2012 ANNUAL REPORT
FY12 HIGHLIGHTS
1#
“MOST INNOVATIVE
COMPANY IN THE WORLD”*
2.5$
billion
ANNUAL REVENUE
RUN RATE
3.5$
billion
BUSINESS BACKLOG
150 billion
DATA CENTER
TRANSACTIONS
*SOURCE: Forbes ranked salesforce.com as
the world’s most innovative company (August 8, 2011)
Fellow stockholders,
Salesforce.com had an amazing year of growth in FY12. Revenue rose 37 percent, making us the fastest-
growing company among the top 20 software companies in the world. We delivered a record-breaking
150 billion data center transactions for our customers in FY12 and ended the year with a $2.5 billion
annual revenue run rate and more than $3.5 billion of booked business on and off the balance sheet.
Thirteen years ago, we started with a simple idea that companies could run their businesses on the
Internet—an idea that spawned the $46 billion cloud computing industry and fundamentally changed
enterprise software. Today, our industry is on the cusp of an even more dramatic shift. Social and mobile
technologies are empowering billions of individuals to share their likes and dislikes, and to spark action
faster than we’ve ever seen—at a speed that’s faster than most organizations can respond. These forces are
not only changing our personal lives, but are also changing the way we work—and inspiring companies
to become Social Enterprises.
Social Enterprises are leveraging the power of social networks to turn transparency into trust, unleash the
power of individuals, and align their organizations to drive greater levels of customer success at the speed
of social. The response to our Social Enterprise strategy has been nothing short of amazing. Companies
including Burberry, Facebook, General Electric, HP, Toyota, and so many others have already embraced
these changes and put salesforce.com at the heart of their Social Enterprise transformations.
We believe the next decade of enterprise software will be defined by this shift to the Social Enterprise.
That’s why we’re constantly delivering new innovations that equip customers with the latest technologies
to power their employee and customer social networks. Two years ago we introduced and deeply
integrated our enterprise collaboration service, Chatter, into all of our services as a foundation for
the Social Enterprise. Then last year, we extended our Social Enterprise capabilities to include marketing
with the acquisition of Radian6, and human capital management with the acquisition of Rypple. With
next-generation sales, service, marketing, and work apps, we’re able to help customers revolutionize the
entire front office experience. We also opened up our Force.com and Heroku platforms, giving developers
the freedom to code apps of any kind, in the languages of their choice.
As we look ahead, we know that our future growth will be driven by our ability to innovate and attract the
best people on the planet. That’s why we were so thrilled to be named “the most innovative company in
the world” by Forbes magazine and one of the 100 “best companies to work for” by Fortune magazine.
And salesforce.com is not just transforming technology and business, we’re also transforming the
communities in which we live and work. Since 1999, the Salesforce.com Foundation has given more than
$30 million in grants, dedicated more than 320,000 hours of service to the community, and donated our
products to more than 14,000 nonprofits around the world.
I’d like to thank our more than 100,000 customers, 2,000 partners, and nearly 8,000 employees for their
continued trust and inspiration. And I’d like to thank all of you, my fellow stockholders, for your
confidence in salesforce.com as we strive to reach our goal of becoming the first enterprise cloud
company to achieve $3 billion in annual revenue.
Aloha,
Salesforce.com, inc. has included the certification required under Section 302 and Section 906 of the Sarbanes-Oxley Act
of 2002 and Exchange Act Rule 13a-14 in its Annual Report on Form 10-K for the fiscal year ended January 31, 2012.
Salesforce.com, inc. also submitted to the New York Stock Exchange (“NYSE”) a certification by its Chief Executive Officer
that he was not aware of any violation of the NYSE’s corporate governance standards.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
‘ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2012
OR
Commission File Number: 001-32224
salesforce.com, inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-3320693
(IRS Employer
Identification No.)
The Landmark @ One Market, Suite 300
San Francisco, California 94105
(Address of principal executive offices)
Telephone Number (415) 901-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
New York Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act:
Not applicable
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes È No ‘
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
Act. Yes ‘ No È
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes È No ‘
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
Accelerated filer ‘
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer È
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
Based on the closing price of the Registrant’s Common Stock on the last business day of the Registrant’s most recently completed
second fiscal quarter, which was July 31, 2011, the aggregate market value of its shares (based on a closing price of $144.71 per share) held
by non-affiliates was approximately $19.3 billion. Shares of the Registrant’s Common Stock held by each executive officer and director and
by each entity or person that owned 5 percent or more of the Registrant’s outstanding Common Stock were excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of January 31, 2012, there were approximately 137.0 million shares of the Registrant’s Common Stock outstanding.
Smaller reporting company ‘
Non-accelerated filer ‘
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2012 Annual Meeting of Stockholders (the “Proxy Statement”), to be
filed within 120 days of the Registrant’s fiscal year ended January 31, 2012, are incorporated by reference in Part III of this Report on
Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not
deemed to be filed as part of this Form 10-K.
salesforce.com, inc.
INDEX
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4A. Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . .
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Exhibits
Page No.
3
14
26
26
26
27
27
29
31
33
57
59
101
101
102
103
103
103
103
103
104
105
2
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” (“MD&A”) in Item 7, contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking
statements consist of, among other things, trend analyses, statements regarding future events, future financial
performance, our anticipated growth, the effect of general economic and market conditions, our business
strategy and our plan to build our business, including our strategy to be the leading provider of enterprise cloud
computing applications and platforms and to lead the industry shift to the social enterprise, our service
performance and security, the expenses associated with new data centers, additional data center capacity, real
estate and office facilities space, our operating results, new features and services, our strategy of acquiring or
making investments in complementary companies, services and technologies, and intellectual property rights, our
ability to successfully integrate acquired businesses and technologies, and the continued growth and ability to
maintain deferred revenue and unbilled deferred revenue, our ability to protect our intellectual property rights,
our ability to develop our brands, the effect of evolving government regulations, the effect of foreign currency
exchange rate and interest rate fluctuations on our financial results, the potential availability of additional tax
assets in the future and related matters, the impact of expensing stock options, the sufficiency of our capital
resources, and potential litigation involving us, all of which are based on current expectations, estimates, and
forecasts, and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “aims,”
“projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” variations of such words, and similar
expressions are also intended to identify such forward-looking statements. These forward-looking statements are
subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ
materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks
and uncertainties identified below, under “Risk Factors” and elsewhere in this report, for factors that may cause
actual results to be different than those expressed in these forward-looking statements. Except as required by
law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
PART I
ITEM 1. BUSINESS
Overview
We are a leading provider of enterprise cloud computing and social enterprise solutions, and are dedicated
to helping customers transform themselves into social enterprises. Social enterprises leverage social, mobile and
open technologies to engage and collaborate with their customers and employees in new and powerful ways. Our
technologies are targeted at businesses of all sizes and industries worldwide.
We were incorporated in Delaware in February 1999, and founded on the simple concept of delivering
customer relationship management, or “CRM”, applications via the Internet or “cloud.” Cloud computing refers
to the use of Internet-based computing, storage and connectivity technology to deliver a variety of different
services. We introduced our first CRM service in February 2000. Since then, primarily through development and
to a lesser extent acquisition, we have augmented our CRM service with new editions, services and enhanced
features. In recent years, we have seen a broad shift in the information technology (“IT”) industry to social
networking and the use of mobile devices. Industry analysts describe how social networking users have surpassed
the total number of email users, how consumers are spending the majority of their time on the Internet using
social websites, and how more people are browsing the Internet on mobile devices than on desktop computers. In
fiscal 2012, to address this shift to social networking, we began to describe to companies of all sizes the benefits
of becoming a social enterprise and how our service offerings could accelerate their transformation into
becoming a social enterprise.
3
We have designed, developed and acquired applications and platforms that are easy-to-use and intuitive, that
can be deployed rapidly, customized easily and integrated with other enterprise applications or platforms. We
deliver our service through all of the market-leading Internet browsers and mobile devices. Customers who use
our social enterprise applications and platforms are able to avoid much of the expense and complexity of
traditional enterprise software development and implementations. As a result, our customers face less risk and
lower upfront implementation and ongoing costs, and benefit from increased productivity and efficiency.
We market our social enterprise applications and platforms to businesses on a subscription basis, primarily
through our direct sales efforts and to a lesser extent indirectly through partners. Through our platforms and other
developer tools, we also encourage third parties to develop additional functionality and new applications that run
on our platforms, but which are sold separately from, or in conjunction with, our social enterprise solution.
Our principal executive offices are located in San Francisco, California and our principal website address is
www.salesforce.com. Our office address is The Landmark @ One Market, Suite 300, San Francisco, California
94105.
Cloud Computing
Cloud computing changes the way enterprise business applications are developed and deployed. Application
developers no longer need to create and manage their own infrastructure of servers, storage, network devices,
operating system software and development tools in order to create a business application. Instead, the entire
infrastructure is managed by third parties who specialize in infrastructure management, and developers simply
use an Internet browser to access the development environment. Application users can gain access to a variety of
business applications via an Internet browser or mobile device on an as-needed basis, and are able to take
advantage of a robust, secure, scalable and highly available application, with few or no implementation services
required and without the cost and complexity of managing the hardware or software infrastructure in-house.
Historically, only large businesses could afford to make investments in enterprise resource planning, and
sales, marketing and service applications to gain an enterprise-wide view of business information and automate
and improve basic processes. Today, cloud applications are available to businesses of all sizes and across all
industries because third parties manage the infrastructure. Our vision of enterprise cloud computing is based on a
multi-tenant technology architecture, which enables cloud vendors like us to leverage a common infrastructure
and software code base across all of our customers who benefit from access to the most current release of an
application, periodic upgrades, more rapid innovation and the economies of a shared infrastructure.
In recent years, we have seen a shift from traditional enterprise software to enterprise cloud computing. We
believe this shift to cloud computing provides significant benefits even beyond those associated with multi-tenant
infrastructure. Businesses are able to realize many of the benefits offered by traditional enterprise software
vendors, such as a comprehensive set of features and functionality and the ability to customize and integrate with
other applications, while at the same time reducing the risks and lowering the total costs associated with owning
enterprise software. As a result, we believe the continued emergence of cloud applications is bringing about a
fundamental transformation in the enterprise software industry as businesses are offered the choice of replacing
their purchased software with subscriptions to a wide range of application services.
We believe that cloud applications and their related success in the market are the most widely understood
segment of enterprise cloud computing. However, enterprise cloud computing also includes building new
applications on a cloud-based application development platform, also referred to as cloud platforms.
Application developers use cloud platform technology to build both custom applications for individual
businesses or vertical industries, and horizontal applications to address standard business processes that can be
sold to a broad range of potential customers. Application developers include corporate IT departments that
typically develop applications for a company’s internal-use and independent software vendors (“ISVs”) that
develop applications to sell to customers. Traditionally, these developers have needed to purchase, install, test
4
and maintain complex software and hardware infrastructure to develop and deliver their applications. This
requirement resulted in more time and resources being spent maintaining infrastructure and less time and
resources being available to develop applications, with a resulting reduction in innovation and productivity
levels.
Cloud platforms enable corporate IT developers and ISVs to leverage the benefits of a multi-tenant platform
for developing new applications. Cloud platforms allow developers to build applications using only a browser
and an Internet connection, just as cloud applications allow users to use applications through a browser. In
addition, developers typically pay no upfront costs when building cloud applications, with costs only to be
incurred at the point of application deployment.
The Social Enterprise
We believe that the next phase of cloud computing is again transforming enterprise software. Driven by the
consumerization of IT, the next phase of cloud computing will have three key characteristics – it will be social,
mobile and open. With the popularity of social networking websites, new ways to communicate and collaborate
based on feeds and status updates have emerged. In the enterprise market, that means enabling employees,
customers and partners to easily find, share and collaborate around information and business processes. In
addition, with the wide adoption of mobile phones and tablets, customers now expect cloud computing
technologies to work on these devices, fully leveraging functionality such as touch-screens, regardless of the
carrier or operating system. Customers are increasingly focused on open standards, which enable developers to
easily integrate our solution with applications and technology from other vendors, and we offer a Web services
application programming interface (“API”) for programmatic access and integration. We call this the social
enterprise, and we help our customers embrace the opportunities and meet the challenges it poses to businesses.
We believe that companies must change the way they collaborate, communicate and share information with
customers, employees and partners to stay competitive.
Our solution helps companies transform themselves into social enterprises by:
• Creating customer social profiles: As users continue to adopt social technologies in their personal
lives, they are coming to expect the same experience, communication features and benefits from
business applications. Users want the business equivalents of “liking” on Facebook, “tweeting” on
Twitter, and “connecting” on LinkedIn. In the social enterprise, a social customer profile captures all of
this publicly available information, empowering every employee to support customers by knowing who
they are and delivering a new and comprehensive level of service and experience.
• Creating employee social networks: Many companies struggle to connect their employees with the best
information and experts within their own company. Utilizing social features popularized by Facebook
and Twitter – such as profiles, status updates and real-time feeds – employees can “follow” documents,
people, business processes and application data. As a result, information is delivered directly to users,
rather than making them search for it themselves. Companies can build private employee social
networks that help employees rapidly collaborate across their company so they can engage, sell and
service customers more effectively.
• Creating customer social networks: Customer social networks allow companies to build stronger
relationships with their customers on today’s most popular social channels. Companies can listen to,
engage with and analyze what people are saying about them and create applications through which
customers can interact with their brand. These applications utilize social and mobile technology, can be
location-aware, and can be accessed from any device.
• Product and partner social networks: In addition to customer social networks, social enterprises can
also bring their products and partners into these networks. For example, businesses can provide real-
time information to their customers about products, such as service needs or updates. In addition,
5
partners are able to connect directly with customers through the same channels, thereby providing a
consistent customer user experience.
Our solution is comprised of cloud applications and cloud platforms, as well as professional services to
facilitate the adoption of our solution.
Our Cloud Applications for the Social Enterprise
We are a leading provider of enterprise cloud computing services, and are dedicated to helping customers
transform themselves into social enterprises with our applications. Our primary applications are within our Sales
Cloud and Service Cloud brands, but the combination of all the applications below allows our customers to
transform themselves by connecting, engaging, selling, servicing, and collaborating with customers as well as
improving internal automation and collaboration. Our primary applications are as follows:
•
•
•
•
Sales Cloud. The sales force automation features of our CRM application services are marketed under
our Sales Cloud brand and focus on allowing our customers to better connect and sell to their
customers. Through the Sales Cloud, users are able to be more productive through the automation of
manual and repetitive tasks and access to better and more organized data about their current customers
and prospects. Our customers are also able to establish a system and process for recording, tracking,
and sharing information about sales opportunities, sales leads, sales forecasts, the sales process, and
closed business, as well as managing sales territories. Customers are able to create social profiles of
their customers, based on information from social networking services like Facebook, Twitter and
LinkedIn. Our customers are also better able to manage unstructured information such as sales
collateral, presentations, price lists, and video assets. In addition, the Sales Cloud encompasses partner
relationship management functionality (including channel management and partner portals) and
marketing automation (including campaigns, and return-on-investment tracking).
Service Cloud. Our customer service and support automation features are marketed under our Service
Cloud brand and allow our customers to better service and engage with their customers. Through the
Service Cloud, companies are able to maintain better relationships with their existing customers and
more efficiently address a variety of service and support needs, such as advice about products and
services, requests for repairs, complaints about faulty goods, and the need for additional goods and
services. Using the Service Cloud, companies can access a comprehensive solution for their customer
service interactions across every service channel: call centers with phone, email, and chat; Web portals
for self-service and customer collaboration; and community interactions within social networks. In
addition, built-in collaboration tools enable customer service agents to share information on how to
better service customers.
Salesforce Chatter. Our Chatter application enables customers to create private employee social
networks for companies of all sizes in order to improve employee collaboration. For current customers
of our Sales and Service Cloud editions, Chatter is included free for all subscribers. In addition, we
offer Chatter Plus edition, designed to provide access to Chatter for employees in customers’
organizations who are not current subscribers of a Sales or Service Cloud edition. We recently
delivered new features, including Chatter Now for real-time collaboration, and Chatter Customer
Groups enabling users to invite people outside their organizations, such as customers and partners, into
their Chatter network to collaborate in a secure environment. Chatter is a core attribute of our
Force.com platform and its social capabilities are an integral part of each of our application offerings
and our Social Enterprise solution.
Salesforce Radian6. Our Radian6 application provides our customers a tool for social media
monitoring and marketing. The application allows companies to listen, analyze, engage and measure
their brand’s presence within social media. As a result, companies can better service their customers by
listening to what their customers are saying about their brand online, and interacting and influencing
conversations in real-time. For example, companies are able to measure the effectiveness of marketing
6
campaigns, respond quickly and effectively in times of crisis, or even generate new customer leads
through integration with our sales and service cloud applications.
•
Salesforce Data.com. We provide companies with a database of high-quality business contacts,
company profiles and social insights. Delivered as a service, data.com integrates with our applications
to provide the business data that helps companies increase their pipeline of sales leads and to improve
engagement with existing customers.
Our Cloud Platforms for the Social Enterprise
Our cloud platforms provide application developers access to new capabilities that can be built into their
business applications. These platforms include features popularized by social networking companies, such as
profiles, status updates and feeds; and also the capability to extend applications for use on mobile devices. In
addition, they run on our Database.com offering, an open enterprise database built for social and mobile computing.
Our cloud platforms allow both IT departments and ISV developers to use several programming languages
to build their applications. Developers are able to use the most popular programming languages on our cloud
platforms, such as Java and Ruby, to build their applications, and our cloud platforms support multiple other
languages to provide developers openness and choice.
We have two platform offerings: Force.com and Heroku, and offer additional developer tools such as
Database.com and the AppExchange. The details of these offerings are as follows:
• The Force.com Platform. The Force.com cloud computing platform provides a feature set and
technology environment for building business applications, including data models and objects to
manage data, a workflow engine for managing collaboration of data between users, a user interface
model to handle forms and other interactions, and a Web services API for programmatic access and
integration. The Force.com platform provides the tools and infrastructure required to:
•
•
•
•
deploy our applications;
customize and integrate existing enterprise software applications;
create and deploy new business applications that are pre-integrated with our service and leverage
the same user interface or customize the user interface specific to customer requirements; and
sample and deploy applications built by third parties from the AppExchange.
• Heroku Platform. Heroku is a leading cloud platform for application developers to build and deploy
social and mobile applications. Built on open standards, Heroku supports multiple frameworks,
databases, and languages—including Java and Ruby. Most application developers choose to build
applications on Heroku because they can utilize their existing skillsets. And, because it is delivered as a
service, application developers can be more efficient, dedicating their time to writing code, not
managing servers and application deployment.
• Database.com. In 2010, we opened the multi-tenant database that underlies the Sales Cloud and
Service Cloud applications to application developers so that they can more easily architect and build
new mobile and social applications in the cloud. The service is open so it can be accessed using any
language, any platform and any device. Database.com provides the functionality of a modern database,
which must accommodate mobile devices and data generated by social media tools.
• The AppExchange. The AppExchange is an online directory that provides customers a way to browse,
sample, share, and install applications developed on our Force.com platform. Partners and developers
can offer their applications and services for a fee on the AppExchange directory. This directory gives
our users a way to find and install applications to expand their use of the Force.com platform to areas
that are complementary to our social enterprise solution.
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Professional Services
We offer consulting, deployment and training services to our customers to facilitate the adoption of our social
enterprise services. We expanded our ability to provide these services to our customers in our acquisition of Model
Metrics in December 2011. Consulting services consist of services such as business process mapping, project
management services and guidance on best practices in using our service. Deployment services include systems
integration, technical architecture and development, configuration and data conversion as well as developing and
delivering customized education programs for our customers. Most of our consulting and deployment engagements
are billed on a time and materials basis. We offer a number of traditional classroom and online educational classes
that address topics such as deploying, using, administering and developing on our service. We also offer classes for
our partners who deploy our service on behalf of our customers. We bill the traditional classroom and some of the
online educational classes on a per person, per class basis. There is a selection of online educational classes
available at no charge to customers that subscribe to our service.
As the reach of our enterprise cloud computing services has grown, partners and other third-party consulting
and professional service providers play an integral part in providing these services to our customers.
Business Benefits of Using Our Solution
The key advantages of our solution include:
•
Secure, private, scalable and reliable delivery platform. The delivery platform for our service has been
designed to provide our customers with privacy and high levels of performance, reliability, and
security. We have built, and continue to invest in, a comprehensive security infrastructure, including
firewalls, intrusion detection systems, and encryption for transmissions over the Internet, which we
monitor and test on a regular basis. We built and maintain a multi-tenant application architecture that
has been designed to enable our service to scale securely, reliably, and cost-effectively. Our multi-
tenant application architecture maintains the integrity and separation of customer data while still
permitting all customers to use the same application functionality simultaneously.
• Rapid deployment. Our service can be deployed rapidly since our customers do not have to spend time
procuring, installing or maintaining the servers, storage, networking equipment, security products, or
other infrastructure hardware and software necessary to ensure a scalable and reliable service.
• Ease of integration. Our platforms are designed to enable IT professionals to integrate our service with
existing applications quickly and seamlessly. Our platforms provide a set of APIs that enable
customers and independent software developers to both integrate our service with existing third-party,
custom, and legacy applications and write their own application services that integrate with our service.
For example, many of our customers use the Force.com API to move customer-related data from
custom-developed and legacy applications into our service on a periodic basis to provide greater
visibility into their activities.
• High levels of user adoption. We have designed our service to be intuitive and easy to use. Since our
service contains many tools and features recognizable to users of popular websites such as those of
Amazon, Facebook, Google and Twitter, it has a more familiar user interface than typical enterprise
applications. As a result, our users do not require substantial training on how to use and benefit from
our service.
• Rapid development of applications using the Force.com and Heroku platforms. Our customers and
third-party developers can develop applications rapidly because of the ease of use and the benefits of a
multi-tenant platform. We provide the capability for business users to easily customize our applications
to suit their specific needs, and also a variety of programming language support so developers can code
complex applications spanning multiple business processes and deliver them to multiple mobile
devices.
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Increasing innovation. By providing infrastructure and development environments on demand, we
provide developers the opportunity to create new and innovative applications without having to invest
in hardware and distribution. A developer with an idea for a new application can log on to our
platforms, develop, test and support their system on Force.com or Heroku and make the application
accessible for a fee to our customers.
Lower total cost of ownership. We enable customers to achieve significant upfront savings relative to
the traditional enterprise software model. Customers benefit from the predictability of their future costs
since they pay for the service on a per subscriber basis for the term of the subscription contract. All
upgrades are included in our service, so customers are not burdened or disrupted by the periodic need
to perform system upgrades. Because we deploy all upgrades on our servers, new features and
functionality automatically become part of our service on the release date and therefore benefit all of
our customers immediately.
Our Go-To-Market Strategy
Our objective is to help companies put customers and employees at the center of their businesses and
transform themselves into social enterprises by the use of our applications and platforms. Not only do we want to
be the leading provider of the social enterprise solution, we also want to offer additional social applications and
have the leading cloud computing platforms upon which our customers and partners build applications.
Key elements of our strategy include:
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Strengthening our existing Sales Cloud and Service Cloud applications and extending into new
functional areas within the social enterprise. We designed our service to easily accommodate new
features and functions. We intend to continue to add features and functions to our core service that we
will make available to customers at no additional charge. We offer advanced editions for an additional
subscription fee to customers that require enhanced CRM capabilities. We have a growing portfolio of
cloud applications that serve different customer segments and markets. We have acquired several
companies in complementary businesses, entered joint ventures and added services and technologies in
an effort to strengthen and extend our Sales Cloud and Service Cloud application offerings. We expect
to continue to make such investments and acquisitions in the future.
Leading the industry transformation to the social enterprise. We believe that the market transformation
to cloud applications and platforms continues to be a growing trend in the information technology
industry and that the next generation of enterprise computing is what we call the social enterprise. We
believe the world is experiencing a social revolution. The number of social networking users has
surpassed e-mail users, and people access the Internet more from mobile devices than from desktops. A
core component of our business strategy is to enable companies to transform themselves into social
enterprises through the use of our services.
• Pursuing new customers and new territories aggressively. We believe that our social enterprise
solution, cloud applications and cloud platforms provide significant value for businesses of any size.
As a result, we will continue to aggressively target businesses of all sizes, primarily through our direct
sales force. We have steadily increased and plan to continue to increase the number of direct sales
professionals we employ, and we intend to develop additional distribution channels for our service. We
have created several editions of our service to address the distinct requirements of businesses of
different sizes. We also believe that there is a substantial market opportunity for our service outside of
North America. We plan to continue to aggressively market to customers outside of North America by
recruiting local sales and support professionals and by building partnerships that help us add customers
in these regions.
• Deepening relationships with our existing customer base. We believe there is significant opportunity to
deepen our relationships with existing customers. As our customers realize the benefits of our service,
we aim to either upgrade the customer to higher priced editions or sell more subscriptions by targeting
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additional functional areas and business units within the customer organization, and ultimately pursue
enterprise-wide deployments. Our goal is to have our customers renew their subscriptions at the end of
their contractual terms and we run customer success and other programs in an effort to secure renewals
of existing customers.
• Encouraging the development of third-party applications on our cloud computing platforms. Our
Force.com and Heroku cloud computing platform enables existing customers, ISVs and third-party
developers to develop and deliver cloud applications they have built in our multi-tenant environment. It
is a platform on which applications can be created, tested, published, and run. In addition, these
applications can be listed on the AppExchange, our online marketplace of cloud applications, or sold
by ISVs. We believe the ecosystem of cloud developers and ISVs will address the business
requirements of both current and potential customers.
Technology, Development and Operations
We deliver our service as a highly scalable, multi-tenant application. We use commercially available
hardware and a combination of proprietary and commercially available software to provide our service. We have
optimized our services to run on specific databases and operating systems using the tools and platforms best
suited to serve our customers rather than providing software that must be written to different hardware, operating
system and database platforms, or that depends upon a customer’s unique systems environment. Performance,
functional depth and the usability of our service drive our technology decisions and product direction.
Our service treats all customers as logically separate tenants in central applications, databases and other
resources. As a result, we are able to spread the cost of delivering our service across our user base. In addition,
because we do not have to manage thousands of distinct applications with their own business logic and database
schemas, we believe that we can scale our business faster than traditional software vendors. Moreover, we can
focus our resources on building new functionality to deliver to our customer base as a whole rather than on
maintaining an infrastructure to support each of their distinct applications.
Because of our multi-tenant and logically separated architecture, we are able to provide all of our customers
with a service based on a single version of our applications. We are able to upgrade all of our customers at the
same time with each release. As a result, we do not have to maintain multiple versions of our applications.
Our research and development efforts are focused on improving and enhancing the features, functionality
and security of our existing service offerings as well as developing new services. In addition, from time to time
we supplement our internal research and development activities with outside development resources and acquired
technology.
Our customers access our service over the Internet through supported Internet browsers and mobile devices.
We currently serve our customers from third-party data center hosting facilities located in the United States
and other countries.
Customers
We sell to businesses of all sizes. The number of paying subscriptions at each of our customers ranges from
one to hundreds of thousands. None of our customers accounted for more than five percent of our revenues in
fiscal 2012, 2011, or 2010.
Sources of Revenue
We derive our revenues primarily from subscription fees from our customers and support revenues from
customers purchasing additional support beyond the standard support that is included in the basic subscription fee.
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We generally recognize revenue ratably over the contract term, beginning on the commencement date of
each contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or
revenue, depending on whether the revenue recognition criteria have been met.
Sales, Marketing and Customer Support
We organize our sales and marketing programs by geographic regions, including the Americas, Europe, and
Asia Pacific which includes Japan. Over 30 percent of our revenue comes from customers outside of the
Americas.
Direct Sales
We sell subscriptions to our service primarily through our direct sales force comprised of inside sales, which
consists of personnel that sell to customers primarily by phone, and field sales personnel, that are primarily based
in geographic territories comprising customers and prospects. Both our inside sales and field sales personnel are
supported by telesales representatives who are primarily responsible for generating qualifying leads. Our small
business, general business and enterprise account executives and account managers focus their efforts on small,
medium-size and large enterprises, respectively.
Referral and Indirect Sales
We have a network of partners who refer customer prospects to us and assist us in selling to these prospects.
The network includes consulting firms, other technology vendors, systems integrators and partners in
markets where we do not have a large direct sales presence. In return, we typically pay these partners a fee based
on the first-year subscription revenue generated by the customers they refer. We expense these fees at the time
the customer signs the subscription service contract.
We also continue to develop distribution channels for our subscription service.
Marketing
Our marketing strategy is to promote our brand and generate significant demand for our offerings. We use a
variety of marketing programs to target our prospective and current customers, partners, and developers.
Our primary marketing activities include:
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press and industry analyst relations to garner third-party validation and generate positive coverage for
our company and product strategy;
user conferences and launch events, as well as participation in trade shows and industry events, to
create customer awareness and prospect enthusiasm;
use of social network solutions such as Facebook, Twitter, LinkedIn and YouTube;
search engine marketing and advertising to drive traffic to our Web properties;
• Web site development to engage and educate prospects and generate interest through product
information and demonstrations, free trials, case studies, white papers, and marketing collateral;
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email, direct mail, and phone campaigns to capture leads that can be funneled into our sales organization;
use of customer testimonials; and
sales tools and field marketing events to enable our sales organization to more effectively convert
pipeline into completed transactions.
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Customer Service and Support
Our global customer support group responds to both business and technical inquires from our customers
relating to how to use our products and is available to customers by the web, telephone and email.
