Amazon.com 2015 Annual Report Download - page 55

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Ven do r Ag r eem e nts
We have agreements with our vendors to receive funds for advertising services, cooperative marketing efforts,
promotions, and volume rebates. We generally consider amounts received from vendors to be a reduction of the prices we pay
for their goods, including property and equipment, or services, and therefore record those amounts as a reduction of the cost of
inventory, cost of services, or cost of property and equipment. Vendor rebates are typically dependent upon reaching minimum
purchase thresholds. We evaluate the likelihood of reaching purchase thresholds using past experience and current year
forecasts. When volume rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards
the purchase threshold.
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 primarily consist of those costs incurred in operating and staffing our North America and International
segments’ 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 primarily consist of targeted online advertising, television advertising, public relations expenditures, and
payroll and related expenses for personnel engaged in marketing 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 $3.8 billion, $3.3 billion, and $2.4 billion in
2015, 2014, and 2013. Prepaid advertising costs were not significant as of December 31, 2015 and 2014.
Technology and Content
Technology costs consist principally of research and development activities including payroll and related expenses for
employees involved in application, production, maintenance, operation, and platform development for new and existing
products and services, as well as AWS and other technology infrastructure expenses.
Content costs consist principally of payroll and related expenses for employees involved in category expansion, editorial
content, buying, and merchandising selection.
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 primarily consist of payroll and related expenses; facilities and equipment, such as
depreciation expense and rent; professional fees and litigation costs; and other general corporate costs for corporate functions,
including accounting, finance, tax, legal, and human resources, among others.
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, and the fair value of stock options is estimated on the date of grant using a Black-Scholes
model. Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method.
The estimated number 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 level, economic conditions,
time remaining to vest, and historical forfeiture experience.