Salesforce.com 2016 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    2016 ANNUAL REPORT

  • Page 3
    ... mainframe. The client server. And the cloud. Now, the next wave is building. A fourth industrial revolution is here. But the biggest change underway today is not happening in technology itself. It's happening to the customer. Your customer. Technology, mobility, and the Web have made the customer...

  • Page 4
    24 % REVENUE GROWTH " Salesforce helps us offer the kind of service that - like good design - never goes out of style. hero JOHN EDELMAN CEO DESIGN WITHIN REACH Now a FORTUNE 500 Company

  • Page 5
    ... INNOVATIVE COMPANIES source: Forbes BILLION in revenue $6.67 FY16 # FOR 17 YEARS, our focus as a company has been on one simple thing: 1 World's Most Admired Software Company source: Fortune Magazine, 2015 THE CUSTOMER. " We use Salesforce to nurture our relationships with both prospects...

  • Page 6
    ...our communities. Since inception, the Salesforce Foundation, Salesforce.org, and Salesforce have together given nearly $120 million in grants, more than 1.3 million hours to the community, and our service offerings to nearly 28,000 nonprofit and higher education organizations. I would like to extend...

  • Page 7
    THANK YOU for driving us. THANK YOU for inspiring us. AND AS ALWAYS, THANK YOU for making us who we are today. #1 World's Most Admired Software Company source: Fortune Magazine, 2015

  • Page 8
    ... 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 Name of each...

  • Page 9
    ... 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 Accountant Fees...

  • Page 10
    ... plan to build our business, including our strategy to be the leading provider of enterprise cloud computing applications and platforms; our service performance and security; the expenses associated with new data centers and third party infrastructure providers; additional data center capacity; real...

  • Page 11
    ... 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. The Age of the Customer We believe that the convergence of cloud, social, mobile, data science...

  • Page 12
    ... critical support, cloud specialists and admin and configuration services that allow our customers to make the best use of our technology. We offer several education service offerings to our customers and partners, ranging from introductory online courses to advanced architecture certifications...

  • Page 13
    ... example, many of our customers use our App Cloud API to move customer-related data from custom-developed and packaged applications into our service on a periodic basis to provide greater visibility into their activities. High levels of user adoption. We have designed our solutions to be intuitive...

  • Page 14
    ... to increase the number of direct sales professionals we employ, and we intend to develop additional distribution channels for our service. Reducing customer attrition. Our goal is to have all of our customers renew their subscriptions prior to the end of their contractual terms. We run customer...

  • Page 15
    ... fee. We recognize subscription and support revenue ratably over the contract term, beginning on the commencement date of each contract. The majority of our professional services contracts are on a time and materials basis, for which we generally recognize revenue as the services are rendered...

  • Page 16
    ...service offerings, Heroku, was 976 billion for fiscal 2016, an increase of 67 percent as compared to fiscal 2015. A transaction is a retrieval or update within the Salesforce database, which can be a page load, an information query or an API call, among other things. Our transaction metrics are used...

  • Page 17
    ...subscription editions. We also offer premier customer support that is either included in a premium offering or sold for an additional fee, which can include services such as priority access to technical resources, developer support, and system administration. In addition, we offer a mission critical...

  • Page 18
    ... licenses generally could be obtained on commercially reasonable terms. We believe our continuing research and product development are not materially dependent on any single license or other agreement with a third party relating to the development of our products. Employees As of January 31, 2016...

  • Page 19
    ... 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...

  • Page 20
    ... data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our services and adversely affect our business. Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign governments continue to adopt new laws...

  • Page 21
    ... resources to support certain customers, which may increase costs and lengthen sales cycles. For example, some financial services regulators have imposed guidelines for use of cloud computing services that mandate specific controls or require financial services enterprises to obtain regulatory...

  • Page 22
    ... We also compete with internally developed apps and 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...

  • Page 23
    ... the loss of acquired deferred revenue and unbilled deferred revenue; delays in customer purchases due to uncertainty related to any acquisition; the need to implement controls, procedures and policies at the acquired company; challenges caused by distance, language and cultural differences; in the...

  • Page 24
    ... large enterprises; evolving regulations of cloud computing and cross-border data transfer restrictions and similar regulations; variations in the revenue mix of editions of our services; technical difficulties or interruptions in our services; expenses related to our real estate, our office leases...

  • Page 25
    ...'s purchasing decision, reduce the value of new subscription contracts, or affect attrition rates; timing of additional investments in our enterprise cloud computing application and platform services and in our consulting services; regulatory compliance costs; changes in payment terms and the timing...

