lease given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Given Short-term Loans and Financial Lease 15,407 55,562 Loans given to subsidiaries 15,165 15,165 Loans given to other companies 200 40,069 - short-term part of given long-term loans 200 465 - given short-term loans - 39,604 Receivables from financial lease 42 328

Collateral for Short-term Loans given by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Total 15,365 55,234 Mortgages 14 19 Bills surety 15,165 52,780 Other securities 186 233 - with insurance companies 83 115 - guarantors 103 118 Without collateral - 2,202

Short-term Loans Given by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 15,365 1.59% 5.50% Total 15,365

Short-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item

Short-term loans given to

subsidiaries

Short-term loans given to

other companies

Receivables from financial

lease Gross value on 1 January 2009 14,854 89,819 758 Short-term maturity of long-term loans -5,200 -1,870 -758 Acquisitions 15,165 199,626 - Short-term maturity of long-term loans - 465 328 Repayment -9,654 -119,915 - Gross value on 31 December 2009 15,165 168,124 328 Transfer from short-term to long-term given loans* 0 -157,500 0 Acquisitions - 43,381 - Repayment - -25,735 -286 Gross value on 31 December 2010 15,165 28,270 42 Revaluation on 1 January 2009 - 1,660 0 Value impairment during the year - 126,395 - Revaluation on 31 December 2009 0 128,055 0 Value impairment during the year - 25,500 - Transfer of correction from short-term to long-term loans - -126,395 - Impairment write-off - 910 - Revaluation on 31 December 2010 0 28,070 0 Net value on 1 January 2009 14854 88,159 758 Net value on 31 December 2009 15,165 40,069 328 Net value on 31 December 2010 15,165 200 42

* Explanation in item 5.7.

74

5.11 Given Short-term Loans and Financial Lease Short-term Loans and Financial Lease given by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Given Short-term Loans and Financial Lease 15,407 55,562 Loans given to subsidiaries 15,165 15,165 Loans given to other companies 200 40,069 - short-term part of given long-term loans 200 465 - given short-term loans - 39,604 Receivables from financial lease 42 328

Collateral for Short-term Loans given by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Total 15,365 55,234 Mortgages 14 19 Bills surety 15,165 52,780 Other securities 186 233 - with insurance companies 83 115 - guarantors 103 118 Without collateral - 2,202

Short-term Loans Given by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 15,365 1.59% 5.50% Total 15,365

Short-term Loans Given by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item

Short-term loans given to

subsidiaries

Short-term loans given to

other companies

Receivables from financial

lease Gross value on 1 January 2009 14,854 89,819 758 Short-term maturity of long-term loans -5,200 -1,870 -758 Acquisitions 15,165 199,626 - Short-term maturity of long-term loans - 465 328 Repayment -9,654 -119,915 - Gross value on 31 December 2009 15,165 168,124 328 Transfer from short-term to long-term given loans* 0 -157,500 0 Acquisitions - 43,381 - Repayment - -25,735 -286 Gross value on 31 December 2010 15,165 28,270 42 Revaluation on 1 January 2009 - 1,660 0 Value impairment during the year - 126,395 - Revaluation on 31 December 2009 0 128,055 0 Value impairment during the year - 25,500 - Transfer of correction from short-term to long-term loans - -126,395 - Impairment write-off - 910 - Revaluation on 31 December 2010 0 28,070 0 Net value on 1 January 2009 14854 88,159 758 Net value on 31 December 2009 15,165 40,069 328 Net value on 31 December 2010 15,165 200 42

* Explanation in item 5.7.

Annu

al R

epor

t Mer

kur,

d. d

., 201

0

73

5.9 Inventories Inventories of Merkur, d. d.

In thousand EUR

Item 31 December 2010 31 December 2009 Inventories 39,111 62,717 Materials 78 111 Merchandise: 39,033 62,606 - in store 7,275 19,287 - in shops 31,396 41,985 - in transit 363 1,333

At the end of 2010, the net realizable value of inventories, determined on the basis of estimated net sales prices of items minus the direct cost of sale, exceeded the carrying amount of inventories. The inventories are subject to pledge worth EUR 37,110 thousand (EUR 2,825 thousand of this amount went to loans of the subsidiary Mersteel, d. o. o.). Inventory Surplus and Shortage after Stocktaking of Merkur, d. d.

In thousand EUR

Item 2010 2009 Merchandise – net -375 -618 surplus 462 385 shortage 837 1,003

No significant surplus or shortages were discovered during the interim stocktaking. Corrections of Inventory Value due to the Adjustment to Realizable Value in Merkur, d. d., in 2009 and 2010 In thousand EUR

Item 2010 2009

Status on 1 January 1,020 855 Corrections during the year 2.130 634 Inventory write-off -619 -469

Status on 31 December 2,531 1,020 Based on the changed accounting estimate regarding the realizable value of inventory (see item 4.9) an additional correction of the value was made in 2010 in the amount of EUR 2,130 thousand debiting the balance sheet. 5.10 Current Financial Assets Current Financial Assets of Merkur, d. d., – by Type

In thousand

EUR Item 31 December 2010 31 December 2009 Current financial assets 0 4,351 Deposits, collateral and advances - 4,351

The commercial paper of GBD d. d. that the Company recognized at the end of last year in the amount of EUR 4,351 thousand, decreased in 2010 with the handover of 625,670 Maksima Invest shares worth EUR 3,441 thousand based on the “Agreement on covering the liabilities of the commercial paper”, and by purchasing the shares of Gorenjska banka valued at EUR 720 thousand and shares of Kopitarna Sevnica valued at EUR 190 thousand.

70

Annu

al R

epor

t Mer

kur,

d. d

., 201

0

5.12 Trade Receivables and Other Assets

Short-term Trade Receivables of Merkur, d. d.

5.13 Cash and Cash Equivalents

Cash and Cash Equivalents of Merkur, d. d.

Own SharesIn 2008, Merkur acquired 131,258 of own shares, or 10% of total share capital.

These shares were acquired in relation to ZGD, Article 247, second indent, namely to be offered for repurchase to employees of the Company or a related company. Because the shares were not offered to employees for repurchase within a year, the management proposed to the general meeting that the shares be withdrawn. The decision on the withdrawal was adopted at the 22th shareholders’ general meeting on 25 February 2011.

In 2010 the Company acquired 13,615 of own shares valued at EUR 3,812 thousand and immediately sold them to Merfin, d. o. o., at the same price. 16,090 MER shares have been hypothesized in favor of the bank as a loan security.

Fair value reserve totals at EUR 62,861 thousand and represents the effects of a change in fair value of available-for-sale financial assets and property.

Establishing and Covering the Net Loss Generated in 2010

The management of Merkur, d. d., established that the company generated a net loss of EUR 220,483 thousand in 2010, EUR 2.403 thousand of which will be covered by: • retained net profit from previous years in the amount of EUR 1,373 thousand, and • remains of the legal reserves in the amount of EUR 1,030 thousand.

The remainder of the net loss from 2010 in the amount of EUR 218,080 thousand is the accumulated loss that will be covered in 2011.

Establishing and Covering the Accumulated Loss Generated in 2010

The established accumulated loss of EUR 218,080 thousand will be covered in 2011 from the effects of the finalized compulsory settlement and from capital reserves arising from the decision on the simplified reduction of the share capital, which passed the vote on the 22th shareholders’ meeting on 25 February 2011.

The Company did not opt for automatic bank overdrafts on its transaction accounts. On 31 December 2010 the balance on its account with Gorenjska banka is negative in the amount of EUR 819 thousand and is subject to compulsory settlement. The interest rate for callable deposits is between 0.40% and 2.00% annually fixed.

5.14 Equity and ReservesShare capital of Merkur, d. d. totals EUR 54,773 thousand and is divided into 1,312,585 individual ordinary share certificates. All shares have been fully paid in. An individual ordinary share certificate is registered in the name of the holder and gives its holder the right to: • one vote at a shareholders’ meeting, • a pro rata dividend from profit appropriated for dividend payout, • a pro rata portion of the remainder of estate in bankruptcy or liquidation in the event of bankruptcy or liquidation.

The shares have been issued in dematerialized form and entered in the central securities register run by KDD – Centralna klirinško depotna družba d. d. Ljubljana.

Approved Capital

Merkur, d. d. has not adopted any resolutions on approved capital.

Conditional Capital Increase

The Articles of Association of Merkur, d. d. do not include any provisions on conditional capital increase.

Reserves amount to EUR 53,159 thousand and comprise only reserves for own shares, and will be released upon disposal of own shares or upon their withdrawal.

5.15 Loans Taken

Long-term Loans Taken by Merkur, d. d., – by Type

Long-term Loans Taken by Merkur, d. d., in 2009 and 2010

70

75

5.12 Trade Receivables and Other Assets Short-term Trade Receivables of Merkur, d. d.

In thousand EUR

Item 31 December 2010 31 December 2009 Trade receivables and other assets 29,628 145,856 Advances for inventory 1,917 119 Trade receivables due from customers 10,058 72,569 Trade receivables due from subsidiaries 11,201 57,026 Trade receivables due from others and active accruals 6,452 16,142

Corrections of the value of receivables and the maturity structure of receivables are shown in item 5.22 Financial Instruments and Risk Management. 5.13 Cash and Cash Equivalents Cash and Cash Equivalents of Merkur, d. d.

In thousand EUR Item 31 December 2010 31 December 2009 Cash and cash equivalents 5,584 332 Cash in hand 233 285 Cash in bank 965 47 Callable deposits 4,385 -

The Company did not opt for automatic bank overdrafts on its transaction accounts. On 31 December 2010 the balance on its account with Gorenjska banka is negative in the amount of EUR 819 thousand and is subject to compulsory settlement. The interest rate for callable deposits is between 0.40% and 2.00% annually fixed.

5.14 Equity and Reserves Share capital of Merkur, d. d. totals EUR 54,773 thousand and is divided into 1,312,585 individual ordinary share certificates. All shares have been fully paid in. An individual ordinary share certificate is registered in the name of the holder and gives its holder the right to:

one vote at a shareholders’ meeting, a pro rata dividend from profit appropriated for dividend payout, a pro rata portion of the remainder of estate in bankruptcy or liquidation in the event of

bankruptcy or liquidation. The shares have been issued in dematerialized form and entered in the central securities register run by KDD – Centralna klirinško depotna družba d. d. Ljubljana. Approved Capital Merkur, d. d. has not adopted any resolutions on approved capital. Conditional Capital Increase The Articles of Association of Merkur, d. d. do not include any provisions on conditional capital increase. Reserves amount to EUR 53,159 thousand and comprise only reserves for own shares, and will be released upon disposal of own shares or upon their withdrawal. Own Shares In 2008, Merkur acquired 131,258 of own shares, or 10% of total share capital. These shares were acquired in relation to ZGD, Article 247, second indent, namely to be offered for repurchase to employees of the Company or a related company. Because the shares were not offered to employees for repurchase within a year, the management proposed to the general meeting that the shares be withdrawn. The decision on the withdrawal was adopted at the 22th shareholders’ general meeting on 25 February 2011.

Corrections of the value of receivables and the maturity structure of receivables are shown in item 5.22 Financial Instruments and Risk Management.

75

5.12 Trade Receivables and Other Assets Short-term Trade Receivables of Merkur, d. d.

In thousand EUR

Item 31 December 2010 31 December 2009 Trade receivables and other assets 29,628 145,856 Advances for inventory 1,917 119 Trade receivables due from customers 10,058 72,569 Trade receivables due from subsidiaries 11,201 57,026 Trade receivables due from others and active accruals 6,452 16,142

Corrections of the value of receivables and the maturity structure of receivables are shown in item 5.22 Financial Instruments and Risk Management. 5.13 Cash and Cash Equivalents Cash and Cash Equivalents of Merkur, d. d.

In thousand EUR Item 31 December 2010 31 December 2009 Cash and cash equivalents 5,584 332 Cash in hand 233 285 Cash in bank 965 47 Callable deposits 4,385 -

The Company did not opt for automatic bank overdrafts on its transaction accounts. On 31 December 2010 the balance on its account with Gorenjska banka is negative in the amount of EUR 819 thousand and is subject to compulsory settlement. The interest rate for callable deposits is between 0.40% and 2.00% annually fixed.

5.14 Equity and Reserves Share capital of Merkur, d. d. totals EUR 54,773 thousand and is divided into 1,312,585 individual ordinary share certificates. All shares have been fully paid in. An individual ordinary share certificate is registered in the name of the holder and gives its holder the right to:

one vote at a shareholders’ meeting, a pro rata dividend from profit appropriated for dividend payout, a pro rata portion of the remainder of estate in bankruptcy or liquidation in the event of

bankruptcy or liquidation. The shares have been issued in dematerialized form and entered in the central securities register run by KDD – Centralna klirinško depotna družba d. d. Ljubljana. Approved Capital Merkur, d. d. has not adopted any resolutions on approved capital. Conditional Capital Increase The Articles of Association of Merkur, d. d. do not include any provisions on conditional capital increase. Reserves amount to EUR 53,159 thousand and comprise only reserves for own shares, and will be released upon disposal of own shares or upon their withdrawal. Own Shares In 2008, Merkur acquired 131,258 of own shares, or 10% of total share capital. These shares were acquired in relation to ZGD, Article 247, second indent, namely to be offered for repurchase to employees of the Company or a related company. Because the shares were not offered to employees for repurchase within a year, the management proposed to the general meeting that the shares be withdrawn. The decision on the withdrawal was adopted at the 22th shareholders’ general meeting on 25 February 2011.

78

5.15 Loans Taken Long-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Noncurrent financial liabilities 41,880 96,848 Long-term loans taken from banks 41,880 96,848

Long-term Loans Taken by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Long-term loans taken from banks Balance on 1 January 2009 114,549 New loans 99,550 Loan repayment -240 Transfer to short-term loans due to failure to fulfill obligations -41,500 Short-term part of long-term loans -75,510 Balance on 31 December 2009 96,848 Transfer from short-term loan to long-term (reprogramming) 49,300 New loans 12,800 Transfer to short-term loans due to failure to fulfill obligations -17,142 Short-term part of long-term loans -99,926 Balance on 31 December 2010 41,880

Long-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 41,880 1.73% 9.00% Total 41,880

Collateral for Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mortgages 35,880 32,991 Bills surety 6,000 6,000 Collateralized by securities - 57,857

Maturity of Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mature in 1–2 years 29,880 43,453 Mature in 2–5 years 12,000 53,395

78

5.15 Loans Taken Long-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Noncurrent financial liabilities 41,880 96,848 Long-term loans taken from banks 41,880 96,848

Long-term Loans Taken by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Long-term loans taken from banks Balance on 1 January 2009 114,549 New loans 99,550 Loan repayment -240 Transfer to short-term loans due to failure to fulfill obligations -41,500 Short-term part of long-term loans -75,510 Balance on 31 December 2009 96,848 Transfer from short-term loan to long-term (reprogramming) 49,300 New loans 12,800 Transfer to short-term loans due to failure to fulfill obligations -17,142 Short-term part of long-term loans -99,926 Balance on 31 December 2010 41,880

Long-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 41,880 1.73% 9.00% Total 41,880

Collateral for Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mortgages 35,880 32,991 Bills surety 6,000 6,000 Collateralized by securities - 57,857

Maturity of Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mature in 1–2 years 29,880 43,453 Mature in 2–5 years 12,000 53,395

Annu

al R

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kur,

d. d

., 201

0

72

Annu

al R

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t Mer

kur,

d. d

., 201

0

Collateral for Long-term Loans Taken by Merkur, d. d.

Maturity of Long-term Loans Taken by Merkur, d. d.

5.16 Noncurrent and Current Liabilities from Financial Leases

Noncurrent and Current Liabilities from Financial Lease of Merkur, d. d.

Receivables from Assets of Merkur, d. d., Leased Under Financial Lease – by Maturity

Noncurrent Liabilities from Financial Lease of Merkur, d. d., – by Currency and Interest Rate

Noncurrent Liabilities from Financial Lease in 2009 and 2010

5.17 Other Noncurrent Liabilities

5.18 Long-term and Short-term Provisions

Long-term Provisions of Merkur, d. d., – by Type

72

Long-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

78

5.15 Loans Taken Long-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Noncurrent financial liabilities 41,880 96,848 Long-term loans taken from banks 41,880 96,848

Long-term Loans Taken by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Long-term loans taken from banks Balance on 1 January 2009 114,549 New loans 99,550 Loan repayment -240 Transfer to short-term loans due to failure to fulfill obligations -41,500 Short-term part of long-term loans -75,510 Balance on 31 December 2009 96,848 Transfer from short-term loan to long-term (reprogramming) 49,300 New loans 12,800 Transfer to short-term loans due to failure to fulfill obligations -17,142 Short-term part of long-term loans -99,926 Balance on 31 December 2010 41,880

Long-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 41,880 1.73% 9.00% Total 41,880

Collateral for Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mortgages 35,880 32,991 Bills surety 6,000 6,000 Collateralized by securities - 57,857

Maturity of Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mature in 1–2 years 29,880 43,453 Mature in 2–5 years 12,000 53,395

78

5.15 Loans Taken Long-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Noncurrent financial liabilities 41,880 96,848 Long-term loans taken from banks 41,880 96,848

Long-term Loans Taken by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Long-term loans taken from banks Balance on 1 January 2009 114,549 New loans 99,550 Loan repayment -240 Transfer to short-term loans due to failure to fulfill obligations -41,500 Short-term part of long-term loans -75,510 Balance on 31 December 2009 96,848 Transfer from short-term loan to long-term (reprogramming) 49,300 New loans 12,800 Transfer to short-term loans due to failure to fulfill obligations -17,142 Short-term part of long-term loans -99,926 Balance on 31 December 2010 41,880

Long-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 41,880 1.73% 9.00% Total 41,880

Collateral for Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mortgages 35,880 32,991 Bills surety 6,000 6,000 Collateralized by securities - 57,857

Maturity of Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mature in 1–2 years 29,880 43,453 Mature in 2–5 years 12,000 53,395

78

5.15 Loans Taken Long-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009 Noncurrent financial liabilities 41,880 96,848 Long-term loans taken from banks 41,880 96,848

Long-term Loans Taken by Merkur, d. d., in 2009 and 2010 In thousand EUR

Item Long-term loans taken from banks Balance on 1 January 2009 114,549 New loans 99,550 Loan repayment -240 Transfer to short-term loans due to failure to fulfill obligations -41,500 Short-term part of long-term loans -75,510 Balance on 31 December 2009 96,848 Transfer from short-term loan to long-term (reprogramming) 49,300 New loans 12,800 Transfer to short-term loans due to failure to fulfill obligations -17,142 Short-term part of long-term loans -99,926 Balance on 31 December 2010 41,880

Long-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 41,880 1.73% 9.00% Total 41,880

Collateral for Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mortgages 35,880 32,991 Bills surety 6,000 6,000 Collateralized by securities - 57,857

Maturity of Long-term Loans Taken by Merkur, d. d. In thousand EUR Item 31 December 2010 31 December 2009 Loans taken 41,880 96,848 Mature in 1–2 years 29,880 43,453 Mature in 2–5 years 12,000 53,395

79

5.16 Noncurrent and Current Liabilities from Financial Leases Noncurrent and Current Liabilities from Financial Lease of Merkur, d. d.

In thousand EUR

Item 31 December

2010 31 December

2009 1 January

2009 Noncurrent liabilities from financial leases 55,463 57,602 51,194 Current liabilities from financial leases 2,211 2,056 517 Total liabilities from financial leases 57,673 59,659 51,711

Receivables from Assets of Merkur, d. d., Leased Under Financial Lease – by Maturity In thousand EUR

Receivables from assets leased under financial lease: 31 December 2010 31 December 2009 due in less than a year* 2,211 2,056 due between 1 to 5 years 22,992 23,435 due in more than 5 years 32,471 34,167 Total 57,673 59,659

Noncurrent Liabilities from Financial Lease of Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 55,463 2.51% 4.26% Total 55,463

Noncurrent Liabilities from Financial Lease in 2009 and 2010 In thousand EUR

Item Noncurrent liabilities from financial leases Balance on 1 January 2009 51,194 Short-term part of liabilities from financial leases 517 Acquisitions 9,629 Repayment -3,397 Interest 1,715 Short-term part of liabilities from financial leases -2,056 Balance on 31 December 2009 57,602 Short-term part of liabilities from financial leases 2,056 Repayment -3,221 Interest 1,236 Short-term part of liabilities from financial leases -2,211 Balance on 31 December 2010 55,463

5.17 Other Noncurrent Liabilities

In thousand EUR

Item 31 December 2010 31 December 2009 Other noncurrent liabilities 40 63 Noncurrent operating liabilities to be paid to others 40 63

79

5.16 Noncurrent and Current Liabilities from Financial Leases Noncurrent and Current Liabilities from Financial Lease of Merkur, d. d.

In thousand EUR

Item 31 December

2010 31 December

2009 1 January

2009 Noncurrent liabilities from financial leases 55,463 57,602 51,194 Current liabilities from financial leases 2,211 2,056 517 Total liabilities from financial leases 57,673 59,659 51,711

Receivables from Assets of Merkur, d. d., Leased Under Financial Lease – by Maturity In thousand EUR

Receivables from assets leased under financial lease: 31 December 2010 31 December 2009 due in less than a year* 2,211 2,056 due between 1 to 5 years 22,992 23,435 due in more than 5 years 32,471 34,167 Total 57,673 59,659

Noncurrent Liabilities from Financial Lease of Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 55,463 2.51% 4.26% Total 55,463

Noncurrent Liabilities from Financial Lease in 2009 and 2010 In thousand EUR

Item Noncurrent liabilities from financial leases Balance on 1 January 2009 51,194 Short-term part of liabilities from financial leases 517 Acquisitions 9,629 Repayment -3,397 Interest 1,715 Short-term part of liabilities from financial leases -2,056 Balance on 31 December 2009 57,602 Short-term part of liabilities from financial leases 2,056 Repayment -3,221 Interest 1,236 Short-term part of liabilities from financial leases -2,211 Balance on 31 December 2010 55,463

5.17 Other Noncurrent Liabilities

In thousand EUR

Item 31 December 2010 31 December 2009 Other noncurrent liabilities 40 63 Noncurrent operating liabilities to be paid to others 40 63

79

5.16 Noncurrent and Current Liabilities from Financial Leases Noncurrent and Current Liabilities from Financial Lease of Merkur, d. d.

