Salesforce.com 2010 Annual Report Download - page 54

Table of Contents
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, Canadian dollar, Swiss franc, Singapore dollar, Japanese Yen and Australian dollar. 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, 2011. 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, 2011 could result in a $27.7 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, 2010, we had cash, cash equivalents and marketable securities totaling $1.7 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 $13.1 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.
As of February 1, 2011 the Notes are convertible at the option of the noteholder. For 20 trading days during the 30 consecutive trading days ended
January 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 are convertible at the holders' option for the quarter ending April 30, 2011. 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
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