  • Page 26
    ... and to develop our existing services in order to keep pace with technological developments may not succeed and may reduce our revenue growth rate and harm our business. We derive substantially all of our revenue from subscriptions to our CRM enterprise cloud computing application services, and we...

  • Page 27
    ... spending levels, decreases in the number of users at our customers, pricing increases or changes and deteriorating general economic conditions. Our future success also depends in part on our ability to sell additional features and services, more subscriptions or enhanced editions of our services to...

  • Page 28
    ... investments in our internal infrastructure, data center capacity, research, customer support 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 services, to expand...

  • Page 29
    ..., the customer's decision to use our services 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 services, as well as education regarding privacy and data protection laws and regulations to...

  • Page 30
    ... claims, require us to change our technology, change our business practices, 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 services to...

  • Page 31
    ...at any time. The loss of one or more of our key employees or groups could seriously harm our business. 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...

  • Page 32
    ..., the Organisation for Economic Co-Operation and Development recently released final guidance covering various topics, including transfer pricing, country-by-country reporting and definitional changes to permanent establishment which could ultimately impact our tax liabilities. We may also...

  • Page 33
    ... 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, with the...

  • Page 34
    ... 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...

  • Page 35
    ... price if holders submit their notes for purchase by us upon the occurrence of a fundamental change or to pay the amount of cash due if holders surrender their notes for conversion. In addition, agreements governing any future debt may restrict our ability to make each of the required cash payments...

  • Page 36
    ... with the approval of holders of 66 2/3 percent of our outstanding capital stock; 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...

  • Page 37
    ... Street, San Francisco). We also lease space in various locations throughout the United States for local sales and professional services personnel. Our foreign subsidiaries lease office space in a number of countries in Europe, Canada and Asia Pacific for our international operations, primarily...

  • Page 38
    ... property claims, require us to change our technology, change our business practices, 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...

  • Page 39
    ... Officer since 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...

  • Page 40
    ... 2011. Previously, Mr. Norton was a partner at the law firm of Wilson Sonsini Goodrich & Rosati P.C., where he practiced corporate and securities law, representing clients in the enterprise software, telecommunications, semiconductor, life sciences, entertainment and ecommerce industries. Mr. Norton...

  • Page 41
    ... low sales prices of our common stock as reported by the New York Stock Exchange. High Low Fiscal year ending January 31, 2016 First quarter ...Second quarter ...Third quarter ...Fourth quarter ...Fiscal year ending January 31, 2015 First quarter ...Second quarter ...Third quarter ...Fourth quarter...

  • Page 42
    ... on a Form 8-K filed on December 23, 2015, the Company entered into an Agreement and Plan of Reorganization to acquire SteelBrick, Inc. ("SteelBrick"), a quote-to-cash platform. Upon closing the transaction on February 1, 2016, the Company issued 4,812,325 shares of Company common stock in exchange...

  • Page 43
    ...data) 2016 Fiscal Year Ended January 31, 2015 2014 2013 2012 Consolidated Statement of Operations 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...

  • Page 44
    ... of purchased intangibles from business combinations, as follows: Cost of revenues ...Marketing and sales ...Other non-operating expense ...(2) Amounts include stock-based expenses, as follows: Cost of revenues ...Research and development ...Marketing and sales ...General and administrative ... $ 80...

  • Page 45
    ..., continue to add substantial numbers of paying subscriptions, upgrade our customers to fully featured versions or arrangements such as an Enterprise License Agreement, provide high quality technical support to our customers, encourage the development of third-party applications on our platforms and...

  • Page 46
    .... We expect our attrition rate to remain in this range as we continue to expand our enterprise business and invest in customer success and related programs. We expect marketing and sales costs, which were 49 percent of our total revenues for the fiscal year ended January 31, 2016 and 51 percent for...

  • Page 47
    ... (2) related professional services such as process mapping, project management, implementation services and other revenue. "Other revenue" consists primarily of training fees. Subscription and support revenues accounted for approximately 93 percent of our total revenues for fiscal 2016. Subscription...

  • Page 48
    ... subscription and support revenues for fiscal 2016 and 2015, based on customers' estimated product demand plans and these allocated amounts are included in the table above. Additionally, some of our service offerings have similar features and functions. For example, customers may use the Sales Cloud...

  • Page 49
    ... operating activities for the three months ended in the periods stated above. Unbilled Deferred Revenue, a Non-GAAP Measure The GAAP deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements...

  • Page 50
    ... 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 security...

  • Page 51
    ... 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...