In thousand EUR

Item 31 December

2010 31 December

2009 1 January

2009 Noncurrent liabilities from financial leases 55,463 57,602 51,194 Current liabilities from financial leases 2,211 2,056 517 Total liabilities from financial leases 57,673 59,659 51,711

Receivables from Assets of Merkur, d. d., Leased Under Financial Lease – by Maturity In thousand EUR

Receivables from assets leased under financial lease: 31 December 2010 31 December 2009 due in less than a year* 2,211 2,056 due between 1 to 5 years 22,992 23,435 due in more than 5 years 32,471 34,167 Total 57,673 59,659

Noncurrent Liabilities from Financial Lease of Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 55,463 2.51% 4.26% Total 55,463

Noncurrent Liabilities from Financial Lease in 2009 and 2010 In thousand EUR

Item Noncurrent liabilities from financial leases Balance on 1 January 2009 51,194 Short-term part of liabilities from financial leases 517 Acquisitions 9,629 Repayment -3,397 Interest 1,715 Short-term part of liabilities from financial leases -2,056 Balance on 31 December 2009 57,602 Short-term part of liabilities from financial leases 2,056 Repayment -3,221 Interest 1,236 Short-term part of liabilities from financial leases -2,211 Balance on 31 December 2010 55,463

5.17 Other Noncurrent Liabilities

In thousand EUR

Item 31 December 2010 31 December 2009 Other noncurrent liabilities 40 63 Noncurrent operating liabilities to be paid to others 40 63

79

5.16 Noncurrent and Current Liabilities from Financial Leases Noncurrent and Current Liabilities from Financial Lease of Merkur, d. d.

In thousand EUR

Item 31 December

2010 31 December

2009 1 January

2009 Noncurrent liabilities from financial leases 55,463 57,602 51,194 Current liabilities from financial leases 2,211 2,056 517 Total liabilities from financial leases 57,673 59,659 51,711

Receivables from Assets of Merkur, d. d., Leased Under Financial Lease – by Maturity In thousand EUR

Receivables from assets leased under financial lease: 31 December 2010 31 December 2009 due in less than a year* 2,211 2,056 due between 1 to 5 years 22,992 23,435 due in more than 5 years 32,471 34,167 Total 57,673 59,659

Noncurrent Liabilities from Financial Lease of Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 55,463 2.51% 4.26% Total 55,463

Noncurrent Liabilities from Financial Lease in 2009 and 2010 In thousand EUR

Item Noncurrent liabilities from financial leases Balance on 1 January 2009 51,194 Short-term part of liabilities from financial leases 517 Acquisitions 9,629 Repayment -3,397 Interest 1,715 Short-term part of liabilities from financial leases -2,056 Balance on 31 December 2009 57,602 Short-term part of liabilities from financial leases 2,056 Repayment -3,221 Interest 1,236 Short-term part of liabilities from financial leases -2,211 Balance on 31 December 2010 55,463

5.17 Other Noncurrent Liabilities

In thousand EUR

Item 31 December 2010 31 December 2009 Other noncurrent liabilities 40 63 Noncurrent operating liabilities to be paid to others 40 63

79

5.16 Noncurrent and Current Liabilities from Financial Leases Noncurrent and Current Liabilities from Financial Lease of Merkur, d. d.

In thousand EUR

Item 31 December

2010 31 December

2009 1 January

2009 Noncurrent liabilities from financial leases 55,463 57,602 51,194 Current liabilities from financial leases 2,211 2,056 517 Total liabilities from financial leases 57,673 59,659 51,711

Receivables from Assets of Merkur, d. d., Leased Under Financial Lease – by Maturity In thousand EUR

Receivables from assets leased under financial lease: 31 December 2010 31 December 2009 due in less than a year* 2,211 2,056 due between 1 to 5 years 22,992 23,435 due in more than 5 years 32,471 34,167 Total 57,673 59,659

Noncurrent Liabilities from Financial Lease of Merkur, d. d., – by Currency and Interest Rate

Currency: Value in

thousand EUR Interest

rate from Interest rate to

EUR 55,463 2.51% 4.26% Total 55,463

Noncurrent Liabilities from Financial Lease in 2009 and 2010 In thousand EUR

Item Noncurrent liabilities from financial leases Balance on 1 January 2009 51,194 Short-term part of liabilities from financial leases 517 Acquisitions 9,629 Repayment -3,397 Interest 1,715 Short-term part of liabilities from financial leases -2,056 Balance on 31 December 2009 57,602 Short-term part of liabilities from financial leases 2,056 Repayment -3,221 Interest 1,236 Short-term part of liabilities from financial leases -2,211 Balance on 31 December 2010 55,463

5.17 Other Noncurrent Liabilities

In thousand EUR

Item 31 December 2010 31 December 2009 Other noncurrent liabilities 40 63 Noncurrent operating liabilities to be paid to others 40 63

80

5.18 Long-term and Short-term Provisions Long-term Provisions of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009 Long-term provisions 34,189 7,908 Provisions for severance pay 4,331 5,969 Provisions for guarantees 24,768 - Provisions for taxes 3,649 - Other provisions 1,440 1,940

Changes in Long-term Provisions of Merkur, d. d., in 2009 and 2010

In thousand EUR

Item

Provisions for

severance pay

Provisions for share

options

Provisions for

guarantees Provisions

for taxes Other

provisions Long-term provisions

Balance on 1 January 2009 6,092 2,138 0 0 1,615 9,845 Provisions formed during the year 302 - - - 786 1,088 Provisions used during the year -426 -121 - - -461 -1,007 Provision withdrawal - -2,018 - - - -2,018 Balance on 31 December 2009 5,969 0 0 0 1,940 7,908 Balance on 1 January 2010 5,969 0 0 0 1,940 7,908 Non-cash contribution of owner - - - - 16 16 Provisions formed during the year - - 24,768 3,649 104 28,522 Provisions used during the year -281 - - - -454 -735 Provision withdrawal -1,356 - - - -167 -1,523 Balance on 31 December 2010 4,331 0 24,768 3,649 1,440 34,189

Provisions for severance pay and long-service bonuses are set according to the amount of expected payouts, discounted at the end of the reporting term. The following estimates are used in calculating potential liabilities:

the growth of the average salary in the Republic of Slovenia is estimated at 2.5% a year, and growth of salaries in the Company at 0,5% a year, which represents the estimated long-term salary growth,

the calculation of payables for severance pays is connected to the years of service of individual employees,

the selected discount rate stands at 4.00% a year, the Slovenian death rate table for 2000–2002 is also observed.

Provisions in this category decreased in 2010 due to severance pays at regular retirement and paid long-service bonuses totaling at EUR 281 thousand and also due to the provision withdrawal in the amount of EUR 1,356 thousand as a consequence of a lower number of employees. Based on the decision of the management board in 2009, all of the unrealized share options from the previous years were withdrawn, and the provisions for them cancelled. Company’s provisions on 31 December 2010 comprised the reservations for guarantees to third parties for their liabilities towards subsidiaries which are in the process of compulsory settlement, bankruptcy or liquidation and for liabilities of Merfin, d. o. o., and Alpos, d. d., in the amount of EUR 24,768 thousand. The reasons for setting provisions and the used assumptions are described in item 5.23 Conditional liabilities and receivables. In 2010 the Company set a provision for tax liabilities based on the income tax assessment by DURS – Special Tax Office No. DT 0610-98/2010 0203 31 of 16 March 2001, namely in the amount of 60% or EUR 3,649 thousand of the whole income tax liability for legal entities for 2009 and of value-added tax for the June 2009 tax period. According to the ZFPPIPP this is a standard liability subject to compulsory settlement (40% discount). The Company filed a complaint against the records and the decision, but

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Changes in Long-term Provisions of Merkur, d. d., in 2009 and 2010

Provisions for severance pay and long-service bonuses are set according to the amount of expected payouts, discounted at the end of the reporting term. The following estimates are used in calculating potential liabilities: • the growth of the average salary in the Republic of Slovenia is estimated at 2.5% a year, and growth of salaries in the Company at 0,5% a year, which represents the estimated long-term salary growth, • the calculation of payables for severance pays is connected to the years of service of individual employees, • the selected discount rate stands at 4.00% a year, • the Slovenian death rate table for 2000–2002 is also observed.

Provisions in this category decreased in 2010 due to severance pays at regular retirement and paid long-service bonuses totaling at EUR 281 thousand and also due to the provision withdrawal in the amount of EUR 1,356 thousand as a consequence of a lower number of employees.

Based on the decision of the management board in 2009, all of the unrealized share options from the previous years were withdrawn, and the provisions for them cancelled.

Company’s provisions on 31 December 2010 comprised the reservations for guarantees to third parties for their liabilities towards subsidiaries which are in the process of compulsory settlement, bankruptcy or liquidation and for liabilities of Merfin, d. o. o., and Alpos, d. d., in the amount of EUR 24,768 thousand. The reasons for setting provisions and the used assumptions are described in item 5.23 Conditional liabilities and receivables.

In 2010 the Company set a provision for tax liabilities based on the income tax assessment by DURS – Special Tax Office No. DT 0610-98/2010 0203 31 of 16 March 2001, namely in the amount of 60% or EUR 3,649 thousand of the whole income tax liability for legal entities for 2009 and of value-added tax for the June 2009 tax period. According to the ZFPPIPP this is a standard liability subject to compulsory settlement (40% discount). The Company filed a complaint against the records and the decision, but none of the important comments were taken into account, so it complained to the second instance, the Ministry of Finance. More on the tax inspection is described in item 6.7 Income Tax.

Other provisions apply to long-term deferred income from sale-and-leaseback of real estate, and to retained contribution for exceeding the quote for employment of disabled persons, which is dedicated to improving the working environment of disabled persons.

The short-term provisions of the Company comprise the liability for employees who do not use all of their leave days, and the provision for lawsuits. The value of these provisions is not significantly different from the value for the previous year.

Short-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Short-term Provisions of Merkur, d. d., – by Type

5.19 Loans Taken

Short-term Loans Taken by Merkur, d. d., – by Type

Short-term Loans Taken by Merkur, d. d., from Other Companies – by Currency and Interest Rate

Collateral for Short-term Loans Taken by Merkur, d. d.

74

80

5.18 Long-term and Short-term Provisions Long-term Provisions of Merkur, d. d., – by Type

In thousand EUR

Item 31 December 2010 31 December 2009 Long-term provisions 34,189 7,908 Provisions for severance pay 4,331 5,969 Provisions for guarantees 24,768 - Provisions for taxes 3,649 - Other provisions 1,440 1,940

Changes in Long-term Provisions of Merkur, d. d., in 2009 and 2010

In thousand EUR

Item

Provisions for

severance pay

Provisions for share

options

Provisions for

guarantees Provisions

for taxes Other

provisions Long-term provisions

Balance on 1 January 2009 6,092 2,138 0 0 1,615 9,845 Provisions formed during the year 302 - - - 786 1,088 Provisions used during the year -426 -121 - - -461 -1,007 Provision withdrawal - -2,018 - - - -2,018 Balance on 31 December 2009 5,969 0 0 0 1,940 7,908 Balance on 1 January 2010 5,969 0 0 0 1,940 7,908 Non-cash contribution of owner - - - - 16 16 Provisions formed during the year - - 24,768 3,649 104 28,522 Provisions used during the year -281 - - - -454 -735 Provision withdrawal -1,356 - - - -167 -1,523 Balance on 31 December 2010 4,331 0 24,768 3,649 1,440 34,189

Provisions for severance pay and long-service bonuses are set according to the amount of expected payouts, discounted at the end of the reporting term. The following estimates are used in calculating potential liabilities:

the growth of the average salary in the Republic of Slovenia is estimated at 2.5% a year, and growth of salaries in the Company at 0,5% a year, which represents the estimated long-term salary growth,

the calculation of payables for severance pays is connected to the years of service of individual employees,

the selected discount rate stands at 4.00% a year, the Slovenian death rate table for 2000–2002 is also observed.

Provisions in this category decreased in 2010 due to severance pays at regular retirement and paid long-service bonuses totaling at EUR 281 thousand and also due to the provision withdrawal in the amount of EUR 1,356 thousand as a consequence of a lower number of employees. Based on the decision of the management board in 2009, all of the unrealized share options from the previous years were withdrawn, and the provisions for them cancelled. Company’s provisions on 31 December 2010 comprised the reservations for guarantees to third parties for their liabilities towards subsidiaries which are in the process of compulsory settlement, bankruptcy or liquidation and for liabilities of Merfin, d. o. o., and Alpos, d. d., in the amount of EUR 24,768 thousand. The reasons for setting provisions and the used assumptions are described in item 5.23 Conditional liabilities and receivables. In 2010 the Company set a provision for tax liabilities based on the income tax assessment by DURS – Special Tax Office No. DT 0610-98/2010 0203 31 of 16 March 2001, namely in the amount of 60% or EUR 3,649 thousand of the whole income tax liability for legal entities for 2009 and of value-added tax for the June 2009 tax period. According to the ZFPPIPP this is a standard liability subject to compulsory settlement (40% discount). The Company filed a complaint against the records and the decision, but

81

none of the important comments were taken into account, so it complained to the second instance, the Ministry of Finance. More on the tax inspection is described in item 6.7 Income Tax. Other provisions apply to long-term deferred income from sale-and-leaseback of real estate, and to retained contribution for exceeding the quote for employment of disabled persons, which is dedicated to improving the working environment of disabled persons. Short-term Provisions of Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December

2009 Short-term provisions 560 517 Provisions for lawsuits 277 277 Provisions for liabilities for employees that have not used up their leave 283 240

The short-term provisions of the Company comprise the liability for employees who do not use all of their leave days, and the provision for lawsuits. The value of these provisions is not significantly different from the value for the previous year. 5.19 Loans Taken Short-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans taken 366,700 323,547 Loans taken from banks 347,365 289,154 - short-term part of taken long-term loans 99,926 75,510 - transfer from long-term loans due to the failure to fulfill obligations 17,143 41,500 - taken short-term loans 230,296 172,144 Short-term loans taken from other parties 19,335 34,393 - taken short-term loans 19,335 34,393

Short-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Value in

thousand EUR Interest rate

from Interest rate to Currency:

EUR 347,365 1.70% 9.00% Total 347,365

Short-term Loans Taken by Merkur, d. d., from Other Companies – by Currency and Interest Rate

Value in thousand EUR

Interest rate from

Interest rate to Currency:

EUR 19,335 3.00% 9.00% Total 19,335

81

none of the important comments were taken into account, so it complained to the second instance, the Ministry of Finance. More on the tax inspection is described in item 6.7 Income Tax. Other provisions apply to long-term deferred income from sale-and-leaseback of real estate, and to retained contribution for exceeding the quote for employment of disabled persons, which is dedicated to improving the working environment of disabled persons. Short-term Provisions of Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December

2009 Short-term provisions 560 517 Provisions for lawsuits 277 277 Provisions for liabilities for employees that have not used up their leave 283 240

The short-term provisions of the Company comprise the liability for employees who do not use all of their leave days, and the provision for lawsuits. The value of these provisions is not significantly different from the value for the previous year. 5.19 Loans Taken Short-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans taken 366,700 323,547 Loans taken from banks 347,365 289,154 - short-term part of taken long-term loans 99,926 75,510 - transfer from long-term loans due to the failure to fulfill obligations 17,143 41,500 - taken short-term loans 230,296 172,144 Short-term loans taken from other parties 19,335 34,393 - taken short-term loans 19,335 34,393

Short-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Value in

thousand EUR Interest rate

from Interest rate to Currency:

EUR 347,365 1.70% 9.00% Total 347,365

Short-term Loans Taken by Merkur, d. d., from Other Companies – by Currency and Interest Rate

Value in thousand EUR

Interest rate from

Interest rate to Currency:

EUR 19,335 3.00% 9.00% Total 19,335

81

none of the important comments were taken into account, so it complained to the second instance, the Ministry of Finance. More on the tax inspection is described in item 6.7 Income Tax. Other provisions apply to long-term deferred income from sale-and-leaseback of real estate, and to retained contribution for exceeding the quote for employment of disabled persons, which is dedicated to improving the working environment of disabled persons. Short-term Provisions of Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December

2009 Short-term provisions 560 517 Provisions for lawsuits 277 277 Provisions for liabilities for employees that have not used up their leave 283 240

The short-term provisions of the Company comprise the liability for employees who do not use all of their leave days, and the provision for lawsuits. The value of these provisions is not significantly different from the value for the previous year. 5.19 Loans Taken Short-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans taken 366,700 323,547 Loans taken from banks 347,365 289,154 - short-term part of taken long-term loans 99,926 75,510 - transfer from long-term loans due to the failure to fulfill obligations 17,143 41,500 - taken short-term loans 230,296 172,144 Short-term loans taken from other parties 19,335 34,393 - taken short-term loans 19,335 34,393

Short-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Value in

thousand EUR Interest rate

from Interest rate to Currency:

EUR 347,365 1.70% 9.00% Total 347,365

Short-term Loans Taken by Merkur, d. d., from Other Companies – by Currency and Interest Rate

Value in thousand EUR

Interest rate from

Interest rate to Currency:

EUR 19,335 3.00% 9.00% Total 19,335

81

none of the important comments were taken into account, so it complained to the second instance, the Ministry of Finance. More on the tax inspection is described in item 6.7 Income Tax. Other provisions apply to long-term deferred income from sale-and-leaseback of real estate, and to retained contribution for exceeding the quote for employment of disabled persons, which is dedicated to improving the working environment of disabled persons. Short-term Provisions of Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December

2009 Short-term provisions 560 517 Provisions for lawsuits 277 277 Provisions for liabilities for employees that have not used up their leave 283 240

The short-term provisions of the Company comprise the liability for employees who do not use all of their leave days, and the provision for lawsuits. The value of these provisions is not significantly different from the value for the previous year. 5.19 Loans Taken Short-term Loans Taken by Merkur, d. d., – by Type In thousand EUR

Item 31 December 2010 31 December 2009

Loans taken 366,700 323,547 Loans taken from banks 347,365 289,154 - short-term part of taken long-term loans 99,926 75,510 - transfer from long-term loans due to the failure to fulfill obligations 17,143 41,500 - taken short-term loans 230,296 172,144 Short-term loans taken from other parties 19,335 34,393 - taken short-term loans 19,335 34,393

Short-term Loans Taken by Merkur, d. d., – by Currency and Interest Rate

Value in

thousand EUR Interest rate

from Interest rate to Currency:

EUR 347,365 1.70% 9.00% Total 347,365

Short-term Loans Taken by Merkur, d. d., from Other Companies – by Currency and Interest Rate

Value in thousand EUR

Interest rate from

Interest rate to Currency:

EUR 19,335 3.00% 9.00% Total 19,335

82

Collateral for Short-term Loans Taken by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Loans taken 366,700 323,547 Mortgages 105,662 143,919 Inventories 34,285 75,480 Bills surety 50,845 66,150 Collateralized by securities and stakes in subsidiaries 148,743 34,864 Without collateral 27,165 3,133

5.20 Trade and Other Payables Including Derived Financial Instruments Short-term Trade and Other Payables Including the Derived Financial Instruments of Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Trade and other payables including derived financial instruments 150,064 237,962 Advances payable 491 12,127 Trade payables to suppliers 84,687 139,636 Bills payable - 568 Trade payables (including bills) to subsidiaries 37,927 64,734 Trade payables to associated enterprises - - Trade payables to others 26,958 17,383 - salaries payable 3,996 3,572 - payables to state institutions 1,395 3,842 - interest payables 9,593 2,276 - payables on assignment 266 653 - accrued costs 2,764 5,706 - other payables 8,943 1,334 Short-term trade payables – interest rate swaps - 3,513

5.21 Deferred Taxes Deferred Tax Assets and Tax Liabilities of Merkur, d. d.

In thousand EUR Tax assets Tax liabilities Item 31 Dec. 2010 31 Dec. 2009 31 Dec. 2010 31 Dec. 2009

Property, plant and equipment - 30 - 10,161 Investment Property - - - 1 Financial assets - - - 4,255 Provisions - 1,042 - - Other items - 2,672 - 242 Net tax assets / tax liabilities 0 3,743 0 14,659

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5.21 Deferred Taxes

Deferred Tax Assets and Tax Liabilities of Merkur, d. d.

Changes in the Temporary Difference in Merkur, d. d., in 2010

In accordance with the facts listed in item 3.1 Assumption of An Operating Company, the long-term liabilities and receivables from deferred taxes were eliminated from accounting statements.

The following table shows the differences between book value and tax value of assets and liabilities and a deferred tax value that would be recognized if the assumption of an operating company had not been compromised.

5.20 Trade and Other Payables Including Derived Financial Instruments

Short-term Trade and Other Payables Including the Derived Financial Instruments of Merkur, d. d.

