Salesforce.com 2013 Annual Report Download - page 61

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At January 31, 2012, 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 $12.1 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.
For the three months ended January 31, 2013 the Notes were convertible at the option of the noteholder. For
20 trading days during the 30 consecutive trading days ended January 31, 2013, 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 will be convertible at the holders’ option for the quarter ending April 30, 2013 and will remain classified
as a current liability on our consolidated balance sheet so long as the Notes are convertible.
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
$521.3 million as of January 31, 2013. This represents the liability component of the $575.0 million principal
balance as of January 31, 2013. The total estimated fair value of our Notes at January 31, 2013 was $1,178.5
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 2013, which was $205.00.
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, 2013 and 2012, the fair value of these
investments in privately-held companies was $46.8 million and $48.3 million, respectively.
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