Amazon.com 2013 Annual Report Download - page 53

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When we receive direct reimbursements for costs incurred by us in advertising the vendor’s product or service, the
amount we receive is recorded as an offset to “Marketing” on our consolidated statements of operations.
Fulfillment
Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer service centers,
including costs attributable to buying, receiving, inspecting, and warehousing inventories; picking, packaging, and preparing
customer orders for shipment; payment processing and related transaction costs, including costs associated with our guarantee
for certain seller transactions; responding to inquiries from customers; and supply chain management for our manufactured
electronic devices. Fulfillment costs also include amounts paid to third parties that assist us in fulfillment and customer service
operations.
Marketing
Marketing costs consist primarily of targeted online advertising, television advertising, public relations expenditures, and
payroll and related expenses for personnel engaged in marketing, business development, and selling activities. We pay
commissions to participants in our Associates program when their customer referrals result in product sales and classify such
costs as “Marketing” on our consolidated statements of operations. We also participate in cooperative advertising arrangements
with certain of our vendors, and other third parties.
Advertising and other promotional costs are expensed as incurred and were $2.4 billion, $2.0 billion, and $1.4 billion in
2013, 2012, and 2011. Prepaid advertising costs were not significant as of December 31, 2013 and 2012.
Technology and Content
Technology and content expenses consist principally of technology infrastructure expenses and payroll and related
expenses for employees involved in application, product, and platform development, category expansion, editorial content,
buying, merchandising selection, systems support, and initiatives to expand our ecosystem of digital products and services, as
well as costs associated with AWS.
Technology and content costs are expensed as incurred, except for certain costs relating to the development of internal-
use software and website development, including software used to upgrade and enhance our websites and applications
supporting our business, which are capitalized and amortized over two years.
General and Administrative
General and administrative expenses consist of payroll and related expenses for employees involved in general corporate
functions, including accounting, finance, tax, legal, and human resources, among others; costs associated with use by these
functions of facilities and equipment, such as depreciation expense and rent; professional fees and litigation costs; and other
general corporate costs.
Stock-Based Compensation
Compensation cost for all stock awards expected to vest is measured at fair value on the date of grant and recognized
over the service period. The fair value of restricted stock units is determined based on the number of shares granted and the
quoted price of our common stock. Such value is recognized as expense over the service period, net of estimated forfeitures,
using the accelerated method. The estimation of stock awards that will ultimately vest requires judgment, and to the extent
actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment
in the period estimates are revised. We consider many factors when estimating expected forfeitures, including employee class,
economic environment, and historical experience.
Other Operating Expense (Income), Net
Other operating expense (income), net, consists primarily of intangible asset amortization expense and expenses related
to legal settlements.
Other Income (Expense), Net
Other income (expense), net, consists primarily of foreign currency gains and losses of $(137) million, $(95) million, and
$64 million in 2013, 2012, and 2011, and realized gains and losses on marketable securities sales of $(1) million, $10 million,
and $4 million in 2013, 2012, and 2011.