76

82

Collateral for Short-term Loans Taken by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Loans taken 366,700 323,547 Mortgages 105,662 143,919 Inventories 34,285 75,480 Bills surety 50,845 66,150 Collateralized by securities and stakes in subsidiaries 148,743 34,864 Without collateral 27,165 3,133

5.20 Trade and Other Payables Including Derived Financial Instruments Short-term Trade and Other Payables Including the Derived Financial Instruments of Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Trade and other payables including derived financial instruments 150,064 237,962 Advances payable 491 12,127 Trade payables to suppliers 84,687 139,636 Bills payable - 568 Trade payables (including bills) to subsidiaries 37,927 64,734 Trade payables to associated enterprises - - Trade payables to others 26,958 17,383 - salaries payable 3,996 3,572 - payables to state institutions 1,395 3,842 - interest payables 9,593 2,276 - payables on assignment 266 653 - accrued costs 2,764 5,706 - other payables 8,943 1,334 Short-term trade payables – interest rate swaps - 3,513

5.21 Deferred Taxes Deferred Tax Assets and Tax Liabilities of Merkur, d. d.

In thousand EUR Tax assets Tax liabilities Item 31 Dec. 2010 31 Dec. 2009 31 Dec. 2010 31 Dec. 2009

Property, plant and equipment - 30 - 10,161 Investment Property - - - 1 Financial assets - - - 4,255 Provisions - 1,042 - - Other items - 2,672 - 242 Net tax assets / tax liabilities 0 3,743 0 14,659

82

Collateral for Short-term Loans Taken by Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Loans taken 366,700 323,547 Mortgages 105,662 143,919 Inventories 34,285 75,480 Bills surety 50,845 66,150 Collateralized by securities and stakes in subsidiaries 148,743 34,864 Without collateral 27,165 3,133

5.20 Trade and Other Payables Including Derived Financial Instruments Short-term Trade and Other Payables Including the Derived Financial Instruments of Merkur, d. d. In thousand EUR

Item 31 December 2010 31 December 2009 Trade and other payables including derived financial instruments 150,064 237,962 Advances payable 491 12,127 Trade payables to suppliers 84,687 139,636 Bills payable - 568 Trade payables (including bills) to subsidiaries 37,927 64,734 Trade payables to associated enterprises - - Trade payables to others 26,958 17,383 - salaries payable 3,996 3,572 - payables to state institutions 1,395 3,842 - interest payables 9,593 2,276 - payables on assignment 266 653 - accrued costs 2,764 5,706 - other payables 8,943 1,334 Short-term trade payables – interest rate swaps - 3,513

5.21 Deferred Taxes Deferred Tax Assets and Tax Liabilities of Merkur, d. d.

In thousand EUR Tax assets Tax liabilities Item 31 Dec. 2010 31 Dec. 2009 31 Dec. 2010 31 Dec. 2009

Property, plant and equipment - 30 - 10,161 Investment Property - - - 1 Financial assets - - - 4,255 Provisions - 1,042 - - Other items - 2,672 - 242 Net tax assets / tax liabilities 0 3,743 0 14,659

83

Changes in the Temporary Difference in Merkur, d. d., in 2010 In thousand EUR

Item

Balance at the beginning

of the year Recognized in

expenses Recognized in

equity

Balance at the end of

the year Property, plant and equipment 10,139 -2,050 -8,089 - Investment Property 1 -1 - - Financial assets 4,255 - -4,255 - Provisions -1,042 1,042 - - Other items -2,430 1,727 703 - Total 10,923 718 -11,641 0

In accordance with the facts listed in item 3.1 Assumption of An Operating Company, the long-term liabilities and receivables from deferred taxes were eliminated from accounting statements. The following table shows the differences between book value and tax value of assets and liabilities and a deferred tax value that would be recognized if the assumption of an operating company had not been compromised. In thousand EUR

Item

Difference between book and tax value Tax rate Deferred tax

Property, plant and equipment 148 20% 30

Financial assets – investments 93,857 20% 18,771

Financial assets – loans 201,470 20% 40,294

Trade receivables 23,890 20% 4,778

Provisions 16,716 20% 3,191

Other items 3,099 20% 620

Tax loss 51,865 20% 10,373

Total receivables for deferred taxes 391,046 78,058

Property, plant and equipment (revaluation) 50,870 20% 10,174

Financial assets (revaluation) 22,844 20% 2,321

Other items 1,187 20% 237

Total liabilities for deferred taxes 74,902 12,733

Net liabilities for deferred taxes 65,325

83

Changes in the Temporary Difference in Merkur, d. d., in 2010 In thousand EUR

Item

Balance at the beginning

of the year Recognized in

expenses Recognized in

equity

Balance at the end of

the year Property, plant and equipment 10,139 -2,050 -8,089 - Investment Property 1 -1 - - Financial assets 4,255 - -4,255 - Provisions -1,042 1,042 - - Other items -2,430 1,727 703 - Total 10,923 718 -11,641 0

In accordance with the facts listed in item 3.1 Assumption of An Operating Company, the long-term liabilities and receivables from deferred taxes were eliminated from accounting statements. The following table shows the differences between book value and tax value of assets and liabilities and a deferred tax value that would be recognized if the assumption of an operating company had not been compromised. In thousand EUR

Item

Difference between book and tax value Tax rate Deferred tax

Property, plant and equipment 148 20% 30

Financial assets – investments 93,857 20% 18,771

Financial assets – loans 201,470 20% 40,294

Trade receivables 23,890 20% 4,778

Provisions 16,716 20% 3,191

Other items 3,099 20% 620

Tax loss 51,865 20% 10,373

Total receivables for deferred taxes 391,046 78,058

Property, plant and equipment (revaluation) 50,870 20% 10,174

Financial assets (revaluation) 22,844 20% 2,321

Other items 1,187 20% 237

Total liabilities for deferred taxes 74,902 12,733

Net liabilities for deferred taxes 65,325

Annu

al R

epor

t Mer

kur,

d. d

., 201

0

78

Annu

al R

epor

t Mer

kur,

d. d

., 201

0

Impairment Losses

Ageing of Trade Receivables of Merkur, d. d., Due from Customers, in 2010 and 2009

Ageing of Receivables of Merkur, d. d., Due from Others, in 2010 and 2009

* In the countries of ex-Yugoslavia the receivables are mainly due from the companies of the group.

Other credit risk to balance items mainly applies to the risks in Slovenian market.

Exposure of the Receivables of Merkur, d. d., Due from Customers to Credit Risk by Geographical Region in 2010 and 2009

5.22 Financial Instruments and Risk Management

Credit Risk

Maximum Exposure of Merkur, d. d., to Credit Risk in 2010 and 2009

* Concentration describes what percentage of exposure applies to top 10 partners.

In 2010 and before the compulsory settlement, we reprogrammed the following loans, given to: • Renta A d. o. o. in the amount of EUR 5,500 thousand; extended from 30 March 2010 to 30 June 2010, and from 30 June 2010 to 30 September 2010, of which EUR 5,500 thousand in the correction on 31 December 2010 • Factor leasing d. o. o. in the amount of EUR 20,000 thousand; extended from 3 May 2010 to 3 May 2011, of which EUR 20,000 thousand in the correction on 31 December 2010 • Merkur Hrvatska d. o. o. in the amount of EUR 15,000 thousand; extended from 23 March 2010 to 23 March 2011 • HTC Dva d. o. o. in the amount of EUR 147,500 thousand; extended from 28 March 2010 to 28 March 2013, of which EUR 136,638 thousand in the correction on 31 December 2010.

The disclosure on securities, received for loans that have matured or have been impaired are in item 5.11, and in most cases apply to bills.

78

84

5.22 Financial Instruments and Risk Management Credit Risk Maximum Exposure of Merkur, d. d., to Credit Risk in 2010 and 2009

In thousand EUR

Item Net

31 Dec. 2010 Gross

31 Dec. 2010 Corrections

31 Dec. 2010 Concentration*

31 Dec. 2010 Net

31 Dec. 2009 Gross

31 Dec. 2009 Corrections

31 Dec. 2009 Concentration*

31 Dec. 2009 Available-for-sale shares and stakes 128,650 148,289 19,639 100% 172,999 182,019 9,020 100% Bank deposits 2,145 2,145 - 100% 15,339 15,339 - 100% Loans given 27,170 224,085 196,915 98% 56,507 185,732 129,225 98% Receivables from financial lease 42 42 - 100% 442 442 - 100% Receivables due from customers 21,259 41,318 20,059 49% 129,595 141,049 11,453 46% Receivables due from others 8,598 24,794 16,196 61% 16,336 20,818 4,482 94% Cash and cash equivalents 5,584 5,584 - 100% 332 332 - 100% Total 193,448 446,256 252,808 391,550 545,731 154,181

* Concentration describes what percentage of exposure applies to top 10 partners. In 2010 and before the compulsory settlement, we reprogrammed the following loans, given to: - Renta A d. o. o. in the amount of EUR 5,500 thousand; extended from 30 March 2010 to 30 June 2010, and from 30 June 2010 to 30 September 2010, of which EUR

5,500 thousand in the correction on 31 December 2010 - Factor leasing d. o. o. in the amount of EUR 20,000 thousand; extended from 3 May 2010 to 3 May 2011, of which EUR 20,000 thousand in the correction on 31

December 2010 - Merkur Hrvatska d. o. o. in the amount of EUR 15,000 thousand; extended from 23 March 2010 to 23 March 2011 - HTC Dva d. o. o. in the amount of EUR 147,500 thousand; extended from 28 March 2010 to 28 March 2013, of which EUR 136,638 thousand in the correction on 31

December 2010. The disclosure on securities, received for loans that have matured or have been impaired are in item 5.11, and in most cases apply to bills.

84

5.22 Financial Instruments and Risk Management Credit Risk Maximum Exposure of Merkur, d. d., to Credit Risk in 2010 and 2009

In thousand EUR

Item Net

31 Dec. 2010 Gross

31 Dec. 2010 Corrections

31 Dec. 2010 Concentration*

31 Dec. 2010 Net

31 Dec. 2009 Gross

31 Dec. 2009 Corrections

31 Dec. 2009 Concentration*

31 Dec. 2009 Available-for-sale shares and stakes 128,650 148,289 19,639 100% 172,999 182,019 9,020 100% Bank deposits 2,145 2,145 - 100% 15,339 15,339 - 100% Loans given 27,170 224,085 196,915 98% 56,507 185,732 129,225 98% Receivables from financial lease 42 42 - 100% 442 442 - 100% Receivables due from customers 21,259 41,318 20,059 49% 129,595 141,049 11,453 46% Receivables due from others 8,598 24,794 16,196 61% 16,336 20,818 4,482 94% Cash and cash equivalents 5,584 5,584 - 100% 332 332 - 100% Total 193,448 446,256 252,808 391,550 545,731 154,181

* Concentration describes what percentage of exposure applies to top 10 partners. In 2010 and before the compulsory settlement, we reprogrammed the following loans, given to: - Renta A d. o. o. in the amount of EUR 5,500 thousand; extended from 30 March 2010 to 30 June 2010, and from 30 June 2010 to 30 September 2010, of which EUR

5,500 thousand in the correction on 31 December 2010 - Factor leasing d. o. o. in the amount of EUR 20,000 thousand; extended from 3 May 2010 to 3 May 2011, of which EUR 20,000 thousand in the correction on 31

December 2010 - Merkur Hrvatska d. o. o. in the amount of EUR 15,000 thousand; extended from 23 March 2010 to 23 March 2011 - HTC Dva d. o. o. in the amount of EUR 147,500 thousand; extended from 28 March 2010 to 28 March 2013, of which EUR 136,638 thousand in the correction on 31

December 2010. The disclosure on securities, received for loans that have matured or have been impaired are in item 5.11, and in most cases apply to bills.

85

Exposure of the Receivables of Merkur, d. d., Due from Customers to Credit Risk by Geographical Region in 2010 and 2009 In thousand EUR Book value Item 2010 2009 Slovenia 6,204 110,159 EU countries 310 884 Ex-Yugoslavian countries* 14,741 18,358 Other countries 4 195

Total 21,259 129,595 * In the countries of ex-Yugoslavia the receivables are mainly due from the companies of the group. Other credit risk to balance items mainly applies to the risks in Slovenian market. Impairment Losses

Ageing of Trade Receivables of Merkur, d. d., Due from Customers, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec. 2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 5,517 - 55,754 - Overdue 0–30 days 2,771 7 54,737 47 Overdue 31–180 days 10,997 2,765 8,537 142 Overdue 181–365 days 2,720 2,824 2,702 408 More than a year overdue 19,314 14,464 19,319 10,857

Total 41,318 20,059 141,049 11,453 Ageing of Receivables of Merkur, d. d., Due from Others, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec.2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 3,509 - 15,213 - Overdue 0–30 days 2,333 138 368 18 Overdue 31–180 days 2,222 2,151 310 55 Overdue 181–365 days 12,138 8,976 187 160 More than a year overdue 4,592 4,930 4,739 4,248 Total 24,794 16,196 20,818 4,482

Classification of Customers to Risk Grades According to the Chances of Their Insolvency

Classification grade

Share of

receivables 31 Dec. 2010

Share of partners

31 Dec. 2010

Share of

receivables 31 Dec. 2009

Share of partners

31 Dec. 2009 Above average risk 17% 22% 46% 24% Average risk 72% 49% 42% 42% Below average risk 11% 29% 11% 34% Total 100% 100% 100% 100%

The classification into grades is based on the credit rating. On 31 December 2010 the Company had EUR 13,982 thousand in secured receivables. On 1 May 2011 the Company entered a contract with an insurance company to further curb its exposure to credit risk.

85

Exposure of the Receivables of Merkur, d. d., Due from Customers to Credit Risk by Geographical Region in 2010 and 2009 In thousand EUR Book value Item 2010 2009 Slovenia 6,204 110,159 EU countries 310 884 Ex-Yugoslavian countries* 14,741 18,358 Other countries 4 195

Total 21,259 129,595 * In the countries of ex-Yugoslavia the receivables are mainly due from the companies of the group. Other credit risk to balance items mainly applies to the risks in Slovenian market. Impairment Losses

Ageing of Trade Receivables of Merkur, d. d., Due from Customers, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec. 2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 5,517 - 55,754 - Overdue 0–30 days 2,771 7 54,737 47 Overdue 31–180 days 10,997 2,765 8,537 142 Overdue 181–365 days 2,720 2,824 2,702 408 More than a year overdue 19,314 14,464 19,319 10,857

Total 41,318 20,059 141,049 11,453 Ageing of Receivables of Merkur, d. d., Due from Others, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec.2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 3,509 - 15,213 - Overdue 0–30 days 2,333 138 368 18 Overdue 31–180 days 2,222 2,151 310 55 Overdue 181–365 days 12,138 8,976 187 160 More than a year overdue 4,592 4,930 4,739 4,248 Total 24,794 16,196 20,818 4,482

Classification of Customers to Risk Grades According to the Chances of Their Insolvency

Classification grade

Share of

receivables 31 Dec. 2010

Share of partners

31 Dec. 2010

Share of

receivables 31 Dec. 2009

Share of partners

31 Dec. 2009 Above average risk 17% 22% 46% 24% Average risk 72% 49% 42% 42% Below average risk 11% 29% 11% 34% Total 100% 100% 100% 100%

The classification into grades is based on the credit rating. On 31 December 2010 the Company had EUR 13,982 thousand in secured receivables. On 1 May 2011 the Company entered a contract with an insurance company to further curb its exposure to credit risk.

85

Exposure of the Receivables of Merkur, d. d., Due from Customers to Credit Risk by Geographical Region in 2010 and 2009 In thousand EUR Book value Item 2010 2009 Slovenia 6,204 110,159 EU countries 310 884 Ex-Yugoslavian countries* 14,741 18,358 Other countries 4 195

Total 21,259 129,595 * In the countries of ex-Yugoslavia the receivables are mainly due from the companies of the group. Other credit risk to balance items mainly applies to the risks in Slovenian market. Impairment Losses

Ageing of Trade Receivables of Merkur, d. d., Due from Customers, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec. 2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 5,517 - 55,754 - Overdue 0–30 days 2,771 7 54,737 47 Overdue 31–180 days 10,997 2,765 8,537 142 Overdue 181–365 days 2,720 2,824 2,702 408 More than a year overdue 19,314 14,464 19,319 10,857

Total 41,318 20,059 141,049 11,453 Ageing of Receivables of Merkur, d. d., Due from Others, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec.2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 3,509 - 15,213 - Overdue 0–30 days 2,333 138 368 18 Overdue 31–180 days 2,222 2,151 310 55 Overdue 181–365 days 12,138 8,976 187 160 More than a year overdue 4,592 4,930 4,739 4,248 Total 24,794 16,196 20,818 4,482

Classification of Customers to Risk Grades According to the Chances of Their Insolvency

Classification grade

Share of

receivables 31 Dec. 2010

Share of partners

31 Dec. 2010

Share of

receivables 31 Dec. 2009

Share of partners

31 Dec. 2009 Above average risk 17% 22% 46% 24% Average risk 72% 49% 42% 42% Below average risk 11% 29% 11% 34% Total 100% 100% 100% 100%

The classification into grades is based on the credit rating. On 31 December 2010 the Company had EUR 13,982 thousand in secured receivables. On 1 May 2011 the Company entered a contract with an insurance company to further curb its exposure to credit risk.

Annu

al R

epor

t Mer

kur,

d. d

., 201

0

80

Annu

al R

epor

t Mer

kur,

d. d

., 201

0

The classification into grades is based on the credit rating. On 31 December 2010 the Company had EUR 13,982 thousand in secured receivables. On 1 May 2011 the Company entered a contract with an insurance company to further curb its exposure to credit risk.

Corrections of Receivables

Corrections of Values Due to the Impairment of Trade Receivables of Merkur, d. d., in 2010 and 2009

*Value impairments apply to trade receivables from the sales of goods and services in the amount of EUR 20,270 thousand (2009: EUR 1,324 thousand) and from interest receivables in the amount of EUR 3,328 thousand (2009: EUR 1,560 thousand).

Corrections of Values Due to the Impairment of Given Loans of Merkur, d. d., in 2010 and 2009

Stipulated Due Dates of Non-derivative Financial Assets and Liabilities of Merkur, d. d., in 2010

Bridging the Liquidity Gap

In line with the Financial Restructuring Plan we will bridge the established liquidity gap by means of converting the liabilities into capital, discounts on common liabilities, reprogramming the existing secured loans, selling property and shares, received dividends and payments from guarantors, and new credits. The results of the abovementioned actions are illustrated in the table below:

Classification of Customers to Risk Grades According to the Chances of Their Insolvencye

80

Liquidity Risk

The following section provides the stipulated due dates of financial liabilities, including the estimated interest payments and excluding the effects of offset agreements.

85

Exposure of the Receivables of Merkur, d. d., Due from Customers to Credit Risk by Geographical Region in 2010 and 2009 In thousand EUR Book value Item 2010 2009 Slovenia 6,204 110,159 EU countries 310 884 Ex-Yugoslavian countries* 14,741 18,358 Other countries 4 195

Total 21,259 129,595 * In the countries of ex-Yugoslavia the receivables are mainly due from the companies of the group. Other credit risk to balance items mainly applies to the risks in Slovenian market. Impairment Losses

Ageing of Trade Receivables of Merkur, d. d., Due from Customers, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec. 2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 5,517 - 55,754 - Overdue 0–30 days 2,771 7 54,737 47 Overdue 31–180 days 10,997 2,765 8,537 142 Overdue 181–365 days 2,720 2,824 2,702 408 More than a year overdue 19,314 14,464 19,319 10,857

Total 41,318 20,059 141,049 11,453 Ageing of Receivables of Merkur, d. d., Due from Others, in 2010 and 2009 In thousand EUR Gross value Impairment Gross value Impairment Item 31 Dec.2010 31 Dec. 2010 31 Dec. 2009 31 Dec. 2009 Not yet due 3,509 - 15,213 - Overdue 0–30 days 2,333 138 368 18 Overdue 31–180 days 2,222 2,151 310 55 Overdue 181–365 days 12,138 8,976 187 160 More than a year overdue 4,592 4,930 4,739 4,248 Total 24,794 16,196 20,818 4,482

Classification of Customers to Risk Grades According to the Chances of Their Insolvency

Classification grade

Share of

receivables 31 Dec. 2010

Share of partners

31 Dec. 2010

Share of

receivables 31 Dec. 2009

Share of partners

31 Dec. 2009 Above average risk 17% 22% 46% 24% Average risk 72% 49% 42% 42% Below average risk 11% 29% 11% 34% Total 100% 100% 100% 100%

The classification into grades is based on the credit rating. On 31 December 2010 the Company had EUR 13,982 thousand in secured receivables. On 1 May 2011 the Company entered a contract with an insurance company to further curb its exposure to credit risk.

