Financial Operations Amazon sales doubled from 2009 to 2011, growing from $24,509 million (2009) to $48,077 million (2011) (see Exhibits 1a El and 1b Q), growth attributable especially to increased sales in electronics and other general merchandise, and the adoption of a new accounting standard update, reduced prices (including free shipping offers), increased in-stock inventory availability, and the impact of the acquisition of Zappos in 2009.14 Exhibit 1A Income Statement Income Dec 31 2008 Dec 31 2009 Dec 31 2010 Dec 31 2011 Statement Currency in (Millions of U.S. Dollars} as of: Revenues 19,1660 24,5090 34,2040 48,0770 Total 19,166.0 24,509.0 34,204.0 48,077.0 Revenues Cost of 14,8960 18,9780 26,5610 37,2880 Goods Sold Selling, General, & Admin Expenses, 3,060.0 6,864.0 Total FI&D 1,240.0 2,909.0 Expenses Other . 51.0 106.0 154.0 Operating Expenses Other 6,237.0 9,927.0 Operating Expenses, Total Operating 1,180.0 1,406.0 862.0 Income Interest 340 390 650 Expense Interest and 83.0 37.0 51.0 61.0 Investment Income Mal- 1 6 n '2 n 1') n A n Income Net Interest Expense Income (Loss) on Equy Investments Currency Exchange Gains (Loss) Other Non- Operating Income (Expenses) Ebt, Excluding Unusual Items Gain (Loss) on Sale of Investments Gain (Loss) on Sale of Assets Other Unusual Items, Total Legal Settlements Ebt, Including Unusual Items 26.0 1 ,202.0 5'l .0 5'l .0 s l. 'o 'o 0 II 75.0 C '- 03 O 1,503.0 12.0 64.0 8.0 918.0 4.0 922.0 Income Tax Expense 291.0 Earnings from Continuing Operations Net Income to Common 645.0 902.0 1,152.0 631.0 631.0 631.0 Net 645.0 902.0 1,152.0 631.0 Income to Common Including Extra Items Net 645.0 902.0 1,152.0 631.0 Income to Common Excluding Extra Items Report Data Issue Exhibit 1B Balance Sheet Balance Sheet Dec 31 2008 Dec 31 2009 Dec 31 2010 Dec 31 2011 Currency in Millions of U.S. Dollars as of: Assets Cash and 2,769.0 3,444.0 3,777.0 5,269.0 Equivalents Short-Term 958.0 2,922.0 4,985.0 4,307.0 Investments Total Cash 3,727.0 6,366.0 8,762.0 9,576.0 and Short- Term Investments Accounts 827.0 988.0 1,587.0 2,571.0 Receivable Total 827.0 988.0 1,587.0 2,571.0 Receivables Inventory 1,399.0 2, 171.0 3,202.0 4,992.0 Deferred Tax 204.0 272.0 196.0 351.0 Assets, Current Total Current 6, 157.0 9,797.0 13,747.0 17,490.0 Assets Gross Property 1,078.0 1,517.0 2,769.0 5,143.0 Plant and Equipment Accumulated -396.0 -418.0 -587.0 -1,075.0 DepreciationNet Property Plant And Equipment Goodwill Deferred Tax Assets, Long Term 682.0 438.0 1,234.0 1 ,099.0 2,182.0 4,068.0 1,349.0 1,955.0 22.0 28.0 Other Intangibles Other Long- Term Assets Total Assets 560.0 907.0 795.0 996.0 702.0 741.0 18,797.!) 25,2731) Liabilities and Equity Accounts Payable Accrued Expenses Current Portion of Long-Term Debt/Capital Lease Current Portion of Capital Lease Obligations Unearned Revenue, Current Total Current Liabilities 632.0 901.0 461 .0 858.0 Long-Term Debt Capital Leases Other Non- Current Liabilities Total Liabilities Additional Paid in Capital 409.0 109.0 124.0 143.0 363.0 940.0 4.0 5.0 4,121.0 8,051.0 11,145.0 1,357.0 2,106.0 395.0 395.0 964.0 1,250.0 10,372.0 14,896.0 184.0 255.0 457.0 1,160.0 920.0 1,210.0 11 ,933.0 17,521 .0 5.0 6,325.0 6,990.0 Common Stock 4.0 5.0 5.0 5.0 Additional Paid 4,121.0 5,736.0 6,325.0 6,990.0 in Capital Retained -730.0 172.0 1,324.0 1,955.0 Earnings Treasury Stock -600.0 600.0 -600.0 877.0 Comprehensive -190.0 316.0 Income and Other Total Common 7,757.0 Equity Total Equity 7,757.0 Total 13,813.0 18,797.0 25,278.0 Liabilities and Equity Report Data Issue Amazon's annual net income for 2009, 2010, and 2011 were $902 million, $1,152 million, and $645 million, respectively. The significant increase from 2009 to 2010 was due in large part to aggressive net sales growth and a large portion of its expenses and investments being fixed. Management explained that net income decreased from 2010 to 2011 as a result of: (1) selling Kindle hardware at a market price slightly below the cost of manufacture; (2) increased spending on technology infrastructure; and (3) increases in payroll expenses. Challenges for Amazon Amazon developed very quickly into a major player in the online retail market, yet challenges remained: 1. From its inception, Amazon was not required to collect state or local sales or use taxes, an exemption upheld by the U.S. Supreme Court. However, in 2012, states began to consider superseding the Supreme Court decision.15 \"If the states were to prevail, Amazon would be forced to collect sales and use tax, creating administrative burdens for it, and putting it at a competitive disadvantage if similar obligations are not imposed on all of its online competitors, potentially decreasing its future sales.\"16 Massachusetts and other states were motivated both by the desire (to tap into new sources of revenues for their state budgets and to protect local retailers. In 2012, reports had it that Amazon was making deals to collect sales tax in all 50 states, so that they could open warehouses near population centers and provide same-day delivery, a major shift in its business model that would ratchet up competition with big box stores like Best Buy and Target as well as local retailers. However, there were no guarantees of the profitability of same-day delivery, given