Basic customer support during business hours is available at no charge to customers who purchase any of
our paying editions. Premier customer support includes extended availability and additional services, such as an
assigned support representative and/or administrator. Premier customer support is available for a separate fee, or
is included in our Unlimited Edition. Additional support services include developer support and partner support.
Seasonality
Our fourth quarter has historically been our strongest quarter for new business. For a more detailed
discussion, see the “Seasonal Nature of Deferred Revenue and Accounts Receivable” discussion in
Management’s Discussion and Analysis.
Competition
The market for our offerings is highly competitive, rapidly evolving and fragmented, and subject to
changing technology, frequent introductions of new products and services, and as we have seen recently,
consolidation. Many prospective customers have invested substantial personnel and financial resources to
implement and integrate traditional enterprise software into their businesses, and therefore may be reluctant or
unwilling to migrate to an enterprise cloud computing application service. Additionally, third party developers
may be reluctant to build application services on our platform since they have invested in other competing
technology platforms.
We compete primarily with vendors of packaged business software and companies offering cloud
computing CRM applications. We also compete with internally developed applications and face, or expect to
face, competition from enterprise software vendors and online service providers who may develop toolsets and
products that allow customers to build new applications that run on the customers’ current infrastructure or as
hosted services. Our current principal competitors include:
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enterprise software application vendors;
cloud computing CRM application service providers;
traditional platform development environment companies; and
cloud computing development platform companies.
We believe that as enterprise software application and platform vendors shift more of their focus to cloud
computing, they will be a greater competitive threat.
Intellectual Property
We rely on a combination of trademark, copyright, trade secret and patent laws in the United States and
other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary
technology and our brand. We also enter into confidentiality and proprietary rights agreements with our
employees, consultants and other third parties and control access to software, documentation and other
proprietary information.
Employees
As of January 31, 2012, we had 7,785 employees. None of our employees are represented by a labor union.
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Available Information
You can obtain copies of our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
and other filings with the SEC, and all amendments to these filings, free of charge from our Web site at
http://www.salesforce.com/company/investor/sec-filings/ as soon as reasonably practicable following our filing
of any of these reports with the SEC. You can also obtain copies free of charge by contacting our Investor
Relations department at our office address listed above. The public may read and copy any materials filed by the
Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC
20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these
websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites
are intended to be inactive textual references only.
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ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only ones facing us. Other events that we do not
currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows
and financial condition.
Risks Related to Our Business and Industry
Defects or disruptions in our service could diminish demand for our service and subject us to substantial
liability.
Because our service is complex and incorporates a variety of hardware and proprietary and third-party
software, our service may have errors or defects that could result in unanticipated downtime for our subscribers
and harm to our reputation and our business. Internet-based services frequently contain undetected errors when
first introduced or when new versions or enhancements are released. We have from time to time found defects in
our service and new errors in our service may be detected in the future. In addition, our customers may use our
service in unanticipated ways that may cause a disruption in service for other customers attempting to access
their data. As we acquire companies, we may encounter difficulty in incorporating the acquired technologies into
our service and maintaining the quality standards that are consistent with our brand and reputation. Since our
customers use our service for important aspects of their business, any errors, defects, disruptions in service or
other performance problems could hurt our reputation and may damage our customers’ businesses. As a result,
customers could elect to not renew, or delay or withhold payment to us, we could lose future sales or customers
may make warranty or other claims against us, which could result in an increase in our provision for doubtful
accounts, an increase in collection cycles for accounts receivable or the expense and risk of litigation.
Interruptions or delays in service from our third-party data center hosting facilities could impair the
delivery of our service and harm our business.
We currently serve our customers from third-party data center hosting facilities located in the United States
and other countries. Any damage to, or failure of, our systems generally could result in interruptions in our
service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause
customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new
customers. Our business will also be harmed if our customers and potential customers believe our service is
unreliable.
As part of our current disaster recovery arrangements, our production environment and all of our customers’
data is currently replicated in near real-time in a facility located in the United States. Companies and products
added through acquisition may be temporarily served through alternate facilities. We do not control the operation
of any of these facilities, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power
loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional
acts of vandalism and similar misconduct. Despite precautions taken at these facilities, the occurrence of a
natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other
unanticipated problems at these facilities could result in lengthy interruptions in our service. Even with the
disaster recovery arrangements, our service could be interrupted.
As we continue to add data centers and add capacity in our existing data centers, we may move or transfer
our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers
may impair the delivery of our service.
If our security measures are breached and unauthorized access is obtained to a customer’s data or our
data or our IT systems, our service may be perceived as not being secure, customers may curtail or stop using
our service and we may incur significant legal and financial exposure and liabilities.
Our service involves the storage and transmission of customers’ proprietary information, and security
breaches could expose us to a risk of loss of this information, litigation and possible liability. These security
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measures may be breached as a result of third-party action, including intentional misconduct by computer
hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our
customers’ data or our data, including our intellectual property and other confidential business information, or
our IT systems. Additionally, third parties may attempt to fraudulently induce employees or customers into
disclosing sensitive information such as user names, passwords or other information in order to gain access to our
customers’ data or our data or IT systems. Because the techniques used to obtain unauthorized access, or to
sabotage systems, change frequently and generally are not recognized until launched against a target, we may be
unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers
may authorize third-party technology providers on our AppExchange directory to access their customer data.
Because we do not control the transmissions between our customers and third-party AppExchange technology
providers, or the processing of such data by third-party AppExchange technology providers, we cannot ensure the
integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence
in the security of our service, damage our reputation, negatively impact our future sales, disrupt our business and
lead to legal liability.
Because we recognize revenue from subscriptions for our service over the term of the subscription,
downturns or upturns in new business may not be immediately reflected in our operating results.
We generally recognize revenue from customers ratably over the terms of their subscription agreements,
which are typically 12 to 24 months. As a result, most of the revenue we report in each quarter is the result of
subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed
subscriptions in any one quarter may not be reflected in our revenue results for that quarter. Any such decline,
however, will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in
sales and market acceptance of our service, and potential changes in our rate of renewals may not be fully
reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to
rapidly increase our revenue through additional sales in any period, as revenue from new customers must be
recognized over the applicable subscription term.
Our efforts to expand our service beyond the CRM market and to develop our existing service in order to
keep pace with technological developments may not succeed and may reduce our revenue growth rate and/or
harm our business.
We derive substantially all of our revenue from subscriptions to our CRM enterprise cloud computing
application service, and we expect this will continue for the foreseeable future. The market for our Force.com
cloud computing platform remains relatively new and it is uncertain whether our efforts will ever result in
significant revenue for us. Further, the introduction of new services beyond the CRM market may not be
successful, and early stage interest and adoption of such new services may not result in long term success or
significant revenue for us. Our efforts to expand our service beyond the CRM market may not succeed and may
reduce our revenue growth rate.
Additionally, if we are unable to develop enhancements to and new features for our existing service or new
services that keep pace with rapid technological developments, our business will be harmed. The success of
enhancements, new features and services depends on several factors, including the timely completion,
introduction and market acceptance of the feature or edition. Failure in this regard may significantly impair our
revenue growth. In addition, because our service is designed to operate on a variety of network hardware and
software platforms using a standard browser, we will need to continuously modify and enhance our service to
keep pace with changes in Internet-related hardware, software, communication, browser and database
technologies. We may not be successful in either developing these modifications and enhancements or in
bringing them to market timely. Furthermore, uncertainties about the timing and nature of new network platforms
or technologies, or modifications to existing platforms or technologies, could increase our research and
development or service delivery expenses. Any failure of our service to operate effectively with future network
platforms and technologies could reduce the demand for our service, result in customer dissatisfaction and harm
our business.
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If we experience significant fluctuations in our rate of anticipated growth and fail to balance our
expenses with our revenue forecasts, our results could be harmed.
Due to our evolving business model and the unpredictability of future general economic and financial
market conditions, we may not be able to accurately forecast our rate of growth. We plan our expense levels and
investment on estimates of future revenue and future anticipated rate of growth. We may not be able to adjust our
spending quickly enough if the addition of new subscriptions or the renewal rate for existing subscriptions falls
short of our expectations. A portion of our expenses may also be a fixed cost in nature for some minimum
amount of time, such as with a datacenter contract or office lease, so it may not be possible to reduce costs in a
timely manner or without the payment of fees to exit certain obligations early.
As a result, we expect that our revenues, operating results and cash flows may fluctuate significantly on a
quarterly basis. Our recent revenue growth rates may not be sustainable and may decline in the future. We
believe that period-to-period comparisons of our revenues, operating results and cash flows may not be
meaningful and should not be relied upon as an indication of future performance.
We cannot accurately predict subscription renewal or upgrade rates and the impact these rates may have
on our future revenue and operating results.
Our customers have no obligation to renew their subscriptions for our service after the expiration of their
initial subscription period, which is typically 12 to 24 months, and in fact, some customers have elected not to
renew. In addition, our customers may renew for fewer subscriptions, renew for shorter contract lengths, or
renew for lower cost editions of our service. We cannot accurately predict renewal rates given our varied
customer base of enterprise and small and medium size business customers and the number of multiyear
subscription contracts. Our renewal rates may decline or fluctuate as a result of a number of factors, including
customer dissatisfaction with our service, customers’ spending levels, decreases in the number of users at our
customers, pricing changes and deteriorating general economic conditions. If our customers do not renew their
subscriptions for our service or reduce the number of paying subscriptions at the time of renewal, our revenue
will decline and our business will suffer.
Our future success also depends in part on our ability to sell additional features and services, more
subscriptions or enhanced editions of our service to our current customers. This may also require increasingly
sophisticated and costly sales efforts that are targeted at senior management. Similarly, the rate at which our
customers purchase new or enhanced services depends on a number of factors, including general economic
conditions and that our customers do not react negatively to any price changes related to these additional features
and services. If our efforts to upsell to our customers are not successful and negative reaction occurs, our
business may suffer.
We rely on third-party computer hardware and software that may be difficult to replace or which could
cause errors or failures of our service.
We rely on computer hardware purchased or leased and software licensed from third parties in order to offer
our service, including database software from Oracle Corporation. This hardware and software may not continue
to be available at reasonable prices or on commercially reasonable terms, or at all. Any loss of the right to use
any of this hardware or software could significantly increase our expenses and otherwise result in delays in the
provisioning of our service until equivalent technology is either developed by us, or, if available, is identified,
obtained through purchase or license and integrated. Any errors or defects in third-party hardware or software
could result in errors or a failure of our service which could harm our business.
Weakened global economic conditions may adversely affect our industry, business and results of
operations.
Our overall performance depends in part on worldwide economic conditions. The United States and other
key international economies have experienced in the past a downturn in which economic activity was impacted
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by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate
profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with
respect to the economy. The European Union continues to face great economic uncertainty which could impact
the overall world economy or various other regional economies. These conditions affect the rate of information
technology spending and could adversely affect our customers’ ability or willingness to purchase our enterprise
cloud computing services, delay prospective customers’ purchasing decisions, reduce the value or duration of
their subscription contracts, or affect renewal rates, all of which could adversely affect our operating results.
Our quarterly results can fluctuate and our stock price and the value of your investment could decline
substantially.
Our quarterly operating results are likely to fluctuate. For example, our fiscal fourth quarter has historically
been our strongest quarter for new business and renewals. The year-over-year compounding effect of this
seasonality in billing patterns and overall new business and renewal activity causes the value of invoices that we
generate in the fourth quarter to continually increase in proportion to our billings in the other three quarters of
our fiscal year.
Additionally, some of the important factors that may cause our revenues, operating results and cash flows to
fluctuate from quarter to quarter include:
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our ability to retain and increase sales to existing customers, attract new customers and satisfy our
customers’ requirements;
the renewal rates for our service;
the amount and timing of operating costs and capital expenditures related to the operations and
expansion of our business;
changes in deferred revenue balances and unbilled revenue balances, which are not reflected in the
balance sheet, due to seasonality, the compounding effects of renewals, invoice duration, invoice
timing and new business linearity;
the number of new employees;
changes in our pricing policies and terms of contracts, whether initiated by us or as a result of
competition;
the cost, timing and management effort for the introduction of new features to our service;
the rate of expansion and productivity of our sales force;
the length of the sales cycle for our service;
new product and service introductions by our competitors;
our success in selling our service to large enterprises;
variations in the revenue mix of editions of our service;
technical difficulties or interruptions in our service;
expenses related to our real estate, our office leases and our data center capacity and expansion;
changes in foreign currency exchange rates;
changes in interest rates and our mix of investments, which would impact our return on our investments
in cash and marketable securities;
conditions, particularly sudden changes, in the financial markets have and may continue to impact the
value of and access to our investment portfolio;
changes in the effective tax rates due to changes in the mix of earnings and losses in countries with
differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, compensation,
the valuation of deferred tax assets and liabilities and changes in federal, state or international tax laws
and accounting principles;
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general economic conditions that may adversely affect either our customers’ ability or willingness to
purchase additional subscriptions or upgrade their service, or delay a prospective customers’
purchasing decision, or reduce the value of new subscription contracts, or affect renewal rates;
timing of additional investments in our enterprise cloud computing application and platform services
and in our consulting service;
regulatory compliance costs;
the timing of customer payments and payment defaults by customers;
costs associated with acquisitions and subsequent integration of companies and technologies;
extraordinary expenses such as litigation or other dispute-related settlement payments;
any adverse resolution to income tax audits in any tax jurisdictions throughout the world;
the impact of new accounting pronouncements;
equity issuances, including as consideration in acquisitions or due to the conversion of our outstanding
convertible notes at the election of the note holders; and
the timing of stock awards to employees and the related adverse financial statement impact of having to
expense those stock awards ratably over their vesting schedules.
Many of these factors are outside of our control, and the occurrence of one or more of them might cause our
operating results to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenues,
operating results and cash flows may not be meaningful and should not be relied upon as an indication of future
performance.
Additionally, we may fail to meet or exceed the expectations of securities analysts and investors, and the
market price of our common stock could decline. If one or more of the securities analysts who cover us adversely
change their recommendation regarding our stock, the market price of our common stock could decline.
Moreover, our stock price may be based on expectations, estimates or forecasts of our future performance that
may be unrealistic or that may not be met. Further, our stock price may fluctuate based on reporting by the
financial media, including television, radio and press reports and blogs.
The market in which we participate is intensely competitive, and if we do not compete effectively, our
operating results could be harmed.
The market for enterprise cloud computing applications and platform services is highly competitive, rapidly
evolving and fragmented, and subject to changing technology, shifting customer needs and frequent introductions
of new products and services. We compete primarily with vendors of packaged CRM software and companies
offering on-demand CRM applications. We also compete with internally developed applications and face, or
expect to face, competition from enterprise software vendors and online service providers who may develop
toolsets and products that allow customers to build new applications that run on the customers’ current
infrastructure or as hosted services. Our current competitors include:
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enterprise software application vendors;
on-demand CRM application service providers;
traditional platform development environment companies; and
cloud computing development platform companies.
Many of our current and potential competitors enjoy substantial competitive advantages, such as greater
name recognition, longer operating histories and larger marketing budgets, as well as substantially greater
financial, technical and other resources. In addition, many of our current and potential competitors have
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established marketing relationships and access to larger customer bases, and have major distribution agreements
with consultants, system integrators and resellers.
As a result, our competitors may be able to respond more quickly and effectively than we can to new or
changing opportunities, technologies, standards or customer requirements. Furthermore, because of these
advantages, even if our service is more effective than the products that our competitors offer, potential customers
might accept competitive products and services in lieu of purchasing our service. For all of these reasons, we
may not be able to compete successfully against our current and future competitors.
As we acquire companies or technologies, they could prove difficult to integrate, disrupt our business,
dilute stockholder value and adversely affect our operating results and the value of your investment.
As part of our business strategy, we periodically make investments in, or acquisitions of, complementary
businesses, joint ventures, services and technologies and intellectual property rights, and we expect that we will
continue to make such investments and acquisitions in the future. Acquisitions and investments involve
numerous risks, including:
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the potential failure to achieve the expected benefits of the combination or acquisition;
difficulties in and the cost of integrating operations, technologies, services and personnel;
diversion of financial and managerial resources from existing operations;
risk of entering new markets in which we have little or no experience or where competitors may have
stronger market positions;
potential write-offs of acquired assets or investments, and potential financial and credit risks associated
with acquired customers;
potential loss of key employees;
inability to generate sufficient revenue to offset acquisition or investment costs;
the inability to maintain relationships with customers and partners of the acquired business;
the difficulty of incorporating acquired technology and rights into our products and services and of
maintaining the security standards consistent with our other services;
potential unknown liabilities associated with the acquired businesses;
unanticipated expenses related to acquired technology and its integration into existing technology;
negative impact to our results of operations because of the depreciation and amortization of amounts
related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired
deferred revenue;
delays in customer purchases due to uncertainty related to any acquisition;
the need to implement controls, procedures and policies appropriate for a public company at private
companies that we acquire;
challenges caused by distance, language and cultural differences; and
the tax effects of any such acquisitions.
In addition, if we finance acquisitions by issuing equity or convertible or other debt securities, our existing
stockholders may be diluted or we could face constraints related to the terms of and repayment obligation related
to the incurrence of indebtedness which could affect the market price of our common stock. Further, if we fail to
properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed
and the value of your investment may decline.
19
If the market for our technology delivery model and enterprise cloud computing services develops more
slowly than we expect, our business could be harmed.
Our success also depends on the willingness of third-party developers to build applications that are
complementary to our service. Without the development of these applications, both current and potential
customers may not find our service sufficiently attractive. In addition, for those customers who authorize a third-
party technology partner access to their data, we do not provide any warranty related to the functionality, security
and integrity of the data transmission or processing. Despite contract provisions to protect us, customers may
look to us to support and provide warranties for the third-party applications, which may expose us to potential
claims, liabilities and obligations for applications we did not develop or sell.
Supporting our existing and growing customer base could strain our personnel resources and
infrastructure, and if we are unable to scale our operations and increase productivity, we may not be able to
successfully implement our business plan.
We continue to experience significant growth in our customer base, which has placed a strain on our
management, administrative, operational and financial infrastructure. We anticipate that additional investments
in our infrastructure, research and development, and real estate spending will be required to scale our operations
and increase productivity, to address the needs of our customers, to further develop and enhance our service, to
expand into new geographic areas, and to scale with the overall growth of our Company.
Our success will depend in part upon the ability of our senior management to manage our projected growth
effectively. To do so, we must continue to increase the productivity of our existing employees and to hire, train
and manage new employees as needed. To manage the expected domestic and international growth of our
operations and personnel, we will need to continue to improve our operational, financial and management
controls, our reporting systems and procedures, and our utilization of real estate. The additional investments we
are making will increase our cost base, which will make it more difficult for us to offset any future revenue
shortfalls by reducing expenses in the short term. If we fail to successfully scale our operations and increase
productivity, we will be unable to execute our business plan.
As more of our sales efforts are targeted at larger enterprise customers, our sales cycle may become more
time-consuming and expensive, we may encounter pricing pressure and implementation and customization
challenges, and we may have to delay revenue recognition for some complex transactions, all of which could
harm our business and operating results.
As we target more of our sales efforts at larger enterprise customers, we will face greater costs, longer sales
cycles and less predictability in completing some of our sales. In this market segment, the customer’s decision to
use our service may be an enterprise-wide decision and, if so, these types of sales would require us to provide
greater levels of education regarding the use and benefits of our service, as well as education regarding privacy
and data protection laws and regulations to prospective customers with international operations. In addition,
larger customers may demand more customization, integration services and features. As a result of these factors,
these sales opportunities may require us to devote greater sales support and professional services resources to
individual customers, driving up costs and time required to complete sales and diverting our own sales and
professional services resources to a smaller number of larger transactions, while potentially requiring us to
delay revenue recognition on some of these transactions until the technical or implementation requirements have
been met.
Professional services may also be performed by a third party or a combination of our own staff and a third
party. Our strategy is to work with third parties to increase the breadth of capability and depth of capacity for
delivery of these services to our customers. If a customer is not satisfied with the quality of work performed by
us or a third party or with the type of services or solutions delivered, then we could incur additional costs to
address the situation, the profitability of that work might be impaired, and the customer’s dissatisfaction with our
20
services could damage our ability to obtain additional work from that customer. In addition, negative publicity
related to our customer relationships, regardless of its accuracy, may further damage our business by affecting
our ability to compete for new business with current and prospective customers.
Periodic changes to our sales organization can be disruptive and may reduce our rate of growth.
We periodically change and make adjustments to our sales organization in response to market opportunities,
competitive threats, management changes, product introductions or enhancements, acquisitions, sales
performance, increases in sales headcount, cost levels and other internal and external considerations. In the past,
these changes sometimes resulted in a temporary lack of focus and reduced productivity; these effects could recur
in connection with any future sales changes we might undertake and our rate of revenue growth could be
negatively affected. In addition, any significant change to the way we structure our compensation of our sales
organization may be disruptive and may affect our revenue growth.
Sales to customers outside the United States expose us to risks inherent in international sales.
We sell our service throughout the world and are subject to risks and challenges associated with
international business. For example, sales in Europe and Asia Pacific together represented approximately 32
percent of our total revenues for the year ended January 31, 2012, and we intend to continue to expand our
international sales efforts. The risks and challenges associated with sales to customers outside the United States
include:
•
•
•
•
•
•
•
•
•
•
•
•
•
localization of our service, including translation into foreign languages and associated expenses;
laws and business practices favoring local competitors;
compliance with multiple, conflicting and changing governmental laws and regulations, including
employment, tax, privacy and data protection laws and regulations;
pressure on the creditworthiness of sovereign nations, particularly in Europe, where we have customers
and a small balance of our cash, cash equivalents, and marketable securities. Liquidity issues or
political actions by sovereign nations could result in decreased values for our cash, cash equivalents
and marketable securities balances;
regional data privacy laws that apply to the transmission of our customers’ data across international
borders;
treatment of revenue from international sources and changes to tax codes, including being subject to
foreign tax laws and being liable for paying withholding income or other taxes in foreign jurisdictions;
foreign currency fluctuations and controls;
different pricing environments;
difficulties in staffing and managing foreign operations;
different or lesser protection of our intellectual property;
longer accounts receivable payment cycles and other collection difficulties;
natural disasters, acts of war, terrorism, pandemics or security breaches; and
regional economic and political conditions.
Any of these factors could negatively impact our business and results of operations.
Additionally, our international subscription fees are paid either in U.S. dollars or local currency. As a result,
fluctuations in the value of the U.S. dollar and foreign currencies may make our service more expensive for
international customers, which could harm our business.
21
We have been and may in the future be sued by third parties for various claims including alleged
infringement of proprietary rights.
We are involved in various legal matters arising from the normal course of business activities. These may
include claims, suits, government investigations and other proceedings involving alleged infringement of third-party
patents and other intellectual property rights, and commercial, labor and employment, wage and hour, and other
matters.
The software and Internet industries are characterized by the existence of a large number of patents,
trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of
intellectual property rights. We have received in the past and may receive in the future communications from
third parties claiming that we have infringed the intellectual property rights of others. In addition we have been,
and may in the future be, sued by third parties for alleged infringement of their claimed proprietary rights. Our
technologies may be subject to injunction if they are found to infringe the rights of a third party or we may be
required to pay damages, or both. Many of our subscription agreements require us to indemnify our customers
for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling
on such a claim.
The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and
the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert
management attention from executing our business plan, lead to attempts on the part of other parties to pursue
similar claims and, in the case of intellectual property claims, require us to change our technology, change our
business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing
agreements.
Any adverse determination related to intellectual property claims or other litigation could prevent us from
offering our service to others, could be material to our financial condition or cash flows, or both, or could
otherwise adversely affect our operating results. In addition, depending on the nature and timing of any such
dispute, a resolution of a legal matter could materially affect our future results of operation or cash flows or both.
In addition, our exposure to risks associated with various claims, including the use of intellectual property,
may be increased as a result of acquisitions of other companies. For example, we may have a lower level of
visibility into the development process with respect to intellectual property or the care taken to safeguard against
infringement risks with respect to the acquired company or technology. In addition, third parties may make
infringement and similar or related claims after we have acquired technology that had not been asserted prior to
our acquisition.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary
technology and our brand.
If we fail to protect our intellectual property rights adequately, our competitors may gain access to our
technology, and our business may be harmed. In addition, defending our intellectual property rights may entail
significant expense. Any of our patents, trademarks or other intellectual property rights may be challenged by
others or invalidated through administrative process or litigation. While we have some U.S. patents and many
U.S. and international patent applications pending, we may be unable to obtain patent protection for the
technology covered in our patent applications. In addition, our existing patents and any patents issued in the
future may not provide us with competitive advantages, or may be successfully challenged by third parties.
Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual
property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be
available to us in every country in which our service is available. The laws of some foreign countries may not be
as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual
property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties
from infringing upon or misappropriating our intellectual property.
22
We may be required to spend significant resources to monitor and protect our intellectual property rights.
We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish
the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in
significant expense to us and divert the efforts of our technical and management personnel.
Privacy concerns and laws, evolving regulation of the Internet, cross-border data transfers and other
domestic or foreign regulations may limit the use and adoption of our solution and adversely affect our
business.
As Internet commerce continues to evolve, increasing regulation by federal, state or foreign governments
and agencies becomes more likely. For example, we believe increased regulation is occurring in the area of data
privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or
consumer information could affect our customers’ ability to use and share data, potentially reducing demand for
our solutions and restricting our ability to store, process and share data with our customers.
Our customers can use our service to store contact and other personal or identifying information regarding
their customers and contacts. Federal, state and foreign governments and agencies have adopted or are
considering adopting laws and regulations regarding the collection, use and disclosure of personal information
obtained from consumers and individuals in addition to laws and regulations that impact the cross-border transfer
of personal information. The costs of compliance with, and other burdens imposed by, such laws and regulations
that are applicable to the businesses of our customers may limit the use and adoption of our service and reduce
overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance with such privacy
laws. Furthermore, privacy concerns may cause our customers’ customers to resist providing the personal data
necessary to allow our customers to use our service effectively. Even the perception of privacy concerns, whether
or not valid, may inhibit market adoption of our service in certain industries.
In addition to government activity, privacy advocacy groups and the technology and other industries are
considering various new, additional or different self-regulatory standards that may place additional burdens on
us. If the gathering of personal information were to be curtailed in this manner, CRM solutions would be less
effective, which may reduce demand for our service and harm our business.
If we fail to develop and maintain our brands, our business may suffer.
We believe that developing and maintaining awareness of the salesforce.com brand and our other brands is
critical to achieving widespread acceptance of our existing and future services and is an important element in
attracting new customers. We have incurred and expect to continue to incur significant expense to build our
brands. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue
may not offset the expenses we incurred in building our brands. If we fail to successfully promote and maintain
our brands, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may
fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient
return on our brand-building efforts, and our business could suffer.
We may lose key members of our management team or development and operations personnel, and may
be unable to attract and retain employees we need to support our operations and growth.
Our success depends substantially upon the continued services of our executive officers and other key
members of management, particularly our Chief Executive Officer. From time to time, there may be changes in
our executive management team resulting from the hiring or departure of executives. Such changes in our
executive management team may be disruptive to our business. We are also substantially dependent on the
continued service of our existing development and operations personnel because of the complexity of our service
and technologies. We do not have employment agreements with any of our executive officers, key management,
development or operations personnel and they could terminate their employment with us at any time. The loss of
one or more of our key employees or groups could seriously harm our business.
23
In the technology industry, there is substantial and continuous competition for engineers with high levels of
experience in designing, developing and managing software and Internet-related services, as well as competition
for sales executives and operations personnel. We may not be successful in attracting and retaining qualified
personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring
and retaining highly skilled employees with appropriate qualifications. If we fail to attract new personnel or fail
to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.
We may not realize any benefits in connection with our purchase of undeveloped land in San Francisco.
If we do not realize any benefits, our financial performance may be negatively impacted.
In November 2010, we purchased approximately 14 acres of undeveloped real estate in San Francisco,
California, including entitlements and improvements associated with the land. We may not realize any benefits
with respect to the purchase of such real estate. We have devoted significant capital resources to the purchase,
and if we develop the real estate will be required to devote substantial additional resources in the future, which
may impact our liquidity and financial flexibility. Finally, real estate assets are not as liquid as certain other types
of assets. In the event that we cease development of the real estate in the future or have a future need to sell this
property, we may not be able to do so on favorable terms, or at all, and our financial results may be negatively
impacted.
Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations,
international commerce and the global economy, and thus could have a strong negative effect on us. Our business
operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events
beyond our control. Although we maintain crisis management and disaster response plans, such events could
make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our
services. The majority of our research and development activities, corporate headquarters, information
technology systems, and other critical business operations, are located near major seismic faults in the San
Francisco Bay Area. Because we do not carry earthquake insurance for direct quake-related losses, and
significant recovery time could be required to resume operations, our financial condition and operating results
could be materially adversely affected in the event of a major earthquake or catastrophic event.
Risks Relating to Capitalization Matters
The market price of our common stock is likely to be volatile and could subject us to litigation.