  • Page 52
    ... 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...

  • Page 53
    ... device operating systems. As a result of this software as a service delivery model, we believe we have larger capitalized costs as compared to traditional enterprise software companies as they are required to use a different accounting standard. Costs related to preliminary project activities and...

  • Page 54
    ...from the management of acquired companies. Critical estimates in valuing certain intangible assets include, but are not limited to, historical and projected attrition rates, discount rates, anticipated growth in revenue from the acquired customers and acquired technology, and the expected use of the...

  • Page 55
    ... set forth selected data for each of the periods indicated (in thousands): Fiscal Year Ended January 31, 2016 2015 2014 Revenues: Subscription and support ...Professional services and other ...Total revenues ...Cost of revenues (1)(2): Subscription and support ...Professional services and other...

  • Page 56
    ... and operating expenses include the following amounts related to stock-based expenses (in thousands): Fiscal Year Ended January 31, 2016 2015 2014 Cost of revenues ...Research and development ...Marketing and sales ...General and administrative ...Revenues by geography were as follows (in thousands...

  • Page 57
    ... of operations data for each of the periods indicated as a percentage of total revenues: Fiscal Year Ended January 31, 2016 2015 2014 Revenues: Subscription and support ...Professional services and other ...Total revenues ...Cost of revenues: Subscription and support ...Professional services and...

  • Page 58
    ... subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue. Fiscal Years Ended January 31, 2016 and 2015 Revenues. Fiscal Year Ended January 31, 2016 2015 Variance Dollars Percent (in thousands) Subscription and support ...Professional services...

  • Page 59
    ... of purchased intangible assets may 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...

  • Page 60
    ... as a percentage of revenues in future periods as we continue to add employees and invest in technology to support the development of new, and improve existing, technologies and the integration of acquired technologies. Marketing and Sales. Fiscal Year Ended January 31, 2016 2015 Variance Dollars...

  • Page 61
    ....8 million of stock-based expenses and $155.0 million of amortization of purchased intangibles. The increase in income from operations is primarily due to a higher revenue growth rate compared to the operating expense growth rate. Investment income. Fiscal Year Ended January 31, 2016 2015 Variance...

  • Page 62
    ...company recognized from sales of undeveloped real estate and a portion of associated perpetual parking rights in San Francisco, California. Gain on sales of land and building improvements, net of closing costs, was $21.8 million for fiscal 2016 and was $15.6 million during the same period a year ago...

  • Page 63
    ... reduced aggregate international revenues by $31.5 million compared to fiscal 2014. Cost of Revenues. Fiscal Year Ended January 31, 2015 2014 Variance Dollars (in thousands) Subscription and support ...Professional services and other ...Total cost of revenues ...Percent of total revenues ... $ 924...

  • Page 64
    ... revenues, during fiscal 2014, an increase of $169.1 million. The increase in absolute dollars was primarily due to an increase of $132.3 million in employee-related costs, an increase of $13.8 million in stock-based expense, an increase of $14.8 million in development and test data center expense...

  • Page 65
    ... of $53.1 million in employee-related costs, an increase of $18.9 million in equipment costs and an increase of $11.7 million in stock-based expense, offset by a decrease of $3.0 million in professional and outside services. Our general and administrative headcount increased by 9 percent in fiscal...

  • Page 66
    ... the additional sales of our land in Mission Bay; and the reclassification of excess tax benefits from employee stock plans to cash flows from financing activities; the timing of employee related costs including commissions and bonus payments; the timing of payments against accounts payable, accrued...

  • Page 67
    ... from sales and maturities of marketable securities and proceeds from sales of Mission Bay land, the use of restricted cash to purchase 50 Fremont land and building. Net cash used in investing activities during fiscal 2016 increased by approximately $789.5 million over the same period a year ago...

  • Page 68
    ..., and certain other restrictions on our activities each defined specifically in the Credit Agreement. We were in compliance with the Credit Agreement's covenants as of January 31, 2016. In August 2014, we sold approximately 3.7 net acres of our undeveloped real estate in San Francisco for a total of...

  • Page 69
    ... agreement to lease approximately 732,000 rentable square feet of an office building located in San Francisco, California that is under construction. The lease payments associated with the lease will be approximately $590.0 million over the 15.5 year term of the lease, beginning in our first quarter...

  • Page 70
    ...for those goods or services. The standard also provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts. The FASB deferred the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP for one year. In accordance with the...

  • Page 71
    ...-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names, customer lists, customer relationships and acquired lease intangibles, as items arising from pre-acquisition activities determined at the time...

