Salesforce.com 2011 Annual Report Download - page 46

We recognize subscription revenues ratably over the contract terms beginning on the commencement dates
of each contract. Support revenues from customers who purchase our premium support offerings are recognized
similarly over the term of the support contract. As part of their subscription agreements, customers generally
benefit from new features and functionality with each release at no additional cost. In situations where we have
contractually committed to an individual customer specific technology, we defer all of the revenue for that
customer until the technology is delivered and accepted. Once delivery occurs, we then recognize the revenue
over the remaining contract term.
Consulting services and training revenues are accounted for separately from subscription and support
revenues 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 our consulting service contracts are on a time and material
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, consulting or training services,
we allocate 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, we consider the following factors for each consulting agreement: availability of the consulting
services from other vendors, whether objective and reliable evidence of 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, we recognize the consulting revenue ratably over the remaining term of the subscription contract.
Additionally, in these situations we defer the direct costs of the consulting arrangement and amortize those costs
over the same time period as the consulting revenue is recognized. The deferred cost on our consolidated balance
sheet totaled $28.1 million at January 31, 2011 and $19.1 million at January 31, 2010. Such amounts are included
in prepaid expenses and other current assets and other assets, net.
Accounting for 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 2011, we deferred $121.2 million of commission expenditures and we amortized $80.2 million
to sales expense. During the same period a year ago, we deferred $82.3 million of commission expenditures and
we amortized $63.9 million to sales expense. Deferred commissions on our consolidated balance sheet totaled
$116.6 million at January 31, 2011 and $75.5 million at January 31, 2010.
Business Combinations. We recognize separately from goodwill the fair value of assets acquired and the
liabilities assumed. Goodwill as of the acquisition date is measured as the excess of consideration transferred and
the net of the acquisition date fair values of the assets acquired and the liabilities assumed. We use the best
estimates and assumptions as a part of the purchase price allocation process to accurately value 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
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