The trading prices of the securities of technology companies have been highly volatile. Accordingly, the
market price of our common stock has been and is likely to continue to be subject to wide fluctuations. Factors
affecting the market price of our common stock include:
•
•
•
•
•
variations in our operating results, earnings per share, cash flows from operating activities, deferred
revenue and other financial metrics and non-financial metrics, and how those results compare to
analyst expectations;
forward looking guidance to industry and financial analysts related to future revenue and earnings per
share;
the net increases in the number of customers, either independently or as compared with published
expectations of industry, financial or other analysts that cover our company;
changes in the estimates of our operating results or changes in recommendations by securities analysts
that elect to follow our common stock;
announcements of technological innovations, new services or service enhancements, strategic alliances
or significant agreements by us or by our competitors;
24
•
•
•
•
•
•
•
•
announcements by us or by our competitors of mergers or other strategic acquisitions, or rumors of
such transactions involving us or our competitors;
announcements of customer additions and customer cancellations or delays in customer purchases;
recruitment or departure of key personnel;
disruptions in our service due to computer hardware, software, network or data center problems;
the economy as a whole, market conditions in our industry and the industries of our customers;
trading activity by a limited number of stockholders who together beneficially own a majority of our
outstanding common stock;
the issuance of shares of common stock by us, whether in connection with an acquisition, a capital
raising transaction or upon conversion of some or all of our outstanding convertible senior notes; and
any other factors discussed herein.
In addition, if the market for technology stocks or the stock market in general experiences uneven investor
confidence, the market price of our common stock could decline for reasons unrelated to our business, operating
results or financial condition. The market price of our common stock might also decline in reaction to events that
affect other companies within, or outside, our industry even if these events do not directly affect us. Some
companies that have experienced volatility in the trading price of their stock have been the subject of securities
class action litigation. If we are the subject of such litigation, it could result in substantial costs and a diversion of
management’s attention and resources.
Provisions in our amended and restated certificate of incorporation and bylaws, Delaware law and our
outstanding convertible notes might discourage, delay or prevent a change of control of our company or
changes in our management and, therefore, depress the market price of our common stock.
Our amended and restated certificate of incorporation and bylaws contain provisions that could depress the
market price of our common stock by acting to discourage, delay or prevent a change in control of our company
or changes in our management that the stockholders of our company may deem advantageous. These provisions
among other things:
•
•
•
•
•
•
•
•
•
establish a classified board of directors so that not all members of our board are elected at one time;
permit the board of directors to establish the number of directors;
provide that directors may only be removed “for cause” and only with the approval of 66 2/3 percent of
our stockholders;
require super-majority voting to amend some provisions in our amended and restated certificate of
incorporation and bylaws;
authorize the issuance of “blank check” preferred stock that our board could use to implement a
stockholder rights plan (also known as a “poison pill”);
eliminate the ability of our stockholders to call special meetings of stockholders;
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a
meeting of our stockholders;
provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and
establish advance notice requirements for nominations for election to our board or for proposing
matters that can be acted upon by stockholders at annual stockholder meetings.
25
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a
change in control of our company. Section 203 imposes certain restrictions on merger, business combinations
and other transactions between us and holders of 15 percent or more of our common stock.
In addition, the fundamental change purchase rights applicable to our convertible notes, which will allow
note holders to require us to purchase all or a portion of their notes upon the occurrence of a fundamental change,
and the provisions requiring an increase to the conversion rate for conversions in connection with a make-whole
fundamental change may in certain circumstances delay or prevent a takeover of us and the removal of
incumbent management that might otherwise be beneficial to investors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
As of January 31, 2012, our executive offices and principal office for domestic marketing, sales,
professional services and development occupy over 650,000 square feet in the San Francisco Bay Area under
leases that expire at various times through April 2021. We also lease space in various locations throughout the
United States for local sales and professional services personnel. Our foreign subsidiaries lease office space for
their operations including local sales and professional services personnel.
We believe that our existing facilities and offices are adequate to meet our current requirements. See Note 7,
“Commitments,” in the Notes to the Consolidated Financial Statements for more information about our lease
commitments. If we require additional space, we believe that we will be able to obtain such space on acceptable,
commercially reasonable terms.
ITEM 3.
LEGAL PROCEEDINGS
In the ordinary course of business, we are involved in various legal proceedings and claims related to
alleged infringement of third-party patents and other intellectual property rights, commercial, employment, wage
and hour, and other claims.
We have been, and may in the future be, put on notice and/or sued by third parties for alleged infringement
of their proprietary rights, including patent infringement. We evaluate these claims and lawsuits with respect to
their potential merits, our potential defenses and counter claims, and the expected effect on us. Our technologies
may be subject to injunction if they are found to infringe the rights of a third party. In addition, many of our
subscription agreements require us to indemnify our customers for third-party intellectual property infringement
claims, which could increase the cost to us of an adverse ruling on such a claim.
The outcome of any litigation, regardless of its merits, is inherently uncertain. Any intellectual property
claims and other lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and
expensive to resolve, divert our attention from executing our business plan, lead to attempts on the part of other
parties to seek similar claims and, in the case of intellectual property claims, require us to change our technology,
change our business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing
agreements.
In general, the resolution of a legal matter could prevent us from offering our service to others, could be
material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating
results.
We make a provision for a liability relating to legal matters when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly
26
and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel
and other information and events pertaining to a particular matter. In our opinion, resolution of all current matters
is not expected to have a material adverse impact on our consolidated results of operations, cash flows or
financial position. However, depending on the nature and timing of any such dispute, an unfavorable resolution
of a matter could materially affect our future results of operations or cash flows, or both, of a particular quarter.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding our current executive officers (in alphabetical order):
Name
Age
Position
Marc Benioff . . . . . . . . . . . . . . . . . .
Parker Harris . . . . . . . . . . . . . . . . . .
George Hu . . . . . . . . . . . . . . . . . . . .
Hilarie Koplow-McAdams . . . . . . . .
Burke Norton . . . . . . . . . . . . . . . . . .
Graham Smith . . . . . . . . . . . . . . . . .
Frank van Veenendaal . . . . . . . . . . .
47 Chairman of the Board of Directors and Chief Executive Officer
45 Executive Vice President, Technology
37 Chief Operating Officer
48
45 Executive Vice President and Chief Legal Officer
52 Executive Vice President and Chief Financial Officer
52 Vice Chairman
President, Commercial and SMB Unit
Marc Benioff co-founded salesforce.com in February 1999 and has served as Chairman of the Board of
Directors since inception. He has served as Chief Executive Officer since November 2001. From 1986 to 1999,
Mr. Benioff was employed at Oracle Corporation, where he held a number of positions in sales, marketing and
product development, lastly as a Senior Vice President. Mr. Benioff also serves as Chairman of the Board of
Directors of the salesforce.com/foundation. Mr. Benioff received a Bachelor of Science in Business
Administration (B. S. B. A.) from the University of Southern California, where he is also on the Board of
Trustees.
Parker Harris co-founded salesforce.com in February 1999 and served in senior technical positions since
inception. Since December 2004, Mr. Harris has served as our Executive Vice President, Technology. From
October 1996 to February 1999, Mr. Harris was a Vice President at Left Coast Software, a Java consulting firm
he co-founded. Mr. Harris received a B.A. from Middlebury College.
George Hu has served as our Chief Operating Officer since November 2011. Previously, Mr. Hu served as
our Executive Vice President, Platform and Marketing from August 2010 to November 2011, our Executive Vice
President, Marketing and Alliances from February 2009 to August 2010, our Executive Vice President,
Marketing, Applications and Education from December 2007 to February 2009, our Chief Marketing Officer
from October 2006 through December 2007, our Senior Vice President and General Manager, Applications from
January to October 2006 and our Vice President, Product Marketing from October 2004 to January 2006. Mr. Hu
has also served in various management positions in marketing since joining salesforce.com in March 2002.
Mr. Hu received an A.B. from Harvard College and an M.B.A. from Stanford University.
Hilarie Koplow-McAdams has served as our President, Commercial and SMB Unit since February 2012.
Prior to that Ms. Koplow-McAdams served as our Executive Vice President, Worldwide Sales from July 2008 to
February 2012. Prior to salesforce.com, Ms. Koplow-McAdams was at Intuit, Inc., a provider of business and
financial management software, and served as its Vice President of Direct Sales from 2006 to 2008. In addition
to Intuit, Inc., she served at Oracle Corporation, in various senior sales roles. Ms. Koplow-McAdams holds a
Master’s degree in public policy from the University of Chicago and a B.A. from Mills College.
27
Burke Norton has served as our Executive Vice President and Chief Legal Officer since October 2011. From
October 2006 to October 2011, Mr. Norton was Executive Vice President, General Counsel and Secretary and a
member of the office of the chairman at Expedia, Inc. Previously, Mr. Norton was a partner at the law firm of
Wilson Sonsini Goodrich & Rosati P.C., where he practiced corporate and securities law for 11 years,
representing clients in the enterprise software, telecommunications, semiconductor, life sciences, entertainment
and ecommerce industries. Mr. Norton holds a J.D. from the University of California, Berkeley School of Law.
Graham Smith has served as our Executive Vice President and Chief Financial Officer since March 2008.
Prior to that, Mr. Smith served as our Executive Vice President and Chief Financial Officer Designate from
December 2007 to March 2008. Prior to salesforce.com, Mr. Smith was at Advent Software, Inc., a provider of
portfolio management software, and served as its Chief Financial Officer from January 2003 to December 2007.
In addition to Advent Software, he served as Chief Financial Officer of Vitria Technology and Nuance
Communications, and also served at Oracle Corporation, in various senior finance roles, lastly as Vice President
of Finance for worldwide operations. Mr. Smith holds a B.Sc. from Bristol University in England and qualified
as a member of the Institute of Chartered Accountants in England and Wales.
Frank van Veenendaal has served as Vice Chairman since February 2012. Prior to that Mr. van Veenendaal
served as our President, Worldwide Sales and Services from October 2009 to February 2012. Prior to this
position, he was our Chief Sales Officer and President, Worldwide Sales from September 2008 to October 2009,
our President, Global Corporate Sales and North American Operations from December 2007 to September 2008
and our President, Worldwide Corporate Sales and Services from February 2007 to December 2007. Since
joining us in 2001, Mr. van Veenendaal has also served in various sales management positions, including Senior
Vice President, North America Sales. From 1995 to 2001, Mr. van Veenendaal was Senior Vice President of
Sales of Actuate Corporation, a software company. Mr. van Veenendaal received a B.S. from Rensselaer
Polytechnic Institute.
28
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Our common stock has been quoted on the New York Stock Exchange under the symbol “CRM.”
The following table sets forth for the indicated periods the high and low closing sales prices of our common
stock as reported by the New York Stock Exchange.
Fiscal year ending January 31, 2012
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ending January 31, 2011
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$143.08
$159.32
$145.66
$136.60
$ 88.70
$100.07
$123.14
$150.58
$120.01
$128.96
$110.86
$ 97.48
$ 62.08
$ 77.52
$ 96.41
$110.15
Dividend Policy
We have never paid any cash dividends on our common stock. Our board of directors currently intends to
retain any future earnings to support operations and to finance the growth and development of our business and
does not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination
related to our dividend policy will be made at the discretion of our board.
Stockholders
As of January 31, 2012 there were 125 registered stockholders of record of our common stock, including
The Depository Trust Company, which holds shares of salesforce.com common stock on behalf of an
indeterminate number of beneficial owners.
Securities Authorized for Issuance under Equity Compensation Plans
The information concerning our equity compensation plans is incorporated by reference herein to the section
of the Proxy Statement entitled “Equity Compensation Plan Information.”
Issued Warrants
During fiscal 2010 we issued 6.7 million warrants to purchase our common stock, as described in Note 2
“Balance Sheet Accounts” of the consolidated financial statements.
Stock Performance Graph
The following shall not be deemed incorporated by reference into any of our other filings under the
Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, except to the extent we
specifically incorporate it by reference into such filing.
29
The graph below compares the cumulative total stockholder return on our common stock with the
cumulative total return on the Standard & Poor’s 500 Index and the Nasdaq Computer & Data Processing Index
for the period beginning on June 23, 2004 (the date our common stock commenced trading on the New York
Stock Exchange) through January 31, 2012, assuming an initial investment of $100. Data for the Standard &
Poor’s 500 Index and the Nasdaq Computer & Data Processing Index assume reinvestment of dividends.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to
forecast, future performance of our common stock.
Comparison of Cumulative Total Return of salesforce.com, inc.
S
R
A
L
L
O
D
1400
1200
1000
800
600
400
200
0
6/23/2004 1/31/2005 1/31/2006 1/31/2007
1/31/2008
1/30/2009
1/31/2010
1/31/2011
1/31/2012
salesforce.com, inc.
S&P 500 Index
Nasdaq Computer
6/23/2004 1/31/2005 1/31/2006 1/31/2007 1/31/2008 1/31/2009 1/31/2010 1/31/2011 1/31/2012
salesforce.com . . . . . . . . . . 100.00 124.55 373.18 398.45 471.91 241.91 577.73 1,174.00 1,061.82
114.72
S&P 500 Index . . . . . . . . . . 100.00 103.25 111.89 125.71 120.50
Nasdaq Computer & Data
112.42
93.86
72.19
Processing Index . . . . . . . 100.00 100.45 111.93 116.62 117.84
71.02 116.00
153.34
162.74
Recent Sales of Unregistered Securities
None
30
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with our audited
consolidated financial statements and related notes thereto and with Management’s Discussion and Analysis of
Financial Condition and Results of Operations, which are included elsewhere in this Form 10-K. The
consolidated statement of operations data for fiscal 2012, 2011, and 2010, and the selected consolidated balance
sheet data as of January 31, 2012 and 2011 are derived from, and are qualified by reference to, the audited
consolidated financial statements and are included in this Form 10-K. The consolidated statement of operations
data for fiscal 2009 and 2008 and the consolidated balance sheet data as of January 31, 2010, 2009 and 2008 are
derived from audited consolidated financial statements which are not included in this Form 10-K.
(in thousands, except per share data)
Consolidated Statement of Operations:
Revenues:
Fiscal Year Ended January 31,
2012
2011
2010
2009
2008
Subscription and support
Professional services and other . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . $2,126,234 $1,551,145 $1,209,472 $ 984,574 $680,581
68,119
140,305
105,994
96,111
92,195
Total revenues . . . . . . . . . . . . . . . . . . . . . .
2,266,539
1,657,139
1,305,583
1,076,769
748,700
Cost of revenues (1):
Subscription and support
. . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . .
360,758
128,128
208,243
115,570
159,172
98,753
127,082
93,389
91,268
80,323
Total cost of revenues . . . . . . . . . . . . . . . .
488,886
323,813
257,925
220,471
171,591
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses (1):
1,777,653
1,333,326
1,047,658
856,298
577,109
Research and development . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . .
295,347
1,169,610
347,781
187,887
792,029
255,913
Total operating expenses . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of investment . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . .
1,812,738
(35,085)
23,268
(17,045)
0
(4,455)
1,235,829
97,497
37,735
(24,909)
0
(6,025)
131,897
605,199
195,290
932,386
115,272
30,408
(2,000)
0
(1,299)
99,530
534,413
158,613
792,556
63,742
22,774
(107)
0
(817)
63,812
376,480
116,508
556,800
20,309
24,539
(46)
1,272
139
Income (loss) before benefit (provision) for income
taxes and noncontrolling interest . . . . . . . . . . . . . .
Benefit (provision) for income taxes . . . . . . . . . . . . .
Consolidated net income (loss)
Less: net income attributable to noncontrolling
. . . . . . . . . . . . . . . . .
interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,317)
21,745
(11,572)
104,298
(34,601)
142,381
(57,689)
85,592
(37,557)
46,213
(23,385)
69,697
84,692
48,035
22,828
0
(5,223)
(3,973)
(4,607)
(4,472)
Net income (loss) attributable to salesforce.com . . . . $ (11,572) $
64,474 $
80,719 $
43,428 $ 18,356
Net earnings per share—basic and diluted:
Basic net income (loss) per share attributable to
salesforce.com common shareholders . . . . . . $
(0.09) $
0.50 $
0.65 $
0.36 $
0.16
Diluted net income (loss) per share attributable
to salesforce.com common shareholders . . . . $
(0.09) $
0.47 $
0.63 $
0.35 $
0.15
Shares used in computing basic net income (loss) per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing diluted net income (loss)
135,302
130,222
124,462
121,183
116,840
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135,302
136,598
128,114
125,228
122,422
31
(1) Cost of revenues and operating expenses include stock-based expenses, consisting of:
Fiscal Year Ended January 31,
2012
2011
2010
2009
2008
Cost of revenues . . . . . . . . . . . . .
Research and development . . . . .
Marketing and sales . . . . . . . . . .
General and administrative . . . .
$ 17,451
45,894
115,730
50,183
$12,158
18,897
56,451
32,923
$12,570
13,129
39,722
23,471
$11,051
9,852
36,028
20,435
$ 7,926
6,336
25,423
15,522
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable
securities . . . . . . . . . . . . . . . . . . . . . . . . . .
(Negative) working capital
. . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations excluding deferred
revenue and noncontrolling interest (2)
. .
. . . . . . . . . . . . . .
Retained earnings (deficit)
Total stockholders’ equity controlling
2012
2011
2010
2009
2008
As of January 31,
$1,447,174
(651,249)
4,164,154
$1,407,557
(201,542)
3,091,165
$1,727,048
798,029
2,460,201
$ 882,565
301,591
1,479,822
$ 669,800
134,894
1,089,593
85,909
159,463
516,506
171,035
481,234
106,561
20,106
25,842
10,601
(17,586)
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,587,360
1,276,491
1,043,802
671,784
452,059
(2) Long-term obligations excluding deferred revenue and noncontrolling interest includes the 0.75%
convertible senior notes issued in January 2010.
32
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements, including, without limitation, our
expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity,
plans, strategies and objectives of management and any assumptions underlying any of the foregoing. Our actual
results may differ significantly from those projected in the forward-looking statements. Factors that might cause
future actual results to differ materially from our recent results or those projected in the forward-looking
statements include, but are not limited to, those discussed in the section titled of this Annual Report on
Form 10-K “Risk Factors.” Except as required by law, we assume no obligation to update the forward-looking
statements or our risk factors for any reason.
Overview
We are a leading provider of enterprise cloud computing and social enterprise solutions, and are dedicated
to helping customers transform themselves into social enterprises. Social enterprises leverage social, mobile and
open technologies to place their customers and employees at the center of their business and to engage and
collaborate with them in new and powerful ways. Our technologies are targeted at businesses of all sizes and
industries worldwide.
We were founded in February 1999 and began offering our enterprise customer relationship management
(“CRM”) application service in February 2000. Since then, we have augmented our CRM service with new
editions, services and enhanced features. Over the last few years, we have both developed and acquired several
mobile, social and open technologies to help our customers become social enterprises. We introduced our
Force.com platform to customers and developers so they can build complementary applications to extend beyond
CRM. We launched our AppExchange directory of enterprise cloud computing applications and services that are
integrated with our flagship CRM product and in most cases have been developed on our Force.com platform by
third parties. We introduced Chatter, a collaboration application for the enterprise to connect and share
information securely and in real-time. Recently we enabled companies to invite their customers to collaborate
with Chatter in private groups on this corporate social network. Our Salesforce Data.com (“Data.com”) offering,
which provides some contacts from Jigsaw Data Corporation (“Jigsaw”), provides the most complete source of
accurate business data and seamlessly integrates with our CRM products. We also expanded our platform
offering via the acquisition of Heroku, Inc. (“Heroku”) an application development platform and the launch of
Database.com, the world’s first enterprise cloud database. We acquired Radian6 Technologies, Inc. (“Radian6”)
to help companies monitor and engage with their customers via social media.
Our objective is to help companies put customers at the center of their businesses and transform themselves
into social enterprises by leveraging our applications and platforms. Key elements of our strategy include:
•
Strengthening our existing sales and service cloud applications and extending into new functional areas
within the social enterprise;
• Leading the industry transformation to the social enterprise;
•
Pursuing new customers and new territories aggressively;
• Deepening relationships with our existing customer base;
• Encouraging the development of third-party applications on our cloud computing platforms.
We believe the factors that will influence our ability to achieve our objectives include our prospective
customers’ willingness to migrate to enterprise cloud computing services; the performance and security of our
service; our ability to continue to release, and gain customer acceptance of, new and improved features; our
ability to successfully integrate acquired businesses and technologies; successful customer adoption and
utilization of our service; acceptance of our service in markets where we have few customers; the emergence of
33
additional competitors in our market and improved product offerings by existing and new competitors; the
location of new data centers; third-party developers’ willingness to develop applications on our platforms; and
general economic conditions which could affect our customers’ ability and willingness to purchase our services,
delay the customers’ purchasing decision or affect renewal rates.
To address these factors, we will need to, among other things, continue to add substantial numbers of paying
subscriptions, upgrade our customers to fully featured versions such as our Unlimited Edition or arrangements
such as a social enterprise license agreement, provide high quality technical support to our customers and
encourage the development of third-party applications on our platforms. Our plans to invest for future growth
include the continuation of the expansion of our data center capacity. We also plan to continue to hire additional
personnel, particularly in direct sales, other customer-related areas and research and development. As part of our
growth plans, we intend to continue to focus on retaining customers at the time of renewal.
Additionally, we plan to: expand our domestic and international selling and marketing activities; continue to
develop our brands; add additional distribution channels; increase our research and development activities to
upgrade and extend our service offerings; develop new services and technologies and integrate acquired
technologies; and add to our global infrastructure to support our growth. We also regularly evaluate acquisitions
or investment opportunities in complementary businesses, joint ventures, services and technologies, and
intellectual property rights in an effort to expand our service offerings. We expect to continue to make such
investments and acquisitions in the future. As such, we plan to reinvest a significant portion of our incremental
revenue in fiscal 2013 to grow our business and continue our leadership role in the cloud computing industry.
During fiscal 2012, we acquired several businesses and technologies to strengthen and extend our service
offerings. In May 2011, we acquired Radian6 for a total purchase consideration of approximately $336.6 million,
net of cash acquired. Radian6 is a cloud application vendor that provides customers with social media
monitoring, measurement and engagement solutions. We acquired Radian6 for its developed technology,
assembled workforce, expected synergies and expanded market opportunities when integrating Radian6’s social
solution technology with our current product offerings. In September 2011, we acquired Assistly for a total
purchase consideration of approximately $58.7 million. Assistly is a cloud-based provider of customer service
solutions. We acquired Assistly for its developed help desk application technology in order to expand our
customer service market opportunities in the small and emerging business market. In order to expand our mobile
and social consulting services, in December 2011, we acquired Model Metrics, a cloud computing professional
services company, for a total purchase consideration of approximately $66.7 million.
We expect marketing and sales costs, which were 52 percent of our total revenues for fiscal 2012 and 48
percent for the same period a year ago, to continue to represent a substantial portion of total revenues in the
future as we seek to add and manage more paying subscribers, and build greater brand awareness.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal 2012, for example, refer to the fiscal year ended
January 31, 2012.
34
Sources of Revenues
We derive our revenues from: (1) subscription fees from customers accessing our enterprise cloud
computing services; (2) support revenues from customers purchasing additional support beyond the standard
support that is included in the basic subscription fees; (3) professional services, which include consulting services
such as process mapping and project management, and implementation services including systems integration,
technical architecture and development, and data conversion; and (4) other revenue, which consists primarily of
training fees. Subscription and support revenues accounted for approximately 94 percent of our total revenues
during fiscal 2012. Subscription revenues are driven primarily by the number of paying subscribers, varying
service types, the price of our service and service renewal rates. We define a “customer” as a separate and
distinct buying entity (e.g., a company, a distinct business unit of a large corporation, a partnership, etc.) that has
entered into a contract to access our enterprise cloud computing services. We define a “subscription” as a unique
user account purchased by a customer for use by its employees or other customer-authorized users, and we refer
to each such user as a “subscriber.” The number of paying subscriptions at each of our customers ranges from
one to hundreds of thousands. None of our customers accounted for more than five percent of our revenues
during fiscal 2012, 2011, or 2010.
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement dates of each contract. The typical subscription and support term is 12 to 24 months, although
terms range from one to 60 months. Our subscription and support contracts are non-cancelable, though customers
typically have the right to terminate their contracts for cause if we materially fail to perform. We generally
invoice our customers in advance, in annual or quarterly installments, and typical payment terms provide that our
customers pay us within 30 days of invoice. Amounts that have been invoiced are recorded in accounts
receivable and in deferred revenue, or in revenue depending on whether the revenue recognition criteria have
been met. In general, we collect our billings in advance of the subscription service period.
Professional services and other revenues consist of fees associated with consulting and implementation
services and training. Our consulting and implementation engagements are typically billed on a time and
materials basis. We also offer a number of training classes on implementing, using and administering our service
that are billed on a per person, per class basis. Our typical professional services payment terms provide that our
customers pay us within 30 days of invoice.
In determining whether professional services can be accounted for separately from subscription and support
revenues, we consider a number of factors, which are described in “Critical Accounting Policies and Estimates –
Revenue Recognition” below. Prior to February 1, 2011, the deliverables in multiple-deliverable arrangements
were accounted for separately if the delivered items had standalone value and there was objective and reliable
evidence of fair value for the undelivered items. If the deliverables in a multiple-deliverable arrangement could
not be accounted for separately, the total arrangement fee was recognized ratably as a single unit of accounting
over the contracted term of the subscription agreement. A significant portion of our multiple-deliverable
arrangements were accounted for as a single unit of accounting because we did not have objective and reliable
evidence of fair value for certain of our deliverables. Additionally, in these situations, we deferred the direct
costs of a related professional service arrangement and amortized those costs over the same period as the
professional services revenue was recognized.
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
No. 2009-13, “Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements—a consensus of
the FASB Emerging Issues Task Force” (“ASU 2009-13”) which amended the previous multiple-deliverable
arrangements accounting guidance. Pursuant to the new guidance, objective and reliable evidence of fair value of
the deliverables to be delivered is no longer required in order to account for deliverables in a multiple-deliverable
arrangement separately. Instead, arrangement consideration is allocated to deliverables based on their relative
selling price. In the first quarter of fiscal 2012, we adopted this new accounting guidance on a prospective basis.
We applied the new accounting guidance to those multiple-deliverable arrangements entered into or materially
modified on or after February 1, 2011 which is the beginning of our fiscal year.
35
Seasonal Nature of Deferred Revenue and Accounts Receivable
Deferred revenue primarily consists of billings to customers for our subscription service. Over 90 percent of
the value of our billings to customers is for our subscription and support service. We generally invoice our
customers in either quarterly or annual cycles. There is a disproportionate weighting towards annual billings in
the fourth quarter, primarily as a result of large enterprise account buying patterns. Currently, there is greater
operational discipline around annual invoicing, for both new business and renewals. Occasionally, we bill
customers for their multi-year contract on a single invoice which results in an increase in noncurrent deferred
revenue. Our fourth quarter has historically been our strongest quarter for new business and renewals. The year
on year compounding effect of this seasonality in both billing patterns and overall new and renewal business
causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase
as a proportion of our total annual billings.
Accordingly, the sequential quarterly changes in accounts receivable and the related deferred revenue during
the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the
fourth quarter as displayed below:
(in thousands)
Fiscal 2012
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current and noncurrent . . . . . . . . . . . . . . . . . .
(in thousands)
Fiscal 2011
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current and noncurrent . . . . . . . . . . . . . . . . . .
(in thousands)
April 30,
2011
July 31,
2011
October 31,
2011
January 31,
2012
$270,816
915,133
$342,397
935,266
$312,331
917,821
$ 683,745
1,380,295
April 30,
2010
July 31,
2010
October 31,
2010
January 31,
2011
$183,612
664,529
$228,550
683,019
$258,764
694,557
$ 426,943
934,941
April 30,
2009
July 31,
2009
October 31,
2009
January 31,
2010
Fiscal 2010
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current and noncurrent . . . . . . . . . . . . . . . . . .
$145,869
549,373
$168,842
549,010
$191,297
545,435
$ 320,956
704,348
Unbilled Deferred Revenue
The deferred revenue balance on our consolidated balance sheet does not represent the total contract value
of annual or multi-year, non-cancelable subscription agreements. Unbilled deferred revenue was over $2.2 billion
as of January 31, 2012 and over $1.5 billion as of January 31, 2011. Unbilled deferred revenue represents future
billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in
deferred revenue. We expect that the amount of unbilled deferred revenue will change from quarter to quarter for
several reasons, including the specific timing and duration of large customer subscription agreements, varying
billing cycles of subscription agreements, the specific timing of customer renewals, foreign currency fluctuations,
the timing of when unbilled deferred revenue is to be recognized as revenue, and changes in customer financial
circumstances. For multi-year subscription agreements billed annually, the associated unbilled deferred revenue
is typically high at the beginning of the contract period, zero just prior to renewal, and increases if the agreement
is renewed. Low unbilled deferred revenue attributable to a particular subscription agreement is often associated
with an impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such
customer. Accordingly, we expect that the amount of aggregate unbilled deferred revenue will change from
year-to-year depending in part upon the number and dollar amount of subscription agreements at particular stages
in their renewal cycle. Such fluctuations are not a reliable indicator of future revenues.
36
Cost of Revenues and Operating Expenses
Cost of Revenues. Cost of subscription and support revenues primarily consists of expenses related to
hosting our service and providing support, the costs of data center capacity, depreciation or operating lease
expense associated with computer equipment and software, allocated overhead and amortization expense
associated with capitalized software related to our services and acquired developed technologies. We allocate
overhead such as rent and occupancy charges based on headcount. Employee benefit costs and taxes are allocated
based upon a percentage of total compensation expense. As such, general overhead expenses are reflected in each
cost of revenue and operating expense category. Cost of professional services and other revenues consists
primarily of employee-related costs associated with these services, including stock-based expenses, the cost of
subcontractors and allocated overhead. The cost of providing professional services is significantly higher as a
percentage of the related revenue than for our enterprise cloud computing subscription service due to the direct
labor costs and costs of subcontractors.
