Zappos Consolidated Statement of Operations

Q1 2009 vs Q1 2008

3/31/2009 3/31/2008 08 v 07 $ 08 v 07 %

Net revenues 143,866 132,708 11,158 8.4%

Cost of revenues 94,537 84,248 10,289 12.2%

Gross profit 49,329 48,460 869 1.8%

Operating expenses:

Sales, marketing and fulfillment 34,818 32,930 1,888 5.7%

General and administrative 5,202 6,127 -925 -15.1%

Product development 5,747 6,288 -541 -8.6%

Total operating expenses 45,767 45,345 422 0.9%

Income from operations 3,562 3,115 447 14.3%

Interest and other income, net 72 192 -120 -62.5%

Interest (expense) benefit associated with preferred stock warrant -1281 26 -1,307 -5026.9%

Other interest expense -950 -1747 797 -45.6%

Other financing charges -123 -158 35 -22.2%

Income before (provision) benefit for income taxes 1,280 1,428 -148 -10.4%

(Provision) benefit for income taxes -1013 12 -1,025 -8541.7%

Net income from continuing operations 267 1,440 -1,173 -81.5%

Discontinued operations, net of tax -46 -846 800 -94.6%

Net income 221 594 -373 -62.8%

Key Ratios

Gross Margin 34.3% 36.5% -2.2% -6.1%

Operating Profit Margin 2.5% 2.3% 0.1% 5.5%

Net Income % 0.2% 1.1% -0.9% -82.9%

Deltas

Zappos Consolidated Statement of Operations

   12/31/2008 12/31/2007 08 v 07 $ 08 v 07 %

Net revenues    635,011 526,829 108,182 20.5%

Cost of revenues    411,650 333,884 77,766 23.3%

  

Gross profit    223,361 192,945 30,416 15.8%

Operating expenses:   

Sales, marketing and fulfillment    153,285 123,260 30,025 24.4%

General and administrative    23,041 18,962 4,079 21.5%

Product development    25,262 18,224 7,038 38.6%

  

Total operating expenses    201,588 160,446 41,142 25.6%

  

Income from operations    21,773 32,499 (10,726) -33.0%

Interest and other income, net    559 731 (172) -23.5%

Interest benefit (expense) associated with preferred

stock warrant    9,670 (10,825) 20,495 -189.3%

Other interest expense    (5,825) (6,930) 1,105 -15.9%

Other financing charges    (832) (335) (497) 148.4%

  

Income before provision for income taxes    25,345 15,140 10,205 67.4%

Provision for income taxes    (5,208) (10,288) 5,080 -49.4%

  

Net income from continuing operations    20,137 4,852 15,285 315.0%

  

Discontinued operations, net of tax    (9,365) (3,084) (6,281) 203.7%

  

Net income    10,772 1,768 9,004 509.3%

Key Metrics 12/31/2008 12/31/2007 08 v 07 $ 08 v 07 %

Gross Margin 35.2% 36.6% -1.4% -4.0%

Operating Profit Margin 3.4% 6.2% -2.7% -44.4%

EBTIDA Calculation

Operating Profit 21,773 32,499 (10,726) -33.0%

Add Backs

Depreciation & Amortization 11,790 9,970 1,820 18.3%

Stock based Compensation 2,884 1,997 887 44.4%

Interest & Financing Charges 6,657 7,265 (608) -8.4%

Taxes 5,208 10,288 (5,080) -49.4%

Total Add Backs 26,539 29,520 (2,981) -10.1%

Estimated EBITDA 48,312 62,019 (13,707) -22.1%

EBITDA % 7.6% 11.8%

Deltas

Deltas

Zappos Balance Sheet as of 12/31/08

12/31/2008 12/31/2007 08 v 07 $ 08 v 07 %

Assets

Current assets:

Cash and cash equivalents 8,590 6,761 1,829 27.1%

Restricted cash 2,245 1,687 558 33.1%

Accounts receivable, net 6,772 8,461 (1,689) -20.0%

Inventory, net 168,131 161,988 6,143 3.8%

Deferred income taxes 15,890 12,267 3,623 29.5%

Prepaid expenses and other assets 3,253 2,596 657 25.3%

Total current assets 204,881 193,760 11,121 5.7%

Property and equipment, net 48,962 44,286 4,676 10.6%

Deferred income taxes 708 3,098 (2,390) -77.1%

Intangible assets, net 8,646 4,405 4,241 96.3%

Other assets, net 2,075 705 1,370 194.3%

Total assets 265,272 246,254 19,018 7.7%

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable 69,792 76,055 (6,263) -8.2%