86

Corrections of Receivables Corrections of Values Due to the Impairment of Trade Receivables of Merkur, d. d., in 2010 and 2009 In thousand EUR

Item 2010 2009

Balance on 1 January 15,935 16,718 Full write-off -895 -2,653 Value impairment during the year* 23,598 2,884 Impairment write-off -2,382 -1,014

Balance on 31 December 36,255 15,935 *Value impairments apply to trade receivables from the sales of goods and services in the amount of EUR 20,270 thousand (2009: EUR 1,324 thousand) and from interest receivables in the amount of EUR 3,328 thousand (2009: EUR 1,560 thousand). Corrections of Values Due to the Impairment of Given Loans of Merkur, d. d., in 2010 and 2009

In thousand EUR

Item 2010 2009 Balance on 1 January 129,233 2,839 Full write-off -3 -11 Value impairment during the year 67,723 126,405 Impairment write-off -39 -

Balance on 31 December 196,915 129,233 Liquidity Risk The following section provides the stipulated due dates of financial liabilities, including the estimated interest payments and excluding the effects of offset agreements. Stipulated Due Dates of Non-derivative Financial Assets and Liabilities of Merkur, d. d., in 2010

In thousand EUR

Item Book value Stipulated cash flows

6 months or less

6–12 months

1–2 years

2–5 years

More than 5 years

Non-derivative financial assets Noncurrent Financial Assets 130,795 130,795 21,700 5,935 57,895 9,982 35,284 Loans given 27,170 27,416 26,399 103 177 442 296 Receivables from financial lease 42 43 30 13 - - - Receivables due from customers 21,259 21,259 21,259 - - - - Receivables due from others 8,598 8,598 8,369 - 229 - - Cash and cash equivalents 5,584 5,584 5,584 - - - - Total non-derivative financial assets 193,448 193,695 83.341 6,051 58,300 10,423 35,580 Non-derived financial liabilities Secured loans -405,394 -486,070 -90,578 -25,597 -11,168 -40,809 -317,919 Other loans -1,464 -1,464 -1,464 - - - - Bank overdraft -1,722 -1,722 -1,722 - - - - Liabilities under financial lease -57,673 -71,274 -2,111 -2,105 -4,230 -25,211 -37,617 Trade payables -122,615 -122,615 -4,263 -23,670 -23,670 -71,011 - Other payables -27,489 -27,489 -19,393 -1,619 -1,619 -4,858 - Provisions -34,749 -34,749 -283 -6,086 -7,242 -17,929 -3,207 Total non-derived financial liabilities -651,105 -745,383 -119,814 -59,078 -47,930 -159,518 -358,743 Net balance on 31 December 2010 -457,657 -551,687 -36,473 -53,027 10,371 -149,395 -323,164

86

Corrections of Receivables Corrections of Values Due to the Impairment of Trade Receivables of Merkur, d. d., in 2010 and 2009 In thousand EUR

Item 2010 2009

Balance on 1 January 15,935 16,718 Full write-off -895 -2,653 Value impairment during the year* 23,598 2,884 Impairment write-off -2,382 -1,014

Balance on 31 December 36,255 15,935 *Value impairments apply to trade receivables from the sales of goods and services in the amount of EUR 20,270 thousand (2009: EUR 1,324 thousand) and from interest receivables in the amount of EUR 3,328 thousand (2009: EUR 1,560 thousand). Corrections of Values Due to the Impairment of Given Loans of Merkur, d. d., in 2010 and 2009

In thousand EUR

Item 2010 2009 Balance on 1 January 129,233 2,839 Full write-off -3 -11 Value impairment during the year 67,723 126,405 Impairment write-off -39 -

Balance on 31 December 196,915 129,233 Liquidity Risk The following section provides the stipulated due dates of financial liabilities, including the estimated interest payments and excluding the effects of offset agreements. Stipulated Due Dates of Non-derivative Financial Assets and Liabilities of Merkur, d. d., in 2010

In thousand EUR

Item Book value Stipulated cash flows

6 months or less

6–12 months

1–2 years

2–5 years

More than 5 years

Non-derivative financial assets Noncurrent Financial Assets 130,795 130,795 21,700 5,935 57,895 9,982 35,284 Loans given 27,170 27,416 26,399 103 177 442 296 Receivables from financial lease 42 43 30 13 - - - Receivables due from customers 21,259 21,259 21,259 - - - - Receivables due from others 8,598 8,598 8,369 - 229 - - Cash and cash equivalents 5,584 5,584 5,584 - - - - Total non-derivative financial assets 193,448 193,695 83.341 6,051 58,300 10,423 35,580 Non-derived financial liabilities Secured loans -405,394 -486,070 -90,578 -25,597 -11,168 -40,809 -317,919 Other loans -1,464 -1,464 -1,464 - - - - Bank overdraft -1,722 -1,722 -1,722 - - - - Liabilities under financial lease -57,673 -71,274 -2,111 -2,105 -4,230 -25,211 -37,617 Trade payables -122,615 -122,615 -4,263 -23,670 -23,670 -71,011 - Other payables -27,489 -27,489 -19,393 -1,619 -1,619 -4,858 - Provisions -34,749 -34,749 -283 -6,086 -7,242 -17,929 -3,207 Total non-derived financial liabilities -651,105 -745,383 -119,814 -59,078 -47,930 -159,518 -358,743 Net balance on 31 December 2010 -457,657 -551,687 -36,473 -53,027 10,371 -149,395 -323,164

86

Corrections of Receivables Corrections of Values Due to the Impairment of Trade Receivables of Merkur, d. d., in 2010 and 2009 In thousand EUR

Item 2010 2009

Balance on 1 January 15,935 16,718 Full write-off -895 -2,653 Value impairment during the year* 23,598 2,884 Impairment write-off -2,382 -1,014

Balance on 31 December 36,255 15,935 *Value impairments apply to trade receivables from the sales of goods and services in the amount of EUR 20,270 thousand (2009: EUR 1,324 thousand) and from interest receivables in the amount of EUR 3,328 thousand (2009: EUR 1,560 thousand). Corrections of Values Due to the Impairment of Given Loans of Merkur, d. d., in 2010 and 2009

In thousand EUR

Item 2010 2009 Balance on 1 January 129,233 2,839 Full write-off -3 -11 Value impairment during the year 67,723 126,405 Impairment write-off -39 -

Balance on 31 December 196,915 129,233 Liquidity Risk The following section provides the stipulated due dates of financial liabilities, including the estimated interest payments and excluding the effects of offset agreements. Stipulated Due Dates of Non-derivative Financial Assets and Liabilities of Merkur, d. d., in 2010

In thousand EUR

Item Book value Stipulated cash flows

6 months or less

6–12 months

1–2 years

2–5 years

More than 5 years

Non-derivative financial assets Noncurrent Financial Assets 130,795 130,795 21,700 5,935 57,895 9,982 35,284 Loans given 27,170 27,416 26,399 103 177 442 296 Receivables from financial lease 42 43 30 13 - - - Receivables due from customers 21,259 21,259 21,259 - - - - Receivables due from others 8,598 8,598 8,369 - 229 - - Cash and cash equivalents 5,584 5,584 5,584 - - - - Total non-derivative financial assets 193,448 193,695 83.341 6,051 58,300 10,423 35,580 Non-derived financial liabilities Secured loans -405,394 -486,070 -90,578 -25,597 -11,168 -40,809 -317,919 Other loans -1,464 -1,464 -1,464 - - - - Bank overdraft -1,722 -1,722 -1,722 - - - - Liabilities under financial lease -57,673 -71,274 -2,111 -2,105 -4,230 -25,211 -37,617 Trade payables -122,615 -122,615 -4,263 -23,670 -23,670 -71,011 - Other payables -27,489 -27,489 -19,393 -1,619 -1,619 -4,858 - Provisions -34,749 -34,749 -283 -6,086 -7,242 -17,929 -3,207 Total non-derived financial liabilities -651,105 -745,383 -119,814 -59,078 -47,930 -159,518 -358,743 Net balance on 31 December 2010 -457,657 -551,687 -36,473 -53,027 10,371 -149,395 -323,164

87

Bridging the Liquidity Gap In line with the Financial Restructuring Plan we will bridge the established liquidity gap by means of converting the liabilities into capital, discounts on common liabilities, reprogramming the existing secured loans, selling property and shares, received dividends and payments from guarantors, and new credits. The results of the abovementioned actions are illustrated in the table below:

In thousand EUR

Bridging the liquidity gap: Book value

Stipulated cash flows

6 months or less

6–12 months

1–2 years 2–5 years

More than 5 years

Discount (40% write-off of common liabilities) 51,693 51,693 - 10,339 10,339 31,016 -

Capital injection (conversion of liabilities into shares) 97,608 97,608 - 97,608 - - -

Property sale 31,163 31,163 - 15,591 15,572 - -

Sale of financial assets (the shares of Sava and Gorenjska banka) 95,511 95,511 21,700 5,935 57,895 9,982 -

Guarantor payment 6,920 6,920 5,420 300 1.200 - -

New credit in line with the Financial Restructuring plan 66,000 66,000 - - 7,000 42,000 17,000

Dividends from Gorenjska banka and Big Bang 16,442 16,442 2,442 2,500 2,500 9,000 -

The outcome -92,320 -186,350 -6,910 79,245 104,876 -57,397 -306,164 Stipulated Due Dates of Non-derivative Financial Assets and Liabilities of Merkur, d. d., in 2009 In thousand EUR

Item Book value

Stipulated cash flows

6 months or less

6–12 months 1–2 years 2–5 years

More than 5 years

Non-derivative financial assets Noncurrent Financial Assets 188,337 188,337 9,382 15,119 21,700 3,812 138,325 Loans given 56,507 56,887 55,419 328 221 522 397 Receivables from financial lease 442 445 209 122 114 - - Receivables due from customers 129,595 129,595 129,595 - - - - Receivables due from others 16,336 16,336 16,336 - - - - Cash and cash equivalents 332 332 332 - - - - Total non-derivative financial assets 391,550 391,933 211,274 15,568 22,036 4,334 138,721 Non-derived financial liabilities Secured loans -416,591 -422,888 -237,764 -40,088 -66,340 -78,696 - Other loans -3,133 -3,171 -2,517 -654 - - - Bank overdraft -671 -671 -671 - - - - Liabilities under financial lease -59,659 -74,384 -1,655 -1,792 -4,209 -26,256 -40,472 Trade liabilities -204,370 -204,370 -204,370 - - - - Other payables -44,801 -44,801 -30,142 -14,659 - - - Provisions -8,425 -8,425 -240 -2,257 -1,446 -945 -3,536 Total non-derived financial liabilities -737,650 -758,711 -477,360 -59,450 -71,995 -105,897 -44,008 Net balance on 31 December 2009 -346,100 -366,778 -266,086 -43,882 -49,959 -101,563 94,713

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Stipulated Due Dates of Non-derivative Financial Assets and Liabilities of Merkur, d. d., in 2009

Stipulated Due Dates of Derivative Financial Liabilities of Merkur, d. d., in 2010 and 2009

Currency Risk

Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2010

Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2009

Sensitivity Analysis

A 10 percent strengthening of the euro against the following currencies on 31 December 2010 would have increased (decreased) the profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain unchanged. The analysis is performed on the same basis for 2009.

A 10 percent weakening of the euro against the above currencies on 31 December 2010 would have had an equal but opposite effect on profit or loss by the amounts shown above, on the assumption that all other variables remain unchanged.

Interest Rate Risk

Characteristics of Interest Rates Applied to Interest-bearing Financial Instruments of Merkur, d. d.

Fair Value Sensitivity Analysis for Fixed Rate InstrumentsThe Company does not account for any fixed rate financial assets at fair value through profit or loss, therefore a change in interest rates on the reporting date would not affect the profit or loss.

Cash Flow Sensitivity Analysis for Variable Rate InstrumentsA change of 100 basis points in interest rates on the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular the foreign currency rates, remain unchanged. The analysis is performed on the same basis for 2009.

8287

Bridging the Liquidity Gap In line with the Financial Restructuring Plan we will bridge the established liquidity gap by means of converting the liabilities into capital, discounts on common liabilities, reprogramming the existing secured loans, selling property and shares, received dividends and payments from guarantors, and new credits. The results of the abovementioned actions are illustrated in the table below:

In thousand EUR

Bridging the liquidity gap: Book value

Stipulated cash flows

6 months or less

6–12 months

1–2 years 2–5 years

More than 5 years

Discount (40% write-off of common liabilities) 51,693 51,693 - 10,339 10,339 31,016 -

Capital injection (conversion of liabilities into shares) 97,608 97,608 - 97,608 - - -

Property sale 31,163 31,163 - 15,591 15,572 - -

Sale of financial assets (the shares of Sava and Gorenjska banka) 95,511 95,511 21,700 5,935 57,895 9,982 -

Guarantor payment 6,920 6,920 5,420 300 1.200 - -

New credit in line with the Financial Restructuring plan 66,000 66,000 - - 7,000 42,000 17,000

Dividends from Gorenjska banka and Big Bang 16,442 16,442 2,442 2,500 2,500 9,000 -

The outcome -92,320 -186,350 -6,910 79,245 104,876 -57,397 -306,164 Stipulated Due Dates of Non-derivative Financial Assets and Liabilities of Merkur, d. d., in 2009 In thousand EUR

Item Book value

Stipulated cash flows

6 months or less

6–12 months 1–2 years 2–5 years

More than 5 years

Non-derivative financial assets Noncurrent Financial Assets 188,337 188,337 9,382 15,119 21,700 3,812 138,325 Loans given 56,507 56,887 55,419 328 221 522 397 Receivables from financial lease 442 445 209 122 114 - - Receivables due from customers 129,595 129,595 129,595 - - - - Receivables due from others 16,336 16,336 16,336 - - - - Cash and cash equivalents 332 332 332 - - - - Total non-derivative financial assets 391,550 391,933 211,274 15,568 22,036 4,334 138,721 Non-derived financial liabilities Secured loans -416,591 -422,888 -237,764 -40,088 -66,340 -78,696 - Other loans -3,133 -3,171 -2,517 -654 - - - Bank overdraft -671 -671 -671 - - - - Liabilities under financial lease -59,659 -74,384 -1,655 -1,792 -4,209 -26,256 -40,472 Trade liabilities -204,370 -204,370 -204,370 - - - - Other payables -44,801 -44,801 -30,142 -14,659 - - - Provisions -8,425 -8,425 -240 -2,257 -1,446 -945 -3,536 Total non-derived financial liabilities -737,650 -758,711 -477,360 -59,450 -71,995 -105,897 -44,008 Net balance on 31 December 2009 -346,100 -366,778 -266,086 -43,882 -49,959 -101,563 94,713

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Stipulated Due Dates of Derivative Financial Liabilities of Merkur, d. d., in 2010 and 2009 In thousand EUR

Item Book value

Stipulated cash flows 2–5 years

Derived financial liabilities Interest rate swaps used for risk protection - -

Total on 31 December 2010 0 0 Interest rate swaps used for risk protection 3,513 3,513

Total on 31 December 2009 3,513 3,513 Currency Risk Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2010 In thousands Item EUR HRK BAM USD RUB Receivables and liabilities on 31 December 2010 Trade receivables 21,372 -64 - - - Secured loans from banks -387,523 - - - - Trade liabilities -122,194 -145 - -222 -9,132 Balance sheet exposure -488,345 -210 0 -222 -9,132

Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2009 In thousands

Item EUR HRK USD CHF RUB Receivables and liabilities on 31 December 2009 Trade receivables 129,390 -64 - - 8,335 Secured loans from banks -385,331 - - - - Trade liabilities -204,370 -36 -285 -32 -9,132 Balance sheet exposure -460,312 -101 -285 -32 -798

Sensitivity Analysis A 10 percent strengthening of the euro against the following currencies on 31 December 2010 would have increased (decreased) the profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain unchanged. The analysis is performed on the same basis for 2009. In thousand EUR

Item 31 December 2010 31 December 2009 HRK 12 11 USD 293 244 CHF - 2 RUB 20 14

Total effect on profit or loss 326 271 A 10 percent weakening of the euro against the above currencies on 31 December 2010 would have had an equal but opposite effect on profit or loss by the amounts shown above, on the assumption that all other variables remain unchanged.

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Stipulated Due Dates of Derivative Financial Liabilities of Merkur, d. d., in 2010 and 2009 In thousand EUR

Item Book value

Stipulated cash flows 2–5 years

Derived financial liabilities Interest rate swaps used for risk protection - -

Total on 31 December 2010 0 0 Interest rate swaps used for risk protection 3,513 3,513

Total on 31 December 2009 3,513 3,513 Currency Risk Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2010 In thousands Item EUR HRK BAM USD RUB Receivables and liabilities on 31 December 2010 Trade receivables 21,372 -64 - - - Secured loans from banks -387,523 - - - - Trade liabilities -122,194 -145 - -222 -9,132 Balance sheet exposure -488,345 -210 0 -222 -9,132

Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2009 In thousands

Item EUR HRK USD CHF RUB Receivables and liabilities on 31 December 2009 Trade receivables 129,390 -64 - - 8,335 Secured loans from banks -385,331 - - - - Trade liabilities -204,370 -36 -285 -32 -9,132 Balance sheet exposure -460,312 -101 -285 -32 -798

Sensitivity Analysis A 10 percent strengthening of the euro against the following currencies on 31 December 2010 would have increased (decreased) the profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain unchanged. The analysis is performed on the same basis for 2009. In thousand EUR

Item 31 December 2010 31 December 2009 HRK 12 11 USD 293 244 CHF - 2 RUB 20 14

Total effect on profit or loss 326 271 A 10 percent weakening of the euro against the above currencies on 31 December 2010 would have had an equal but opposite effect on profit or loss by the amounts shown above, on the assumption that all other variables remain unchanged.

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Stipulated Due Dates of Derivative Financial Liabilities of Merkur, d. d., in 2010 and 2009 In thousand EUR

Item Book value

Stipulated cash flows 2–5 years

Derived financial liabilities Interest rate swaps used for risk protection - -

Total on 31 December 2010 0 0 Interest rate swaps used for risk protection 3,513 3,513

Total on 31 December 2009 3,513 3,513 Currency Risk Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2010 In thousands Item EUR HRK BAM USD RUB Receivables and liabilities on 31 December 2010 Trade receivables 21,372 -64 - - - Secured loans from banks -387,523 - - - - Trade liabilities -122,194 -145 - -222 -9,132 Balance sheet exposure -488,345 -210 0 -222 -9,132

Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2009 In thousands

Item EUR HRK USD CHF RUB Receivables and liabilities on 31 December 2009 Trade receivables 129,390 -64 - - 8,335 Secured loans from banks -385,331 - - - - Trade liabilities -204,370 -36 -285 -32 -9,132 Balance sheet exposure -460,312 -101 -285 -32 -798

Sensitivity Analysis A 10 percent strengthening of the euro against the following currencies on 31 December 2010 would have increased (decreased) the profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain unchanged. The analysis is performed on the same basis for 2009. In thousand EUR

Item 31 December 2010 31 December 2009 HRK 12 11 USD 293 244 CHF - 2 RUB 20 14

Total effect on profit or loss 326 271 A 10 percent weakening of the euro against the above currencies on 31 December 2010 would have had an equal but opposite effect on profit or loss by the amounts shown above, on the assumption that all other variables remain unchanged. 88

Stipulated Due Dates of Derivative Financial Liabilities of Merkur, d. d., in 2010 and 2009 In thousand EUR

Item Book value

Stipulated cash flows 2–5 years

Derived financial liabilities Interest rate swaps used for risk protection - -

Total on 31 December 2010 0 0 Interest rate swaps used for risk protection 3,513 3,513

Total on 31 December 2009 3,513 3,513 Currency Risk Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2010 In thousands Item EUR HRK BAM USD RUB Receivables and liabilities on 31 December 2010 Trade receivables 21,372 -64 - - - Secured loans from banks -387,523 - - - - Trade liabilities -122,194 -145 - -222 -9,132 Balance sheet exposure -488,345 -210 0 -222 -9,132

Currency Risk Exposure of Merkur, d. d., in Nominal Values, in 2009 In thousands

Item EUR HRK USD CHF RUB Receivables and liabilities on 31 December 2009 Trade receivables 129,390 -64 - - 8,335 Secured loans from banks -385,331 - - - - Trade liabilities -204,370 -36 -285 -32 -9,132 Balance sheet exposure -460,312 -101 -285 -32 -798

Sensitivity Analysis A 10 percent strengthening of the euro against the following currencies on 31 December 2010 would have increased (decreased) the profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain unchanged. The analysis is performed on the same basis for 2009. In thousand EUR

Item 31 December 2010 31 December 2009 HRK 12 11 USD 293 244 CHF - 2 RUB 20 14

Total effect on profit or loss 326 271 A 10 percent weakening of the euro against the above currencies on 31 December 2010 would have had an equal but opposite effect on profit or loss by the amounts shown above, on the assumption that all other variables remain unchanged.

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Interest Rate Risk Characteristics of Interest Rates Applied to Interest-bearing Financial Instruments of Merkur, d. d. In thousand EUR Book value Item 2010 2009 Fixed rate instruments -100,417 37,907 Financial assets 26,123 179,599 Financial liabilities -126,540 -141,692

Variable rate instruments -338,545 -334,824 Financial assets 1,047 3,304 Financial liabilities -339,592 -338,128

Fair Value Sensitivity Analysis for Fixed Rate Instruments The Company does not account for any fixed rate financial assets at fair value through profit or loss, therefore a change in interest rates on the reporting date would not affect the profit or loss. Cash Flow Sensitivity Analysis for Variable Rate Instruments A change of 100 basis points in interest rates on the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular the foreign currency rates, remain unchanged. The analysis is performed on the same basis for 2009. In thousand EUR

Effect on profit or loss +100 b. p. -100 b. p.

Variable rate instruments on 31 December 2010 -3,396 3,396 Cash flow sensitivity (net) -3,396 3,396

Variable rate instruments on 31 December 2009 -3,381 3,381 Interest rate swap 600 -600 Cash flow sensitivity (net) -2,781 2,781

The calculations of the effects of variable interest rates are prepared with actual data from 31 December 2010 and not the data from the Financial Restructuring Plan.

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The calculations of the effects of variable interest rates are prepared with actual data from 31 December 2010 and not the data from the Financial Restructuring Plan.

Fair Value

The Company uses the stock market prices as a basis for the fair value of financial assets. If a financial instrument is not listed on a regulated market or a market is deemed inactive, the Company uses a model for assessing the fair value of the financial asset. The item Available-for-sale shares and stakes includes the shares of Perutnina Ptuj, valued with the purchase price model (the reason for such valuation is explained in item 4.6). The purchase price model was also used for valuation of a small number of stakes with a value insignificant for fair financial statements, because valuating these stakes would not be economically viable.

Hierarchy in Setting the Fair Value of Financial Assets on 31 December 2010

Level 1 decreased in 2010 because the Sava, d. d., shares were moved to level 3, and level 2 decreased because the Gorenjska banka, d. d., shares were moved to level 3. Level 1 thus includes all shares listed at the stock exchange, valuated according to their stock exchange price, while all other shares are on level 3.