We intend to continue to invest additional resources in our enterprise cloud computing services. For
example, we plan to open additional data centers and expand our current data centers in the future. Additionally,
as we acquire new businesses and technologies, the amortization expense associated with this activity will be
included in cost of revenues. The timing of these additional expenses will affect our cost of revenues, both in
terms of absolute dollars and as a percentage of revenues, in the affected periods.
Research and Development. Research and development expenses consist primarily of salaries and related
expenses, including stock-based expenses, the costs of our development and test data center and allocated
overhead. We continue to focus our research and development efforts on adding new features and services,
integrating acquired technologies, increasing the functionality and enhancing the ease of use of our enterprise
cloud computing services. Our proprietary, scalable and secure multi-tenant architecture enables us to provide all
of our customers with a service based on a single version of our application. As a result, we do not have to
maintain multiple versions, which enables us to have relatively lower research and development expenses as
compared to traditional enterprise software companies. We expect that in the future, research and development
expenses will increase in absolute dollars as we improve and extend our service offerings, develop new
technologies and integrate acquired businesses and technologies.
Marketing and Sales. Marketing and sales expenses are our largest cost and consist primarily of salaries and
related expenses, including stock-based expenses, for our sales and marketing staff, including commissions,
payments to partners, marketing programs and allocated overhead. Marketing programs consist of advertising,
events, corporate communications, brand building and product marketing activities.
We plan to continue to invest in marketing and sales by expanding our domestic and international selling
and marketing activities, building brand awareness, attracting new customers and sponsoring additional
marketing events. We expect that in the future, marketing and sales expenses will increase in absolute dollars and
continue to be our largest cost.
General and Administrative. General and administrative expenses consist of salaries and related expenses,
including stock-based expenses, for finance and accounting, legal, internal audit, human resources and
management information systems personnel, legal costs, professional fees, other corporate expenses and
allocated overhead. We expect that in the future, general and administrative expenses will increase in absolute
dollars as we invest in our infrastructure and we incur additional employee related costs, professional fees and
insurance costs related to the growth of our business and international expansion. We expect general and
administrative costs as a percentage of total revenues to remain flat for the next several quarters.
Stock-Based Expenses. Our cost of revenues and operating expenses include stock-based expenses related to
equity plans for employees and non-employee directors. We recognize our stock-based compensation as an
expense in the statement of operations based on their fair values and vesting periods. These charges have been
significant in the past and we expect that they will increase as our stock price increases, as we hire more
employees and seek to retain existing employees.
37
Amortization of Purchased Intangibles from business combinations. Our cost of revenues and operating
expenses include amortization of acquisition-related intangible assets, such as the amortization of the cost
associated with an acquired company’s research and development efforts, trade names, customer lists and
customer relationships. We expect this expense to increase as we acquire more companies.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses,
and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may
differ from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in note 1 to our consolidated
financial statements, the following accounting policies involve a greater degree of judgment and complexity.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating
our consolidated financial condition and results of operations.
Revenue Recognition. We derive our revenues from two sources: (1) subscription revenues, which are
comprised of subscription fees from customers accessing our enterprise cloud computing services and from
customers purchasing additional support beyond the standard support that is included in the basic subscription
fee; and (2) related professional services such as process mapping, project management, implementation services
and other revenue. “Other revenue” consists primarily of training fees.
We commence revenue recognition when all of the following conditions are satisfied:
• There is persuasive evidence of an arrangement;
• The service has been or is being provided to the customer;
• The collection of the fees is reasonably assured; and
• The amount of fees to be paid by the customer is fixed or determinable.
Our subscription service arrangements are non-cancelable and do not contain refund-type provisions.
Subscription and Support Revenues
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract, which is the date our service is made available to customers. Amounts that
have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on
whether the revenue recognition criteria have been met.
Professional Services and Other Revenues
The majority of our professional services contracts are on a time and material basis. When these services are not
combined with subscription revenues as a single unit of accounting, as discussed below, these revenues are
recognized as the services are rendered for time and material contracts, and when the milestones are achieved and
accepted by the customer for fixed price contracts. Training revenues are recognized after the services are performed.
Multiple-Deliverable Arrangements
We enter into arrangements with multiple-deliverables that generally include subscription, premium
support, and professional services.
38
Prior to February 1, 2011, the deliverables in multiple-deliverable arrangements were accounted for separately
if the delivered items had standalone value and there was objective and reliable evidence of fair value for the
undelivered items. If the deliverables in a multiple-deliverable arrangement could not be accounted for separately,
the total arrangement fee was recognized ratably as a single unit of accounting over the contracted term of the
subscription agreement. A significant portion of our multiple-deliverable arrangements were accounted for as a
single unit of accounting because we did not have objective and reliable evidence of fair value for certain of our
deliverables. Additionally, in these situations, we deferred the direct costs of a professional services arrangement
and amortized those costs over the same period as the professional services revenue is recognized.
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, “Revenue Recognition
(Topic 605), Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task
Force” (“ASU 2009-13”) which amended the previous multiple-deliverable arrangements accounting guidance.
Pursuant to the updated guidance, objective and reliable evidence of fair value of the deliverables to be delivered
is no longer required in order to account for deliverables in a multiple-deliverable arrangement separately.
Instead, arrangement consideration is allocated to deliverables based on their relative selling price.
In the first quarter of fiscal 2012, we adopted this updated accounting guidance on a prospective basis. We
have applied the new accounting guidance to those multiple-deliverable arrangements entered into or materially
modified on or after February 1, 2011 which is the beginning of our fiscal year.
The adoption of this updated accounting guidance did not have a material impact on our financial condition,
results of operations or cash flows. As of January 31, 2012, the deferred professional services revenue and
deferred costs under the previous accounting guidance are $30.5 million and $14.3 million, respectively, which
will continue to be recognized over the related remaining subscription period.
Under the updated accounting guidance, in order to treat deliverables in a multiple-deliverable arrangement
as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables
have standalone value upon delivery, we account for each deliverable separately. Subscription services have
standalone value as such services are often sold separately. In determining whether professional services have
standalone value, we consider the following factors for each professional services agreement: availability of the
services from other vendors, the nature of the professional services, the timing of when the professional services
contract was signed in comparison to the subscription service start date, and the contractual dependence of the
subscription service on the customer’s satisfaction with the professional services work. To date, we have
concluded that all of the professional services included in multiple-deliverable arrangements executed have
standalone value.
Under the updated accounting guidance, when multiple-deliverables included in an arrangement are separated
into different units of accounting, the arrangement consideration is allocated to the identified separate units based on
a relative selling price hierarchy. We determine the relative selling price for a deliverable based on its vendor-
specific objective evidence of selling price (“VSOE”), if available, or our best estimate of selling price (“BESP”), if
VSOE is not available. We have determined that third-party evidence (“TPE”) is not a practical alternative due to
differences in our service offerings compared to other parties and the availability of relevant third-party pricing
information. The amount of revenue allocated to delivered items is limited by contingent revenue, if any.
For certain professional services, we have established VSOE as a consistent number of standalone sales of
this deliverable have been priced within a reasonably narrow range. We have not established VSOE for our
subscription services due to lack of pricing consistency, the introduction of new services and other factors.
Accordingly, we use our BESP to determine the relative selling price.
We determined BESP by considering our overall pricing objectives and market conditions. Significant
pricing practices taken into consideration include our discounting practices, the size and volume of our
transactions, the customer demographic, the geographic area where our services are sold, our price lists, our
39
go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is made
through consultation with and approval by management, taking into consideration the go-to-market strategy. As
our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in
changes in relative selling prices, including both VSOE and BESP.
Deferred Revenue. The deferred revenue balance does not represent the total contract value of annual or
multi-year, non-cancelable subscription agreements. Deferred revenue primarily consists of billings or payments
received in advance of revenue recognition from subscription service described above and is recognized as the
revenue recognition criteria are met. We generally invoice customers in annual or quarterly installments.
Deferred revenue is influenced by several factors, including seasonality, the compounding effects of renewals,
invoice duration, invoice timing and new business linearity within the quarter.
As a result of the updated accounting guidance previously described, billings against professional services
arrangements entered into prior to February 1, 2011 were generally added to deferred revenue and recognized
over the remaining related subscription contract term.
Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current
deferred revenue and the remaining portion is recorded as noncurrent.
Deferred Commissions. We defer commission payments to our direct sales force. The commissions are
deferred and amortized to sales expense over the non-cancelable terms of the related subscription contracts with
our customers, which are typically 12 to 24 months. The commission payments, which are paid in full the month
after the customer’s service commences, are a direct and incremental cost of the revenue arrangements. The
deferred commission amounts are recoverable through the future revenue streams under the non-cancelable
customer contracts. We believe this is the preferable method of accounting as the commission charges are so
closely related to the revenue from the non-cancelable customer contracts that they should be recorded as an
asset and charged to expense over the same period that the subscription revenue is recognized.
During fiscal 2012, we deferred $167.2 million of commission expenditures and we amortized $107.2
million to sales expense. During the same period a year ago, we deferred $121.2 million of commission
expenditures and we amortized $80.2 million to sales expense. Deferred commissions on our consolidated
balance sheets totaled $176.6 million at January 31, 2012 and $116.6 million at January 31, 2011.
Business Combinations. We recognize separately from goodwill the fair value of assets acquired and
liabilities assumed. Goodwill as of the acquisition date represents the excess of the purchase consideration of an
acquired business over the fair value of the underlying net tangible and intangible assets acquired and liabilities
assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible
assets acquired and liabilities assumed at the acquisition date. Our estimates are inherently uncertain and subject
to refinement. As a result, during the measurement period, which may be up to one year from the acquisition
date, we may record adjustments to the fair value of assets acquired and liabilities assumed, with the
corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the
fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to our consolidated statements of operations.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a
business combination are initially estimated as of the acquisition date. We continue to collect information in
order to determine their estimated fair values as of the date of acquisition. We reevaluate these items quarterly
and record any adjustments to the preliminary estimates to goodwill provided that we are within the measurement
period. Subsequent to the measurement period, changes to these uncertain tax positions and tax related valuation
allowances will affect our provision for income taxes in the consolidated statements of operations.
40
Stock-Based Awards. We recognize the fair value of our stock awards on a straight-line basis over the
requisite service period of the award which is the vesting term of generally four years or one year for the
Employee Stock Purchase Plan (“ESPP”). The fair value of each award is estimated on the date of grant using the
Black-Scholes option pricing model. The estimated life for the stock options is based on an actual analysis of
expected life. The estimated life for the ESPP is based on the two purchase periods within the offering period.
The risk free interest rate is based on the rate for a U.S. government security with the same estimated life at the
time of the option grant and the stock purchase rights.
We estimate the future stock price volatility considering both our observed option-implied volatilities and
our historical volatility calculations. We believe this is the best estimate of the expected volatility over the
expected life of our stock options and stock purchase rights.
We recognized stock-based expense of $229.3 million during fiscal 2012. The requirement to expense
stock-based awards will continue to materially reduce our reported results of operations. As of January 31, 2012,
we had an aggregate of $820.6 million of stock compensation remaining to be amortized to expense over the
remaining requisite service period of the underlying awards. We currently expect this stock compensation
balance to be amortized as follows: $296.5 million during fiscal 2013; $256.4 million during fiscal 2014; $196.1
million during fiscal 2015 and $71.6 million during fiscal 2016. These amounts reflect only outstanding stock
awards as of January 31, 2012 and assume no forfeiture activity. We expect to continue to issue stock-based
awards to our employees in future periods, which will increase the stock compensation amortization in such
future periods.
We recognize as an operating expense the payroll and social tax costs, as applicable by jurisdiction, when stock
options are exercised. The impact of stock-based expense in the future is dependent upon, among other things, the
timing of when we hire additional employees, the effect of long-term incentive strategies involving stock awards in
order to continue to attract and retain employees, the total number of stock awards granted, the fair value of the
stock awards at the time of grant, changes in estimated forfeiture assumption rates. Additionally, we are required to
use an option-pricing model to determine the fair value of stock-based awards. This determination of fair value is
affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to, our expected stock price volatility over the term of the awards.
As of January 31, 2012, there were 5.0 million restricted stock awards and units outstanding. We plan to
continue awarding restricted stock to our employees in the future. The restricted stock, which upon vesting
entitles the holder to one share of common stock for each restricted stock, has an exercise price of $0.001 per
share, which is equal to the par value of our common stock, and vests over four years. The fair value of the
restricted stock is based on our closing stock price on the date of grant, and compensation expense, net of
estimated forfeitures, is recognized on a straight-line basis over the vesting period.
Income Taxes. We account for income taxes using the liability method, which requires the recognition of
deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax
bases of our assets and liabilities and for net operating loss and tax credit carryforwards. The tax expense or
benefit for unusual items, or certain adjustments to the valuation allowance are treated as discrete items in the
interim period in which the events occur.
Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries
with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, compensation, the
valuation of deferred tax assets and liabilities and changes in tax laws and accounting principles.
Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We
recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is
sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is
41
measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement
with the taxing authority. We recognize interest accrued and penalties related to unrecognized tax benefits in our
tax provision.
Strategic Investments. We report our investments in marketable equity securities at fair market value using
the quoted prices in their respective active markets. We report our investments in non-marketable equity and debt
securities, which consist of minority equity and debt investments in privately-held companies, at cost or fair
value when an event or circumstance indicates an other-than-temporary decline in value has occurred.
Management evaluates financial results, earnings trends, technology milestones and subsequent financing of
these companies, as well as the general market conditions to identify indicators of other-than temporary
impairment.
Results of Operations
The following tables set forth selected data for each of the periods indicated (in thousands).
Fiscal Year Ended January 31,
2012
2011
2010
Revenues:
Subscription and support . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . .
$2,126,234
140,305
$1,551,145
105,994
$1,209,472
96,111
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,266,539
1,657,139
1,305,583
Cost of revenues:
Subscription and support . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . .
Total cost of revenues . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
. . . . . . . . . . . . . . . . . . . . .
Research and development
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before benefit (provision) for income taxes
and noncontrolling interest
. . . . . . . . . . . . . . . . . . . . . . .
Benefit (provision) for income taxes . . . . . . . . . . . . . . . . . .
Consolidated net income (loss) . . . . . . . . . . . . . . . . . . . . . .
. .
Less: Net income attributable to noncontrolling interest
360,758
128,128
488,886
208,243
115,570
323,813
159,172
98,753
257,925
1,777,653
1,333,326
1,047,658
295,347
1,169,610
347,781
1,812,738
(35,085)
23,268
(17,045)
(4,455)
(33,317)
21,745
(11,572)
0
187,887
792,029
255,913
1,235,829
97,497
37,735
(24,909)
(6,025)
104,298
(34,601)
69,697
(5,223)
131,897
605,199
195,290
932,386
115,272
30,408
(2,000)
(1,299)
142,381
(57,689)
84,692
(3,973)
Net income (loss) attributable to salesforce.com . . . . . . . .
$ (11,572)
$
64,474
$
80,719
Balance Sheet Data:
Cash, cash equivalents and marketable securities . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current and noncurrent
$1,447,174
1,380,295
$1,407,557
934,941
As of January 31,
2012
2011
42
Revenues by geography were as follows:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,540,289
408,456
317,794
$1,135,019
291,784
230,336
$ 923,823
232,367
149,393
$2,266,539
$1,657,139
$1,305,583
Fiscal Year Ended January 31,
2012
2011
2010
Cost of revenues and marketing and sales expenses include the following amounts related to amortization of
purchased intangibles from business combinations:
Fiscal Year Ended January 31,
2012
2011
2010
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$60,069
7,250
$15,459
4,209
$8,010
3,241
Cost of revenues and operating expenses include the following amounts related to stock-based awards:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,451
45,894
115,730
50,183
$12,158
18,897
56,451
32,923
$12,570
13,129
39,722
23,471
Fiscal Year Ended January 31,
2012
2011
2010
43
The following tables set forth selected consolidated statements of operations data for each of the periods
indicated as a percentage of total revenues:
Fiscal Year Ended January 31,
2012
2011
2010
Revenues:
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94%
6
94%
6
93%
7
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
100
100
Cost of revenues:
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before benefit (provision) for income taxes and
noncontrolling interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit (provision) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interest
16
6
22
78
13
52
15
80
(2)
1
(1)
0
(2)
1
(1)
0
13
7
20
80
11
48
15
74
6
2
(2)
0
6
(2)
4
0
12
8
20
80
10
46
15
71
9
2
0
0
11
(5)
6
0
Net income (loss) attributable to salesforce.com . . . . . . . . . . . . . . . . . . . .
(1)%
4%
6%
Revenues by geography:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles from business combinations:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based awards:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
Fiscal Year Ended January 31,
2012
2011
2010
68%
18
14
100%
68%
18
14
100%
71%
18
11
100%
Fiscal Year Ended January 31,
2012
2011
2010
3%
0
1%
0
1%
0
Fiscal Year Ended January 31,
2012
2011
2010
1%
2
5
2
1%
1
3
2
1%
1
3
2
Fiscal Years Ended January 31, 2012 and 2011
Revenues.
(In thousands)
Fiscal Year Ended January 31,
Variance
2012
2011
Dollars
Percent
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,126,234
140,305
$1,551,145
105,994
$575,089
34,311
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,266,539
$1,657,139
$609,400
37%
32%
37%
Total revenues were $2.3 billion for fiscal 2012, compared to $1.7 billion during the same period a year ago,
an increase of $609.4 million, or 37 percent. Subscription and support revenues were $2.1 billion, or 94 percent
of total revenues, for fiscal 2012, compared to $1.6 billion, or 94 percent of total revenues, during the same
period a year ago. The increase in subscription and support revenues was due primarily to new customers,
upgrades and additional subscriptions from existing customers and improved renewal rates as compared to a year
ago. The price per user per month for our three primary offerings, Professional Edition, Enterprise Edition and
Unlimited Edition, in fiscal 2012 has generally remained consistent relative to fiscal 2011. Professional services
and other revenues were $140.3 million, or six percent of total revenues, for fiscal 2012, compared to
$106.0 million, or six percent of total revenues, for the same period a year ago. The increase in professional
services and other revenues was due primarily to the improved utilization of existing headcount and a benefit
from the prospective adoption of the new revenue accounting guidance for multiple-deliverable arrangements.
Revenues in Europe and Asia Pacific accounted for $726.3 million, or 32 percent of total revenues, for fiscal
2012, compared to $522.1 million, or 32 percent of total revenues, during the same period a year ago, an increase
of $204.1 million, or 39 percent. The increase in revenues outside of the Americas was the result of the
increasing acceptance of our service, our focus on marketing our services internationally and improved renewal
rates. Additionally, the value of the U.S. dollar relative to foreign currencies contributed to a slight increase in
U.S. dollar revenues outside of the Americas for fiscal 2012 as compared to the same period a year ago. The
foreign currency impact had the effect of increasing our aggregate revenues by $36.9 million compared to the
same period a year ago. As part of our overall growth, we expect the percentage of our revenue generated outside
of the Americas to increase as a percentage of our total revenues worldwide.
Cost of Revenues.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$360,758
128,128
$208,243
115,570
$152,515
12,558
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$488,886
$323,813
$165,073
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22%
20%
Cost of revenues was $488.9 million, or 22 percent of total revenues, during fiscal 2012, compared to
$323.8 million, or 20 percent of total revenues, during the same period a year ago, an increase of $165.1 million.
The increase in absolute dollars was primarily due to an increase of $20.4 million in employee-related costs, an
increase of $5.3 million in stock based expenses, an increase of $39.8 million in service delivery costs, primarily
due to our efforts to increase data center capacity, an increase of $68.3 million in depreciation and amortization
expenses, $44.6 million of which related to the amortization of purchased intangible assets, an increase of $24.2
million in outside subcontractor and other service costs, and an increase of $5.5 million in allocated overhead.
Gross profit margins for professional services and other revenues improved over the same period a year ago
primarily due to the improved utilization of existing headcount and a benefit from the prospective adoption of the
new revenue accounting guidance for multiple-deliverable arrangements.
45
We intend to continue to invest additional resources in our enterprise cloud computing services and data
center capacity. Additionally, the amortization of purchased intangible assets will increase as we acquire
additional businesses and technologies. We also plan to add additional employees in our professional services
group to facilitate the adoption of our services. The timing of these expenses will affect our cost of revenues,
both in terms of absolute dollars and as a percentage of revenues in future periods.
Research and Development.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$295,347
$187,887
$107,460
13%
11%
Research and development expenses were $295.3 million, or 13 percent of total revenues, during fiscal
2012, compared to $187.9 million, or 11 percent of total revenues, during the same period a year ago, an increase
of $107.5 million. The increase in absolute dollars was primarily due to an increase of $66.7 million in
employee-related costs, an increase of $27.0 million in stock-based expenses, an increase of $2.2 million in our
development and test data center, an increase of $1.4 million in depreciation and amortization expenses and an
increase of $8.6 million in allocated overhead. We increased our research and development headcount by 52
percent since January 31, 2011 in order to improve and extend our service offerings and develop new
technologies. Some of the increase in headcount was due to acquired businesses.
Marketing and Sales.
(In thousands)
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
$1,169,610
$792,029
$377,581
52%
48%
Marketing and sales expenses were $1,169.6 million, or 52 percent of total revenues, during fiscal 2012,
compared to $792.0 million, or 48 percent of total revenues, during the same period a year ago, an increase of
$377.6 million. The increase in absolute dollars was primarily due to increases of $255.6 million in employee-
related costs, $59.3 million in stock-based expenses, $22.5 million in advertising, marketing and event costs,
$21.8 million in allocated overhead, $8.2 million in outside subcontractor and other service costs, $3.1 million in
depreciation and amortization and the preliminary settlement of the California wage and hour case discussed in
Note 8. Our marketing and sales headcount increased by 44 percent since January 31, 2011 as we hired additional
sales personnel to focus on adding new customers and increasing penetration within our existing customer base.
Some of the increase in headcount was due to acquired businesses.
General and Administrative.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$347,781
$255,913
$91,868
15%
15%
General and administrative expenses were $347.8 million, or 15 percent of total revenues, during fiscal
2012, compared to $255.9 million, or 15 percent of total revenues, during the same period a year ago, an increase
of $91.9 million. The increase was primarily due to increases of $57.5 million in employee-related costs, $17.3
million in stock-based expenses and $14.3 million in professional and outside service costs. Our general and
administrative headcount increased by 46 percent since January 31, 2011 as we added personnel to support our
growth.
46
Income (loss) from operations.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
$(35,085)
$97,497
$(132,582)
(2)%
6%
Loss from operations during fiscal 2012 was $35.1 million and included $229.3 million of stock-based
expenses and $67.3 million of amortization of purchased intangibles. During the same period a year ago,
operating income was $97.5 million and included $120.4 million of stock-based expenses and $19.7 million of
amortization of purchased intangibles.
Investment income.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,268
$37,735
$(14,467)
1%
2%
Investment income consists of income on cash and marketable securities balances. Investment income was
$23.3 million during fiscal 2012 and was $37.7 million during the same period a year ago. The decrease was
primarily due to a reduction in realized gains from sales of marketable securities, the decrease in marketable
securities balances and lower interest rates.
Interest expense.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(17,045)
$(24,909)
$7,864
(1)%
(2)%
Interest expense consists of interest on our convertible senior notes and capital leases. Interest expense was
$17.0 million, net of interest costs capitalized, during fiscal 2012 and was $24.9 million during the same period a
year ago. During fiscal 2012, we capitalized $14.6 million of interest costs related to capital projects, specifically
costs related to our real estate holdings, which began during the fourth quarter of fiscal 2011, and our capitalized
internal-use software development costs. Capitalized interest during the same period a year ago was $4.0 million.
Other expense.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(4,455)
$(6,025)
$1,570
Other expense primarily consists of realized gains and losses resulting from strategic investment activity and
foreign currency transaction gains and losses. Other expense decreased primarily due to the net gain of $2.9
million from activity within our portfolio of noncontrolling equity and debt investments in privately-held
companies offset by realized and unrealized losses on foreign currency transactions for fiscal 2012 compared to
the same period a year ago.
47
Benefit (provision) for income taxes.
(In thousands)
Fiscal Year Ended January 31,
2012
2011
Variance
Dollars
Benefit (provision) for income taxes . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,745
$(34,601)
$56,346
65%
33%
The benefit for income taxes was $21.7 million during fiscal 2012, compared to an income tax provision of
$34.6 million during the same period a year ago.
Our effective tax rate was 65 percent for fiscal 2012 compared to 33 percent for the same period a year ago.
The higher tax rate was primarily attributable to an increase in federal and California tax credits and a tax benefit
related to the May 2011 acquisition of Radian6. The combined effect of these tax benefits was partially offset by
an increase in foreign tax rate differential. Foreign tax expense relative to our fiscal 2012 pre-tax loss was higher
as compared to foreign tax expense relative to our fiscal 2011 pre-tax income. The combined effect of these
items on a small net loss before income taxes resulted in a comparatively higher fiscal 2012 effective tax rate.
The lower fiscal 2012 state tax rate was primarily attributable to two items. First, California enacted several
income tax law changes, which generally benefited California-based companies. The result of this tax law change
substantially reduced our state effective tax rate. Second, the company was subject to minimum state taxes,
which reduced the state tax benefit. The combined effect of these tax items was an overall small fiscal 2012 state
tax benefit. Note that we separately recorded an income tax expense of $2.2 million in fiscal 2011 to re-value the
anticipated future tax effects of our California temporary differences related to this tax law change.
We also receive certain tax incentives in Switzerland and Singapore in the form of reduced tax rates. These
temporary tax reduction programs will expire in 2016 and 2014 respectively. The Singapore program is eligible
for renewal.
The total income tax benefit recognized in the accompanying consolidated statements of operations related
to stock-based compensation was $76.0 million for fiscal 2012. See Note 6 “Income Taxes” to the Notes to the
Consolidated Financial Statements for our reconciliation of income taxes at the statutory federal rate to the
provision for income taxes.
Fiscal Years Ended January 31, 2011 and 2010
Revenues.
(In thousands)
Fiscal Year Ended January 31,
Variance
2011
2010
Dollars
Percent
Subscription and support . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . .
$1,551,145
105,994
$1,209,472
96,111
$341,673
9,883
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,657,139
$1,305,583
$351,556
28%
10%
27%
Total revenues were $1.7 billion for fiscal 2011, compared to $1.3 billion during fiscal 2010, an increase of
$351.6 million, or 27 percent. Subscription and support revenues were $1.6 billion, or 94 percent of total
revenues, for fiscal 2011, compared to $1.2 billion, or 93 percent of total revenues, during fiscal 2010. The
increase in subscription and support revenues was due primarily to new customers, upgrades and additional
subscriptions from existing customers and improved renewal rates as compared to fiscal 2010. The price per user
per month for our three primary offerings, Professional Edition, Enterprise Edition and Unlimited Edition, in
fiscal 2011 has generally remained consistent relative to fiscal 2010. Professional services and other revenues
were $106.0 million, or 6 percent of total revenues, for fiscal 2011, compared to $96.1 million, or 7 percent of
total revenues, for fiscal 2010. The increase in professional services and other revenues was due primarily to the
higher demand for services from an increased number of customers.
48
Revenues in Europe and Asia Pacific accounted for $522.1 million, or 32 percent of total revenues, for fiscal
2011, compared to $381.8 million, or 29 percent of total revenues, during fiscal 2010, an increase of $140.3
million, or 37 percent. The increase in revenues outside of the Americas was the result of the increasing
acceptance of our service, and our focus on marketing our service internationally. Additionally, the value of the
U.S. dollar relative to foreign currencies contributed to a slight decrease in U.S. dollar revenues outside of the
Americas for fiscal 2011 as compared to fiscal 2010. The foreign currency impact had the effect of reducing our
aggregate revenues by $7.6 million compared to fiscal 2010.
Cost of Revenues.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Subscription and support
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . . . . . .
$208,243
115,570
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$323,813
$159,172
98,753
$257,925
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
20%
20%
Variance
Dollars
$49,071
16,817
$65,888
Cost of revenues was $323.8 million, or 20 percent of total revenues, during fiscal 2011, compared to
$257.9 million, or 20 percent of total revenues, during fiscal 2010, an increase of $65.9 million. The increase in
absolute dollars was primarily due to an increase of $22.6 million in employee-related costs, an increase of $9.2
million in service delivery costs, primarily due to our efforts in increasing data center capacity, an increase of
$16.6 million in depreciation and amortization expenses, an increase of $13.2 million in outside subcontractor
and other service costs, and an increase of $3.6 million in allocated overhead, offset by a decrease of $0.4 million
in stock based expenses. The cost of professional services and other revenues exceeded the related revenue
during fiscal 2011 by $9.6 million as compared to $2.6 million during fiscal 2010, primarily due to an increase in
the cost related to professional services headcount.
Research and Development.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Variance
Dollars
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$187,887
$131,897
$55,990
11%
10%
Research and development expenses were $187.9 million, or 11 percent of total revenues, during fiscal
2011, compared to $131.9 million, or 10 percent of total revenues, during fiscal 2010, an increase of $56.0
million. The increase in absolute dollars was due to an increase of $42.0 million in employee-related costs, an
increase of $5.8 million in stock-based expenses, and an increase of $5.6 million in allocated overhead. We
increased our research and development headcount by 47 percent since January 31, 2010 in order to upgrade and
extend our service offerings and develop new technologies. Some of the increase in headcount was due to
acquired businesses.
