Salesforce.com 2009 Annual Report Download - page 72

Table of Contents
salesforce.com, inc.
Notes to Consolidated Financial Statements—(Continued)
Revenue Recognition
The Company derives its revenues from two sources: (1) subscription revenues, which are comprised of subscription fees from customers accessing its
enterprise cloud computing application service, and from customers purchasing additional support beyond the standard support that is included in the basic
subscription fee; and (2) related professional services and other revenue. Other revenues consist primarily of training fees. The Company recognizes revenue
when all of the following conditions are met:
• There is persuasive evidence of an arrangement;
• The service has been 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 arrangements do not contain general rights of return.
Subscription and support revenues are recognized ratably over the contract terms 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.
Professional services and other revenues, when sold with subscription and support offerings, are accounted for separately when these services have
value to the customer on a standalone basis and there is objective and reliable evidence of fair value of each deliverable. When accounted for separately,
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. The majority of the Company's consulting contracts are on a time and materials basis. Training revenues are recognized after the
services are performed. For revenue arrangements with multiple deliverables, such as an arrangement that includes subscription, premium support and
consulting or training services, the Company allocates the total amount the customer will pay to the separate units of accounting based on their relative fair
values, as determined by the price of the undelivered items when sold separately.
In determining whether the consulting services can be accounted for separately from subscription and support revenues, the Company considers the
following factors for each consulting agreement: availability of the consulting services from other vendors, whether objective and reliable evidence for fair
value exists for the undelivered elements, the nature of the consulting services, the timing of when the consulting 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 consulting work. If a
consulting arrangement does not qualify for separate accounting, the Company recognizes the consulting revenue ratably over the remaining term of the
subscription contract. Additionally, in these situations, the Company defers only the direct costs of the consulting arrangement and amortizes those costs over
the same time period as the consulting revenue is recognized. As of January 31, 2010 and January 31, 2009, the deferred cost on the accompanying condensed
consolidated balance sheet totaled $19.1 million and $17.3 million, respectively. These deferred costs are included in prepaid expenses and other current
assets and other assets.
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the Company's subscription service
described above and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers in annual or quarterly
installments. Accordingly, the deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription
69