Hierarchy in Setting the Fair Value of Financial Assets on 31 December 2009

In 2010 the Company recognized the liabilities or set the provisions for guarantees given to companies that were in insolvency proceedings (Perles Merkur Italia s.r.l.), compulsory settlement (Mersteel d. o. o., Alpos d. d.) or bankrupt (Merfin d. o. o., Merkur International Praha s.r.o.). For all companies except Mersteel d. o. o., and Merfin d. o. o., the Company recognized their liabilities to main creditors in entirety with regard to the actual liability of the main creditor on 31 December 2010, while taking into account the effect of compulsory settlement (40% discount). The set provisions are further explained in item 5.18 – Long-term and Short-term Provisions.

The following assumptions were used in setting the provisions for Mersteel d. o. o., and Merfin d. o. o.: • The liabilities to the main creditors for guarantees, given to subsidiary Mersteel, d. o. o., were recognized in the amount of the estimated contingent liability of Merkur while taking into account the repayments of the main creditor (Mersteel) through the finalized compulsory settlement of Mersteel, which includes payment of the main separation liabilities and main common liabilities while taking into account the effects of the compulsory settlement on Mersteel (45% discount) and the effects of the finalized compulsory settlement on Merkur (40% discount). The Estimated liability/provision of Merkur for paying off the main creditors of Mersteel amounts to EUR 11,075 thousand and is recognized as a long-term provision. For informative purposes, in addition to that amount we also show the maximum contingent liability of Merkur that assumes the repayment of the main liability supposing Mersteel going into bankruptcy (in this case the main liability is reduced only by the share for which Mersteel is ensured, while the rest of the amount has had the effects of Merkur’s compulsory settlement applied to it. The maximum liability of Merkur for paying main creditors of Mersteel thus amounts to EUR 15,041 thousand. The difference between the set provision and the maximum potential liability in the amount of EUR 3,967 thousand was recognized in the off-balance sheet. • The liabilities to main creditors for the two guarantees given to Merfin, d. o. o., were recognized whole with regard to the actual liability of the main creditor on 31 December 2010 for the following: • guarantee to Merfin for the main creditor Banka Koper, d. d., in the amount of EUR 6,000 thousand , and for • guarantee to Merfin for the main creditor viator & vektor, d. d., in the amount of EUR 5,000 thousand (the contingent liability of Merkur, d. d., arising from this was converted to the share capital of Merkur, d. d., when the compulsory settlement was confirmed). two guarantees were recognized in the off-balance sheet for the following reasons: • the guarantee to Merfin for the main creditor GBD, d. d., in the amount of EUR 5,159 thousand because the main liability is subject to action for annulment, thus the same goes for the corresponding contingent liability of Merkur, d. d., and • the guarantee to Merfin for the main creditor Cimos, d. d., in the amount of EUR 4,909 thousand as the main liability has already been closed.

The balance sheet thus includes two guarantees to Merfin, d. o. o., in the total amount of EUR 11,000 thousand, while two guarantees to Merfin, d. o. o., remain in the off-balance sheet in the total amount of EUR 10,068 thousand.

5.23 Contingent Liabilities and Receivables

Contingent liabilities of Merkur, d. d., come from guarantees provided for third persons for the liabilities of subsidiaries and liabilities of Merfin, d. o. o., and Alpos, d. d. The contingent liabilities are recognized in the off-balance sheet.

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Interest Rate Risk Characteristics of Interest Rates Applied to Interest-bearing Financial Instruments of Merkur, d. d. In thousand EUR Book value Item 2010 2009 Fixed rate instruments -100,417 37,907 Financial assets 26,123 179,599 Financial liabilities -126,540 -141,692

Variable rate instruments -338,545 -334,824 Financial assets 1,047 3,304 Financial liabilities -339,592 -338,128

Fair Value Sensitivity Analysis for Fixed Rate Instruments The Company does not account for any fixed rate financial assets at fair value through profit or loss, therefore a change in interest rates on the reporting date would not affect the profit or loss. Cash Flow Sensitivity Analysis for Variable Rate Instruments A change of 100 basis points in interest rates on the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular the foreign currency rates, remain unchanged. The analysis is performed on the same basis for 2009. In thousand EUR

Effect on profit or loss +100 b. p. -100 b. p.

Variable rate instruments on 31 December 2010 -3,396 3,396 Cash flow sensitivity (net) -3,396 3,396

Variable rate instruments on 31 December 2009 -3,381 3,381 Interest rate swap 600 -600 Cash flow sensitivity (net) -2,781 2,781

The calculations of the effects of variable interest rates are prepared with actual data from 31 December 2010 and not the data from the Financial Restructuring Plan.

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Fair Value In thousand EUR Book value Fair value Book value Fair value

Item 31 December

2010 31 December

2010 31 December

2009 31 December

2009 Available-for-sale shares and stakes 128,650 128.650 172.999 172.999 Deposits and collateral 2,145 2.145 15.339 14.249 Loans given 27,170 25.297 56.507 54.471 Receivables from financial lease 42 43 442 445 Trade receivables 21,259 21.259 129.595 129.595 Receivables due from others 8,598 8,598 16,336 16,336 Cash and cash equivalents 5,584 5,584 332 332 Secured loans from banks -405,394 -309,350 -416,591 -413,730 Other loans taken -1,464 -1,464 -3,133 -3,171 Bank overdraft -1,722 -1,722 -671 -671 Liabilities from financial lease -57,673 -57,673 -59,659 -59,659 Trade liabilities -122,615 -122,615 -204,370 -204,370 Other payables -27,489 -27,489 -30,142 -30,142 Interest rate swaps used for risk protection - - -3,513 -3,513

The Company uses the stock market prices as a basis for the fair value of financial assets. If a financial instrument is not listed on a regulated market or a market is deemed inactive, the Company uses a model for assessing the fair value of the financial asset. The item Available-for-sale shares and stakes includes the shares of Perutnina Ptuj, valued with the purchase price model (the reason for such valuation is explained in item 4.6). The purchase price model was also used for valuation of a small number of stakes with a value insignificant for fair financial statements, because valuating these stakes would not be economically viable. Hierarchy in Setting the Fair Value of Financial Assets on 31 December 2010

In thousand EUR

Item Level 1 Level 2 Level 3 Total

Available-for-sale shares and stakes 2,643 - 126,007 128,650 Level 1 decreased in 2010 because the Sava, d. d., shares were moved to level 3, and level 2 decreased because the Gorenjska banka, d. d., shares were moved to level 3. Level 1 thus includes all shares listed at the stock exchange, valuated according to their stock exchange price, while all other shares are on level 3. Hierarchy in Setting the Fair Value of Financial Assets on 31 December 2009

In thousand EUR

Item Level 1 Level 2 Level 3 Total

Available-for-sale shares and stakes 45,709 86,178 41,112 172,999

Interest rate swaps used for risk protection - 3,513 - 3,513

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Fair Value In thousand EUR Book value Fair value Book value Fair value

Item 31 December

2010 31 December

2010 31 December

2009 31 December

2009 Available-for-sale shares and stakes 128,650 128.650 172.999 172.999 Deposits and collateral 2,145 2.145 15.339 14.249 Loans given 27,170 25.297 56.507 54.471 Receivables from financial lease 42 43 442 445 Trade receivables 21,259 21.259 129.595 129.595 Receivables due from others 8,598 8,598 16,336 16,336 Cash and cash equivalents 5,584 5,584 332 332 Secured loans from banks -405,394 -309,350 -416,591 -413,730 Other loans taken -1,464 -1,464 -3,133 -3,171 Bank overdraft -1,722 -1,722 -671 -671 Liabilities from financial lease -57,673 -57,673 -59,659 -59,659 Trade liabilities -122,615 -122,615 -204,370 -204,370 Other payables -27,489 -27,489 -30,142 -30,142 Interest rate swaps used for risk protection - - -3,513 -3,513

The Company uses the stock market prices as a basis for the fair value of financial assets. If a financial instrument is not listed on a regulated market or a market is deemed inactive, the Company uses a model for assessing the fair value of the financial asset. The item Available-for-sale shares and stakes includes the shares of Perutnina Ptuj, valued with the purchase price model (the reason for such valuation is explained in item 4.6). The purchase price model was also used for valuation of a small number of stakes with a value insignificant for fair financial statements, because valuating these stakes would not be economically viable. Hierarchy in Setting the Fair Value of Financial Assets on 31 December 2010

In thousand EUR

Item Level 1 Level 2 Level 3 Total

Available-for-sale shares and stakes 2,643 - 126,007 128,650 Level 1 decreased in 2010 because the Sava, d. d., shares were moved to level 3, and level 2 decreased because the Gorenjska banka, d. d., shares were moved to level 3. Level 1 thus includes all shares listed at the stock exchange, valuated according to their stock exchange price, while all other shares are on level 3. Hierarchy in Setting the Fair Value of Financial Assets on 31 December 2009

In thousand EUR

Item Level 1 Level 2 Level 3 Total

Available-for-sale shares and stakes 45,709 86,178 41,112 172,999

Interest rate swaps used for risk protection - 3,513 - 3,513

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5.23 Contingent Liabilities and Receivables Contingent liabilities of Merkur, d. d., come from guarantees provided for third persons for the liabilities of subsidiaries and liabilities of Merfin, d. o. o., and Alpos, d. d. The contingent liabilities are recognized in the off-balance sheet. In thousand EUR

Item 31 December 2010 31 December 2009 Guarantees for subsidiaries, except for leasing 32,229 126,275 Guarantees for subsidiaries for leasing 93,554 93,554 Guarantees for others 10,068 26,909 Total 135,851 246,738

In 2010 the Company recognized the liabilities or set the provisions for guarantees given to companies that were in insolvency proceedings (Perles Merkur Italia s.r.l.), compulsory settlement (Mersteel d. o. o., Alpos d. d.) or bankrupt (Merfin d. o. o., Merkur International Praha s.r.o.). For all companies except Mersteel d. o. o., and Merfin d. o. o., the Company recognized their liabilities to main creditors in entirety with regard to the actual liability of the main creditor on 31 December 2010, while taking into account the effect of compulsory settlement (40% discount). The set provisions are further explained in item 5.18 – Long-term and Short-term Provisions. The following assumptions were used in setting the provisions for Mersteel d. o. o., and Merfin d. o. o.:

The liabilities to the main creditors for guarantees, given to subsidiary Mersteel, d. o. o., were recognized in the amount of the estimated contingent liability of Merkur while taking into account the repayments of the main creditor (Mersteel) through the finalized compulsory settlement of Mersteel, which includes payment of the main separation liabilities and main common liabilities while taking into account the effects of the compulsory settlement on Mersteel (45% discount) and the effects of the finalized compulsory settlement on Merkur (40% discount). The Estimated liability/provision of Merkur for paying off the main creditors of Mersteel amounts to EUR 11,075 thousand and is recognized as a long-term provision. For informative purposes, in addition to that amount we also show the maximum contingent liability of Merkur that assumes the repayment of the main liability supposing Mersteel going into bankruptcy (in this case the main liability is reduced only by the share for which Mersteel is ensured, while the rest of the amount has had the effects of Merkur’s compulsory settlement applied to it. The maximum liability of Merkur for paying main creditors of Mersteel thus amounts to EUR 15,041 thousand. The difference between the set provision and the maximum potential liability in the amount of EUR 3,967 thousand was recognized in the off-balance sheet.

The liabilities to main creditors for the two guarantees given to Merfin, d. o. o., were recognized whole with regard to the actual liability of the main creditor on 31 December 2010 for the following:

o guarantee to Merfin for the main creditor Banka Koper, d. d., in the amount of EUR 6,000 thousand , and for

o guarantee to Merfin for the main creditor Viator & Vektor, d. d., in the amount of EUR 5,000 thousand (the contingent liability of Merkur. d. d., arising from this was converted to the share capital of Merkur, d. d., when the compulsory settlement was confirmed).

two guarantees were recognized in the off-balance sheet for the following reasons: o the guarantee to Merfin for the main creditor GBD, d. d., in the amount of EUR 5,159

thousand because the main liability is subject to action for annulment, thus the same goes for the corresponding contingent liability of Merkur, d. d., and

o the guarantee to Merfin for the main creditor Cimos, d. d., in the amount of EUR 4,909 thousand as the main liability has already been closed.

The balance sheet thus includes two guarantees to Merfin, d. o. o., in the total amount of EUR 11,000 thousand, while two guarantees to Merfin, d. o. o., remain in the off-balance sheet in the total amount of EUR 10,068 thousand.

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In thousand EUR Book value Fair value Book value Fair value

Item 31 December

2010 31 December

2010 31 December

2009 31 December

2009 Available-for-sale shares and stakes 128,650 128,650 172,999 172,999 Deposits and collateral 2,145 2,145 15,339 14,249 Loans given 27,170 25,297 56,507 54,471 Receivables from financial lease 42 43 442 445 Trade receivables 21,259 21,259 129,595 129,595 Receivables due from others 8,598 8,598 16,336 16,336 Cash and cash equivalents 5,584 5,584 332 332 Secured loans from banks -405,394 -309,350 -416,591 -413,730 Other loans taken -1,464 -1,464 -3,133 -3,171 Bank overdraft -1,722 -1,722 -671 -671 Liabilities from financial lease -57,673 -57,673 -59,659 -59,659 Trade liabilities -122,615 -122,615 -204,370 -204,370 Other payables -27,489 -27,489 -30,142 -30,142 Interest rate swaps used for risk protection - - -3,513 -3,513

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Balance / Off-balance Guarantees Given by Merkur, d. d. 2010

* For Mersteel, the difference between the minimum and maximum liability was left recognized in the off-balance sheet.

The Company’s contingent liabilities come from guarantees given to third persons for the liabilities of subsidiaries which settle their liabilities on time, and are thus only recognized in the off-balance sheet. Among these are also the following contingent liabilities for guarantees given for property lease, according to which Merkur, d. d. enters into the lease relationship as a joint tenant in the event of non-payment: • guarantees given to Merkur Zagreb, d. o. o., in the amount of EUR 48,795 thousand, • guarantees given to Merkur Beograd, d. o. o., in the amount of EUR 44,415 thousand, • guarantees given to Mersteel Sarajevo, d. o. o., in the amount of EUR 21,980 thousand, • guarantees given to Merfin, d. o. o., in the amount of EUR 10,068 thousand, • guarantees given to Mersteel Profil, d. o. o., in the amount of EUR 5,083 thousand, • guarantees given to Mersteel, d. o. o., Naklo in the amount of EUR 3.967 thousand(just the difference between the minimum and maximum liability), and • guarantees given to Intermerkur Nova, d. o. o., in the amount of EUR 1,543 thousand, totaling at EUR 135,851 thousand.

2009

6 Notes on the Income and Loss Statement

6.1 Sales Revenue

Sales Revenue of Merkur, d. d.

Revenue from selling goods is reduced by discounts given to holders of Merkur’s loyalty card. In 2010, a total of EUR 1,725 thousand (2009: EUR 2,241 thousand) of discounts were granted based on the purchases made with the loyalty card, which presents 1.3% of the total retail sales in that year. Provisions in the estimated amount of redeemed rewards – EUR 280 thousand – have been made from revenue for credits issued for the purchases made in the last quarter of 2010, which loyalty card holders can use by the end of April 2011.

The company generates rental income by renting out property and investment property, and partly by subleasing parts of property that the company leases through finance or operating lease (for example, sales centers with accompanying bars, restaurants and shops).

6.2 Other Operating Revenue

Other Operating Revenue of Merkur, d. d.

Merkur, d. d., also has contingent receivables due from Merfin, d. o. o., arising from the claim for returning the difference between the purchase and sale value of the property that Merfin realized as profit from sales in 2008 and 2009 when it was still the controlling company, namely: • based on the agreement according to which Merfin is obliged to return the difference between the purchase and sales value of the property shopping centre Primskovo in the amount of EUR 9,271 thousand with interest from the date of sale on 24 December 2008 to 31 October 2010 in the amount of EUR 781 thousand, and • based on the agreement according to which Merfin is obliged to return the difference between the purchase and sales value of the stake in HTC DvA in the amount of EUR 8,500 thousand with interest from 23 December 2009 to 31 October 2010 in the amount of EUR 107 thousand.

Total receivables due from Merfin thus amount to EUR 18,659 thousand, but since the conditions for recognizing the income according to IAS 14 are not met because it is not likely that the economical gains, related to this transaction, will be realized, the receivables are only recognized in the off-balance sheet. However, they will be lodged in the bankruptcy estate of Merfin.

86

92

Balance / Off-balance Guarantees Given by Merkur, d. d. 2010 In thousand EUR Recognizing the guarantee Receiver of guarantee

Recognized provision

Recognizing the guarantee

Balance Alpos, d.d., Šentjur 600 Balance Merfin, d. o. o., Ljubljana 11,000 Merkur International Praha, spol. S. r. o. 547 Perles Merkur Italia, s. r. l. 1,546 Mersteel, d. o. o., Naklo 11,075 Total 24,768 Off-balance Mersteel, d. o. o., Naklo - Off-balance Intermerkur - Nova d. o. o., Sarajevo - Merkur International, d. o. o., Beograd - Merkur Hrvatska, d. o. o., Zagreb - Mersteel Profil doo, Beograd - Mersteel, d. o. o., Sarajevo - Merfin, d. o. o., Ljubljana - Total 0 * For Mersteel, the difference between the minimum and maximum liability was left recognized in the off-balance sheet. 2009 In thousand EUR Off-balance Merfin, d. o. o. 25,909 Alpos, d.d. 1,000 Merkur Hrvatska, d. o. o., Zagreb 53,328 Merkur International, d. o. o., Beograd 49,359 Intermerkur - Nova d. o. o., Sarajevo 1,841 Perles Merkur Italia, s. r. l. 3,720 Mersteel, d. o. o., Naklo 70,945 Mersteel, d. o. o., Beograd 4,000 Mersteel Profil doo, Beograd 12,000 Mersteel, d. o. o., Sarajevo 22,636 Merkur International Praha, spol. S. r. o. 1,000 Merkur - MI Handels, GmbH 1,000 Total 246,738

The Company’s contingent liabilities come from guarantees given to third persons for the liabilities of subsidiaries which settle their liabilities on time, and are thus only recognized in the off-balance sheet. Among these are also the following contingent liabilities for guarantees given for property lease, according to which Merkur, d. d. enters into the lease relationship as a joint tenant in the event of non-payment: guarantees given to Merkur Zagreb, d. o. o., in the amount of EUR 48,795 thousand, guarantees given to Merkur Beograd, d. o. o., in the amount of EUR 44,415 thousand, guarantees given to Mersteel Sarajevo, d. o. o., in the amount of EUR 21,980 thousand, guarantees given to Merfin, d. o. o., in the amount of EUR 10,068 thousand, guarantees given to Mersteel Profil, d. o. o., in the amount of EUR 5,083 thousand, guarantees given to Mersteel, d. o. o., Naklo in the amount of EUR 3.967 thousand(just the

difference between the minimum and maximum liability), and guarantees given to Intermerkur Nova, d. o. o., in the amount of EUR 1,543 thousand, totaling at

EUR 135,851 thousand.

92

Balance / Off-balance Guarantees Given by Merkur, d. d. 2010 In thousand EUR Recognizing the guarantee Receiver of guarantee

Recognized provision

Recognizing the guarantee

Balance Alpos, d.d., Šentjur 600 Balance Merfin, d. o. o., Ljubljana 11,000 Merkur International Praha, spol. S. r. o. 547 Perles Merkur Italia, s. r. l. 1,546 Mersteel, d. o. o., Naklo 11,075 Total 24,768 Off-balance Mersteel, d. o. o., Naklo - Off-balance Intermerkur - Nova d. o. o., Sarajevo - Merkur International, d. o. o., Beograd - Merkur Hrvatska, d. o. o., Zagreb - Mersteel Profil doo, Beograd - Mersteel, d. o. o., Sarajevo - Merfin, d. o. o., Ljubljana - Total 0 * For Mersteel, the difference between the minimum and maximum liability was left recognized in the off-balance sheet. 2009 In thousand EUR Off-balance Merfin, d. o. o. 25,909 Alpos, d.d. 1,000 Merkur Hrvatska, d. o. o., Zagreb 53,328 Merkur International, d. o. o., Beograd 49,359 Intermerkur - Nova d. o. o., Sarajevo 1,841 Perles Merkur Italia, s. r. l. 3,720 Mersteel, d. o. o., Naklo 70,945 Mersteel, d. o. o., Beograd 4,000 Mersteel Profil doo, Beograd 12,000 Mersteel, d. o. o., Sarajevo 22,636 Merkur International Praha, spol. S. r. o. 1,000 Merkur - MI Handels, GmbH 1,000 Total 246,738

The Company’s contingent liabilities come from guarantees given to third persons for the liabilities of subsidiaries which settle their liabilities on time, and are thus only recognized in the off-balance sheet. Among these are also the following contingent liabilities for guarantees given for property lease, according to which Merkur, d. d. enters into the lease relationship as a joint tenant in the event of non-payment: guarantees given to Merkur Zagreb, d. o. o., in the amount of EUR 48,795 thousand, guarantees given to Merkur Beograd, d. o. o., in the amount of EUR 44,415 thousand, guarantees given to Mersteel Sarajevo, d. o. o., in the amount of EUR 21,980 thousand, guarantees given to Merfin, d. o. o., in the amount of EUR 10,068 thousand, guarantees given to Mersteel Profil, d. o. o., in the amount of EUR 5,083 thousand, guarantees given to Mersteel, d. o. o., Naklo in the amount of EUR 3.967 thousand(just the

difference between the minimum and maximum liability), and guarantees given to Intermerkur Nova, d. o. o., in the amount of EUR 1,543 thousand, totaling at

EUR 135,851 thousand.