Marketing and Sales.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Variance
Dollars
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
$792,029
$605,199
$186,830
48%
46%
49
Marketing and sales expenses were $792.0 million, or 48 percent of total revenues, during fiscal 2011,
compared to $605.2 million, or 46 percent of total revenues, during fiscal 2010, an increase of $186.8 million.
The increase in absolute dollars was primarily due to increases of $143.1 million in employee-related costs,
$16.7 million in stock-based expenses, $12.1 million in advertising costs and marketing and event costs, $1.0
million in depreciation and amortization, and $12.6 million in allocated overhead. Our marketing and sales
headcount increased by 34 percent since January 31, 2010 as we hired additional sales personnel to focus on
adding new customers and increasing penetration within our existing customer base. Some of the increase in
headcount was due to acquired businesses.
General and Administrative.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Variance
Dollars
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$255,913
$195,290
$60,623
15%
15%
General and administrative expenses were $255.9 million, or 15 percent of total revenues, during fiscal
2011, compared to $195.3 million, or 15 percent of total revenues, during fiscal 2010, an increase of $60.6
million. The increase was primarily due to increases of $46.8 million in employee-related costs, $9.5 million in
stock-based expenses, and increases in depreciation and amortization, service delivery costs, and professional
and outside service costs. Our general and administrative headcount increased by 30 percent since January 31,
2010 as we added personnel to support our growth.
Income from operations.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Variance
Dollars
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$97,497
$115,272
$(17,775)
6%
9%
Income from operations during fiscal 2011 was $97.5 million and included $120.4 million of stock-based
expenses and $19.7 million of amortization of purchased intangibles. During fiscal 2010, operating income was
$115.3 million and included $88.9 million of stock-based expenses and $11.3 million of amortization of
purchased intangibles.
Investment income.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,735
$30,408
2%
2%
Variance
Dollars
$7,327
Investment income consists of income on cash and marketable securities balances. Investment income was
$37.7 million during fiscal 2011 and was $30.4 million during fiscal 2010. The increase was primarily due to the
increase in marketable securities balances resulting from cash generated by operating activities and the proceeds
from stock option exercises and the convertible senior notes.
Interest expense.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Variance
Dollars
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(24,909)
$(2,000)
$(22,909)
2%
0%
50
Interest expense consists of interest on our convertible senior notes and capital leases. Interest expense was
$24.9 million, net of interest costs capitalized, during fiscal 2011 and was $2.0 million during fiscal 2010. The
increase was primarily due to interest expense associated with the January 2010 issuance of $575.0 million of
convertible senior notes and capital leases associated with equipment acquired to expand our data center
capacity. During fiscal 2011, we capitalized $4.0 million of interest costs related to major capital projects,
specifically our campus project and our capitalized internal-use software development costs.
Other expense.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Variance
Dollars
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(6,025)
$(1,299)
$(4,726)
Other expense primarily consists of foreign currency transaction gains and losses. Other expense increased
due to realized and unrealized gains on foreign currency transactions for fiscal 2011 compared to fiscal 2010.
Provision for income taxes.
(In thousands)
Fiscal Year Ended January 31,
2011
2010
Variance
Dollars
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(34,601)
$(57,689)
$23,088
33%
41%
The provision for income taxes was $34.6 million during fiscal 2011, compared to $57.7 million during
fiscal 2010.
Our effective tax rate decreased to 33 percent for fiscal 2011 compared to 41 percent for fiscal 2010. The
decrease was due to a higher proportion of income being generated in countries with lower income tax rates than
the U.S statutory tax rate, as well as increased tax credits. The extension of the federal research credit provision
was enacted in the Tax Relief Act of 2010. The total income tax benefit recognized in the accompanying
consolidated statements of operations related to stock-based compensation was $44.1 million for fiscal 2011. See
Note 6 “Income Taxes” to the Notes to the Consolidated Financial Statements for our reconciliation of income
taxes at the statutory federal rate to the provision for income taxes.
In addition, in February 2009, the State of California enacted several income tax law changes which
included an election to apply a single sales factor apportionment formula and adoption of a market sourcing
approach for service income impacted us beginning in fiscal 2012. As a result, we re-valued the anticipated
future tax effects of our California temporary differences including stock-based compensation and purchased
intangibles. Accordingly, we recorded an income tax expense of $2.2 million and $2.7 million related to this tax
law change during fiscal 2011 and 2010 respectively.
New Accounting Pronouncements
In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Disclosure of
Supplementary Pro Forma Information for Business Combinations (Topic 805)—Business Combinations
(“ASU 2010-29”), to improve consistency in how the pro forma disclosures are calculated. Additionally, ASU
2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material,
nonrecurring pro forma adjustments directly attributable to a business combination. ASU 2010-29 is effective for
us in fiscal 2013 and should be applied prospectively to business combinations for which the acquisition date is
after the effective date. We do not believe the impact of the pending adoption of ASU 2010-29 will have a
significant effect on our consolidated financial statements.
51
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic
220)—Presentation of Comprehensive Income (“ASU 2011-05”), to require an entity to present the total of
comprehensive income, the components of net income, and the components of other comprehensive income
either in a single continuous statement of comprehensive income or in two separate but consecutive statements.
ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the
statement of equity. ASU 2011-05 is effective for us in fiscal 2013 and should be applied retrospectively. We do
not believe the impact of the pending adoption of ASU 2011-05 will have a significant effect on the consolidated
financial statements.
Liquidity and Capital Resources
At January 31, 2012, our principal sources of liquidity were cash, cash equivalents and marketable securities
totaling $1.4 billion and accounts receivable of $683.7 million.
Net cash provided by operating activities was $591.5 million during fiscal 2012 and $459.1 million during
the same period a year ago. Cash provided by operating activities has historically been affected by: the amount of
net income (loss); sales of subscriptions, support and professional services; changes in working capital accounts,
particularly increases and seasonality in accounts receivable and deferred revenue as described above, the timing
of commission and bonus payments, and the timing of collections from large enterprise customers; add-backs of
non-cash expense items such as depreciation and amortization, amortization of debt discount and the expense
associated with stock-based awards.
Net cash used in investing activities was $489.7 million during fiscal 2012 and $1.1 billion during the same
period a year ago. The net cash used in investing activities during fiscal 2012 primarily related to the purchase of
Model Metrics in December 2011, the purchase of Assistly in September 2011, the purchase of Radian6 in May
2011, the purchase of Manymoon in February 2011, investment of cash balances, capital expenditures and
strategic investments offset by proceeds from sales and maturities of marketable securities.
Net cash provided by financing activities was $75.9 million during fiscal 2012 and $14.1 million during the
same period a year ago. Net cash provided by financing activities during fiscal 2012 consisted primarily of $116.6
million of proceeds from equity plans and $6.0 million of excess tax benefits from employee stock plans, offset by
$30.5 million of principal payments on capital leases and $16.2 million of contingent consideration payments.
In January 2010, we issued $575.0 million of 0.75% convertible senior notes due January 15, 2015 (the
“Notes”) and concurrently entered into convertible notes hedges (the “Note Hedges”) and separate warrant
transactions (the “Warrants”). The Notes will mature on January 15, 2015, unless earlier converted.
For 20 trading days during the 30 consecutive trading days ended October 31, 2011, our common stock traded
at a price exceeding 130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, the
Notes were convertible at the holders’ option for the quarter ending January 31, 2012. The Notes are classified as a
current liability on our consolidated balance sheet so long as the Notes are convertible. Upon conversion of any
Notes, we will deliver cash up to the principal amount of the Notes and, with respect to any excess conversion value
greater than the principal amount of the Notes, shares of our common stock, cash, or a combination of both. For 20
trading days during the 30 consecutive trading days ended January 31, 2012, our common stock did not exceed
130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, the Notes will not be
convertible at the holders’ option for the quarter ending April 30, 2012 and will be reclassified as a noncurrent
liability on our consolidated balance sheet so long as the Notes are not convertible.
Our cash, cash equivalents and marketable securities are comprised primarily of corporate notes and
obligations, U.S. agency obligations, U.S. treasury securities, mortgage backed securities, collateralized
mortgage obligations, time deposits, money market mutual funds, government obligations and municipal
securities.
52
As of January 31, 2012, we have a total of $17.5 million in letters of credit outstanding in favor of certain
landlords for office space. To date, no amounts have been drawn against the letters of credit, which renew
annually and mature at various dates through April 2030.
We do not have any special purpose entities, and other than operating leases for office space and computer
equipment, we do not engage in off-balance sheet financing arrangements. Additionally, we currently do not
have a bank line of credit.
Our principal commitments consist of obligations under leases for office space and co-location facilities for
data center capacity and our development and test data center, and computer equipment and furniture and fixtures.
At January 31, 2012, the future non-cancelable minimum payments under these commitments were as follows:
Payments Due by Period
(In thousands)
Contractual Obligations
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Capital lease obligations . . . . . . . . . . .
Operating lease obligations:
Facilities space . . . . . . . . . . . . . . .
Computer equipment and
$ 60,997
$27,585
$ 30,125
$
3,287
$
0
607,738
91,625
148,080
117,718
250,315
furniture and fixtures . . . . . . . .
60,082
32,622
27,460
Convertible Senior Notes, including
interest
. . . . . . . . . . . . . . . . . . . . . . .
Contractual commitments . . . . . . . . . .
587,938
200
4,313
100
583,625
100
0
0
0
0
0
0
Our lease agreements provide us with the option to renew. Our future operating lease obligations would
change if we exercised these options and if we entered into additional operating lease agreements as we expand
our operations.
Purchase orders are not included in the table above. Our purchase orders represent authorizations to purchase
rather than binding agreements. The contractual commitment amounts in the table above are associated with
agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum
services to be used; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
In January 2012, we entered into an office lease agreement to lease approximately 400,000 rentable square
feet at 50 Fremont Street, San Francisco, CA. The cost of the lease is approximately $209.0 million over the 18-
year term of the lease. We will take possession of the premises in phases beginning April 1, 2012. Our
commitment is included in the table above.
On June 7, 2011, we entered into a preliminary settlement agreement with respect to a California state wage
and hour lawsuit that had been filed against us early in 2011 in the Superior Court of California, County of San
Francisco. The settlement agreement is subject to approval of the court, which is expected to rule by mid 2012.
Our current estimate of the expense charge for the settlement is approximately $0.04 per diluted share. This
charge is reflected in our financial results for fiscal 2012.
We anticipate making a tax payment of approximately $40.0 million during the first quarter of fiscal 2013 as
a result of the Radian6 transaction. Besides the aforementioned Radian6 tax payment, the timing of tax
settlements are not included in the table above. We are unable to make a reasonable estimate of the timing of
payments in individual years beyond 12 months due to uncertainties in the timing of tax settlements. For further
information, see Note 6 to the notes to consolidated financial statements.
We believe our existing cash, cash equivalents and short-term marketable securities and cash provided by
operating activities will be sufficient to meet our working capital and capital expenditure needs over the next
12 months.
53
During fiscal 2013, we may enter into arrangements to acquire or invest in complementary businesses or
joint ventures, services and technologies, and intellectual property rights. We may be required to seek additional
equity or debt financing. Additional funds may not be available on terms favorable to us or at all.
Non-GAAP Financial Measures
Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and
prescribes the conditions for use of non-GAAP financial information. Our measures of non-GAAP gross profit,
non-GAAP operating profit, non-GAAP net income and non-GAAP earnings per share each meet the definition
of a non-GAAP financial measure.
Non-GAAP gross profit, Non-GAAP operating profit and Non-GAAP net income
We use the non-GAAP measures of non-GAAP gross profit, non-GAAP operating profit and non-GAAP net
income to provide an additional view of operational performance by excluding non-cash expenses that are not
directly related to performance in any particular period. We use these non-GAAP measures when planning,
monitoring, and evaluating our performance. We believe that these non-GAAP measures reflect our ongoing
business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our
business, as they exclude certain expenses. These certain expenses are excluded because the decisions which
gave rise to these expenses are not made to increase revenue in a particular period, but are made for our long-
term benefit over multiple periods and we are not able to change or affect these items in any particular period.
We define non-GAAP net income as our total net income excluding the following components, which we
believe are not reflective of our ongoing operational expenses. In each case, for the reasons set forth below, we
believe that excluding the component provides useful information to investors and others in understanding and
evaluating the impact of certain non-cash items to our operating results and future prospects in the same manner
as us, in comparing financial results across accounting periods and to those of peer companies and to better
understand the impact of these non-cash items on our gross margin and operating performance.
•
•
•
Stock-Based Expenses. The company’s compensation strategy includes the use of stock-based
compensation to attract and retain employees and executives. It is principally aimed at aligning their
interests with those of our stockholders and at long-term employee retention, rather than to motivate or
reward operational performance for any particular period. Thus, stock-based compensation expense
varies for reasons that are generally unrelated to operational decisions and performance in any
particular period.
Amortization of Purchased Intangibles. The company views amortization of acquisition-related
intangible assets, such as the amortization of the cost associated with an acquired company’s research
and development efforts, trade names, customer lists and customer relationships, as items arising from
pre-acquisition activities determined at the time of an acquisition. While it is continually viewed for
impairment, amortization of the cost of purchased intangibles is a static expense, one that is not
typically affected by operations during any particular period.
Amortization of Debt Discount. Under GAAP, certain convertible debt instruments that may be settled
in cash (or other assets) on conversion are required to be separately accounted for as liability (debt) and
equity (conversion option) components of the instrument in a manner that reflects the issuer’s
non-convertible debt borrowing rate. Accordingly, for GAAP purposes we are required to recognize
imputed interest expense on the company’s $575 million of convertible subordinated notes that were
issued in a private placement in January 2010. The imputed interest rate is approximately 5.9%, while
the coupon interest rate is 0.75%. The difference between the imputed interest expense and the coupon
interest expense, net of the interest amount capitalized, is excluded from management’s assessment of
the company’s operating performance because management believes that this non-cash expense is not
indicative of ongoing operating performance. Management believes that the exclusion of the non-cash
interest expense provides investors an enhanced view of the company’s operational performance.
54
•
Income Tax Effects. The company’s non-GAAP effective tax rate excludes the tax effect of the expense
items described above.
We define non-GAAP gross profit as our total revenues less cost of revenues, as reported on our
consolidated statement of operations, excluding the portions of stock-based expenses and amortization of
purchased intangibles, as described above, that are included in cost of revenues.
We define non-GAAP operating profit as our gross profit less operating expenses, as reported on our
consolidated statement of operations, excluding the portions of stock-based expenses and amortization of
purchased intangibles, as described above, that are included in operating expenses.
Non-GAAP earnings per share
Management uses the non-GAAP earnings per share to provide an additional view of performance by
excluding expenses that are not directly related to performance in any particular period in the earnings per share
calculation.
We define non-GAAP earnings per share as our non-GAAP net income, which excludes the above
components, which we believe are not reflective of our ongoing operational expenses, divided by basic or diluted
shares outstanding.
Limitations on the use of Non-GAAP financial measures
A limitation of our non-GAAP financial measures of non-GAAP gross profit, non-GAAP operating profit,
non-GAAP net income and non-GAAP earnings per share is that they do not have uniform definitions. Our
definitions will likely differ from the definitions used by other companies, including peer companies, and
therefore comparability may be limited. Thus, our non-GAAP measures of non-GAAP gross profit, non-GAAP
operating profit, non-GAAP net income and non-GAAP earnings per share should be considered in addition to,
not as a substitute for, or in isolation from, measures prepared in accordance with GAAP. Additionally, in the
case of stock-based expense, if we did not pay a portion of compensation in the form of stock-based expense, the
cash salary expense included in costs of revenues and operating expenses would be higher which would affect
our cash position.
We compensate for these limitations by reconciling non-GAAP gross profit, non-GAAP operating profit,
non-GAAP net income and non-GAAP earnings per share to the most comparable GAAP financial measure.
Management encourages investors and others to review our financial information in its entirety, not to rely on
any single financial measure and to view our non-GAAP financial measures in conjunction with the most
comparable GAAP financial measures.
Our reconciliation of the non-GAAP financial measure of gross profit, non-GAAP operating profit, net
income and earnings per share to the most comparable GAAP measure, “gross profit,” “income (loss) from
operations,” “net income (loss) attributable to salesforce.com” and “Diluted earnings (loss) per share” for the
years ended January 31, 2012, 2011 and 2010 is as follows (in thousands):
Non-GAAP gross profit
GAAP gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus:
Amortization of purchased intangibles . . . . . . . . . . . . . . . .
Stock-based expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year Ended January 31,
2012
2011
2010
$1,777,653
$1,333,326
$1,047,658
60,069
17,451
15,459
12,158
8,010
12,570
Non-GAAP gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,855,173
$1,360,943
$1,068,238
55
Non-GAAP operating profit
GAAP income (loss) from operations . . . . . . . . . . . . . . . . . . . . .
Plus:
Amortization of purchased intangibles . . . . . . . . . . . . . . . . . . . .
Stock-based expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year Ended January 31,
2012
2011
2010
$ (35,085)
$ 97,497
$115,272
67,319
229,258
19,668
120,429
11,251
88,892
Non-GAAP operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$261,492
$237,594
$215,415
Non-GAAP net income attributable to salesforce.com
For the Year Ended January 31,
2012
2011
2010
GAAP net income (loss) attributable to salesforce.com . . . . . . .
$ (11,572)
$ 64,474
$ 80,719
Plus:
Amortization of purchased intangibles . . . . . . . . . . . .
Stock-based expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount, net . . . . . . . . . . . . . . .
67,319
229,258
12,335
19,668
120,429
19,079
$ 11,251
88,892
728
Less:
Income tax effect of non-GAAP items . . . . . . . . . . . .
(103,730)
(57,544)
(34,582)
Non-GAAP net income attributable to salesforce.com . . . . . . .
$ 193,610
$166,106
$147,008
Non-GAAP diluted earnings per share
For the Year Ended January 31,
2012(a)
2011
2010
GAAP diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . .
$
(0.09)
$
0.47
$
0.63
Plus:
Amortization of purchased intangibles . . . . . . . . . . . .
Stock-based expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount, net . . . . . . . . . . . . . . . .
0.47
1.62
0.09
0.14
0.88
0.14
0.09
0.69
0.00
Less:
Income tax effect of non-GAAP items . . . . . . . . . . . . .
(0.73)
(0.41)
(0.26)
Non-GAAP diluted earnings per share attributable to
salesforce.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.36
$
1.22
$
1.15
Shares used in computing diluted net income per share . . . . . . .
142,295
136,598
128,114
(a) Reported GAAP loss per share was calculated using the basic share count. Non-GAAP diluted earnings per
share was calculated using the diluted share count.
The effects of dilutive securities were not included in the GAAP calculation of diluted earnings/loss per share
for the year ended January 31, 2012 because we had a net loss for the period and the effect would have been anti-
dilutive. The following table reflects the effect of the dilutive securities on the basic sharecount used in the GAAP
earnings/loss per share calculation to derive the sharecount used for the non-GAAP diluted earnings per share:
Supplemental Diluted Sharecount Information (in thousands):
Fiscal Year Ended January 31,
2012
2011
2010
Weighted-average shares outstanding for GAAP basic earnings per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135,302
130,222
124,462
Effect of dilutive securities:
Convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants associated with the convertible senior note hedges . .
Employee stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,263
553
4,177
1,561
0
4,815
0
0
3,652
Adjusted weighted-average shares outstanding and assumed
conversions for Non-GAAP diluted earnings per share . . . . . . . . .
142,295
136,598
128,114
56
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency exchange risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency
exchange rates, particularly changes in the Euro, British Pound Sterling and Japanese Yen. We seek to minimize
the impact of certain foreign currency fluctuations by hedging certain balance sheet exposures with foreign
currency forward contracts. Any gain or loss from settling these contracts is offset by the loss or gain derived
from the underlying balance sheet exposures. In accordance with our policy, the hedging contracts we enter into
have maturities of less than three months. Additionally, by policy, we do not enter into any hedging contracts for
trading or speculative purposes.
Interest rate sensitivity
We had cash, cash equivalents and marketable securities totaling $1.4 billion at January 31, 2012. This
amount was invested primarily in money market funds, time deposits, corporate notes and bonds, government
securities and other debt securities with credit ratings of at least single A or better. The cash, cash equivalents
and short-term marketable securities are held for working capital purposes. Our investments are made for capital
preservation purposes. We do not enter into investments for trading or speculative purposes.
Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in
interest rates. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest rates fall. Due in part to these
factors, our future investment income may fall short of expectation due to changes in interest rates or we may
suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest
rates. However because we classify our debt securities as “available for sale,” no gains or losses are recognized
due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are
determined to be other-than-temporary. Our fixed-income portfolio is subject to interest rate risk.
An immediate increase or decrease in interest rates of 100-basis points at January 31, 2012 could result in a
$12.1 million market value reduction or increase of the same amount. This estimate is based on a sensitivity
model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our
investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in
other comprehensive income, and are realized only if we sell the underlying securities.
At January 31, 2011, we had cash, cash equivalents and marketable securities totaling $1.4 billion. The
fixed-income portfolio was also subject to interest rate risk. Changes in interest rates of 100-basis points would
have resulted in market value changes of $27.7 million.
Market Risk and Market Interest Risk
In January 2010, we issued at par value $575.0 million of 0.75% convertible senior notes due 2015 (the
“Notes”). Holders may convert their Notes prior to maturity upon the occurrence of certain circumstances. Upon
conversion, we would pay the holder an amount of cash equal to the principal amount of the Notes. Amounts in
excess of the principal amount, if any, may be paid in cash or stock at our option. Concurrent with the issuance of
the Notes, we entered into separate note hedging transactions and the sale of warrants. These separate
transactions were completed to reduce the potential economic dilution from the conversion of the Notes.
For the three months ended January 31, 2012 the Notes were convertible at the option of the noteholder. For
20 trading days during the 30 consecutive trading days ended January 31, 2012, our common stock traded did not
exceed 130% of the conversion price of $85.36 per share applicable to the Notes. Accordingly, the Notes will not
be convertible at the holders’ option for the quarter ending April 30, 2012 and will be reclassified as a noncurrent
liability on our consolidated balance sheet so long as the Notes are not convertible.
57
The Notes have a fixed annual interest rate of 0.75% and therefore, we do not have economic interest rate
exposure on the Notes. However, the value of the Notes are exposed to interest rate risk. Generally, the fair
market value of our fixed interest rate Notes will increase as interest rates fall and decrease as interest rates rise.
In addition, the fair value of our Notes is affected by our stock price. The carrying value of our Notes was $496.1
million as of January 31, 2012. This represents the liability component of the $575.0 million principal balance as
of January 31, 2012. The total estimated fair value of our Notes at January 31, 2012 was $869.5 million and the
fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading
for the fourth quarter of fiscal 2012, which was $151.25.
We have an investment portfolio that includes strategic investments in public and privately-held companies,
many of which are in the development stage. When our ownership interests are less than 20 percent and we do
not have the ability to exert significant influence, we account for investments in non-marketable equity and debt
securities of the privately-held companies using the cost method of accounting. Otherwise, we account for the
investments using the equity method of accounting. As of January 31, 2012 and 2011 the fair value of these
investments was $48.3 million and $21.1 million, respectively.
58
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements are filed as part of this Annual Report on Form 10-K:
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
60
62
63
64
65
66
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of salesforce.com, inc.
We have audited the accompanying consolidated balance sheets of salesforce.com, inc. as of January 31,
2012 and 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for
each of the three years in the period ended January 31, 2012. Our audits also included the financial statement
schedule listed in the Index at Item 15(c). These financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of salesforce.com, inc. at January 31, 2012 and 2011, and the consolidated results
of its operations and its cash flows for each of the three years in the period ended January 31, 2012, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), salesforce.com, inc’s internal control over financial reporting as of January 31, 2012, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 9, 2012 expressed an unqualified
opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
March 9, 2012
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of salesforce.com, inc.
We have audited salesforce.com, inc.’s internal control over financial reporting as of January 31, 2012,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Salesforce.com, inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, salesforce.com, inc. maintained, in all material respects, effective internal control over
financial reporting as of January 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of salesforce.com, inc as of January 31, 2012 and 2011, and the
related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in
the period ended January 31, 2012 of salesforce.com, inc. and our report dated March 9, 2012 expressed an
unqualified opinion thereon.
San Jose, California
March 9, 2012
/s/ ERNST & YOUNG LLP
61
salesforce.com, inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $1,273 and
$1,711 at January 31, 2012 and 2011, respectively . . . . . . . . . . . . . . . . . . . . . .
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred commissions, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2012
January 31,
2011
$ 607,284
170,582
$ 424,292
72,678
683,745
98,471
31,821
80,319
1,672,222
669,308
527,946
78,149
87,587
188,412
785,381
155,149
426,943
67,774
27,516
55,721
1,074,924
910,587
387,174
48,842
41,199
127,987
396,081
104,371
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,164,154
$3,091,165
Liabilities, temporary equity and stockholders’ equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible senior notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
33,258
502,442
1,291,622
496,149
$
18,106
345,121
913,239
0
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible senior notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term lease liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,323,471
0
37,258
48,651
88,673
1,276,466
472,538
18,481
25,487
21,702
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,498,053
1,814,674
Temporary equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78,741
Commitments and contingencies (Notes 7 and 8)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized and none issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value; 400,000,000 shares authorized, 137,036,541
and 132,921,147 issued and outstanding at January 31, 2012 and 2011,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
0
137
1,415,077
12,683
159,463
133
1,098,604
6,719
171,035
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,587,360
1,276,491
Total liabilities, temporary equity and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . .
$4,164,154
$3,091,165
See accompanying Notes.
62
salesforce.com, inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Revenues:
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues (1)(2):
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses (1)(2):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before benefit (provision) for income taxes and
noncontrolling interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit (provision) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interest
. . . . . . . . . . . . .
Net income (loss) attributable to salesforce.com . . . . . . . . . . . . . . . . . . .
Earnings per share—basic and diluted:
Basic net income (loss) per share attributable to salesforce.com
Fiscal Year Ended January 31,
2012
2011
2010
$2,126,234
140,305
2,266,539
$1,551,145
105,994
1,657,139
$1,209,472
96,111
1,305,583
360,758
128,128
488,886
1,777,653
295,347
1,169,610
347,781
1,812,738
(35,085)
23,268
(17,045)
(4,455)
(33,317)
21,745
(11,572)
0
208,243
115,570
323,813
1,333,326
187,887
792,029
255,913
1,235,829
97,497
37,735
(24,909)
(6,025)
104,298
(34,601)
69,697
(5,223)
64,474
$
$ (11,572) $
159,172
98,753
257,925
1,047,658
131,897
605,199
195,290
932,386
115,272
30,408
(2,000)
(1,299)
142,381
(57,689)
84,692
(3,973)
80,719
0.65
0.63
common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(0.09) $
0.50
$
Diluted net income (loss) per share attributable to salesforce.com
common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.09)
0.47
Shares used in computing basic net income (loss) per share . . . . . . . . . .
Shares used in computing diluted net income (loss) per share . . . . . . . . .
135,302
135,302
130,222
136,598
124,462
128,114
(1) Amounts include amortization of purchased intangibles from business combinations, as follows:
Fiscal Year Ended January 31,
2011
2012
2010
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$60,069
7,250
$15,459
4,209
$8,010
3,241
(2) Amounts include stock-based expenses, as follows:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,451
45,894
115,730
50,183
$12,158
18,897
56,451
32,923
$12,570
13,129
39,722
23,471
Fiscal Year Ended January 31,
2012
2011
2010
See accompanying Notes.
63
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salesforce.com, inc.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Year Ended January 31,
2011
2010
2012
Operating activities:
Consolidated net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
$ (11,572) $
69,697
$
84,692
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount and transaction costs . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses related to stock-based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157,286
10,347
107,195
229,258
(6,018)
(244,947)
(167,199)
(10,736)
2,883
12,644
67,692
444,674
75,746
19,621
80,159
120,429
(35,991)
(102,507)
(121,247)
2,001
(9,770)
1,246
132,004
227,693
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
591,507
459,081
53,177
728
63,891
88,892
(51,539)
(54,522)
(82,336)
(3,899)
(1,405)
(1,588)
64,498
110,322
270,911
Investing activities:
Business combinations, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land activity and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(422,699)
(19,655)
(37,370)
(623,231)
724,564
40,346
(151,645)
(403,331)
(277,944)
(20,105)
(1,682,549)
1,197,492
214,770
(90,887)
(11,999)
0
(4,400)
(1,317,952)
874,573
130,663
(49,501)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(489,690)
(1,062,554)
(378,616)
Financing activities:
Proceeds from borrowings on convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of convertible note hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of subsidiary stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from equity plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration payment related to prior business combinations . . . . . . . .
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
0
0
116,565
6,018
(16,200)
(30,533)
75,850
5,325
182,992
424,292
0
0
0
(171,964)
160,402
35,991
0
(10,355)
14,074
2,385
(587,014)
1,011,306
567,094
59,283
(126,500)
0
93,856
51,539
0
(8,119)
637,153
(1,976)
527,472
483,834
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 607,284
$
424,292
$ 1,011,306
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes, net of tax refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,587
20,981
$
5,290
90
$
1,069
28,479
Non-cash financing and investing activities
Fixed assets acquired under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of stock options assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,839
7,318
13,224
0
17,000
0
See accompanying Notes.
65
salesforce.com, inc.
Notes to Consolidated Financial Statements
1. Summary of Business and Significant Accounting Policies
Description of Business
Salesforce.com, inc. (the “Company”) is a leading provider of enterprise cloud computing and social
enterprise solutions. The Company is dedicated to helping customers of all sizes and industries worldwide
transform themselves into social enterprises. Social enterprises leverage social, mobile and open technologies to
place their customers and employees at the center of their business and to engage and collaborate with them in
new and powerful ways.