Accrued and other liabilities 51,409 28,467 22,942 80.6%

Deferred income taxes 559 527 32 6.1%

Accrued sales returns 18,637 16,762 1,875 11.2%

Current portion of loan obligations 4,863 2,747 2,116 77.0%

Current portion of capital lease obligations 1,490 1,051 439 41.8%

Revolving line of credit 26,006 29,000 (2,994) -10.3%

Total current liabilities 172,756 154,609 18,147 11.7%

Deferred rent 1,514 1,883 (369) -19.6%

Deferred income taxes 2,870 3,418 (548) -16.0%

Other long term liabilities 19,935 28,868 (8,933) -30.9%

Loan obligations, noncurrent 15,777 20,188 (4,411) -21.8%

Capital lease obligations, noncurrent 1,702 1,809 (107) -5.9%

Total liabilities 214,554 210,775 3,779 1.8%

Stockholders’ equity:

Convertible preferred stock; $0.001 par value; 35,997

authorized, 29,248, and 29,285 issued and outstanding

(aggregate liquidation preference—$181,466 and $181,469) 61,465 61,465 - 0.0%

Common stock; $0.001 par value; 60,000 authorized, 15,916 and

14,260 issued and outstanding 16 14 2 14.3%

Additional paid-in capital 6,557 2,092 4,465 213.4%

Accumulated deficit (17,320) -28,092 10,772 -38.3%

Total stockholders’ equity 50,718 35,479 15,239 43.0%

Total liabilities and stockholders’ equity 265,272 246,254 19,018 7.7%

Deltas

Zappos Cash Flow Statement as of 12/31/08

12/31/2008 12/31/2007 08 v 07 $ 08 v 07 %

Operating activities

Net income 10,772 1,768 9,004 509.3%

Adjustments to reconcile net income to net cash provided by

operating activities:

Amortization of deferred financing costs 309 288 21 7.3%

Depreciation and amortization 11,481 9,682 1,799 18.6%

Impairment of fixed assets 638 2,133 (1,495) -70.1%

Asset retirement obligation 59 62 (3) -4.8%

Reserves on returns 1,875 3,813 (1,938) -50.8%

Provision for bad and doubtful debt 145 63 82 130.2%

Provision for excess and obsolete inventory 2,223 2,985 (762) -25.5%

Stock-based compensation 2,884 1,997 887 44.4%

Deferred income taxes (927) (2,980) 2,053 -68.9%

Cumulative effect of the adoption of FIN 48 - (500) 500 -100.0%

Loss on disposal of property and equipment 6 350 (344) -98.3%

Change in carrying value of preferred stock warrants (9,670) 10,825 (20,495) -189.3%

Changes in operating assets and liabilities:

Credit card and other receivables 1,545 (3,506) 5,051 -144.1%

Merchandise inventory (8,366) (20,681) 12,315 -59.5%

Prepaid expenses and other assets (2,354) (1,083) (1,271) 117.4%

Accounts payable (7,443) 16,937 (24,380) -143.9%

Accrued and other liabilities 22,415 11,494 10,921 95.0%

Net cash provided by operating activities 25,592 33,647 (8,055) -23.9%

Investing activities

Purchase of property and equipment (13,471) (11,108) (2,363) 21.3%

Purchase of intangible assets (4,850) - (4,850) #DIV/0!

Purchase of 6pm.com intangible assets and inventory - (4,000) 4,000 -100.0%

Decrease in restricted cash 404 5,714 (5,310) -92.9%

Net cash used in investing activities (17,917) (9,394) (8,523) 90.7%

Financing activities

Proceeds from exercise of employee stock options 282 204 78 38.2%

Repurchase and retirement of stock - (3,000) 3,000 -100.0%

Excess tax benefit on stock awards 1,301 443 858 193.7%

Increase in restricted cash (962) (404) (558) 138.1%

Borrowings under revolving line of credit 666,333 549,184 117,149 21.3%

Repayment of borrowings under revolving line of credit (669,327) (564,965) (104,362) 18.5%

Borrowings under loans 271 3,501 (3,230) -92.3%

Repayment of loan and construction payables (2,566) (2,595) 29 -1.1%

Payment of capital leases (1,178) (1,152) (26) 2.3%

Net cash used in financing activities (5,846) (18,784) 12,938 -68.9%

Change in cash and cash equivalents 1,829 5,469 (3,640) -66.6%

Cash and cash equivalents at beginning of year 6,761 1,292 5,469 423.3%

Cash and cash equivalents at end of year 8,590 6,761 1,829 27.1%

Deltas