94

6 Notes on the Income and Loss Statement 6.1 Sales Revenue Sales Revenue of Merkur, d. d. In thousand EUR Item 2010 2009 Sales revenue by categories 316,574 503,147 Revenue from selling goods and products 307,962 490,275 Revenue from selling services 6,109 10,347 Rental income 2,503 2,525

Revenue from selling goods is reduced by discounts given to holders of Merkur's loyalty card. In 2010, a total of EUR 1,725 thousand (2009: EUR 2,241 thousand) of discounts were granted based on the purchases made with the loyalty card, which presents 1.3% of the total retail sales in that year. Provisions in the estimated amount of redeemed rewards – EUR 280 thousand – have been made from revenue for credits issued for the purchases made in the last quarter of 2010, which loyalty card holders can use by the end of April 2011. The company generates rental income by renting out property and investment property, and partly by subleasing parts of property that the company leases through finance or operating lease (for example, sales centers with accompanying bars, restaurants and shops). 6.2 Other Operating Revenue Other Operating Revenue of Merkur, d. d. In thousand EUR Item 2010 2009 Other Operating Revenue 9,610 2,554 Gains on disposal of property, plant and equipment 2,733 1,042 Recovered receivables 2,382 1,014 Gains from reversal of long-term provisions 1,523 1 Gains on disposal of investment property 299 - Gains on revaluating investment property 415 - Income from government grants 142 128 Other operating revenue 2,116 369

6.3 Costs by Nature Costs of Merkur, d. d., by Nature

In thousand EUR

Item 2010 2009 Costs by Nature 94,131 102,658 Cost of materials 4,971 5,649 Cost of services 26,704 34,254 Labor costs 49,982 50,854 - wages and salaries 32,121 34,374 - pension insurance 4,073 4,364 - other insurance 2,378 2,572 - other labor costs 11,410 9,544 Amortization and depreciation 9,782 9,381 Long-term provisions - 302 Other operating costs 2,693 2,218

In 2010, the company introduced strict cost cutting measures. The total operating costs were reduced by 8% compared to the year before.

94

6 Notes on the Income and Loss Statement 6.1 Sales Revenue Sales Revenue of Merkur, d. d. In thousand EUR Item 2010 2009 Sales revenue by categories 316,574 503,147 Revenue from selling goods and products 307,962 490,275 Revenue from selling services 6,109 10,347 Rental income 2,503 2,525

Revenue from selling goods is reduced by discounts given to holders of Merkur's loyalty card. In 2010, a total of EUR 1,725 thousand (2009: EUR 2,241 thousand) of discounts were granted based on the purchases made with the loyalty card, which presents 1.3% of the total retail sales in that year. Provisions in the estimated amount of redeemed rewards – EUR 280 thousand – have been made from revenue for credits issued for the purchases made in the last quarter of 2010, which loyalty card holders can use by the end of April 2011. The company generates rental income by renting out property and investment property, and partly by subleasing parts of property that the company leases through finance or operating lease (for example, sales centers with accompanying bars, restaurants and shops). 6.2 Other Operating Revenue Other Operating Revenue of Merkur, d. d. In thousand EUR Item 2010 2009 Other Operating Revenue 9,610 2,554 Gains on disposal of property, plant and equipment 2,733 1,042 Recovered receivables 2,382 1,014 Gains from reversal of long-term provisions 1,523 1 Gains on disposal of investment property 299 - Gains on revaluating investment property 415 - Income from government grants 142 128 Other operating revenue 2,116 369

6.3 Costs by Nature Costs of Merkur, d. d., by Nature

In thousand EUR

Item 2010 2009 Costs by Nature 94,131 102,658 Cost of materials 4,971 5,649 Cost of services 26,704 34,254 Labor costs 49,982 50,854 - wages and salaries 32,121 34,374 - pension insurance 4,073 4,364 - other insurance 2,378 2,572 - other labor costs 11,410 9,544 Amortization and depreciation 9,782 9,381 Long-term provisions - 302 Other operating costs 2,693 2,218

In 2010, the company introduced strict cost cutting measures. The total operating costs were reduced by 8% compared to the year before.

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6.3 Costs by Nature

Costs of Merkur, d. d., by Nature

In 2010, the company introduced strict cost cutting measures. The total operating costs were reduced by 8% compared to the year before.

6.4 Other Operating Expenses

Other Operating Expenses of Merkur, d. d.

6.5 Net Financial Income and Expenses

Financial Income of Merkur, d. d.

Financial Expenses of Merkur, d. d.

Other financial expenses include a EUR 350,000 fine for not realizing the option obligation towards Saturo Establishment from Liechtenstein. The transaction is subject to a special audit.

6.6 Other Expenses

Other Expenses of Merkur, d. d.

*Note under 5.23 Contingent liabilities and receivables

6.7 Income Tax

Income Tax of Merkur, d. d.

Effective Income Tax Rate

88

94

6 Notes on the Income and Loss Statement 6.1 Sales Revenue Sales Revenue of Merkur, d. d. In thousand EUR Item 2010 2009 Sales revenue by categories 316,574 503,147 Revenue from selling goods and products 307,962 490,275 Revenue from selling services 6,109 10,347 Rental income 2,503 2,525

Revenue from selling goods is reduced by discounts given to holders of Merkur's loyalty card. In 2010, a total of EUR 1,725 thousand (2009: EUR 2,241 thousand) of discounts were granted based on the purchases made with the loyalty card, which presents 1.3% of the total retail sales in that year. Provisions in the estimated amount of redeemed rewards – EUR 280 thousand – have been made from revenue for credits issued for the purchases made in the last quarter of 2010, which loyalty card holders can use by the end of April 2011. The company generates rental income by renting out property and investment property, and partly by subleasing parts of property that the company leases through finance or operating lease (for example, sales centers with accompanying bars, restaurants and shops). 6.2 Other Operating Revenue Other Operating Revenue of Merkur, d. d. In thousand EUR Item 2010 2009 Other Operating Revenue 9,610 2,554 Gains on disposal of property, plant and equipment 2,733 1,042 Recovered receivables 2,382 1,014 Gains from reversal of long-term provisions 1,523 1 Gains on disposal of investment property 299 - Gains on revaluating investment property 415 - Income from government grants 142 128 Other operating revenue 2,116 369

6.3 Costs by Nature Costs of Merkur, d. d., by Nature

In thousand EUR

Item 2010 2009 Costs by Nature 94,131 102,658 Cost of materials 4,971 5,649 Cost of services 26,704 34,254 Labor costs 49,982 50,854 - wages and salaries 32,121 34,374 - pension insurance 4,073 4,364 - other insurance 2,378 2,572 - other labor costs 11,410 9,544 Amortization and depreciation 9,782 9,381 Long-term provisions - 302 Other operating costs 2,693 2,218

In 2010, the company introduced strict cost cutting measures. The total operating costs were reduced by 8% compared to the year before.

95

6.4 Other Operating Expenses Other Operating Expenses of Merkur, d. d.

In thousand EUR

Item 2010 2009 Other operating expenses 32,044 3,201 Expenses from revaluation of property 4,803 760 Write-offs and losses on disposal of property, plant and equipment 922 90 Write-offs of intangible assets - 30 Write-offs of inventories to the realizable value 2,130 634 Impairments and write-offs of receivables from customers (including subsidiaries) 20,270 1,324 Losses on disposal of investment properties - 45 Tax provisions 3,649 - Other operating expenses 270 319

6.5 Net Financial Income and Expenses Financial Income of Merkur, d. d. In thousand EUR

Item 2010 2009 Financial income 17,273 27,957 Interest income 12,449 10,503 Foreign exchange gains 178 174 Dividend income 3,463 3,303 Gains on disposal of financial assets 143 8,882 Other financial income 1,038 5,096

Financial Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Financial expenses 175,785 178,553 Interest expenses 30,853 25,167 Foreign exchange losses 138 - Losses on disposal of financial assets 1,280 - Impairment of financial investments in subsidiaries 57,137 18,659 Impairment of available-for-sale financial assets 10,665 8,085 Impairment of loans given 67,723 126,405 Impairments and write-offs of interest receivables (including subsidiaries) 3,328 236 Elimination of derivative financial instruments 4,308 - Other financial expenses 352 -

Other financial expenses include a EUR 350,000 fine for not realizing the option obligation towards Saturo Establishment from Liechtenstein. The transaction is subject to a special audit. 6.6 Other Expenses Other Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Other expenses – issued sureties* 24,768 -

95

6.4 Other Operating Expenses Other Operating Expenses of Merkur, d. d.

In thousand EUR

Item 2010 2009 Other operating expenses 32,044 3,201 Expenses from revaluation of property 4,803 760 Write-offs and losses on disposal of property, plant and equipment 922 90 Write-offs of intangible assets - 30 Write-offs of inventories to the realizable value 2,130 634 Impairments and write-offs of receivables from customers (including subsidiaries) 20,270 1,324 Losses on disposal of investment properties - 45 Tax provisions 3,649 - Other operating expenses 270 319

6.5 Net Financial Income and Expenses Financial Income of Merkur, d. d. In thousand EUR

Item 2010 2009 Financial income 17,273 27,957 Interest income 12,449 10,503 Foreign exchange gains 178 174 Dividend income 3,463 3,303 Gains on disposal of financial assets 143 8,882 Other financial income 1,038 5,096

Financial Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Financial expenses 175,785 178,553 Interest expenses 30,853 25,167 Foreign exchange losses 138 - Losses on disposal of financial assets 1,280 - Impairment of financial investments in subsidiaries 57,137 18,659 Impairment of available-for-sale financial assets 10,665 8,085 Impairment of loans given 67,723 126,405 Impairments and write-offs of interest receivables (including subsidiaries) 3,328 236 Elimination of derivative financial instruments 4,308 - Other financial expenses 352 -

Other financial expenses include a EUR 350,000 fine for not realizing the option obligation towards Saturo Establishment from Liechtenstein. The transaction is subject to a special audit. 6.6 Other Expenses Other Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Other expenses – issued sureties* 24,768 -

95

6.4 Other Operating Expenses Other Operating Expenses of Merkur, d. d.

In thousand EUR

Item 2010 2009 Other operating expenses 32,044 3,201 Expenses from revaluation of property 4,803 760 Write-offs and losses on disposal of property, plant and equipment 922 90 Write-offs of intangible assets - 30 Write-offs of inventories to the realizable value 2,130 634 Impairments and write-offs of receivables from customers (including subsidiaries) 20,270 1,324 Losses on disposal of investment properties - 45 Tax provisions 3,649 - Other operating expenses 270 319

6.5 Net Financial Income and Expenses Financial Income of Merkur, d. d. In thousand EUR

Item 2010 2009 Financial income 17,273 27,957 Interest income 12,449 10,503 Foreign exchange gains 178 174 Dividend income 3,463 3,303 Gains on disposal of financial assets 143 8,882 Other financial income 1,038 5,096

Financial Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Financial expenses 175,785 178,553 Interest expenses 30,853 25,167 Foreign exchange losses 138 - Losses on disposal of financial assets 1,280 - Impairment of financial investments in subsidiaries 57,137 18,659 Impairment of available-for-sale financial assets 10,665 8,085 Impairment of loans given 67,723 126,405 Impairments and write-offs of interest receivables (including subsidiaries) 3,328 236 Elimination of derivative financial instruments 4,308 - Other financial expenses 352 -

Other financial expenses include a EUR 350,000 fine for not realizing the option obligation towards Saturo Establishment from Liechtenstein. The transaction is subject to a special audit. 6.6 Other Expenses Other Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Other expenses – issued sureties* 24,768 -

95

6.4 Other Operating Expenses Other Operating Expenses of Merkur, d. d.

In thousand EUR

Item 2010 2009 Other operating expenses 32,044 3,201 Expenses from revaluation of property 4,803 760 Write-offs and losses on disposal of property, plant and equipment 922 90 Write-offs of intangible assets - 30 Write-offs of inventories to the realizable value 2,130 634 Impairments and write-offs of receivables from customers (including subsidiaries) 20,270 1,324 Losses on disposal of investment properties - 45 Tax provisions 3,649 - Other operating expenses 270 319

6.5 Net Financial Income and Expenses Financial Income of Merkur, d. d. In thousand EUR

Item 2010 2009 Financial income 17,273 27,957 Interest income 12,449 10,503 Foreign exchange gains 178 174 Dividend income 3,463 3,303 Gains on disposal of financial assets 143 8,882 Other financial income 1,038 5,096

Financial Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Financial expenses 175,785 178,553 Interest expenses 30,853 25,167 Foreign exchange losses 138 - Losses on disposal of financial assets 1,280 - Impairment of financial investments in subsidiaries 57,137 18,659 Impairment of available-for-sale financial assets 10,665 8,085 Impairment of loans given 67,723 126,405 Impairments and write-offs of interest receivables (including subsidiaries) 3,328 236 Elimination of derivative financial instruments 4,308 - Other financial expenses 352 -

Other financial expenses include a EUR 350,000 fine for not realizing the option obligation towards Saturo Establishment from Liechtenstein. The transaction is subject to a special audit. 6.6 Other Expenses Other Expenses of Merkur, d. d.

In thousand EUR Item 2010 2009 Other expenses – issued sureties* 24,768 -

96

*Note under 5.23 Contingent liabilities and receivables 6.7 Income Tax Income Tax of Merkur, d. d. In thousand EUR

Item 2010 2009 Current tax expense – tax liability - 786

Deferred tax expense – deferred tax liability 718 933 Total tax expense in the profit and loss statement 718 1,719

Effective Income Tax Rate In thousand EUR

Item 2010 2009 Profit before taxes -219,765 -138,226 Expenses not deductible for tax purposes 174,934 155,696 Untaxed income -6,538 -3,303 Other adjustments -496 -10,381 Tax loss -51,865 Tax base 3,786 Income Tax* 757

Note on Tax Loss in 2010 From 1 January 2010 to 31 December 2010, the company recorded a tax loss in the amount of EUR 51,865 thousand, while generating a EUR 219,765 thousand loss before taxes. The operating loss was decreased by expenses not deductible for tax purposes in the total amount of EUR 174,934 thousand, and increased by untaxed income from dividends, income from already taxed reversed provisions for severance pay, and income from reversal of impairments in the amount of EUR 6,538 thousand, and other adjustments in the amount of EUR 496 thousand. Tax Inspection In 2010, an inspection was carried out in the company regarding tax on income of legal entities for years 2008 and 2009. Upon completing the tax review on 16 March 2011, the tax authority issued a decision no. DT 0610-98/2010 0203 31, in which it charged additional tax liability from tax on income of legal entities for the period from 1 January 2009 to 31 December 2009 in the amount of EUR 4,277 thousand, and VAT for June 2009 in the amount of EUR 1,805 thousand. The company already commented on the tax authority's minutes, and on 16 April 2011 it filed a complaint regarding the decision at the Special Tax Office, and on 26 April 2011 it filed a complaint at Ministry of Finance due to violation of procedure regulations, the fact that the actual situation was stated erroneously and incompletely, and due to incorrect application of the substantive law. The tax inspection also looked into the transactions related to the purchase and sale of the stake in HTC DVA d. o. o., and the purchase of the Primskovo sales center property. In these dubious transactions the company suffered outflow of assets, while the tax authority increased the company's tax base for tax on income of legal entities and did not recognize deduction of input VAT. Based on the opinion of tax consultants, the Management Board believes that it is very likely that the second-instance tax authority will annul the decision of the first-instance body and remit the case for re-examination. Nevertheless, the company has set aside provisions in the amount of 60% of the charged tax liability for the 2010 profit or loss.

96

*Note under 5.23 Contingent liabilities and receivables 6.7 Income Tax Income Tax of Merkur, d. d. In thousand EUR

Item 2010 2009 Current tax expense – tax liability - 786

Deferred tax expense – deferred tax liability 718 933 Total tax expense in the profit and loss statement 718 1,719

Effective Income Tax Rate In thousand EUR

Item 2010 2009 Profit before taxes -219,765 -138,226 Expenses not deductible for tax purposes 174,934 155,696 Untaxed income -6,538 -3,303 Other adjustments -496 -10,381 Tax loss -51,865 Tax base 3,786 Income Tax* 757

Note on Tax Loss in 2010 From 1 January 2010 to 31 December 2010, the company recorded a tax loss in the amount of EUR 51,865 thousand, while generating a EUR 219,765 thousand loss before taxes. The operating loss was decreased by expenses not deductible for tax purposes in the total amount of EUR 174,934 thousand, and increased by untaxed income from dividends, income from already taxed reversed provisions for severance pay, and income from reversal of impairments in the amount of EUR 6,538 thousand, and other adjustments in the amount of EUR 496 thousand. Tax Inspection In 2010, an inspection was carried out in the company regarding tax on income of legal entities for years 2008 and 2009. Upon completing the tax review on 16 March 2011, the tax authority issued a decision no. DT 0610-98/2010 0203 31, in which it charged additional tax liability from tax on income of legal entities for the period from 1 January 2009 to 31 December 2009 in the amount of EUR 4,277 thousand, and VAT for June 2009 in the amount of EUR 1,805 thousand. The company already commented on the tax authority's minutes, and on 16 April 2011 it filed a complaint regarding the decision at the Special Tax Office, and on 26 April 2011 it filed a complaint at Ministry of Finance due to violation of procedure regulations, the fact that the actual situation was stated erroneously and incompletely, and due to incorrect application of the substantive law. The tax inspection also looked into the transactions related to the purchase and sale of the stake in HTC DVA d. o. o., and the purchase of the Primskovo sales center property. In these dubious transactions the company suffered outflow of assets, while the tax authority increased the company's tax base for tax on income of legal entities and did not recognize deduction of input VAT. Based on the opinion of tax consultants, the Management Board believes that it is very likely that the second-instance tax authority will annul the decision of the first-instance body and remit the case for re-examination. Nevertheless, the company has set aside provisions in the amount of 60% of the charged tax liability for the 2010 profit or loss.

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Note on Tax Loss in 2010

From 1 January 2010 to 31 December 2010, the company recorded a tax loss in the amount of EUR 51,865 thousand, while generating a EUR 219,765 thousand loss before taxes.

The operating loss was decreased by expenses not deductible for tax purposes in the total amount of EUR 174,934 thousand, and increased by untaxed income from dividends, income from already taxed reversed provisions for severance pay, and income from reversal of impairments in the amount of EUR 6,538 thousand, and other adjustments in the amount of EUR 496 thousand.

7 Notes on the Other Comprehensive Income Statement

7.1 Notes on Items in Other Comprehensive Income Statement of Merkur, d. d., for 2010

Tax Inspection

In 2010, an inspection was carried out in the company regarding tax on income of legal entities for years 2008 and 2009. Upon completing the tax review on 16 March 2011, the tax authority issued a decision no. DT 0610-98/2010 0203 31, in which it charged additional tax liability from tax on income of legal entities for the period from 1 January 2009 to 31 December 2009 in the amount of EUR 4,277 thousand, and vAT for June 2009 in the amount of EUR 1,805 thousand. The company already commented on the tax authority’s minutes, and on 16 April 2011 it filed a complaint regarding the decision at the Special Tax Office, and on 26 April 2011 it filed a complaint at Ministry of Finance due to violation of procedure regulations, the fact that the actual situation was stated erroneously and incompletely, and due to incorrect application of the substantive law. The tax inspection also looked into the transactions related to the purchase and sale of the stake in HTC DvA d. o. o., and the purchase of the Primskovo sales center property. In these dubious transactions the company suffered outflow of assets, while the tax authority increased the company’s tax base for tax on income of legal entities and did not recognize deduction of input vAT. Based on the opinion of tax consultants, the Management Board believes that it is very likely that the second-instance tax authority will annul the decision of the first-instance body and remit the case for re-examination. Nevertheless, the company has set aside provisions in the amount of 60% of the charged tax liability for the 2010 profit or loss.

90

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7 Notes on the Other Comprehensive Income Statement 7.1 Notes on Items in Other Comprehensive Income Statement of Merkur, d. d., for 2010

In thousand EUR

Item Note Retained earnings

Provisions for the fair value

of land and buildings

Provisions for the fair value of

financial assets

Provisions for interest rate

swaps

TOTAL OTHER COMPREHENSIVE

INCOME

Year 2010

Net profit or loss for the accounting period -220,483 0 0 0 -220,483

Changes in the fair value of property 7.1 - - - - 0

Changes in the fair value of available-for-sale financial assets 7.2 - - -19,363 - -19,363

Elimination of derivative financial instruments for cash flow hedging 7.3 - - - 3,513 3,513 Effect of eliminating deferred tax assets and liabilities 7.4 - 8,089 4,255 -703 11,641

Total other comprehensive income in the accounting period - 8,089 -15,108 2,811 -4,208

Total comprehensive income in the accounting period -220,483 8,089 -15,108 2,811 -224,691

Year 2009

Net profit or loss for the accounting period -139,626 0 0 0 -139,626

Changes in the fair value of property 7.1 - 39,798 - - 39,798

Changes in the fair value of available-for-sale financial assets 7.2 - - -48,097 - -48,097

Changes in the fair value of derivative financial instruments for cash flow hedging - - 185 185

Disposal of available-for-sale financial assets - -8,882 - -8,882

Effect of deferred tax assets and liabilities 34 -8,039 6,062 -37 -1,980

Total other comprehensive income in the accounting period 34 31,759 -50,917 148 -18,976

Total comprehensive income in the accounting period -139,592 31,759 -50,917 148 -158,602

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7 Notes on the Other Comprehensive Income Statement 7.1 Notes on Items in Other Comprehensive Income Statement of Merkur, d. d., for 2010

In thousand EUR

Item Note Retained earnings

Provisions for the fair value

of land and buildings

Provisions for the fair value of

financial assets

Provisions for interest rate

swaps

TOTAL OTHER COMPREHENSIVE

INCOME

Year 2010

Net profit or loss for the accounting period -220,483 0 0 0 -220,483

Changes in the fair value of property 7.1 - - - - 0

Changes in the fair value of available-for-sale financial assets 7.2 - - -19,363 - -19,363

Elimination of derivative financial instruments for cash flow hedging 7.3 - - - 3,513 3,513 Effect of eliminating deferred tax assets and liabilities 7.4 - 8,089 4,255 -703 11,641

Total other comprehensive income in the accounting period - 8,089 -15,108 2,811 -4,208

Total comprehensive income in the accounting period -220,483 8,089 -15,108 2,811 -224,691

Year 2009

Net profit or loss for the accounting period -139,626 0 0 0 -139,626

Changes in the fair value of property 7.1 - 39,798 - - 39,798

Changes in the fair value of available-for-sale financial assets 7.2 - - -48,097 - -48,097

Changes in the fair value of derivative financial instruments for cash flow hedging - - 185 185

Disposal of available-for-sale financial assets - -8,882 - -8,882

Effect of deferred tax assets and liabilities 34 -8,039 6,062 -37 -1,980

Total other comprehensive income in the accounting period 34 31,759 -50,917 148 -18,976

Total comprehensive income in the accounting period -139,592 31,759 -50,917 148 -158,602

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Notes on Items in Other Comprehensive Income Statement of Merkur, d. d., for 2010

7.1 Changes in the Fair Value of Property

Changes in the fair value arise from revaluation of property based on the fair value model. The company revaluates the value of property at the balance sheet date. In 2010, no discrepancies that would affect other comprehensive income were established in valuating the property, while in 2009 the effect of revaluation amounted to EUR 39,798 thousand.