Fiscal Year
The Company’s fiscal year ends on January 31. References to fiscal 2012, for example, refer to the fiscal
year ending January 31, 2012.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions in the Company’s consolidated financial statements and notes thereto.
Significant estimates and assumptions made by management include the determination of:
•
•
•
•
•
the best estimate of selling price of the deliverables included in multiple-deliverable revenue
arrangements,
the fair value of assets acquired and liabilities assumed for business combinations,
recognition and measurement of current and deferred income taxes,
the fair value of stock awards issued and
the valuation of strategic investments and the determination of other-than-temporary impairments.
Actual results could differ materially from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Segments
The Company operates as one operating segment. Operating segments are defined as components of an
enterprise for which separate financial information is evaluated regularly by the chief operating decision maker,
or decision making group, in deciding how to allocate resources and assessing performance. The Company has
made several acquisitions to expand its business and offerings. For example in fiscal 2012, the Company
acquired Radian6 Technologies Inc. (“Radian6”) to provide cloud based social media monitoring, measurement
and engagement solutions. This and other acquisitions made over the past two years have allowed the Company
to expand its offerings, presence and reach in various segments of the enterprise cloud computing market. While
the Company has offerings in multiple enterprise cloud computing market segments, the Company’s business
operates in one operating segment because the Company’s decision making group evaluates the Company’s
financial information and resources and assesses the performance of these resources on a consolidated basis.
Since the Company operates in one operating segment, all required financial segment information can be found
in the consolidated financial statements.
66
Foreign Currency Translation
The functional currency of the Company’s major foreign subsidiaries is generally the local currency.
Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are
recorded as part of a separate component of stockholders’ equity. Foreign currency transaction gains and losses
are included in net income (loss) for the period. All assets and liabilities denominated in a foreign currency are
translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated
at the average exchange rate during the period. Equity transactions are translated using historical exchange rates.
Concentrations of Credit Risk and Significant Customers
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of
cash and cash equivalents, marketable securities and trade accounts receivable. Although the Company deposits
its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. Collateral
is not required for accounts receivable. The Company maintains an allowance for doubtful accounts receivable
balances. The allowance is based upon historical loss patterns, the number of days that billings are past due and
an evaluation of the potential risk of loss associated with delinquent accounts.
One customer accounted for 6 percent of accounts receivable at January 31, 2012 and no single customer
accounted for more than 5 percent of accounts receivable at January 31, 2011. No single customer accounted for
5 percent or more of total revenue during fiscal 2012, 2011, and 2010.
As of January 31, 2012 and 2011, assets located outside the Americas were 13 percent and 16 percent of
total assets, respectively.
Revenues by geographical region are as follows (in thousands):
Revenues by geography:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended January 31,
2012
2011
2010
$1,540,289
408,456
317,794
$1,135,019
291,784
230,336
$ 923,823
232,367
149,393
$2,266,539
$1,657,139
$1,305,583
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. Cash and cash equivalents are stated at fair value.
Marketable Securities
Management determines the appropriate classification of marketable securities at the time of purchase and
reevaluates such determination at each balance sheet date. Securities are classified as available for sale and are
carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of
stockholders’ equity. Fair value is determined based on quoted market rates when observable or utilizing data
points that are observable, such as quoted prices, interest rates and yield curves. Declines in fair value judged to
be other-than-temporary on securities available for sale are included as a component of investment income. In
order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other
factors: the duration and extent to which the fair value has been less than the carrying value and its intent and
ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair market
value. The cost of securities sold is based on the specific-identification method. Interest on securities classified as
available for sale is also included as a component of investment income.
67
Fair Value Measurement
The Company reports its financial and non-financial assets and liabilities that are re-measured and reported
at fair value at each reporting period. The Company uses a three-tier fair value hierarchy, which prioritizes the
inputs used in the valuation methodologies in measuring fair value:
Level 1.
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2.
Include other inputs that are directly or indirectly observable in the marketplace.
Level 3.
Unobservable inputs which are supported by little or no market activity.
All of the Company’s cash equivalents, marketable securities and foreign currency derivative contracts are
classified within Level 1 or Level 2 because the Company’s cash equivalents, marketable securities and foreign
currency derivative contracts are valued using quoted market prices or alternative pricing sources and models
utilizing market observable inputs. The Company’s contingent considerations related to acquisitions are
classified within Level 3 because the liabilities are valued using significant unobservable inputs.
The following table presents information about the Company’s assets and liabilities that are measured at fair
value as of January 31, 2012 and indicates the fair value hierarchy of the valuation (in thousands):
Description
Cash equivalents (1):
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balances as of
January 31, 2012
Time deposits . . . . . . . . . . . . . . . . . . . . .
Money market mutual funds . . . . . . . . . .
$ 26,513
358,369
$
0
0
Marketable securities:
Corporate notes and obligations . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . .
Government obligations . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . .
U.S. agency obligations . . . . . . . . . . . . .
Foreign currency derivative contracts (2) . . . .
0
79,358
0
3,210
0
0
0
0
504,772
0
15,426
0
8,789
120,495
107,840
621
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$467,450
$757,943
Liabilities
Foreign currency derivative contracts (3) . . . .
Contingent considerations (related to
acquisitions, see Note 5) (3) . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0
0
0
$
2,551
0
$
2,551
$0
0
0
0
0
0
0
0
0
0
$0
$0
0
$0
$
26,513
358,369
504,772
79,358
15,426
3,210
8,789
120,495
107,840
621
$1,225,393
$
$
2,551
0
2,551
(1)
(2)
(3)
Included in “cash and cash equivalents” in the accompanying Consolidated Balance Sheet as of January 31,
2012, in addition to $222.4 million of cash.
Included in “prepaid expenses and other current assets” in the accompanying Consolidated Balance Sheet as
of January 31, 2012.
Included in “accrued expenses and other current liabilities” in the accompanying Consolidated Balance
Sheet as of January 31, 2012.
68
The following table presents the Company’s liabilities that were measured at fair value using significant
unobservable inputs (Level 3) during the fiscal year ended January 31, 2012. These consisted of the Company’s
contingent consideration liabilities related to acquisitions (in thousands):
Balance at February 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,138
262
(17,400)
Balance at January 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0
The following table presents information about the Company’s assets and liabilities that are measured at fair
value as of January 31, 2011 and indicates the fair value hierarchy of the valuation (in thousands):
Description
Cash equivalents (1):
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balances as of
January 31, 2011
Time deposits . . . . . . . . . . . . . . . . . . . . .
Money market mutual funds . . . . . . . . . .
$ 26,565
122,516
$
0
0
Marketable securities:
Corporate notes and obligations . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . .
Government obligations . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . .
U.S. agency obligations . . . . . . . . . . . . .
Foreign currency derivative contracts (2) . . . .
0
22,706
0
6,532
0
0
0
0
707,613
0
38,886
0
23,081
105,039
79,408
1,539
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$178,319
$955,566
Liabilities
Foreign currency derivative contracts (3) . . . .
Contingent consideration (related to
acquisitions, see Note 5) (3) . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0
0
0
$
2,863
0
$
2,863
$
$
$
0
0
0
0
0
0
0
0
0
0
0
0
17,138
$17,138
$
26,565
122,516
707,613
22,706
38,886
6,532
23,081
105,039
79,408
1,539
$1,133,885
$
2,863
17,138
$
20,001
(1)
(2)
(3)
Included in “cash and cash equivalents” in the accompanying Consolidated Balance Sheet as of January 31,
2011, in addition to $275.2 million of cash.
Included in “prepaid expenses and other current assets” in the accompanying Consolidated Balance Sheet as
of January 31, 2011.
Included in “accrued expenses and other current liabilities” in the accompanying Consolidated Balance
Sheet as of January 31, 2011.
The following table presents the Company’s liabilities that were measured at fair value using significant
unobservable inputs (Level 3) during the fiscal year ended January 31, 2011. These consisted of the Company’s
contingent consideration liabilities related to acquisitions and the fair value was determined using a discounted
cash flow model (in thousands):
Balance at February 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions and changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0
17,138
Balance at January 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,138
69
Strategic Investments
The Company has two investments in marketable equity securities measured using quoted prices in their
respective active markets and certain interests in non-marketable equity and debt securities that are considered
strategic investments. As of January 31, 2012, the fair value of the Company’s marketable equity securities of
$5.6 million includes an unrealized gain of $3.4 million. As of January 31, 2011, the fair value of the Company’s
marketable equity security of $6.0 million includes an unrealized gain of $5.2 million. These investments are
recorded in other assets, net on the consolidated balance sheets.
The Company’s interest in non-marketable equity and debt securities consists of noncontrolling equity and
debt investments in privately-held companies. The Company’s investments in these privately-held companies are
reported at cost or marked down to fair value when an event or circumstance indicates an other-than-temporary
decline in value has occurred. These investments are valued using significant unobservable inputs or data in an
inactive market and the valuation requires the Company’s judgment due to the absence of market price and
inherent lack of liquidity.
As of January 31, 2012 and 2011 the carrying value that approximates the fair value of the Company’s
investments in privately-held companies was $48.3 million and $21.1 million, respectively. These investments
are recorded in other assets, net on the consolidated balance sheets.
Derivative Financial Instruments
The Company enters into foreign currency derivative contracts with financial institutions to reduce the risk
that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The
Company uses forward currency derivative contracts to minimize the Company’s exposure of balances primarily
denominated in Euros, Japanese yen and British pounds. The Company’s foreign currency derivative contracts
which are not designated as hedging instruments are used to reduce the exchange rate risk associated primarily
with intercompany receivables and payables. The Company’s program is not designated for trading or
speculative purposes. As of January 31, 2012 and 2011 the foreign currency derivative contracts that were not
settled are recorded at fair value on the consolidated balance sheets.
Foreign currency derivative contracts are marked-to-market at the end of each reporting period with gains
and losses recognized as other income (expense) to offset the gains or losses resulting from the settlement or
remeasurement of the underlying foreign currency denominated receivables and payables. While the contract or
notional amount is often used to express the volume of foreign currency derivative contracts, the amounts
potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties’
obligations under the agreements exceed the obligations of the Company to the counterparties.
Details on outstanding foreign currency derivative contracts related primarily to intercompany receivables
and payables are presented below (in thousands):
Notional amount of foreign currency derivative contracts . . . . . . . . . . . . . . .
Fair value of foreign currency derivative contracts . . . . . . . . . . . . . . . . . . . .
$186,336
$ (1,930)
$202,491
$ (1,324)
January 31,
2012
January 31,
2011
70
The Company’s fair value of its outstanding derivative instruments are summarized below (in thousands):
Balance Sheet Location
Fair Value of Derivative Instruments
As of January 31,
2012
As of January 31,
2011
Derivative Assets
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts . . . . . . . . Prepaid expenses and
Derivative Liabilities
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts . . . . . . . . Accrued expenses and
other current liabilities
$2,551
$2,863
other current assets
$ 621
$1,539
The effect of the derivative instruments not designated as hedging instruments on the consolidated
statements of operations for the years ended January 31, 2012, 2011 and 2010, respectively are summarized
below (in thousands):
Derivatives Not Designated as Hedging Instruments
Gains (Losses) Recognized in Income on Derivative Instruments
Location
2012
2011
2010
Year ended January 31,
Foreign currency derivative contracts . . . . . . . . . . . Other expense
$(1,930)
$(1,324)
$1,191
Investment Income
Investment income consists of interest income, realized gains, and realized losses on the Company’s cash,
cash equivalents and marketable securities. The components of investment income are presented below (in
thousands):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,791
6,542
(4,065)
Total investment income . . . . . . . . . . . . . . . . . . . . . . . . .
$23,268
$28,273
12,460
(2,998)
$37,735
$21,219
13,391
(4,202)
$30,408
Fiscal Year Ended January 31,
2012
2011
2010
Interest Expense
Interest expense consists of interest on the Company’s capital lease commitments and 0.75% convertible
senior notes (the “Notes”), net of amounts capitalized. As described in Note 2, in accounting for the Notes at the
time of issuance in January 2010, the carrying amount of the liability component was calculated by measuring
the fair value of a similar liability that did not have an associated convertible feature. The excess of the principal
amount of the liability component over its carrying amount (“debt discount”) is amortized, using an effective
interest rate of 5.86%, to interest expense over the term of the Notes.
71
Property and Equipment
Fixed assets are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful
lives of those assets as follows:
Computers, equipment, and software . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . .
3 to 7 years
5 years
Shorter of the estimated useful life or the lease term
Amortized over the estimated useful lives of the
respective assets when they are ready for their
intended use.
When assets are retired, the cost and accumulated depreciation and amortization are removed from their
respective accounts and any loss on such retirement is reflected in operating expenses. When assets are otherwise
disposed of, the cost and related accumulated depreciation and amortization are removed from their respective
accounts and any gain or loss on such sale or disposal is reflected in other income (expense).
Capitalized Interest Cost
Interest costs related to major capital projects, specifically the Company’s campus project and capitalized
internal-use software development costs, are capitalized until the underlying asset is placed into service.
Capitalized interest is calculated by multiplying the effective interest rate of the Notes by the qualifying costs. As
the qualifying asset is placed into service, the qualifying asset and the related capitalized interest are amortized
over the useful life of the related asset. Interest costs of $14.1 million and $3.7 million related to the buildings
and improvements and $0.5 million and $0.3 million related to the Company’s capitalized internal-use software
development efforts were capitalized in fiscal 2012 and 2011, respectively.
Goodwill, Intangible Assets, Long-Lived Assets and Impairment Assessments
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the
underlying net tangible and intangible assets. In the event that the Company determines that the carrying value of
goodwill is less than fair value, the Company will incur an impairment charge for the amount of the difference
during the quarter in which the determination is made. The Company evaluates and tests the recoverability of the
goodwill for impairment annually in the fourth quarter or more often if and when circumstances indicate that
goodwill may not be recoverable. There was no impairment of goodwill during fiscal 2012, 2011 and 2010.
Intangible assets are amortized over their useful lives. Each period the Company evaluates the estimated
remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to
the remaining period of amortization. The carrying amounts of these assets are periodically reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not
be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to
the future undiscounted cash flows the asset is expected to generate. In the event that the Company determines
certain assets are not fully recoverable, the Company will incur an impairment charge for those assets or portion
thereof during the quarter in which the determination is made. There was no impairment of intangible assets
during fiscal 2012, 2011 and 2010.
The Company evaluates the recoverability of its long-lived assets for possible impairment whenever events
or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review
indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is
reduced to fair value. There was no impairment of long-lived assets during fiscal 2012, 2011 and 2010.
Capitalized Software Costs
The Company capitalizes costs related to its enterprise cloud computing services incurred during the
application development stage. Costs related to preliminary project activities and post implementation activities
72
were expensed as incurred. Internal-use software is amortized on a straight line basis over its estimated useful life,
generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for
impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
The Company capitalized $27.6 million, $19.6 million, and $15.1 million of development costs during fiscal
2012, 2011 and 2010, respectively. Amortization expense totaled $15.8 million, $13.1 million and $9.9 million
during fiscal 2012, 2011 and 2010, respectively. There was no impairment of capitalized software costs during
fiscal 2012, 2011 and 2010.
Earnings/Loss Per Share
Basic earnings/loss per share attributable to salesforce.com is computed by dividing net income (loss)
attributable to salesforce.com by the weighted-average number of common shares outstanding for the fiscal
period. Diluted earnings/loss per share attributable to salesforce.com is computed giving effect to all potential
weighted average dilutive common stock, including options, restricted stock units, warrants and the convertible
senior notes. The dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings
per share by application of the treasury stock method. Diluted earnings/loss per share for the fiscal year ended
January 31, 2012 is the same as basic earnings/loss per share as there is a net loss in the period and inclusion of
potentially issuable shares would be anti-dilutive.
A reconciliation of the denominator used in the calculation of basic and diluted earnings/loss per share
attributable to salesforce.com is as follows (in thousands):
Fiscal Year Ended January 31,
2012
2011
2010
Numerator:
Net income (loss) attributable to salesforce.com . . . . . . . . . . . . .
$ (11,572)
$ 64,474
$ 80,719
Denominator:
Weighted-average shares outstanding for basic earnings per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135,302
130,222
124,462
Effect of dilutive securities:
Convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
1,561
4,815
0
3,652
Adjusted weighted-average shares outstanding and assumed
conversions for diluted earnings per share . . . . . . . . . . . . . . . .
135,302
136,598
128,114
The weighted-average number of shares outstanding used in the computation of basic and diluted earnings/
loss per share does not include the effect of the following potential outstanding common stock. The effects of
these potentially outstanding shares were not included in the calculation of diluted earnings/loss per share
because the effect would have been anti-dilutive (in thousands):
Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Taxes
Fiscal Year Ended January 31,
2012
7,560
6,736
6,735
2011
1,061
6,736
0
2010
4,455
6,736
0
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on temporary differences between the financial statement and tax basis
of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the
year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change
73
in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be
realized.
Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax
jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it
is more likely than not that the position is sustainable upon examination by the taxing authority, based on the
technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50
percent likely to be realized upon settlement with the taxing authority. The Company recognizes interest accrued
and penalties related to unrecognized tax benefits in its tax provision.
The total income tax benefit recognized in the accompanying consolidated statements of operations related
to stock-based awards was $76.0 million, $44.1 million and $32.1 million for fiscal 2012, 2011 and 2010,
respectively.
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in its tax
provision. As of January 31, 2012, the Company accrued no penalties and an immaterial amount of interest in
income tax expense.
Revenue Recognition
The Company derives its revenues from two sources: (1) subscription revenues, which are comprised of
subscription fees from customers accessing the Company’s enterprise cloud computing services and from
customers purchasing additional support beyond the standard support that is included in the basic subscription
fees; and (2) related professional services such as process mapping, project management, implementation
services and other revenue. “Other revenue” consists primarily of training fees.
The Company commences revenue recognition when all of the following conditions are satisfied:
• There is persuasive evidence of an arrangement;
• The service has been or is being provided to the customer;
• The collection of the fees is reasonably assured; and
• The amount of fees to be paid by the customer is fixed or determinable.
The Company’s subscription service arrangements are non-cancelable and do not contain refund-type
provisions.
Subscription and Support Revenues
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract, which is the date the Company’s service is made available to customers.
Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue,
depending on whether the revenue recognition criteria have been met.
Professional Services and Other Revenues
The majority of the Company’s professional services contracts are on a time and material basis. When these
services are not combined with subscription revenues as a single unit of accounting, as discussed below, these
revenues are recognized as the services are rendered for time and material contracts, and when the milestones are
achieved and accepted by the customer for fixed price contracts. Training revenues are recognized as the services
are performed.
74
Multiple-Deliverable Arrangements
The Company enters into arrangements with multiple-deliverables that generally include subscription,
premium support and professional services.
Prior to February 1, 2011, the deliverables in multiple-deliverable arrangements were accounted for
separately if the delivered items had standalone value and there was objective and reliable evidence of fair value
for the undelivered items. If the deliverables in a multiple-deliverable arrangement could not be accounted for
separately, the total arrangement fee was recognized ratably as a single unit of accounting over the contracted
term of the subscription agreement. A significant portion of the Company’s multiple-deliverable arrangements
were accounted for as a single unit of accounting because the Company did not have objective and reliable
evidence of fair value for certain of its deliverables. Additionally, in these situations, the Company deferred the
direct costs of a related professional services arrangement and amortized those costs over the same period as the
professional services revenue was recognized.
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
No. 2009-13, “Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements—a consensus of
the FASB Emerging Issues Task Force” (“ASU 2009-13”) which amended the previous multiple-deliverable
arrangements accounting guidance. Pursuant to the updated guidance, objective and reliable evidence of fair
value of the deliverables to be delivered is no longer required in order to account for deliverables in a multiple-
deliverable arrangement separately. Instead, arrangement consideration is allocated to deliverables based on their
relative selling price.
In the first quarter of fiscal 2012, the Company adopted this updated accounting guidance on a prospective
basis. The Company applied the new accounting guidance to those multiple-deliverable arrangements entered
into or materially modified on or after February 1, 2011, which is the beginning of the Company’s fiscal year.
The adoption of this updated accounting guidance did not have a material impact on the Company’s
financial condition, results of operations or cash flows. As of January 31, 2012, the deferred professional services
revenue and deferred costs under the previous accounting guidance are $30.5 million and $14.3 million,
respectively, which will continue to be recognized over the related remaining subscription period.
Under the updated accounting guidance, in order to treat deliverables in a multiple-deliverable arrangement
as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables
have standalone value upon delivery, the Company accounts for each deliverable separately. Subscription
services have standalone value as such services are often sold separately. In determining whether professional
services have standalone value, the Company considers the following factors for each professional services
agreement: availability of the services from other vendors, the nature of the professional services, the timing of
when the professional services contract was signed in comparison to the subscription service start date and the
contractual dependence of the subscription service on the customer’s satisfaction with the professional services
work. To date, the Company has concluded that all of the professional services included in multiple-deliverable
arrangements executed have standalone value.
Under the updated accounting guidance, when multiple-deliverables included in an arrangement are
separated into different units of accounting, the arrangement consideration is allocated to the identified separate
units based on a relative selling price hierarchy. The Company determines the relative selling price for a
deliverable based on its vendor-specific objective evidence of selling price (“VSOE”), if available, or its best
estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party
evidence of selling price (“TPE”) is not a practical alternative due to differences in its service offerings compared
to other parties and the availability of relevant third-party pricing information. The amount of revenue allocated
to delivered items is limited by contingent revenue.
For certain professional services, the Company has established VSOE as a consistent number of standalone
sales of this deliverable have been priced within a reasonably narrow range. The Company has not established
75
VSOE for its subscription services due to lack of pricing consistency, the introduction of new services and other
factors. Accordingly, the Company uses its BESP to determine the relative selling price.
The Company determined BESP by considering its overall pricing objectives and market conditions.
Significant pricing practices taken into consideration include the Company’s discounting practices, the size and
volume of the Company’s transactions, the customer demographic, the geographic area where services are sold,
price lists, its go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is
made through consultation with and approval by the Company’s management, taking into consideration the
go-to-market strategy. As the Company’s go-to-market strategies evolve, the Company may modify its pricing
practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.
Deferred Revenue
The deferred revenue balance does not represent the total contract value of annual or multi-year,
non-cancelable subscription agreements. Deferred revenue primarily consists of billings or payments received in
advance of revenue recognition from subscription services described above and is recognized as the revenue
recognition criteria are met. The Company generally invoices customers in annual or quarterly installments.
Deferred revenue is influenced by several factors, including seasonality, the compounding effects of renewals,
invoice duration, invoice timing and new business linearity within the quarter.
As a result of the updated accounting guidance previously described, billings against professional services
arrangements entered into prior to February 1, 2011 were generally added to deferred revenue and recognized
over the remaining related subscription contract term.
Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current
deferred revenue and the remaining portion is recorded as noncurrent.
Deferred Commissions
Deferred commissions are the incremental costs that are directly associated with non-cancelable
subscription contracts with customers and consist of sales commissions paid to the Company’s direct sales force.
The commissions are deferred and amortized over the non-cancelable terms of the related customer
contracts, which are typically 12 to 24 months. The commission payments are paid in full the month after the
customer’s service commences. The deferred commission amounts are recoverable through the future revenue
streams under the non-cancelable customer contracts. The Company believes this is the preferable method of
accounting as the commission charges are so closely related to the revenue from the non-cancelable customer
contracts that they should be recorded as an asset and charged to expense over the same period that the
subscription revenue is recognized. Amortization of deferred commissions is included in marketing and sales
expense in the accompanying consolidated statements of operations.
Business Combinations
The Company uses its best estimates and assumptions to accurately assign fair value to the tangible and
intangible assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently
uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year
from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities
assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final
determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to the Company’s consolidated statements of operations.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a
business combination are initially estimated as of the acquisition date. The Company continues to collect
76
information in order to determine their estimated fair values as of the date of acquisition. The Company
reevaluates these items quarterly and records any adjustments to the Company’s preliminary estimates to
goodwill provided that the Company is within the measurement period. Subsequent to the measurement period,
changes to these uncertain tax positions and tax related valuation allowances will affect the Company’s provision
for income taxes in the Company’s consolidated statements of operations.
Accounting for Stock-Based Compensation
The Company recognizes stock-based expenses related to stock options on a straight-line basis over the
requisite service period of the awards, which is the vesting term of four years. The Company recognizes stock-
based expenses related to the Employee Stock Purchase Plan (“ESPP”) on a straight-line basis over the offering
period, which is twelve months. Stock-based expenses are recognized net of estimated forfeiture activity.
The fair value of each option grant and stock purchase right granted under the ESPP was estimated on the
date of grant using the Black-Scholes option pricing model with the following assumptions and fair value per
share:
Stock Options
Fiscal Year Ended January 31,
2012
2011
2010
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average risk-free interest rate . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average fair value per share of grants . . .
47 - 51%
3.7 years
0.68 - 1.77%
0
$49.14
45 - 50%
3.7 - 3.8 years
0.98 - 2.1%
0
$48.83
50 - 60%
3.8 - 4 years
1.78 - 2.39%
0
$24.73
ESPP
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average risk-free interest rate . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average fair value per share of grants . . .
2012
50 - 53%
6 - 12 months
0.95 - 1.08%
0
$34.34
2011
0
0
0
0
$0.00
2010
0
0
0
0
$0.00
Fiscal Year Ended January 31,
The estimated life for the stock options was based on an actual analysis of expected life. The estimated life
for the ESPP was based on the two purchase periods within the offering period. The risk free interest rate is based
on the rate for a U.S. government security with the same estimated life at the time of the option grant and the
stock purchase rights.
The Company estimated its future stock price volatility considering both its observed option-implied
volatilities and its historical volatility calculations. Management believes this is the best estimate of the expected
volatility over the expected life of its stock options and stock purchase rights.
During fiscal 2012 and 2011, the Company capitalized $2.4 million and $2.6 million, respectively, of stock
based expenses related to capitalized internal-use software development and deferred professional services costs.
During fiscal 2012, the Company recognized stock-based expense of $229.3 million. As of January 31,
2012, the aggregate stock compensation remaining to be amortized to costs and expenses was $820.6 million.
The Company expects this stock compensation balance to be amortized as follows: $296.5 million during fiscal
2013; $256.4 million during fiscal 2014; $196.1 million during fiscal 2015 and $71.6 million during fiscal 2016.
The expected amortization reflects only outstanding stock awards as of January 31, 2012 and assumes no
forfeiture activity. The Company expects to continue to issue stock-based awards to its employees and continue
its ESPP in future periods.
77
Warranties and Indemnification
The Company’s enterprise cloud computing services are typically warranted to perform in a manner
consistent with general industry standards that are reasonably applicable and materially in accordance with the
Company’s online help documentation under normal use and circumstances.
The Company’s arrangements generally include certain provisions for indemnifying customers against
liabilities if its products or services infringe a third-party’s intellectual property rights. To date, the Company has
not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such
obligations in the accompanying consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any
fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or
proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service
as a director or officer, including any action by the Company, arising out of that person’s services as the
Company’s director or officer or that person’s services provided to any other company or enterprise at the
Company’s request. The Company maintains director and officer insurance coverage that would generally enable
the Company to recover a portion of any future amounts paid. The Company may also be subject to
indemnification obligations by law with respect to the actions of its employees under certain circumstances and
in certain jurisdictions.
Advertising Expenses
Advertising is expensed as incurred. Advertising expense was $80.3 million, $61.4 million and $50.8
million for fiscal 2012, 2011 and 2010, respectively.
Subsequent Events
The Company evaluated subsequent events through the date this Annual Report on Form 10-K was filed
with the SEC.
New Accounting Pronouncements
In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Disclosure of
Supplementary Pro Forma Information for Business Combinations (Topic 805)—Business Combinations
(“ASU 2010-29”), to improve consistency in how the pro forma disclosures are calculated. Additionally, ASU
2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material,
nonrecurring pro forma adjustments directly attributable to a business combination. ASU 2010-29 is effective for
the Company in fiscal 2013 and should be applied prospectively to business combinations for which the
acquisition date is after the effective date. The Company does not believe the impact of the pending adoption of
ASU 2010-29 will have a significant effect on the consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic
220)—Presentation of Comprehensive Income (“ASU 2011-05”), to require an entity to present the total of
comprehensive income, the components of net income, and the components of other comprehensive income
either in a single continuous statement of comprehensive income or in two separate but consecutive statements.
ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the
statement of equity. ASU 2011-05 is effective for the Company in fiscal 2013 and should be applied
retrospectively. The Company does not believe the impact of the pending adoption of ASU 2011-05 will have a
significant effect on the consolidated financial statements.
78
2. Balance Sheet Accounts
Marketable Securities
At January 31, 2012, marketable securities consisted of the following (in thousands):
Investments classified as Marketable Securities
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Corporate notes and obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . .
U.S. agency obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$502,894
79,290
15,206
3,132
8,753
118,729
107,515
$3,485
70
375
78
47
2,192
331
$(1,607) $504,772
79,358
15,426
3,210
8,789
120,495
107,840
(2)
(155)
0
(11)
(426)
(6)
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$835,519
$6,578
$(2,207) $839,890
At January 31, 2011, marketable securities consisted of the following (in thousands):
Investments classified as Marketable Securities
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Corporate notes and obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . .
U.S. agency obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$701,047
22,631
38,348
6,414
23,121
104,285
79,242
$7,356
85
656
118
79
1,098
190
$ (790) $707,613
22,706
38,886
6,532
23,081
105,039
79,408
(10)
(118)
0
(119)
(344)
(24)
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$975,088
$9,582
$(1,405) $983,265
The duration of the investments classified as marketable securities is as follows (in thousands):
Recorded as follows:
Short-term (due in one year or less) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term (due between one and 3 years) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of January 31,
2012
2011
$170,582
669,308
$ 72,678
910,587
$839,890
$983,265
79
As of January 31, 2012, the following marketable securities were in an unrealized loss position (in
thousands):
Corporate notes and obligations . . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . . .
U.S. agency obligations . . . . . . . . . . . . . . .
Less than 12 Months
12 Months or Greater
Total
Fair Value
$163,711
39,037
1,339
0
23,614
12,384
Unrealized
Losses
Fair Value
Unrealized
Losses
$(1,545)
(2)
(73)
0
(189)
(6)
$ 7,364
0
4,252
1,690
13,110
0
$ (62)
0
(82)
(11)
(237)
0
Fair Value
$171,075
39,037
5,591
1,690
36,724
12,384
Unrealized
Losses
$(1,607)
(2)
(155)
(11)
(426)
(6)
$240,085
$(1,815)
$26,416
$(392)
$266,501
$(2,207)
The unrealized loss for each of these fixed rate marketable securities ranged from less than $1,000 to
$163,000. The Company does not believe any of the unrealized losses represent an other-than-temporary
impairment based on its evaluation of available evidence as of January 31, 2012. The Company expects to
receive the full principal and interest on all of these marketable securities.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
Deferred professional services costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment, net
Property and equipment consisted of the following (in thousands):
As of January 31,
2012
2011
$10,399
12,785
57,135
$17,908
720
37,093
$80,319
$55,721
As of January 31,
2012
2011
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 248,263
43,868
232,460
25,250
137,587
$ 248,263
10,115
115,736
20,462
100,380
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
687,428
(159,482)
494,956
(107,782)
$ 527,946
$ 387,174
Depreciation and amortization expense totaled $69.8 million, $41.4 million and $31.9 million during fiscal
2012, 2011 and 2010, respectively.
Computers, equipment and software at January 31, 2012 and 2011 included a total of $105.1 million and
$38.8 million acquired under capital lease agreements, respectively. Accumulated amortization relating to
80
computers, equipment and software under capital leases totaled $31.7 million and $18.5 million, respectively, at
January 31, 2012 and 2011. Amortization of assets under capital leases is included in depreciation and
amortization expense.
Land and buildings and improvements
During the fourth quarter of fiscal 2011, the Company purchased approximately 14 acres of undeveloped
land in San Francisco, California, including entitlements and improvements associated with the land, and
perpetual parking rights in an existing garage for approximately $278.0 million in cash. During fiscal 2011, the
Company recorded $248.3 million to the undeveloped land and $6.4 million to buildings and improvements. The
Company recorded $23.3 million for the perpetual parking rights as a purchased intangible asset in other assets
on the consolidated balance sheet.
Pre-construction costs capitalized related to the development of the land including interest costs and
property taxes were $33.8 million in fiscal 2012.
Capitalized Software
Capitalized software consisted of the following (in thousands):
Capitalized internal-use software development costs, net of accumulated
amortization of $50,300 and $34,513, respectively . . . . . . . . . . . . . . . . . . .
Acquired developed technology, net of accumulated amortization of $99,886
and $37,818, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of January 31,
2012
2011
$ 41,442
$ 29,154
146,970
98,833
$188,412
$127,987
Capitalized internal-use software amortization expense totaled $15.8 million and $13.1 million for the years
ended January 31, 2012 and 2011, respectively. Acquired developed technology amortization expense totaled
$62.1 million and $16.9 million for the years ended January 31, 2012 and 2011, respectively.
As described in Note 5 “Business Combinations” the Company acquired Radian6 in May 2011.
Approximately $84.2 million of the purchase consideration was allocated to acquired developed technology.
Other Assets, net
Other assets consisted of the following (in thousands):
Deferred professional services costs, noncurrent portion . . . . . . . . . . . . . . . . .
Long-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased intangible assets, net of accumulated amortization of $17,868 and
$9,868, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intellectual property, net of accumulated amortization of $3,139
and $746, respectively.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of January 31,
2012
2011
$
3,935
13,941
$ 10,201
12,114
46,110
31,660
15,020
53,949
22,194
5,874
27,065
17,457
$155,149
$104,371
81
As described in Note 5 “Business Combinations” the Company acquired Radian6 in May 2011.
Approximately $18.8 million of the purchase consideration was allocated to purchased intangible assets.
Purchased intangible assets amortization expense for the fiscal years ended January 31, 2012 and 2011, was
$8.0 million and $4.2 million, respectively.
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net
tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at
least annually during the fourth quarter. There was no impairment of goodwill during fiscal 2012 and 2011.
Goodwill consisted of the following (in thousands):
Balance as of January 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jigsaw Data Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Heroku, Inc.
DimDim, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finalization of fiscal 2010 acquisition date fair value . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of January 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manymoon Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Radian6 Technologies, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assistly, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Model Metrics, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finalization of fiscal 2011 acquisition date fair value . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 48,955
133,254
181,304
23,373
(1,150)
10,345
396,081
10,519
262,027
46,038
56,502
(1,960)
16,174
Balance as of January 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$785,381
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income and other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued professional costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued rent
$228,466
121,957
100,471
21,993
29,555
$148,275
112,840
49,135
12,548
22,323
$502,442
$345,121
As of January 31,
2012
2011
Convertible Senior Notes
In January 2010, the Company issued at par value $575.0 million of 0.75% convertible senior notes (the
“Notes”) due January 15, 2015. Interest is payable semi-annually in arrears on January 15 and July 15 of each
year, commencing July 15, 2010.
The Notes are governed by an Indenture dated as of January 19, 2010, between the Company, as issuer, and
U.S. Bank National Association, as trustee. The Notes do not contain any financial covenants or any restrictions
82
on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of
securities by the Company. The Notes are unsecured and rank senior in right of payment to the Company’s future
indebtedness that is expressly subordinated in right of payment to the Notes and rank equal in right of payment to
the Company’s existing and future unsecured indebtedness that is not so subordinated and are effectively
subordinated in right of payment to any of the Company’s cash equal to the principal amount of the Notes, and
secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally
subordinated to all existing and future indebtedness and liabilities incurred by our subsidiaries, including trade
payables.
If converted, holders will receive cash equal to the principal amount of the Notes, and at the Company’s
election, cash and/or shares of the Company’s common stock for any amounts in excess of the principal amounts.
The initial conversion rate is 11.7147 shares of common stock per $1,000 principal amount of Notes, subject
to anti-dilution adjustments. The initial conversion price is $85.36 per share of common stock. Throughout the
term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any
cash dividends. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest
upon conversion of a Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather
than cancelled, extinguished or forfeited. Holders may convert their Notes under the following circumstances:
•
•
•
•
during any fiscal quarter, if, for at least 20 trading days during the 30 consecutive trading day period
ending on the last trading day of the immediately preceding fiscal quarter, the last reported sales price
of the Company’s common stock for such trading day is greater than or equal to 130% of the applicable
conversion price on such trading day share of common stock on such last trading day;
in certain situations, when the trading price of the Notes is less than 98% of the product of the sale
price of the Company’s common stock and the conversion rate;
upon the occurrence of specified corporate transactions described under the Notes Indenture, such as a
consolidation, merger or binding share exchange; or
at any time on or after October 15, 2014.
For 20 trading days during the 30 consecutive trading days ended October 31, 2011, the Company’s
common stock traded at a price exceeding 130% of the conversion price of $85.36 per share applicable to the
Notes. Therefore the Notes were convertible at the option of the holder up to 6.7 million of the Company’s
common shares as of January 31, 2012 and the Notes were classified as a current liability on the Company’s
consolidated balance sheet. Additionally, a portion of the equity component of the Notes attributable to the
conversion feature of the Notes is classified in temporary stockholders’ equity equal to the difference between
the principal amount and carrying value of the Notes.
For 20 trading days during the 30 consecutive trading days ended January 31, 2012, the Company’s
common stock did not exceed 130% of the conversion price of $85.36 per share applicable to the Notes.
Accordingly, the Notes will not be convertible at the holders’ option for the quarter ending April 30, 2012 and
will be reclassified as a noncurrent liability on the Company’s consolidated balance sheet so long as the Notes
are not convertible.
Holders of the Notes have the right to require the Company to purchase with cash all or a portion of the
Notes upon the occurrence of a fundamental change, such as a change of control at a purchase price equal to
100% of the principal amount of the Notes plus accrued and unpaid interest. Following certain corporate
transactions that constitute a change of control, the Company will increase the conversion rate for a holder who
elects to convert the Notes in connection with such change of control in certain circumstances.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity
components. The carrying amount of the liability component was calculated by measuring the fair value of a
83
similar liability that does not have an associated convertible feature. The carrying amount of the equity
component representing the conversion option was determined by deducting the fair value of the liability
component from the par value of the Notes as a whole. The excess of the principal amount of the liability
component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Note.
The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the Note issuance, the Company allocated the total amount
incurred to the liability and equity components based on their relative values. Transaction costs attributable to the
liability component are being amortized to expense over the term of the Notes, and transaction costs attributable
to the equity component were netted with the equity component in temporary stockholders’ equity and
stockholders’ equity. Additionally, the Company recorded a deferred tax liability of $51.1 million in connection
with the Notes.
The Notes consisted of the following (in thousands):
As of January 31,
2012
2011
Liability component:
Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: debt discount, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$574,890
(78,741)
$ 575,000
(102,462)
Net carrying amount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$496,149
$ 472,538
(1)
Included in the consolidated balance sheets within 0.75% convertible senior notes and is amortized over the
remaining life of the Notes using the effective interest rate method.
As of January 31, 2012, the remaining life of the Notes is approximately 3 years.
The following table sets forth total interest expense recognized related to the Notes prior to capitalization of
interest (in thousands):
Contractual interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
January 31,
2012
2011
$ 4,312
1,324
23,720
$ 4,313
1,324
22,396
$29,356
$28,033
Effective interest rate of the liability component
. . . . . . . . . . . . . . . . . . . . . . . . .
5.86%
5.86%
Note Hedges
To minimize the impact of potential economic dilution upon conversion of the Notes, the Company entered
into convertible note hedge transactions with respect to its common stock (the “Note Hedges”). The Company
paid, in January 2010, an aggregate amount of $126.5 million for the Note Hedges. The Note Hedges cover,
approximately 6.7 million shares of the Company’s common stock at a strike price that corresponds to the initial
conversion price of the Notes, also subject to adjustment, and are exercisable upon conversion of the Notes. The
Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential
economic dilution upon conversion of the Notes in the event that the market value per share of the Company’s
common stock, as measured under the Notes, at the time of exercise is greater than the conversion price of the
Notes. The Note Hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes
will not have any rights with respect to the Note Hedges. The Company initially recorded a deferred tax asset of
$51.4 million in connection with these Note Hedges.
84
Warrants
Separately, the Company in January 2010 also entered into warrant transactions (the “Warrants”), whereby
the Company sold warrants to acquire, subject to anti-dilution adjustments, up to 6.7 million shares of the
Company’s common stock at a strike price of $119.51 per share. The Company received aggregate proceeds of
$59.3 million from the sale of the Warrants. As the average market value per share of the Company’s common
stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the
Warrants would have a dilutive effect on the Company’s earnings/loss per share. The Warrants were anti-dilutive
for the fiscal year ended January 31, 2012. The Warrants are separate transactions, entered into by the Company
and are not part of the terms of the Notes or Note Hedges. Holders of the Notes and Note Hedges will not have
any rights with respect to the Warrants.
3. Stockholders’ Equity
The Company maintains the following stock plans: the 2004 Equity Incentive Plan, 2004 Employee Stock
Purchase Plan and the 2004 Outside Directors Stock Plan. These plans, other than the 2004 Outside Directors
Stock Plan, provide for annual automatic increases on February 1 to the shares reserved for issuance. The
expiration of the 1999 Stock Option Plan (“1999 Plan”) in fiscal 2010 did not affect awards outstanding, which
continue to be governed by the terms and conditions of the 1999 Plan.
On February 1, 2012, 3.5 million additional shares were reserved under the 2004 Equity Incentive Plan
pursuant to the automatic increase.
In September 2011, the Company’s Board of Directors amended and restated the 2004 Employee Stock
Purchase Plan (the “ESPP”). Initially, the ESPP was established in 2004, but the Company’s Board of Directors
authorization was required for the commencement of one or more offerings. In conjunction with the amendment
of the ESPP, the Company’s Board of Directors determined that the offerings under the ESPP would commence,
beginning with a twelve month offering period starting in December 2011. Under the Company’s ESPP,
employees are granted the right to purchase shares of common stock at a price per share that is 85% of the lesser
of the fair market value of the shares at (1) the beginning of a rolling one-year offering period or (2) the end of
each semi-annual purchase period, subject to a plan limit on the number of shares that may be purchased in a
purchase period. As of January 31, 2012, the Company has 1,000,000 shares of its common stock reserved for
future issuance under this plan. As of January 31, 2012, $10.1 million has been held on behalf of employees for
future purchases under the plan and is recorded in accrued expenses and other current liabilities. This amount is
also included in proceeds from equity plans in the financing activities section of the consolidated statements of
cash flows.
In April 2006, the Company’s Board of Directors approved the 2006 Inducement Equity Incentive Plan (the
“Inducement Plan”) that allows for stock option and other equity incentive grants to employees in connection
with merger or acquisition activity. In September 2011, the Company’s Board of Directors amended the
Inducement Plan to increase the share reserve by 400,000 shares.
Prior to February 1, 2006, options issued under the Company’s stock option plans generally had a term of 10
years. After February 1, 2006, options issued have a term of 5 years.
85
Stock activity is as follows:
Options Outstanding
Shares
Available
for Grant
Outstanding
Stock
Options
Weighted-
Average
Exercise Price
Aggregate
Intrinsic Value
(in thousands)
Balance as of January 31, 2011 . . . . . . . . . . . . . . . . . . . .
4,095,460
11,783,159
$ 65.35
Increase in shares authorized/assumed:
2004 Equity Incentive Plan . . . . . . . . . . . . . . .
2006 Equity Inducement Plan . . . . . . . . . . . . .
Radian6 Technologies Inc. Stock Option
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assistly Option Plan . . . . . . . . . . . . . . . . . . . .
Model Metrics Inc. 2008 Stock Option
3,500,000
400,000
239,519
49,379
0
0
0
0
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted under all plans . . . . . . . . . . . . . . . .
Restricted stock activity . . . . . . . . . . . . . . . . . . . . . .
Stock grants to board and advisory board
members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 Plan shares expired . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,463
(2,608,917)
(2,879,321)
0
2,608,917
0
(39,525)
0
(62,862)
723,797
0
(2,483,372)
0
(723,797)
0.00
0.00
0.00
0.00
0.00
112.31
0.00
0.00
42.87
0.00
88.86
Balance as of January 31, 2012 . . . . . . . . . . . . . . . . . . . .
3,440,993
11,184,907
$ 79.78
$489,693
Vested or expected to vest . . . . . . . . . . . . . . . . . . . . . . . .
10,876,574
$ 78.91
$484,159
Exercisable as of January 31, 2012 . . . . . . . . . . . . . . . . .
4,992,175
$ 54.02
$329,956
The total intrinsic value of the options exercised during the fiscal 2012, 2011 and 2010 were $224.9 million,
$322.5 million and $105.2 million, respectively. The intrinsic value is the difference of the current market value
of the stock and the exercise price of the stock option.
The weighted-average remaining contractual life of vested and expected to vest options is approximately
3 years.
As of January 31, 2012, options to purchase 4,992,175 shares were vested at a weighted average exercise
price of $54.02 per share and a remaining weighted-average remaining contractual life of approximately 2.2
years. The total intrinsic value of these vested options as of January 31, 2012 was $330.0 million.
The following table summarizes information about stock options outstanding as of January 31, 2012:
Options Outstanding
Options Exercisable
Range of Exercise
Prices
$1.10 to $25.19
$25.97
$27.40 to $63.98
$65.41 to $65.44
$65.68 to $108.25
$111.86 to $140.28
$142.50 to $151.75
Number
Outstanding
988,852
1,680,032
1,600,636
1,815,556
1,816,238
860,994
2,422,599
11,184,907
Weighted-Average
Remaining
Contractual Life
(Years)
Weighted-
Average
Exercise
Price
Number of
Shares
844,122
1,118,968
1,361,588
754,609
219,855
87,586
605,447
Weighted-
Average
Exercise
Price
$ 10.56
25.97
50.58
65.44
73.04
127.05
142.50
$ 10.68
25.97
50.34
65.44
99.06
128.89
143.57
$ 79.78
4,992,175
$ 54.02
3.0
1.8
1.4
2.8
4.2
4.5
3.9
3.1
86
Restricted stock activity is as follows:
Restricted Stock Outstanding
Balance as of January 31, 2010 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and converted to shares . . . . . . . . . . . . . . . .
Balance as of January 31, 2011 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and converted to shares . . . . . . . . . . . . . . . .
Outstanding
2,316,452
2,048,925
(223,220)
(926,054)
3,216,103
3,207,805
(288,959)
(1,172,686)
Balance as of January 31, 2012 . . . . . . . . . . . . . . . . . . . .
4,962,263
Expected to vest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,811,402
Weighted-
Average
Exercise Price
Aggregate
Intrinsic Value
(in thousands)
0.001
0.001
0.001
0.001
$0.001
0.001
0.001
0.001
$0.001
$579,592
$561,972
The restricted stock, which upon vesting entitles the holder to one share of common stock for each share of
restricted stock, has an exercise price of $0.001 per share, which is equal to the par value of the Company’s
common stock, and generally vest over 4 years.
The weighed-average fair value of the restricted stock issued in fiscal 2012 and 2011 was $121.87 and
$108.03, respectively.
The Company reduced its income taxes payable by the tax benefit realized from the exercise, sale or vesting
of the stock options or similar instruments during fiscal 2012 in the amount of $49.0 million. Cash provided by
financing activities due to excess tax benefits from employee stock plans was a result of a portion of such cash
tax benefit.
Common Stock
The following number of shares of common stock were reserved and available for future issuance at
January 31, 2012:
Options outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock awards and units outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock available for future grant:
2004 Equity Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 Inducement Equity Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 Outside Directors Stock Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.75% Convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,184,907
4,962,263
2,543,316
323,477
1,000,000
574,200
6,734,664
6,735,953
34,058,780
During fiscal year 2012 and 2011, certain board members received stock grants totaling 36,800 shares of
common stock and 48,000 shares of common stock, respectively for board services pursuant to the terms
described in the 2004 Outside Directors Stock Plan. The expense related to these awards, which was expensed
immediately at the time of the issuance, totaled $4.9 million for both fiscal 2012 and 2011.
87
4. Preferred Stock
The Company’s board of directors has the authority, without further action by stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series. The Company’s board of directors may designate the
rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights,
voting rights, terms of redemption, liquidation preference, sinking fund terms, and number of shares constituting
any series or the designation of any series. The issuance of preferred stock could have the effect of restricting
dividends on the Company’s common stock, diluting the voting power of its common stock, impairing the
liquidation rights of its common stock, or delaying or preventing a change in control. The ability to issue
preferred stock could delay or impede a change in control. At January 31, 2012 and 2011, no shares of preferred
stock were outstanding.
5. Business Combinations
Radian6 Technologies Inc.
In May 2011, the Company acquired the outstanding stock of Radian6 for cash and the Company’s common
stock. Radian6 is a cloud application vendor based in Canada that provides customers with social media
monitoring, measurement and engagement solutions. The Company acquired Radian6 to, among other things,
expand its social enterprise market opportunities. The Company has included the financial results of Radian6 in
the consolidated financial statements from the date of acquisition, which have not been material to date. The
acquisition date fair value of the consideration transferred for Radian6 was approximately $336.6 million, which
consisted of the following:
Fair value of consideration transferred (in thousands, except number of share data):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock (436,167 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of stock options assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$282,600
49,319
4,729
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$336,648
The value of the share consideration for the Company’s common stock was based on the closing price of
$136.19 on the day of the acquisition. The fair value of the stock options assumed by the Company was
determined using the Black-Scholes option pricing model and the share conversion ratio of 0.196 was applied to
convert Radian6 options to the Company’s options.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the
date of acquisition:
(in thousands)
Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current and noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,364
(12,757)
(680)
(27,306)
103,000
262,027
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$336,648
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired
and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of assets
acquired and liabilities assumed are considered preliminary and are based on the information that was available as of
88
the date of the acquisition. The Company believes that the information provides a reasonable basis for assigning the
fair values of assets acquired and liabilities assumed, but it is waiting for additional information, primarily related to
noncurrent income taxes payable and deferred taxes which are subject to change, pending the finalization of certain
tax returns. Thus the provisional measurements of fair value set forth above are subject to change. The Company
expects to finalize the valuation as soon as practicable, but not later than one-year from the acquisition date.
The following table sets forth the components of identifiable intangible assets acquired and their estimated
useful lives as of the date of acquisition:
(in thousands)
Fair value
Useful Life
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name and trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 84,200
15,000
3,800
3 years
5 years
3 years
Total intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . .
$103,000
Developed technology represents the fair value of the Radian6 monitoring technology. Customer
relationships represent the fair values of the underlying relationships and agreements with Radian6 customers.
Trade name and trademark represents the fair value of brand and name recognition associated with the marketing
of Radian6 service offerings. The goodwill balance is primarily attributed to the assembled workforce, expanded
market opportunities and expected synergies when integrating Radian6’s social solution media technology with
the Company’s current product offerings. The goodwill balance is deductible for tax purposes.
The Company assumed unvested options with a fair value of $23.9 million. Of the total consideration, $4.7
million was allocated to the purchase consideration and $19.2 million was allocated to future services and will be
expensed over the remaining service periods on a straight-line basis.
Assistly, Inc.
On September 20, 2011, the Company acquired for cash the outstanding stock of Assistly, a cloud provider
of customer service solutions. The Company acquired Assistly to, among other things, extend its commitment to
small and emerging businesses in customer service help desk application offerings. The Company has included
the financial results of Assistly in the consolidated financial statements from the date of acquisition, which have
not been material to date. The acquisition date fair value of the consideration transferred for Assistly was
approximately $58.7 million, which consisted of the following:
Fair value of consideration transferred (in thousands)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of stock options assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of pre-existing relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53,938
1,043
3,694
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,675
The fair value of the stock options assumed by the Company was determined using the Black-Scholes
option pricing model and the share conversion ratio of 0.031 was applied to convert Assistly options to the
Company’s options.
The Company had a $1.0 million, or approximately seven percent, noncontrolling equity investment in
Assistly prior to the acquisition. The acquisition date fair value of the Company’s previous equity interest was
$3.7 million and is included in the measurement of the consideration transferred. The Company recognized a
gain of $2.7 million as a result of remeasuring its prior equity interest in Assistly held before the business
combination. The gain has been recognized in other expense on the consolidated statement of operations.
89
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the
date of acquisition:
(in thousands)
Net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,563
(3,286)
14,360
46,038
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,675
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets
acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair
values of assets acquired and liabilities assumed are considered preliminary and are based on the information that
was available as of the date of the acquisition. The Company believes that the information provides a reasonable
basis for estimating the fair values of assets acquired and liabilities assumed, but it is waiting for additional
information, primarily related to current and noncurrent income taxes payable and deferred taxes which are
subject to change, pending the finalization of certain tax returns. Thus the provisional measurements of fair value
set forth above are subject to change. The Company expects to finalize the valuation as soon as practicable, but
not later than one-year from the acquisition date.
The following table sets forth the components of identifiable intangible assets acquired and their estimated
useful lives as of the date of acquisition:
(in thousands)
Fair value
Useful Life
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,960
400
3 years
2 years
Total intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . .
$14,360
Developed technology represents the estimated fair value of Assistly’s customer service solution
technology. The Company determined the useful life of the developed technology to be three years. Customer
relationships represent the fair values of the underlying relationships and agreements with Assistly customers.
The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities for
small and emerging businesses when integrating Assistly’s customer service technology with the Company’s
other product offerings. The goodwill balance is not deductible for tax purposes.
The Company assumed unvested options with a fair value of $5.1 million. Of the total consideration, $1.1
million was allocated to the purchase consideration and $4.0 million was allocated to future services and will be
expensed over the remaining service periods on a straight-line basis.
90
Model Metrics, Inc.
On December 16, 2011, the Company acquired for cash the outstanding stock of Model Metrics, an
implementer of mobile applications. The Company acquired Model Metrics to, among other things, extend its
ability to provide the Company’s customers with implementation of mobile solutions. The Company has included
the financial results of Model Metrics in the consolidated financial statements from the date of acquisition, which
have not been material to date. The acquisition date fair value of the consideration transferred for Model Metrics
was approximately $66.7 million, which consisted of the following:
Fair value of consideration transferred (in thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of stock options assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of pre-existing relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$61,424
1,546
3,774
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$66,744
The fair value of the stock options assumed by the Company was determined using the Black-Scholes
option pricing model and the share conversion ratio of 0.05 was applied to convert Model Metrics options to the
Company’s options.
The Company had a $0.8 million, or approximately six percent, noncontrolling equity investment in Model
Metrics prior to the acquisition. The acquisition date fair value of the Company’s previous equity interest was
$3.8 million and is included in the measurement of the consideration transferred. The Company recognized a
gain of $3.0 million as a result of remeasuring its prior equity interest in Model Metrics held before the business
combination. The gain has been recognized in other expense on the consolidated statement of operations.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the
date of acquisition:
(in thousands)
Net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,556
636
3,050
56,502
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$66,744
Customer relationships represent the fair values of the underlying relationships and agreements with Model
Metrics customers. The Company determined the useful life of the customer relationships to be less than one
year. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The goodwill balance is primarily attributable to the assembled workforce
and expected synergies when integrating Model Metrics with the Company’s professional services group. The
fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on
management’s estimates and assumptions. The estimated fair values of assets acquired and liabilities assumed are
considered preliminary and are based on the information that was available as of the date of the acquisition. The
Company believes that the information provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed, but it is waiting for additional information, primarily related to current and
noncurrent income taxes payable and deferred taxes which are subject to change, pending the finalization of
certain tax returns. Thus the provisional measurements of fair value set forth above are subject to change. The
Company expects to finalize the valuation of the net tangible and intangible assets as soon as practicable, but not
later than one-year from the acquisition date. The goodwill balance is not deductible for tax purposes.
91
The Company assumed unvested options with a fair value of $2.1 million. Of the total consideration, $1.5
million was allocated to the purchase consideration and $0.6 million was allocated to future services and will be
expensed over the remaining service periods on a straight-line basis.
Other Business Combinations
On February 1, 2011 the Company acquired the stock of Manymoon Corporation (“Manymoon”) for $13.6
million in cash. The Company accounted for this transaction as a business combination. In allocating the purchase
consideration based on estimated fair values, the Company recorded $4.7 million of acquired intangible assets with
useful lives of one to three years, $10.5 million of goodwill, and $1.6 million of deferred tax liabilities. The
goodwill balance is not deductible for tax purposes. This transaction is not material to the Company.
Additionally, during fiscal 2012, the Company acquired two companies for $21.2 million in cash and has
included the financial results of these companies in its consolidated financial statements from the date of each
respective acquisition. These transactions, individually and in aggregate, are not material to the Company.
Fiscal Year 2011
Jigsaw Data Corporation
In May 2010 the Company acquired for cash the stock of Jigsaw Data Corporation (“Jigsaw”), a cloud
provider of crowd-sourced data services in the cloud. The Company acquired Jigsaw to, among other things,
combine the Company’s CRM applications and enterprise cloud platform with Jigsaw’s cloud-based model for
the automation of acquiring, completing and cleansing business contact data. The Company has included the
financial results of Jigsaw in the consolidated financial statements from the date of acquisition. The acquisition
date fair value of the consideration transferred for Jigsaw was approximately $161.9 million, which consisted of
the following:
Fair value of consideration transferred (in thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$148,477
13,400
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$161,877
The contingent consideration arrangement required the Company to make additional payments (“contingent
consideration”) totaling up to $14.4 million in cash, based on the achievement of certain billings targets related to
Jigsaw’s services for the one-year period from May 8, 2010 through May 7, 2011. The estimated fair value using
a discounted cash flow model of the contingent consideration at May 7, 2010 was $13.4 million and is included
in the total purchase price.
The following table summarizes the estimated fair values of the assets and liabilities assumed at the
acquisition date:
(in thousands)
Net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,347
28,140
(3,864)
133,254
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$161,877
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets
92
acquired and liabilities assumed were based on management’s estimates and assumptions. During fiscal 2012 the
Company finalized its assessment of fair value of the assets and liabilities assumed at acquisition date. The
impact of all finalized business combination adjustments were recorded to goodwill and decreased goodwill by
$0.2 million. This adjustment is not reflected in the table above.
The following table sets forth the components of identifiable intangible assets acquired and their estimated
useful lives as of the date of acquisition:
(in thousands)
Fair value
Useful Life
Developed service technology and database . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name and trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,560
2,440
2,140
3 years
5 years
3 years
Total intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . .
$28,140
Customer relationships represent the fair values of the underlying relationships and agreements with
Jigsaw’s customers. Developed service technology and database represents the fair values of the Jigsaw
technology and database that contains the business contact data. Trade name and trademark represents the fair
values of brand and name recognition associated with the marketing of Jigsaw’s services. The goodwill balance
is not deductible for tax purposes. The goodwill balance is primarily attributable to Jigsaw’s assembled
workforce and the expected synergies and revenue opportunities when combining the business contact data
within the Jigsaw solution with the Company’s cloud applications.