7.2 Changes in the Fair Value of Available-for-Sale Financial Assets

On 31 December 2010, the company valuated the fair values of available-for-sale financial assets. The valuation revealed that the fair value of individual investments was below the book value (revaluation reserve included). The change in the fair value was recognized in the other comprehensive income statement for 2010, and amounted to EUR 19,363 thousand (2009: EUR 48,097 thousand). The major part of the change, EUR 19,390 thousand, arises from the investment into shares of Gorenjska banka d. d., Kranj.

7.3 Elimination of Derivative Financial Instruments

Merkur, d. d., used derivative financial instruments for interest rate hedging. In the past years, the company recorded a loss from valuation of fair value of derived financial instruments, which amounted to EUR 2,811 thousand. In 2010, compulsory settlement proceedings were launched, and in line with the contract provisions, the company stopped accounting for hedges, and the total effect of eliminating derivative financial instruments in the amount of EUR 3,513 thousand was recognized in other comprehensive income for 2010 (2009: EUR 185 thousand).

7.4 Eliminating Deferred Tax Assets and Liabilities

In line with the facts presented under 3.1 Assumption of An Operating Company, long-term deferred tax assets and liabilities were eliminated in the financial statements for 2010. Elimination of deferred tax liabilities from revaluated properties in the amount of EUR 8,089 thousand, and from available-for-sale financial assets in the amount of EUR 4,255 thousand was recognized in other comprehensive income. Elimination of deferred tax assets from cash flow hedges in the amount of EUR 703 thousand is recognized in other comprehensive income.

8 Other Notes

8.1 Related Parties

Related parties include subsidiaries and associated companies, and related natural persons, which comprise members of the supervisory and management boards, management workers of the parent company and subsidiaries, and their close family members.

All relations between Merkur, d. d., and companies in the group, including transactions and outstanding balances, as well as related natural persons, are disclosed below.

Relations with Subsidiaries and Associated Companies

Business relations with subsidiaries and associated companies are mostly comprised of purchase and sale of goods, products, services and assets, and financial transactions related to the management of given and taken loans. As related parties, companies conducted business based on concluded sale and loan contracts. In transactions, the companies applied market prices of goods, products, services and assets without exceptions. Loans between related parties were granted under same conditions as apply to other companies with similar credit ranking.

The controlling company of Merkur was MERFIN holding, d. o. o., with the headquarters at verovškova ulica 55, 1000, Ljubljana Slovenia. In 2010, MERFIN, d. o. o., lost the controlling interest in Merkur, d. d., after its stake dropped to 8.81% or 9.79% of votes as on 31 December 2010. According to the data from 31 December 2009, MERFIN, d. o. o., held a 67.5% stake or 75% of votes in the company. On 30 June 2010, MERFIN still held a 68.60% stake in MERKUR, it however lost its influence on decisions as the new Management Board of Merkur, d. d., took over on 1 July 2010. In the second half of 2010, creditors of MERFIN, d. o. o., sold seized shares of Merkur, d. d., which resulted in the company losing the major part of its only assets, and the company found itself in great financial difficulties. On 3 June 2011, bankruptcy proceedings were launched against MERFIN, d. o. o., Ljubljana.

Report on Relations between Merkur, d. d., and Controlling Company Merfin, d. o. o., in Line with Article 545 of the Companies Act – 1

Based on a decisions of the 22nd General Meeting held on 25 February 2011, the DELOITTE REvIZIJA, d. o. o., Ljubljana, audit company was appointed as special auditor to review how individual transactions were managed in the period from 26 April 2007 to 3 November 2010. The special auditor must review the regularity and commercial aptitude of all direct and indirect transactions between Merkur, d. d., (and its subsidiaries) and companies MERFIN, d. o. o., MERFINA DvA, d. o. o., MERFIN TRI, d. o. o., and MERFIN ŠTIRI, d. o. o., all four with headquarters in Ljubljana; and direct and indirect transactions between Merkur, d. d., (and its subsidiaries) and HTC DvA, d. o. o. – in bankruptcy, HTC ENA, d. o. o., and HTC G, d. o. o., all three with headquarters in Ljubljana. The special auditor must also review the management of all other transactions, for which suspicion exists that they might have harmed the company (and subsidiaries). The special auditor should also review all transactions between the company (and subsidiaries), and banks and other financial organizations related to all loan and other financial transactions, which Merkur, d. d., or any of its subsidiaries concluded in that period. The review should look at their regularity, commercial aptitude, and check whether a third party has used its power to intentionally influence management or supervisory bodies, or an authorized representative to act in a way that would harm Merkur, d. d., and its shareholders. In each of the listed cases, the special auditor should determine the damage Merkur, d. d., suffered in line with paragraph 3 of Article 545 of the Companies Act – 1.

Based on the findings of the special audit, the Management Board of Merkur, d. d., will apply due diligence and launch all the necessary procedures in line with the law. As a result, it is impossible to issue a statement on harm caused to Merkur, d. d., at the end of the 2010 financial year.

92

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94

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Transactions between Merkur, d. d., and Related Companies

94

100

Transactions between Merkur, d. d., and Related Companies

In thousand EUR

Item Sale of goods

Purchase of goods

Provided services

Used services

Charged interest

Received interest Receivables Liabilities

Loans given

Issued sureties

YEAR 2010 Merfin, d. o. o., Ljubljana - - - 65 32 147 - - - 10,068

Merkur, d. d., towards Merfin, d. o. o., total 0 0 0 65 32 147 0 0 0 10,068 Kovinotehna, d. o. o., Celje - 197 29 - - 28 - - - - Merkur Hrvatska, d. o. o., Zagreb 7,846 382 28 18 877 - 2,642 2 15,165 48,824 Merkur Nekretnine, d. o. o., Zagreb - - - - - - 131 - - - Merkur International, d. o. o., Beograd 4,921 82 227 39 47 1,242 380 23,779 - 44,415 Merkur Čelik, d. o. o., Beograd - - - - - - 722 - - - Intermerkur - Nova d. o. o., Sarajevo 2,557 557 95 4 128 - 1,188 - - 1,543 Perles Merkur Italia, s. r. l. 21 628 16 16 - 5 1 1.037 - - Merkur, d. o. o., Cetinje 183 - 1 - 32 - 86 14 - - Mersteel, d. o. o., Naklo 241 10,456 2,514 972 1,159 509 252 11,551 - 3,967 Mersteel, d. o. o., Beograd - 13 1 - 24 3 16 16 - - Mersteel, d. o. o., Zagreb - - 45 - - - 87 - - - Mersteel Profil doo, Beograd - - - - 62 - 150 - - 5,083 Mersteel, d. o. o., Sarajevo -17 - - - 35 - 4,205 - - 21,980 Merkur International Praha, spol. S. r. o. - 135 - - 8 - - 97 - - Merkur Makedonija, doo, Skopje 707 219 7 12 107 - 1,298 - - - Merkur - MI Handels, GmbH 17 1,196 - 8 9 17 - 723 - - Big Bang, d. o. o., Ljubljana 3,246 8,100 458 114 17 436 44 707 - - Merkur, d. d., towards subsidiaries, total 19,722 21,964 3,421 1,184 2,505 2,240 11,201 37,927 15,165 125,812

100

Transactions between Merkur, d. d., and Related Companies

In thousand EUR

Item Sale of goods

Purchase of goods

Provided services

Used services

Charged interest

Received interest Receivables Liabilities

Loans given

Issued sureties

YEAR 2010 Merfin, d. o. o., Ljubljana - - - 65 32 147 - - - 10,068

Merkur, d. d., towards Merfin, d. o. o., total 0 0 0 65 32 147 0 0 0 10,068 Kovinotehna, d. o. o., Celje - 197 29 - - 28 - - - - Merkur Hrvatska, d. o. o., Zagreb 7,846 382 28 18 877 - 2,642 2 15,165 48,824 Merkur Nekretnine, d. o. o., Zagreb - - - - - - 131 - - - Merkur International, d. o. o., Beograd 4,921 82 227 39 47 1,242 380 23,779 - 44,415 Merkur Čelik, d. o. o., Beograd - - - - - - 722 - - - Intermerkur - Nova d. o. o., Sarajevo 2,557 557 95 4 128 - 1,188 - - 1,543 Perles Merkur Italia, s. r. l. 21 628 16 16 - 5 1 1.037 - - Merkur, d. o. o., Cetinje 183 - 1 - 32 - 86 14 - - Mersteel, d. o. o., Naklo 241 10,456 2,514 972 1,159 509 252 11,551 - 3,967 Mersteel, d. o. o., Beograd - 13 1 - 24 3 16 16 - - Mersteel, d. o. o., Zagreb - - 45 - - - 87 - - - Mersteel Profil doo, Beograd - - - - 62 - 150 - - 5,083 Mersteel, d. o. o., Sarajevo -17 - - - 35 - 4,205 - - 21,980 Merkur International Praha, spol. S. r. o. - 135 - - 8 - - 97 - - Merkur Makedonija, doo, Skopje 707 219 7 12 107 - 1,298 - - - Merkur - MI Handels, GmbH 17 1,196 - 8 9 17 - 723 - - Big Bang, d. o. o., Ljubljana 3,246 8,100 458 114 17 436 44 707 - - Merkur, d. d., towards subsidiaries, total 19,722 21,964 3,421 1,184 2,505 2,240 11,201 37,927 15,165 125,812

101

In thousand EUR

Item Sale of goods

Purchase of goods

Provided services

Used services

Charged interest

Received interest Receivables Liabilities

Loans Taken

Loans given

Issued sureties

YEAR 2009 Merfin, d. o. o., Ljubljana - - 4 - 588 16 - - 419 - 25,909

Merkur, d. d., towards Merfin, d. o. o., total 0 0 4 0 588 16 0 0 419 0 25,909 Kovinotehna, d. o. o., Celje - - 39 - - 38 4 1,006 - - - Merkur Hrvatska, d. o. o., Zagreb 16,987 674 119 725 682 - 5,368 682 - 15,165 53,327 Merkur Nekretnine, d. o. o., Zagreb - - - - - - 175 - - - - Merkur International, d. o. o., Beograd 14,026 60 396 484 278 - 48 25,272 - - 49,359 Merkur Čelik, d. o. o., Beograd - - - - - - 962 - - - - Intermerkur - Nova d. o. o., Sarajevo 6,049 394 99 301 143 - 2,677 113 - - 1,841 Perles Merkur Italia, s. r. l. 1,965 2,658 24 45 26 4 305 2,337 - - 2,174 Merkur, d. o. o., Cetinje 592 1 3 - 1 - 530 - - - - Mersteel, d. o. o., Naklo 809 15,708 4,123 749 3,407 59 36,064 27,341 - - 70,945 Mersteel, d. o. o., Beograd - 71 1 - 45 - 46 54 - - 4,000 Mersteel, d. o. o., Zagreb - - 61 - - - 62 - - - - Mersteel Profil doo, Beograd - - - - 96 - 125 - - - 12,000 Mersteel, d. o. o., Sarajevo - 23 10 - 477 - 5,880 - - - 22,636 Merkur International Praha, spol. S. r. o. 1 122 - - 10 - 4 45 - - 1,000 Merkur Makedonija, doo, Skopje 2,584 328 108 17 124 - 1,956 22 - - - Merkur - MI Handels, GmbH 136 3,242 15 15 11 17 44 1,100 - - 1,000 Big Bang, d. o. o., Ljubljana 10,626 8,963 492 252 - 140 2,776 6,763 - - - Big Bang, d. o. o., Ljubljana - - - - 2 - - - - - - Merkur, d. d., towards subsidiaries, total 53,774 32,244 5,489 2,588 5,303 258 57,026 64,734 0 15,165 218,282

101

In thousand EUR

Item Sale of goods

Purchase of goods

Provided services

Used services

Charged interest

Received interest Receivables Liabilities

Loans Taken

Loans given

Issued sureties

YEAR 2009 Merfin, d. o. o., Ljubljana - - 4 - 588 16 - - 419 - 25,909

Merkur, d. d., towards Merfin, d. o. o., total 0 0 4 0 588 16 0 0 419 0 25,909 Kovinotehna, d. o. o., Celje - - 39 - - 38 4 1,006 - - - Merkur Hrvatska, d. o. o., Zagreb 16,987 674 119 725 682 - 5,368 682 - 15,165 53,327 Merkur Nekretnine, d. o. o., Zagreb - - - - - - 175 - - - - Merkur International, d. o. o., Beograd 14,026 60 396 484 278 - 48 25,272 - - 49,359 Merkur Čelik, d. o. o., Beograd - - - - - - 962 - - - - Intermerkur - Nova d. o. o., Sarajevo 6,049 394 99 301 143 - 2,677 113 - - 1,841 Perles Merkur Italia, s. r. l. 1,965 2,658 24 45 26 4 305 2,337 - - 2,174 Merkur, d. o. o., Cetinje 592 1 3 - 1 - 530 - - - - Mersteel, d. o. o., Naklo 809 15,708 4,123 749 3,407 59 36,064 27,341 - - 70,945 Mersteel, d. o. o., Beograd - 71 1 - 45 - 46 54 - - 4,000 Mersteel, d. o. o., Zagreb - - 61 - - - 62 - - - - Mersteel Profil doo, Beograd - - - - 96 - 125 - - - 12,000 Mersteel, d. o. o., Sarajevo - 23 10 - 477 - 5,880 - - - 22,636 Merkur International Praha, spol. S. r. o. 1 122 - - 10 - 4 45 - - 1,000 Merkur Makedonija, doo, Skopje 2,584 328 108 17 124 - 1,956 22 - - - Merkur - MI Handels, GmbH 136 3,242 15 15 11 17 44 1,100 - - 1,000 Big Bang, d. o. o., Ljubljana 10,626 8,963 492 252 - 140 2,776 6,763 - - - Big Bang, d. o. o., Ljubljana - - - - 2 - - - - - - Merkur, d. d., towards subsidiaries, total 53,774 32,244 5,489 2,588 5,303 258 57,026 64,734 0 15,165 218,282

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96

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Relations with Related Natural Persons

The company only has business relations with members of the supervisory and management boards, who are employed under individual contracts, and no other related natural persons or their close family members.

On 31 December 2010, none of the old or new members of the Management Board of Merkur, d. d., their close family members, directors of subsidiaries, or members of Supervisory Boards of subsidiaries owned shares of Merkur, d. d. The same applies to members of the Supervisory Board of Merkur, d. d.

Gross Income

Receivables Due from Related Natural Persons

Receivables comprise receivables from housing loans to employees. The loans were granted at the interest rate applying at the date they were granted.

Company has no liabilities towards related natural persons.

In line with the provisions of the individual contract, the fixed part of the income comprises the base salary, i. e. the lowest possible amount paid if the operating targets are not being met.

Other income of Management Board members and authorized representatives, comprises holiday allowance, severance pay upon retirement, bonuses from managers’ insurance, use of company cars, additional pension insurance, and transport and meal allowance. Other income of Supervisory Board members consists of attendance fees and reimbursement of costs related to attending the sessions.

Net income comprises: net fixed and flexible income, net attendance fees, holiday allowance and severance pay, transport and meal allowance.

In 2010, Merkur, d. d., did not pay advances or issue guarantees for liabilities of related natural persons, nor receive short-term or long-term loans from these persons. In 2010, Merkur, d. d., did not conclude any transactions outside the regular scope of operations with new members of management and supervisory boards, or persons related to them.

Transactions of the old management and supervisory board are being investigated by the National Investigation Bureau, and are subject of a special audit commissioned by the new Management Board based on a decision of the 22nd General Meeting of Merkur, d. d., held on 25 February 2011.

In 2010, the company cancelled a EUR 3,812 thousand advance given to a brokerage in 2009 for acquiring 13,615 of Merkur’s shares at the option price with the purpose of rewarding employees with individual contracts. Based on the contract, the company acquired 13,615 of own shares worth EUR 3,812 thousand, which it immediately sold to Merfin, d. o. o., at the same price.

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102

Relations with Related Natural Persons The company only has business relations with members of the supervisory and management boards, who are employed under individual contracts, and no other related natural persons or their close family members. On 31 December 2010, none of the old or new members of the Management Board of Merkur, d. d., their close family members, directors of subsidiaries, or members of Supervisory Boards of subsidiaries owned shares of Merkur, d.d. The same applies to members of the Supervisory Board of Merkur, d. d. Gross Income

In thousand EUR Related natural person 2010 2009 Total 5,924 5,504 Management Board members 707 520 Others employees with individual contracts 5,156 4,937 Members of the Supervisory Board of Merkur, d. d. 61 47

Receivables Due from Related Natural Persons In thousand EUR Related natural person 31 December 2010 31 December 2009 Total 87 135 Others employees with individual contracts 87 135

Receivables comprise receivables from housing loans to employees. The loans were granted at the interest rate applying at the date they were granted. Company has no liabilities towards related natural persons.

102

Relations with Related Natural Persons The company only has business relations with members of the supervisory and management boards, who are employed under individual contracts, and no other related natural persons or their close family members. On 31 December 2010, none of the old or new members of the Management Board of Merkur, d. d., their close family members, directors of subsidiaries, or members of Supervisory Boards of subsidiaries owned shares of Merkur, d.d. The same applies to members of the Supervisory Board of Merkur, d. d. Gross Income

In thousand EUR Related natural person 2010 2009 Total 5,924 5,504 Management Board members 707 520 Others employees with individual contracts 5,156 4,937 Members of the Supervisory Board of Merkur, d. d. 61 47

Receivables Due from Related Natural Persons In thousand EUR Related natural person 31 December 2010 31 December 2009 Total 87 135 Others employees with individual contracts 87 135

Receivables comprise receivables from housing loans to employees. The loans were granted at the interest rate applying at the date they were granted. Company has no liabilities towards related natural persons.

8.2 Payments to Members of the Management and Supervisory Boards, and Employees with Individual Contracts

Total Income Received by Members of the Management and Supervisory Boards, and Employees with Individual Contracts in Merkur, d. d., for Their Work Performed in 2010

In thousand EUR

Recipient Period Fixed part of

the income Other

income Total gross

income Total net

income 1 2 3 4=2 +3 5 Bine Kordež (6 months) 56 5 61 32 Goran Čelesnik (3 months) 34 139 173 85 Milan Jelovčan (6 months) 56 4 60 34 Marjan Smrekar (12 months) 61 6 67 38 Bojan Knuplež (2.5 months) 42 91 132 64 Blaž Pesjak (5.5 months) 75 2 77 39 Rok Ponikvar (5.5 months) 66 3 69 36 Uroš Zajc (5.5 months) 66 2 68 35

Management Board total 8 456 251 707 363 Breakdown of the gross amount 64% 36% 100% Net/gross 51% Marta Bertoncelj (6 months) 9 9 7 Jakob Piskernik (6 months) 6 6 5 Branko Dernovšek (5 months) 6 6 4 Matevž Slapničar (7 months) 14 14 11 Antonija Pirc (7 months) 9 9 7 Ana Hochkraut (7 months) 10 10 7 Peter Fratnik (5 months) 7 7 5 Supervisory Board 7 61 61 47

Employees with individual contracts 94 4,075 1,081 5,156 3,200

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98

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8. 3 Lawsuits Against Merkur, d. d.On 16 September 2010, GBD, finančna družba, d. d., now G Skupina, d. d., Ljubljana filed a claim for execution supported with an authentic document – bill of exchange for EUR 3,000 thousand plus the default interest from 10 September 2010 until the date the payment is made. On 17 September 2010, the Ljubljana Local Court issued a decision no. 129049/2010, in which it upheld the claim for execution. The company filed an appeal against the decision. On 5 October 2010, the Local Court issued a decision revoking the part of the decision no. vL 129049/2010 of 17 September 2010 which allowed execution. The decision on the claim and the court costs will be made by the Kranj District Court, in the civil procedure with ref. no. I Pg 65/2011. In the written submission, the plaintiff, G skupina, d. d., expanded the claim by additional EUR 2,204 thousand. The court has not called the main hearing in the case and no decision has been made yet.

The claim is based on a loan contract between G skupina, d. d., and Merfin, d. o. o., with a principle of EUR 6,000 thousand and a 6-month EURIBOR + 3.45% annual interest rate. The companies signed 9 annexes to the loan contract. Annex no. 9 set the final maturity date on 17 June 2010. The loan was not repaid by this date. Merkur, d. d., who was the guarantor, did not repay the loan in time even though it was called upon to do so. The guarantor insured the liability with a bill of exchange and corporate guarantee. When the guarantor’s bill of exchange was presented, it was only partially realized in the amount of EUR 85 thousand. The defendant, Merkur, d. d., presented a corporate guarantee of 23 February 2009 to insure the loan, confirming that it was acquainted with the debtor’s liabilities under the loan contract, and that it will, as a guarantor and payer, cover any liability arising from the main contract or annexes that the borrower would fail to pay upon the first call of the plaintiff, G skupina, d. d. The corporate guarantee is a null and void transaction, which means it does note present an obligation for our company and has no legal effects.

Based on the preliminary decision on execution by the Ljubljana Local Court with ref. no. vL 129049/2010 of 17 September 2010, which was based on an authentic document – bill of exchange, a decision was issued on insuring the claim with a preliminary decision granting the creditor a lien on dematerialized securities held by Merkur, d. d., registered in the central register of dematerialized securities managed by KDD. The preliminary decision should be executed immediately and is valid 8 days from the date when the conditions for execution under the decision of the Ljubljana Local Court no. vL 129049/2010 of 17 September 2010, or within 8 days of the decision issued in the civil procedure launched after the defendant’s appeal becoming final. The company issued an appeal claiming the court had no local jurisdiction, which was granted. 98

9 Business Events after the Balance Sheet Date

9.1 Compulsory Settlement Proceedings On 3 November 2010, the Kranj District Court issued a decision no. 1358/2010, launching the compulsory settlement proceedings. Since the proceedings were launched, the company’s operations have been managed in line with the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act and overseen by a court-appointed receiver. The court also appointed a creditors’ committee, which comprises nine major creditors.

The Financial Restructuring Plan of 26 October 2010, amendments to the plan of 8 March 2011, and the report by an authorized appraiser who issued a positive opinion upon valuating the company, indicate that the implementation of the proposed Financial Restructuring Plan will help the debtor acquire short- and long-term solvency, while the creditors will have their receivables repaid under better conditions than they would in case bankruptcy proceedings against the debtor.

The Management Board adopted numerous financial restructuring measures. These can be divided in several groups: rationalizing overheads (decreasing the number of employees); improving product management; measures in the distribution chain and logistics; measures in procurements, wholesale and retail. The measures are aimed at eliminating operating problems and causes for inefficient operations. Financial restructuring measures also include disinvestments. By disposing of its assets, the company will pay part of the liabilities to creditors with the right to separate settlement with secured claims.

The Company’s Financial Restructuring Plan also envisages taking out new loans to purchase new stocks in order to allow normal operations and meet the plans regarding the volume of sales. The company would finance working capital with a new loan in the amount of EUR 40,000 thousand. The loan would come in the form of a syndicated loan from a consortium of banks, with Nova Ljubljanska banka, d. d., acting as the agent. The consortium comprises 11 banks. Long negotiations on the EUR 40 million loan with the banks were not completely successful, and in mid-November 2010 banks proposed giving the company a EUR 35 million liquidity loan. The company will cover the missing EUR 5 million by decreasing the working capital and from alternative sources. On 28 December 2010, the company and the consortium of banks signed a contract on the EUR 35,000 thousand liquidity loan. The approval of the loan was one of the key elements of the Financial Restructuring Plan. The company started drawing the loan on 4 February 2011. The company drew the loan successively and based on required documents, which justified the payments.

At the 22nd General Meeting of MERKUR, d. d., which was held on 25 February 2011, the shareholders unanimously supported a capital injection, which was extremely important for successfully completing the compulsory settlement proceedings. Capital injection through the conversion of receivables was one of the key measures of financial restructuring. The capital injection will amount to EUR 97,608 thousand.

On 8 March 2011, the court published the amended Financial Restructuring Plan, and issued a decision on permitting changes to the Financial Restructuring Plan on the same day. The company amended the Financial Restructuring Plan and offered ordinary creditors more shares for a euro of their receivables than in the original financial restructuring plan. Every creditor that transferred its receivables onto the debtor, in line with the call on creditors to subscribe and pay new shares by paying in an in-kind contribution, received one share with the capital stock of EUR 1 for every EUR 53.00 of converted ordinary receivables. The price for creditors with secured receivables remained the same at EUR 40.00 per share.

On 9 March 2011, the court issued a call to creditors to subscribe and pay in new shares. In order for the capital injection to succeed, the creditors had to convert at least EUR 85,000 thousand worth of receivables into shares. The conversion was completed successfully, as receivables in the amount of EUR 97,608 thousand were converted into equity stakes.

On 31 March 2011, the company and the consortium of banks signed an umbrella agreement on rescheduling the secured loans, which was part of the company’s Financial Restructuring Plan. Under the agreement, which is a key element for the success of the compulsory settlement, the interest rate will stand at 1% throughout the year 2011, and will be in accordance with the Financial Restructuring Plan later.

After the compulsory settlement proceedings were launched, all the necessary procedures for evaluating and recognizing registered creditors’ receivables were carried out in line with the provisions of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act. Recognition of the creditors’ receivables presented the legal foundation for granting voting rights to the creditors, who voted on approving the compulsory settlement against Merkur, d. d. The voting rights were also granted to creditors who transferred their receivables onto the insolvent debtor in the process of increasing the company’s capital stock as part of the financial restructuring (ordinary receivables were converted with the coefficient 2, and secured with 3).

95.35% of creditors’ with voting rights voted in favor of compulsory settlement. Pursuant to the Financial Operations, Insolvency Proceedings and Compulsory Settlement Act, the court issued a decision on the approval of compulsory settlement proceedings against Merkur, d. d., which became final on 11 August 2011.

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COMPULSORY SETTLEMENT PROCEEDINGS AGAINST MERKUR – trgovina in storitve, d. d. NakloKey dates

Date Event16 September 2010 Insolvency is declared26 October 2010 Financial Restructuring Plan is filed03 November 2010 Decision on launching compulsory settlement proceedings15 November 2010 1st session of the creditors’ committee03 December 2010 Deadline for registering claims in the compulsory settlement proceedings28 December 2010 Merkur and consortium of banks sign an agreement on a EUR 35 million liquidity loan04 February 2011 The basic list of tested claims is published04 February 2011 Merkur starts drawing the syndicated loan25 February 2011 Capital injection is approved at a General Meeting08 March 2011 Decision on permitting amendments to the Financial Restructuring Plan09 March 2011 Amended Financial Restructuring Plan is published09 March 2011 Call to creditors to subscribe and pay in new shares09 March 2011 The amended list of tested claims is published31 March 2011 Merkur and the consortium of banks sign a contract on rescheduling loans08 April 2011 Deadline for filing statements on conversion at court11 April 2011 The receiver files the updated list of tested claims19 May 2011 The updated list of tested claims is published25 May 2011 The final version of the list of tested claims and decision on testing of claims26 May 2011 Call on creditors to vote on approving the compulsory settlement proceedings25 June 2011 The voting closes13 July 2011 The receiver’s report on established claims, outcome of the voting on paid in new shares15 July 2011 The court’s decision on the approval of compulsory settlement11 August 2011 The court’s decision on the approval of compulsory settlement becomes final

After the audit of the 2010 financial year and financial statements as on 31 December 2010 was concluded, the company amended on 18 February 2011 the financial statements published on the website of the Agency of the Republic of Slovenia for Public Legal Records and Related Services in line with Article 168 of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act. Corrections resulting from the audit and a simulation of effects that approved compulsory settlement would have on the balance sheet as on 31 December 2010 are presented in the below table.

*Withdrawal of treasury shares

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In thousand EUR

Item

Reported to the court

on 31 Dec. 2010 in line with Article

168 of the ZFPPIPP

Discrepancies

after the audit

Audited balance

sheet as on 31 Dec. 2010

Effect of the compulsory

settlement

General Meeting

decision of 25 Feb. after compulsory

settlement was made

final

New balance sheet as on 31 Dec. 2010 with

the effects of the compulsory

settlement 1 2= 3-1 3 4 5 6=3+4+5 Property, Plant and Equipment 171,159 35,825 206,984 0 0 206,984 Intangible assets 971 0 971 0 0 971 Investment property 36,162 0 36,162 0 0 36,162 Financial investments in subsidiaries 74,863 -880 73,983 0 0 73,983 Long-term financial investments 150,711 -19,916 130,795 0 0 130,795 Loans given 14,950 -3,145 11,805 0 0 11,805 Other long-term receivables 229 0 229 0 0 229 Deferred tax assets 6,176 -6,176 0 0 0 0 Total long-term assets 455,221 5,709 460,930 0 0 460,930 Inventories 39,111 0 39,111 0 0 39,111 Financial assets 4,385 -4,385 0 0 0 0 Loans given 23,027 -7,620 15,407 0 0 15,407 Trade and other receivables 28,137 1,491 29,628 0 0 29,628 Cash and cash equivalents 1,199 4,385 5,584 0 0 5,584 Total short-term-assets 95,859 -6,129 89,730 0 0 89,730 TOTAL ASSETS 551,080 -421 550,660 0 0 550,660 Issued capital 54,773 0 54,773 1,885 -53,592 3,066 Capital reserves 0 0 0 95,723 53,592 149,315 Revenue reserves 54,189 -1,030 53,159 0 -53,159 0 Treasury shares (as a deduction) -53,159 0 -53,159 0 53,159 0 Retained net earnings -173,699 -44,382 -218,080 51,728 0 -166,352 Fair value reserve 69,898 -7,036 62,861 0 0 62,861 Total equity -47,998 -52,448 -100,446 149,336 0 48,890 Loans taken 58,973 -17,093 41,880 260,854 0 302,733 Finance lease liabilities 18,149 37,314 55,463 0 0 55,463 Deferred tax liabilities 14,672 -14,672 0 0 0 0 Other long-term liabilities 40 0 40 38,831 0 38,871 Provisions 5,771 28,417 34,189 -5,000 0 29,189 Total long-term liabilities 97,605 33,967 131,571 294,685 0 426,256 Loans taken 349,607 17,093 366,700 -318,417 0 48,282 Finance lease liabilities 1,056 1,155 2,211 0 0 2,211 Trade and other liabilities, including derivative financial instruments 150,251 -187 150,064 -125,603 0 24,460 Provisions 560 0 560 0 0 560 Total current liabilities 501,473 18,061 519,534 -444,020 0 75,514 Total liabilities 599,078 52,027 651,105 -149,336 0 501,770 TOTAL EQUITY AND LIABILITIES 551,080 -421 550,660 0 0 550,660

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9.2 Comprehensive Reorganization in Merkur, d. d., in 2011

In addition to financial restructuring, measures aimed at improving efficiency of operations are also of key importance in Merkur’s reorganization. The company clearly defined the roles in responsibilities to ensure successful implementation of measures. Key measures were integrated in a comprehensive reorganization project entitled Mozaik. The project’s goals are synchronized with the company’s financial plan and are of key importance for the success of the reorganization. The umbrella project comprises several sets of measures aimed at the final goal of increasing the operating profit by EUR 37 million by 2016.

Key measures for achieving this goal are divided into 6 sets: optimizing the procurements, optimizing the supply chain, optimizing the sales network, product group management, increasing the wholesale, working capital management, measures for working capital management included an improved tool for planning and managing cash flows, which allows comprehensive working capital management. Measures in product group management include category management measures, which helped us increase the average value of the purchase in the retail, and the difference between prices is higher than the year before on average. Measures for optimizing procurement (optimizing all procurement processes and improving procurement terms) and sales network (optimizing the sales facilities and increasing the productivity) helped us cut the operating costs in sales centers. Successfully implemented measures in cutting the labor costs and optimizing the supply chain also contributed to cost cutting.

The project is being implemented in line with the plan and the goals are consistently met. The goals are also linked to fulfilling the financial obligations, which are an integral part of the contract with the consortium of banks. The fulfillment of all the goals is overseen by the Roland Berger consultancy company, which prepares weekly reports for the Management Board and quarterly reports for the consortium of banks.

9.3 General Meeting Decision on Decreasing Capital Stock and a Capital Injection for Merkur, d. d.

At the 22nd General Meeting of MERKUR, d. d., held on 25 February 2011, a decision was adopted on decreasing the capital stock. The capital stock of the company, which amounted to EUR 54,773 thousand on the day the decision was adopted, shall be decreased by EUR 53,592 thousand. The decrease in the capital stock will be carried out in a simplified manner, by (a) withdrawing EUR 5,477 thousand worth of treasury shares, and (b) by transferring EUR 48,115 thousand from capital stock to capital reserve with the purpose of financial restructuring.

At the same time, a decision was taken on increasing the capital stock with in-kind contributions. The in-kind contributions comprised claims towards the company from the list of ordinary claims from point 3 of paragraph 1 of Article 142 of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act, and from the list of secured claims from item 5 of paragraph 1 of article 142 of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act, in the case no. 1358/2010 conducted by the Kranj District Court.

The decision will be implemented under the condition that the compulsory settlement proceedings become final.

9.4 Drop in the Value of Maksima Invest Shares

When determining the fair value of a listed financial instrument, the closing price on the day that the valuation is being made or the last available price is used. From 31 December 2010 to 30 June 2011, the price of the share decreased from EUR 2.95 to EUR 0.14 per share (-95.3%). The impairment loss of this investment in the first half of 2011 amounted to EUR 1,780 thousand, which increases the financial expenses and has direct impact on the profit or loss in the accounting period. Considering the long global economic crisis and the illiquidity of the share market, a significant turnaround is not to be expected.

The biggest decrease of the share’s price occurred this January and in February the share hit its record low value, followed by stagnation, and a slight increase in the second quarter. The share’s value is changing slightly below EUR 0.14.

9.5 Contingent Liabilities

On 17 June 2008, Merkur, d. d., signed a surety bond for a EUR 250 thousand loan (with Dresdner Bank AG, now Commerzbank AG) for its subsidiary Merkur Handels GmbH Muenchen. On 2 October 2010, bankruptcy proceedings were launched against Merkur Handels GmbH Muenchen. Receiver Dr. Michael Jaffe is managing the bankruptcy proceedings independently and without the owner’s influence. When the bankruptcy proceedings were launched, the balance on the Commerzbank AG account was positive, which is supported by the account statement, so we wrote off the surety. On 11 March 2011, Commerzbank AG sent a letter to Merkur, d. d., calling on the company to pay EUR 117 thousand. Several letter have been exchanged, however the bank has failed to explain the negative balance on the account so far. Since we have no official documents that would support the existence of the debt, the surety given to Merkur Handels GmbH Muenchen is still recorded as contingent.

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Statement of Management Responsibility

We hereby recognize our responsibility for preparing and for true and fair presentation of financial statements, which were prepared in line with the International Financial Reporting Standards. This responsibility comprises: establishing, managing and maintaining internal controlling related to preparing and fair presentation of financial statements, which free from material misstatement, whether due to fraud or error selection and application of appropriate accounting policies and preparation of accounting estimates that are reasonable in the circumstances. We confirm the financial statements.

The Management Board declares to its best knowledge that the financial statements were drawn up in accordance with appropriate accounting policies and that the accounting estimates have been prepared under the principle of conservatism and the principle of due care, and that the annual report gives a true and fair view of the financial position of Merkur, d. d., and the results of its operations for the year ended 31 December 2010.

The Management Board is also responsible for adequate and orderly accounting, establishment and maintenance of internal controlling related to preparing and fair presentation of financial statements. To the Management Board’s best knowledge, the financial statements free from material misstatement, whether due to fraud or error; and the statements and notes are prepared in line with the valid legislation and International Financial Reporting Standards adopted by the EU.

The Management Board has adopted all measures for protecting the assets.

The chairman and members of the Management Board of Merkur, d. d., are acquainted with the content of the chapters of the annual report and the entire annual report of Merkur, d. d. We agree with it and confirm this with our signatures.

Naklo, 16 August 2011

Auditor’s Report

Blaž Pesjak, Rok Ponikvar, Uroš Zajc, Marjan Smrekar,Chairman of the Management Board Member Management Board Member Management Board Member Management Board Director of Procurement, Director of Marketing Workers’ Director Sales and Logistics Product Portfolio and Development

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OFFICE OF MERKUR, D. D., ABROAD:

CHINA (closed on 25 July 2011)

COMPANIES IN THE MERKUR DIVISION

Parent company:

MERKUR - trgovina in storitve, d. d. Cesta na Okroglo 7, 4202 Naklo

Registered at: The Kranj District Court under no. 10001500Capital stock: EUR 3,066,444Company registration number: 5003563 vAT ID number: SI98492462 Activity code: G/46.740 Phone: +386 (0)4 258 80 00 Fax: +386 (0)4 258 88 05 E-mail: info@merkur.siWebsite: www.merkur.eu

Bank accounts: • Gorenjska banka, d. d., Kranj: 07000-0000002321 • Banka Koper, d. d., Koper: 10100-0032602083 • SKB, d. d., Ljubljana: 03138-1002701594 • NLB, d. d., Ljubljana: 02923-0016828282 • Abanka vipa, d. d. Ljubljana: 05100-8000018034 • Probanka, d. d., Maribor: 25100-9700292128 • NKBM d. d., Maribor: 04515-0000270653 • Hypo Alpe Adria Bank, d. d., Ljubljana: 33000-0001958809 • UniCredit Banka, d. d., Ljubljana: 29000-0001816667 • Banka Celje, d. d., Celje 06000-1027015638 • Factor banka, d. d., Ljubljana: 27000-0000097760

Management Board of Merkur, d. d., until 30 June 2010:Bine Kordež, Chairman of the Management Board – CEOGoran Čelesnik, member of the Management Board – Commercial Director (until 22. March 2010)Milan Jelovčan, member of the Management Board – COO and CIO (until 15 July 2010)Marjan Smrekar, Workers’ Director

Management Board of Merkur, d. d., after 1 July 2010 (term until 1 July 2015):Blaž Pesjak, Chairman of the Management board (Since 29 September 2010)Blaž Pesjak, member of the Management Board, in charge of finance, investments and controlling (from 15 July 2010 to 28 September 2010)Bojan Knuplež, Chairman of the Management Board – CEO (until 24 September 2010)Rok Ponikvar, member of the Management Board, in charge of procurements, sales and logistics (from 15 July 2010)Uroš Zajc, member of the Management Board, in charge of marketing, product portfolio and development (since 15 July 2010)Marjan Smrekar, member of the Management Board – Workers’ Director (until 31 August 2013)

Supervisory Board of Merkur, d. d., until 22 June 2010:Shareholders’ representatives: Employees’ representatives:Marta Bertoncelj – chairman Branko Dernovšek Jakob Piskernik – deputy chairman

Supervisory Board of Merkur, d. d., after 23 June 2010 (term until 23 June 2014):Shareholders’ representatives: Matevž Slapničar, chairman Antonija Pirc, deputy chairman Miro Medvešek, member (from 25 February 2011 to 25 March 2011) vanja Jeraj Markoja, member (from 25 February 2011 to 24 February 2015)

Employees’ representativesAna Hochkraut, member Peter Fratnik, member (since 22 July 2010 to 31 May 2014)

SUBSIDIARIES IN THE MERKUR DIVISION:

MERKUR HRVATSKA, d. o. o.Kelekova 18/A, 10000 Zagreb, Croatia

Phone: +385 1 2009 333 Fax: +385 1 2008 708 E-mail: merkurhr@merkur.euOwnership structure: Merkur – trgovina in storitve, d. d., 100%CEO: Gregor Adler (Bojan vidmar until 1 September 2010)

MERKUR NEKRETNINE, d. o. o.Kelekova 18/A, 10000 Zagreb, Croatia

Phone: +385 1 2009 333 Fax: +385 1 2008 708 E-mail: merkurhr@merkur.euOwnership structure: Merkur Hrvatska, d. o. o., 100%CEO: Gregor Adler (Bojan vidmar until 1 September 2010)

MERKUR INTERNATIONAL d. o. o., Beograd Partizanske avijacije 4, 11070 Novi Beograd, Serbia

Phone: +381 11 20 57 200 Fax: +381 11 20 57 201 E-mail: merkurbg@merkur.euOwnership structure: Merkur – trgovina in storitve, d. d., 100%CEO: Bojan Pongrac

MERKUR ČELIK, d. o. o., BeogradPartizanske avijacije 4, 11070 Novi Beograd, Serbia

Phone: +381 11 222 89 00Fax: +381 11 222 89 01 E-mail: merkurbg@merkur.euOwnership structure: Merkur – trgovina in storitve, d. d., 66,16% Merkur International d. o. o., Beograd 33,84%CEO: Zoran Cvijović

MERKUR, trgovina i usluge, d. o. o., Cetinje Bajova br. 1,81250 Cetinje, Montenegro

Phone: +38269090365E-mail: marija.zaric@merkur.euOwnership structure: Merkur – trgovina in storitve, d. d., 100% CEO: Marija Zarić

INTERMERKUR – NOVA, d. o. o., Sarajevo ul. Stupska bb, Novi Grad71000 Sarajevo, Bosnia and Herzegovina

Phone: +387 33 756 980 Fax: +387 33 756 941 E-mail: intermerkur-nova@merkur.euOwnership structure: Merkur – trgovina in storitve, d. d., 100% CEO: Enver Šoškić (Igor Lipanović until 5 December 2010)

PERLES MERKUR ITALIA, s.r.l. (in voluntary liquidation proceedings since 24 August 2010)via Aquileia 15/A, 34070 villesse, Italy

Phone: +39 04 81 96 46 11 Fax: +39 04 81 91 81 67 E-mail: info@perlesmerkur.comOwnership structure: Merkur – trgovina in storitve, d. d., 100%CEO: Davorin Adler

KOVINOTEHNA, d. o. o., CELJE (the company was deleted from the court register on 30 September 2010 based on the founder’s decision on simplified liquidation)

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ANNUAL REPORT OF MERKUR, D. D., FOR THE FINANCIAL YEAR 2010

Published by: Merkur, d. d. Cesta na Okroglo 7, SI–4202 Naklo, SloveniaProduction by: Merkur, d. d., MarketingTexts by: Merkur, d. d.Photography by: Lidija MatajaSeptember 2011

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Merkur, d. d., Cesta na Okroglo 7, 4202 Naklo