Heroku, Inc.
In January 2011 the Company acquired for cash the stock of Heroku, Inc. (“Heroku”), a
platform-as-a-service cloud vendor, built to work in an open environment and take advantage of the Ruby
language. Ruby has become one of the leading development languages used for applications that are social,
collaborative and deliver real-time access to information across mobile devices. The Company has included the
financial results of Heroku in the consolidated financial statements from the date of acquisition. The total
purchase consideration for Heroku was approximately $216.7 million, entirely in cash.
The following table summarizes the estimated fair values of the assets and liabilities assumed at the
acquisition date:.
(in thousands)
Net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,411
40,060
(10,060)
181,304
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$216,715
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets
acquired and liabilities assumed were based on management’s estimates and assumptions. During fiscal 2012 the
Company finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date. The
impact of all finalized business combination adjustments were recorded to goodwill and decreased goodwill by
$1.3 million. This adjustment is not reflected in the table above.
93
The following table sets forth the components of identifiable intangible assets acquired and their estimated
useful lives as of the date of acquisition:
(in thousands)
Fair value
Useful life
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name and trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,280
780
3 years
3 years
Total intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . . .
$40,060
Developed technology represents the fair value of the Heroku platform technology. Trade name and
trademark represents the fair values of brand and name recognition associated with the marketing of Heroku’s
services. The goodwill balance is not deductible for tax purposes. The goodwill balance is primarily attributable
to Heroku’s assembled workforce and the Company’s ability to access a large community of developers and
independent software vendors (“ISVs”) who are building applications in the cloud using the Ruby language.
Additionally, the goodwill balance also reflects the value of expanded market share opportunities that are
expected to occur when combining the Company’s cloud platform with Heroku’s platform and enhancing the
joint platform to allow developers and ISV’s the freedom to choose among a variety of programming languages.
DimDim, Inc.
In January 2011 the Company acquired for cash the stock of DimDim, Inc. (“DimDim”), a provider of
online meeting solutions for business collaboration. The Company has included the financial results of DimDim
in the consolidated financial statements from the date of acquisition. The total purchase consideration for
DimDim was approximately $37.1 million, entirely in cash.
The following table summarizes the estimated fair values of the assets and liabilities assumed at the
acquisition date:
(in thousands)
Net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,951
14,450
(2,648)
23,373
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,126
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets
acquired and liabilities assumed are based on management’s estimates and assumptions. During fiscal 2012 the
Company finalized its assessment of fair value of the assets and liabilities assumed at acquisition date. The
impact of all finalized business combination adjustments were recorded to goodwill and decreased goodwill by a
negligible amount. This adjustment is not reflected in the table above.
Developed technology represents the fair value of the DimDim developed technology. The Company
determined the useful life of the developed technology to be three years. The goodwill balance is not deductible
for tax purposes. The goodwill balance is primarily attributable to DimDim’s assembled workforce and the
expected synergies and expanded market leadership opportunities when integrating DimDim’s on-line meeting
solution technology with the Company’s collaboration cloud offering.
94
Other Business Combinations
During fiscal 2011, the Company acquired three privately-held companies for $18.1 million in aggregate
cash and $2.8 million in contingent consideration. The Company accounted for these transactions as business
combinations. Of the $20.9 million, the Company allocated $10.0 million to acquired intangible assets with
useful lives of 3 to 5 years and $10.3 million to goodwill. The goodwill balances are not deductible for tax
purposes. These transactions were not material, individually or in aggregate. During fiscal 2012 the Company
finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date. The impact of all
finalized business combination adjustments were recorded to goodwill and decreased goodwill by $0.4 million.
Intangible assets acquired resulting from the acquisitions described above as of January 31, 2012 are as
follows (in thousands):
Gross
Fair Value
Accumulated
Amortization
Net
Book Value
Weighted
Average Remaining
Useful Life
Acquired developed technology . . . . . . .
Customer relationships . . . . . . . . . . . . . .
Trade name and trademark . . . . . . . . . . .
$196,915
21,640
6,720
$(64,332)
(4,560)
(2,480)
$132,583
17,080
4,240
2.0 years
3.6 years
1.9 years
$225,275
$(71,372)
$153,903
The expected future amortization expense for purchased intangible assets for each of the fiscal years ended
thereafter is as follows (in thousands):
Fiscal Period:
Fiscal 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 73,790
61,655
14,522
3,186
750
Total amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$153,903
Pro forma results of operations have not been presented because the effect of the acquisitions individually
and in the aggregate were not significant based on revenues recognized for fiscal years ended January 31, 2012
and 2011.
6. Income Taxes
The domestic and foreign components of income (loss) before provision (benefit) for income taxes and
noncontrolling interest consisted of the following (in thousands):
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(27,303)
(6,014)
$ 75,515
28,783
$125,095
17,286
$(33,317)
$104,298
$142,381
Fiscal Year Ended January 31,
2012
2011
2010
95
The provision (benefit) for income taxes consisted of the following (in thousands):
Fiscal Year Ended January 31,
2012
2011
2010
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,344
4,346
15,709
$ 29,992
6,276
13,239
$43,313
8,788
12,179
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,399
49,507
64,280
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36,601)
(10,603)
(3,940)
(8,687)
(4,745)
(1,474)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(51,144)
(14,906)
(4,506)
(979)
(1,106)
(6,591)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . .
$(21,745)
$ 34,601
$57,689
A reconciliation of income taxes at the statutory federal income tax rate to the provision (benefit) for
income taxes included in the accompanying consolidated statements of operations is as follows (in thousands):
U.S. federal taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . .
State, net of the federal benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign taxes in excess of the U.S. statutory rate . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of California tax law change . . . . . . . . . . . . . . . . . . . . . . . .
Tax—noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended January 31,
2012
2011
2010
$(11,661)
(6)
10,555
(15,049)
5,345
(12,575)
0
0
1,646
$ 36,504
6,069
3,412
(13,625)
2,621
0
2,199
(1,825)
(754)
$49,833
8,645
6,748
(9,845)
755
0
2,747
(1,390)
196
$(21,745)
$ 34,601
$57,689
The Company receives certain tax incentives in Switzerland and Singapore in the form of reduced tax rates.
These temporary tax reduction programs will expire in 2016 and 2014 respectively. The Singapore program is
eligible for renewal.
96
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
As of January 31,
2012
2011
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ 35,942
61,029
54,243
11,661
49,825
5,936
6,792
$ 21,929
31,872
39,065
8,371
29,549
9,727
4,508
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,428
(835)
145,021
(1,142)
Deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .
224,593
143,879
Deferred tax liabilities:
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
(49,029)
(18,052)
(2,881)
(26,352)
(8,871)
(27,739)
(24,856)
(5,005)
(13,500)
(4,064)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(105,185)
(75,164)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 119,408
$ 68,715
Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which
are uncertain. Accordingly, the deferred tax assets have been partially offset by a valuation allowance. The
valuation allowance relates to net deferred tax assets from operating losses of certain foreign subsidiaries. The
excess tax benefits associated with stock option exercises are recorded directly to stockholders’ equity
controlling interest only when realized. As a result, the excess tax benefits included in net operating loss
carryforwards but not reflected in deferred tax assets for fiscal year 2012 and 2011 are $149.1 million and $80.6
million, respectively.
At January 31, 2012, the Company had net operating loss carryforwards for federal income tax purposes of
approximately $487.9 million, which expire in 2024 through 2032, federal research and development tax credits
of approximately $36.6 million, which expire in 2020 through 2032, foreign tax credits of $3.9 million, which
expires in 2019, and minimum tax credits of $0.7 million, which have no expiration date.
The Company also had net operating loss carryforwards for state income tax purposes of approximately
$319.0 million which expire beginning in 2014 and state research and development tax credits of approximately
$33.8 million and $6.5 million of state enterprise zone tax credits, which do not expire. The decrease in the
Company’s state effective tax rate resulting from California’s tax law change could potentially impact the
realizability of certain tax attributes. The Company will continue to re-assess the realizability of these tax
attributes on a regular basis.
Utilization of the Company’s net operating loss carryforwards may be subject to substantial annual
limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state
provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit
carryforwards before utilization.
97
The Company had gross unrecognized tax benefits of $52.0 million and $27.5 million as of January 31,
2012 and 2011 respectively.
A reconciliation of the beginning and ending balance of total unrecognized tax benefits for fiscal years
2012, 2011, and 2010 is as follows (in thousands):
Balance as of February 1,
Tax positions taken in prior period:
. . . . . . . . . . . . . . . . . . . . . . .
Gross increases . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decreases . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions taken in current period:
Gross increases . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Currency translation effect
Fiscal Year Ended January 31,
2012
2011
2010
$27,462
$22,053
$16,472
10,008
(23)
15,965
0
(1,143)
(298)
41
(811)
8,047
(39)
(1,741)
(88)
457
(707)
5,401
(212)
0
642
Balance as of January 31,
. . . . . . . . . . . . . . . . . . . . . . .
$51,971
$27,462
$22,053
For fiscal year 2012, 2011 and 2010 total unrecognized tax benefits in an amount of $39.1 million, $20.4
million and $16.5 million respectively, if recognized, would reduce income tax expense and the Company’s
effective tax rate.
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income
tax provision. The Company accrued no penalties and an immaterial amount of interest in income tax expense for
fiscal 2012, 2011 and 2010.
Tax positions for the Company and its subsidiaries are subject to income tax audits by many tax
jurisdictions throughout the world. The Company’s U.S. federal and state tax returns for all tax years since
February 1999, which was the inception of the Company, remain open to examination. Outside the U.S., the
Company operates in jurisdictions including Canada, Australia, Japan and United Kingdom. With some
exceptions, all tax years in jurisdictions outside of U.S. are generally open and could be subject to examinations,
however, in Japan and United Kingdom, the Company is no longer subject to examinations for years prior to
fiscal 2005 and 2010, respectively.
Management does not believe that it is reasonably possible that the estimates of unrecognized tax benefits
will change significantly in the next twelve months. However, when the Company effectively settles one or more
uncertain tax positions in any period, it could be material to the Company’s financial condition or cash flows, or
both, or could otherwise adversely affect the Company’s operating results.
7. Commitments
Letters of Credit
As of January 31, 2012, the Company had a total of $17.5 million in letters of credit outstanding
substantially in favor of certain landlords for office space. These letters of credit renew annually and mature at
various dates through April 2030.
Leases
The Company leases facilities space and certain fixed assets under non-cancelable operating and capital
leases with various expiration dates.
98
As of January 31, 2012, the future minimum lease payments under non-cancelable operating and capital
leases are as follows (in thousands):
Fiscal Period:
Fiscal 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Capital
Leases
Operating
Leases
$29,460
25,951
5,406
2,112
1,310
0
$124,247
103,753
71,787
63,327
54,391
250,315
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,239
$667,820
Less: amount representing interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,242)
Present value of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$60,997
The terms of the lease agreements provide for rental payments on a graduated basis. The Company
recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred
but not paid. Of the total operating lease commitment balance of $667.8 million, $607.7 million is related to
facilities space. The remaining $60.1 million commitment is related to computer equipment and other leases.
The Company’s agreements for the facilities and certain services provide the Company with the option to
renew. The Company’s future contractual obligations would change if the Company exercised these options.
Rent expense for fiscal 2012, 2011 and 2010 was $70.3 million, $52.8 million and $47.3 million, respectively.
In January 2012, the Company entered into an office lease agreement to lease approximately 400,000
rentable square feet at 50 Fremont Street, San Francisco, CA. The cost of the lease is approximately $209.0
million over the 18-year term of the lease. The Company will take possession of the premises in phases
beginning April 1, 2012. This commitment is reflected in the table above.
8. Legal Proceedings
In the ordinary course of business, the Company is involved in various legal proceedings and claims related
to alleged infringement of third-party patents and other intellectual property rights, commercial, employment,
wage and hour, and other claims.
In general, the resolution of a legal matter could prevent the Company from offering its service to others,
could be material to the Company’s financial condition or cash flows, or both, or could otherwise adversely
affect the Company’s operating results.
The Company makes a provision for a liability relating to legal matters when it is both probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed
at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice
of legal counsel and other information and events pertaining to a particular matter. In management’s opinion,
resolution of all current matters is not expected to have a material adverse impact on the Company’s consolidated
results of operations, cash flows or financial position. However, depending on the nature and timing of any such
dispute, an unfavorable resolution of a matter could materially affect the Company’s future results of operations
or cash flows, or both, of a particular quarter.
On June 7, 2011, the Company entered into a preliminary settlement agreement with respect to a California
state wage and hour lawsuit that had been filed against the Company early in 2011 in the Superior Court of
99
California, County of San Francisco. The settlement agreement is subject to approval of the court, which is
expected to rule by mid 2012. The Company’s current estimate of the expense charge for the settlement is
approximately $0.04 per diluted share. This charge is reflected in the Company’s financial results for fiscal 2012.
9. Employee Benefit Plan
The Company has a 401(k) plan covering all eligible employees in the United States. Since January 1, 2006,
the Company has been contributing to the plan. Total Company contributions during fiscal 2012, 2011 and 2010,
were $15.7 million, $11.0 million and $8.5 million, respectively.
10. Related-Party Transactions
In January 1999, the salesforce.com/foundation, also referred to as the Foundation, a non-profit public
charity, was chartered to build philanthropic programs that are focused on youth and technology. The Company’s
chairman is the chairman of the Foundation. He, one of the Company’s employees and one of the Company’s
board members hold three of the Foundation’s seven board seats. The Company is not the primary beneficiary of
the Foundation’s activities, and accordingly, the Company does not consolidate the Foundation’s statement of
activities with its financial results.
Since the Foundation’s inception, the Company has provided at no charge certain resources to Foundation
employees such as office space. The value of these items was in excess of $125,000 per quarter during fiscal year
2012.
In addition to the resource sharing with the Foundation, the Company issued the Foundation warrants in
August 2002 to purchase shares of the Company’s common stock. All of the warrants were exercised in prior
years. As of January 31, 2012, the Foundation held 103,500 shares of salesforce.com common stock. Additionally,
the Company has donated subscriptions to the Company’s service to other qualified non-profit organizations. The
Company also allows an affiliate of the Foundation to resell the Company’s service to large non-profit
organizations. The Company does not charge the affiliate for the subscriptions. The fair value of the subscriptions
were in excess of $7.0 million per quarter during fiscal 2012. The Company plans to continue these programs.
11. Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information for fiscal 2012 and 2011 is as follows:
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Fiscal
Year
(in thousands, except per share data)
Fiscal 2012
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income (loss) per share . . . . . . . . . . . . . . .
Diluted net income (loss) per share . . . . . . . . . . . . .
Fiscal 2011
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . .
Net income attributable to salesforce.com . . . . . . . .
Basic net income per share attributable to
salesforce.com common shareholders . . . . . . . . . .
Diluted net income per share attributable to
salesforce.com common shareholders . . . . . . . . . .
$504,364
401,298
(2,803)
530
0.00
0.00
$
$
$546,002
425,092
(15,748)
(4,268)
(0.03) $
(0.03) $
$584,260
455,695
(10,157)
(3,756)
(0.03) $
(0.03) $
$631,913
495,568
(6,377)
(4,078)
(0.03) $
(0.03) $
$2,266,539
1,777,653
(35,085)
(11,572)
(0.09)
(0.09)
$
$
$376,813
305,232
33,050
17,745
$394,372
316,582
29,682
14,744
$429,087
346,956
35,156
21,072
$456,867
364,556
(391)
10,913
$1,657,139
1,333,326
97,497
64,474
$
$
0.14
0.13
$
$
0.11
0.11
$
$
0.16
0.15
$
$
0.08
0.08
$
$
0.50
0.47
100
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our chief executive officer
and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on
Form 10-K.
In designing and evaluating our disclosure controls and procedures, management recognizes that any
disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that
our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable
level that the information we are required to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosures.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and
with the participation of our management, including our chief executive officer and chief financial officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31,
2012 based on the guidelines established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Our internal control over financial reporting
includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external reporting purposes in accordance with U.S. generally
accepted accounting principles.
Based on the results of our evaluation, our management concluded that our internal control over financial
reporting was effective as of January 31, 2012. We reviewed the results of management’s assessment with our
Audit Committee.
The effectiveness of our internal control over financial reporting as of January 31, 2012 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in
Item 8 of this Annual Report on Form 10-K.
(c) Changes in internal control over financial reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended
January 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
101
(d) Inherent Limitations on Effectiveness of Controls
Our management, including our chief executive officer and chief financial officer, do not expect that our
disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a
simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls. The design of any system of controls
also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Not applicable.
102
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning our directors, compliance with Section 16(a) of the Exchange Act, our Audit
Committee and any changes to the process by which stockholders may recommend nominees to the Board
required by this Item are incorporated herein by reference to information contained in the Proxy Statement,
including “Directors and Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting
Compliance.”
The information concerning our executive officers required by this Item is incorporated by reference herein
to the section of this Annual Report on Form 10-K in Part I, entitled “Executive Officers of the Registrant.”
We have adopted a code of ethics, our Code of Conduct, which applies to all employees, including our
principal executive officer, Marc Benioff, principal financial and accounting officer, Graham Smith, and all other
executive officers. The Code of Conduct is available on our Web site at http://www.salesforce.com/company/
investor/governance/. A copy may also be obtained without charge by contacting Investor Relations,
salesforce.com, inc., The Landmark @ One Market, Suite 300, San Francisco, California 94105 or by calling
(415) 901-7000.
We plan to post on our Web site at the address described above any future amendments or waivers of our
Code of Conduct.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including “Compensation Discussion and Analysis,” “Committee Reports,” “Directors and
Corporate Governance” and “Executive Compensation and Other Matters.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” and “Equity Compensation Plan Information.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including “Directors and Corporate Governance” and “Employment Contracts and Certain
Transactions.”
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including “Ratification of Appointment of Independent Auditors.”
103
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
PART IV
1. Financial Statements: The information concerning our financial statements, and Report of
Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to
the section of this Annual Report on Form 10-K in Item 8, entitled “Consolidated Financial Statements and
Supplementary Data.”
2. Financial Statement Schedules: Schedule II Valuation and Qualifying Accounts is filed as part of
this Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
The Financial Statement Schedules not listed have been omitted because they are not applicable or are
not required or the information required to be set forth herein is included in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits: See “Index to Exhibits.”
(b) Exhibits. The exhibits listed below in the accompanying “Index to Exhibits” are filed or incorporated by
reference as part of this Annual Report on Form 10-K.
(c) Financial Statement Schedules.
salesforce.com, inc.
Schedule II Valuation and Qualifying Accounts
Description
Fiscal year ended January 31, 2012
Balance at
Beginning of
Year
Additions
Deductions
Write-offs
Balance at
End of Year
Allowance for doubtful accounts . . . .
$1,711,000
$4,174,000
$4,612,000
$1,273,000
Fiscal year ended January 31, 2011
Allowance for doubtful accounts . . . .
$1,050,000
$3,995,000
$3,334,000
$1,711,000
Fiscal year ended January 31, 2010
Allowance for doubtful accounts . . . .
$1,527,000
$2,787,000
$3,264,000
$1,050,000
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: March 9, 2012
salesforce.com, inc.
/s/ GRAHAM SMITH
Graham Smith
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
105
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Marc Benioff, Graham Smith and Burke Norton, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
/S/ MARC BENIOFF
Marc Benioff
/S/ GRAHAM SMITH
Graham Smith
/S/ CRAIG CONWAY
Craig Conway
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
March 9, 2012
Chief Financial Officer (Principal
March 9, 2012
Financial & Accounting Officer)
Director
March 9, 2012
/S/ ALAN HASSENFELD
Director
March 9, 2012
Alan Hassenfeld
/S/ CRAIG RAMSEY
Craig Ramsey
Director
March 9, 2012
/S/ SANFORD R. ROBERTSON
Director
March 9, 2012
Sanford R. Robertson
/S/ STRATTON SCLAVOS
Director
March 9, 2012
Stratton Sclavos
/S/ LAWRENCE TOMLINSON
Director
March 9, 2012
Lawrence Tomlinson
/S/ MAYNARD WEBB
Maynard Webb
/S/ SHIRLEY YOUNG
Shirley Young
Director
Director
106
March 9, 2012
March 9, 2012
Exhibit
No.
2.1
2.2
3.1
3.2
4.1
4.2
4.3*
4.4*
4.5*
10.1*
Index to Exhibits
Exhibit Description
Provided
Herewith
Incorporated by Reference
Form
SEC File No.
Exhibit
Filing Date
Agreement and Plan of Merger dated as of
December 7, 2010, by and among
salesforce.com, inc., Hi’iaka Acquisition
Corporation, Heroku, Inc. and with respect
to Articles VII, VIII and IX thereof only,
John Connors as Stockholder
Representative and U.S. Bank National
Association as Escrow Agent
Share Purchase Agreement dated as of
March 30, 2011, by and among
salesforce.com, inc., salesforce.com
Canada Corporation, Radian6 Technologies
Inc. and each of the Radian6 Technologies
Inc. shareholders, and the shareholder
representative
Restated Certificate of Incorporation of
salesforce.com, inc.
Amended and Restated Bylaws of
salesforce.com, inc.
Specimen Common Stock Certificate
Indenture between salesforce.com, inc. and
U.S. Bank National Association,
dated as of January 19, 2010 including the
form of 0.75% Convertible Senior Notes
due 2015 therein
Radian6 Technologies Inc. Third Amended
and Restated Stock Option Plan and form
of agreement thereunder
Assistly, Inc. 2009 Stock Plan
Model Metrics, Inc. 2008 Stock Plan
Form of Indemnification Agreement
between salesforce.com, inc. and its
officers and directors
8-K
001-32224
2.1
12/08/2010
8-K
001-32224
2.1
03/30/2011
S-1/A 333-111289
3.2
04/20/2004
8-K
001-32224
3.1
01/14/2011
S-1/A 333-111289
8-K
001-32224
4.2
4.1
04/20/2004
01/19/2010
S-8
333-174209
4.3
05/13/2011
S-8
S-8
333-177018
333-178606
4.2
4.1
09/27/2011
12/19/2011
S-1/A 333-111289
10.1
04/20/2004
10.2*
1999 Stock Option Plan, as amended
10-K
001-32224
10.2
03/15/2006
10.3*
2004 Equity Incentive Plan, as amended
10-Q
001-32224
10.1
08/22/2008
10.4*
10.5*
2004 Employee Stock Purchase Plan, as
amended
2004 Outside Directors Stock Plan, as
amended
10-Q
001-32224
10.3
11/29/2011
10-K
001-32224
10.5
03/23/2011
10.6*
2006 Inducement Equity Incentive Plan
8-K
001-32224
10.1
09/23/2011
10.7*
Mahalo Bonus Plan
10-Q
001-32224
10.1
08/25/2009
Exhibit
No.
Exhibit Description
Provided
Herewith
Incorporated by Reference
Form
SEC File No.
Exhibit
Filing Date
10.8** Master Service Agreement dated May 17,
10-K
001-32224
10.8
03/15/2006
10.9
10.10
10.11*
10.12*
10.13*
10.14
2005 between salesforce.com, inc. and
Equinix, Inc.
Resource Sharing Agreement dated as of
January 29, 2009 between salesforce.com,
inc., salesforce.com foundation, and
salesforce.org
Reseller Agreement dated as of January 30,
2009 between salesforce.com, inc and
salesforce.org
Form of Offer Letter and schedule of
omitted details thereto
X
Form of Change of Control and Retention
Agreement as entered into with Marc
Benioff
Form of Change of Control and Retention
Agreement as entered into with Parker
Harris, George Hu, Hilarie Koplow-
McAdams, Burke Norton, Graham Smith,
Jim Steele, Polly Sumner and Frank van
Veenendaal
Purchase Agreement dated January 12,
2010 between salesforce.com, inc. and
Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as representative of the
several initial purchasers named in
Schedule A thereto
10-K
001-32224
10.10
03/09/2009
10-K
001-32224
10.10
03/23/2011
10-K
001-32224
10.13
03/09/2009
10-K
001-32224
10.14
03/09/2009
8-K
001-32224
10.1
01/19/2010
10.15
Form of Convertible Bond Hedge
Confirmation
8-K
001-32224
10.2
01/19/2010
10.16
Form of Warrant Confirmation
8-K
001-32224
10.3
01/19/2010
10.17** Agreement of Purchase and Sale and Joint
Escrow Instructions dated as of
October 21, 2010 by and between ARE-
San Francisco No. 22, LLC and Bay
Jacaranda No. 3334, LLC
10.18** Agreement of Purchase and Sale and Joint
Escrow Instructions dated as of
October 21, 2010 by and between ARE-
San Francisco No. 16, LLC and Bay
Jacaranda No. 2932, LLC
10.19** Agreement of Purchase and Sale and Joint
Escrow Instructions dated as of
October 21, 2010 by and between ARE-
San Francisco No. 19, LLC and Bay
Jacaranda No. 2627, LLC
10-K/A 001-32224
10.18
06/24/2011
10-K/A 001-32224
10.19
06/24/2011
10-K/A 001-32224
10.20
06/24/2011
Exhibit
No.
10.20
21.1
23.1
24.1
31.1
31.2
32.1
Exhibit Description
Provided
Herewith
Incorporated by Reference
Form
SEC File No.
Exhibit
Filing Date
8-K
001-32224
10.1
01/06/2012
Office Lease dated as of January 5,
2012 by and between salesforce.com,
inc. and Teachers Insurance and
Annuity Association
List of Subsidiaries
Consent of Independent Registered
Public Accounting Firm
Power of Attorney (incorporated by
reference to the signature page of this
Annual Report on Form 10-K)
Certification of Chief Executive
Officer pursuant to Exchange Act Rule
13a-14(a) or 15(d)-14(a), as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer
pursuant to Exchange Act Rule 13a-
14(a) or 15(d)-14(a), as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Executive
Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
X
X
X
X
X
X
101.INS†
XBRL Instance Document
101.SCH†
101.CAL†
XBRL Taxonomy Extension Schema
Document
XBRL Taxonomy Extension
Calculation Linkbase Document
101.DEF†
XBRL Extension Definition
101.LAB†
101.PRE†
XBRL Taxonomy Extension Label
Linkbase Document
XBRL Taxonomy Extension
Presentation Linkbase Document
*
Indicates a management contract or compensatory plan or arrangement.
** Confidential treatment has been requested for a portion of this exhibit.
†
The financial information contained in these XBRL documents is unaudited and these are not the official
publicly filed financial statements of salesforce.com, inc. The purpose of submitting these XBRL documents
is to test the related format and technology, and, as a result, investors should continue to rely on the official
filed version of the furnished documents and not rely on this information in making investment decisions. In
accordance with Rule 402 of Regulation S-T, the information in these exhibits shall not be deemed to be
“filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section,
and shall not be incorporated by reference into any registration statement or other document filed under the
Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such
filing.
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Salesforce + You =
Corporate Headquarters
The Landmark @ One Market
Suite 300
San Francisco, CA 94105
United States of America
Board of Directors
Marc Benioff
Chairman & Chief
Executive Officer
Craig Conway
Former Chief Executive Officer
PeopleSoft, Inc.
Alan Hassenfeld
Director
Hasbro, Inc.
Executive Team
Marc Benioff
Chairman & Chief
Executive Officer
Blair Crump
President
Global Enterprise
Parker Harris
Executive Vice President
Technology
George Hu
Chief Operating Officer
1-800-NO-SOFTWARE
www.salesforce.com
/salesforce
@salesforce
Craig Ramsey
Former Chief Executive Officer
Solidus Networks, Inc.
Larry Tomlinson
Former Senior Vice President & Treasurer
Hewlett-Packard Co.
Sanford Robertson
Principal
Francisco Partners
Stratton Sclavos
Partner
Radar Partners
Maynard Webb
Chairman
LiveOps, Inc.
Shirley Young
President
Shirley Young Associates, LLC
Hilarie Koplow-McAdams
President
Commercial/SMB Business Unit
Graham Smith
Executive Vice President &
Chief Financial Officer
Maria Martinez
Chief Growth Officer &
Executive Vice President
Customers for Life
Burke Norton
Executive Vice President &
Chief Legal Officer
Jim Steele
Chief Customer Officer
Polly Sumner
President
Services & Customer Adoption
Frank van Veenendaal
Vice Chairman
Investor Relations
investor@salesforce.com
+1-415-536-6250
Stock Listing
Salesforce.com trades on the
New York Stock Exchange under
the ticker symbol “CRM.”
Note on Forward-Looking Statements
This annual report contains forward-looking statements within the meaning of the federal securities laws.
Please refer to page 3 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission
on March 9, 2012, for a fuller description of such forward-looking statements.
2012 ANNUAL REPORT
Corporate Headquarters
The Landmark @ One Market
Suite 300
San Francisco, CA 94105
United States
1-800-NO-SOFTWARE
www.salesforce.com
/salesforce
@salesforce
Global Offices
Latin America
Japan
Asia/Pacific
EMEA
+1-415-536-4606
+81-3-5785-8201
+65-6302-5700
+4121-6953700
Copyright ©2012, salesforce.com, inc.
All rights reserved. Salesforce.com
and the “no software” logo are
registered trademarks, Social
Enterprise is a trademark of
salesforce.com, inc., and
salesforce.com owns other
registered and unregistered
trademarks. Other names used
herein may be trademarks of
their respective owners.