  • Page 72
    ...term rate on an annual basis and, as appropriate, if a significant event materially affects it. Our fiscal 2016 non-GAAP tax provision was 35.5 percent which reflected the related tax impact from the recent Tax Court decision in Altera Corporation's litigation with the Internal Revenue Service ("IRS...

  • Page 73
    ... include our strategic investments, nor does it include any costs or activities related to our purchase of 50 Fremont land and building, and building in progress-leased facilities. Limitations on the use of non-GAAP financial measures A limitation of our non-GAAP financial measures of non-GAAP gross...

  • Page 74
    ...(242,729) $ 221,853 Non-GAAP diluted earnings per share Fiscal Year Ended January 31, 2016 2015 2014 GAAP diluted loss per share (a) ...Plus: Amortization of purchased intangibles ...Amortization of acquired lease intangible ...Stock-based expenses ...Amortization of debt discount, net ...Loss on...

  • Page 75
    ...,359 Supplemental Tax Expense (Benefit) Information: As described above, beginning in February 2014, which was the start of our fiscal 2015, we changed the methodology used to calculate our non-GAAP tax expense. We computed and utilized a fixed long-term projected non-GAAP tax rate of 36.5 percent...

  • Page 76
    ...-cash tax costs were neither made to increase revenue nor directly related to performance in any particular period, but were made for the Company's long term benefit over multiple periods. The remainder of this adjustment included the tax effects of legal and accounting fees incurred to facilitate...

  • Page 77
    ... 31, 2016. 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 BBB or better. The cash, cash equivalents and short-term marketable securities are held for general corporate...

  • Page 78
    ... in the Credit Agreement, or LIBOR. Changes in the overall level of interest rates affect the interest expense that we recognize in our statements of operations. We deposit our cash with multiple financial institutions, therefore our deposits, at times, may exceed federally insured limits. The bank...

  • Page 79
    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: Page No. Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ......

  • Page 80
    ..., 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, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 81
    ... financial reporting as of January 31, 2016, 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, 2016 and 2015, and the related...

  • Page 82
    ... for doubtful accounts of $10,488 and $8,146 at January 31, 2016 and 2015, respectively ...Deferred commissions ...Prepaid expenses and other current assets ...Land and building improvements held for sale ...Total current assets ...Marketable securities, noncurrent ...Property and equipment, net...

  • Page 83
    salesforce.com, inc. Consolidated Statements of Operations (in thousands, except per share data) Fiscal Year Ended January 31, 2016 2015 2014 Revenues: Subscription and support ...Professional services and other ...Total revenues ...Cost of revenues (1)(2): Subscription and support ...Professional ...

  • Page 84
    salesforce.com, inc. Consolidated Statements of Comprehensive Loss (in thousands) Fiscal Year Ended January 31, 2016 2015 2014 Net loss ...$(47,426) $(262,688) $(232,175) Other comprehensive income (loss), before tax and net of reclassification adjustments: Foreign currency translation and ...

  • Page 85
    ...2013 ...Exercise of stock options and stock grants to board members for board services ...Vested restricted stock units converted to shares ...Shares issued related to business combinations ...Shares issued under employee stock plans ...Tax benefits from employee stock plans . . Stock-based expenses...

  • Page 86
    ...) term loan, net ...Proceeds from employee stock plans ...Excess tax benefits from employee stock plans ...Payments on convertible senior notes ...Principal payments on capital lease obligations ...Net cash provided by (used in) financing activities ...Effect of exchange rate changes ...Net increase...

  • Page 87
    ... herein reflect the impact of the increase in authorized shares and the stock split, as appropriate. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions in...

  • Page 88
    ... 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...

  • Page 89
    ...'s enterprise cloud computing services and from customers paying for 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...

  • Page 90
    ...annual or multi-year, noncancelable 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...

  • Page 91
    ... the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, which is generally three to five years. Management evaluates...

  • Page 92
    ...-line basis once control of the space is achieved, without regard to deferred payment terms such as rent holidays that defer the commencement date of required payments. Additionally, incentives received are treated as a reduction of costs over the term of the agreement. The Company establishes...

  • Page 93
    ... the date of grant using the Black-Scholes option pricing model with the following assumptions and fair value per share: Stock Options 2016 Fiscal Year Ended January 31, 2015 2014 Volatility ...Estimated life ...Risk-free interest rate ...Weighted-average fair value per share of grants ...ESPP 32...

  • Page 94
    ...translated using historical exchange rates. 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...

  • Page 95
    ...for those goods or services. The standard also provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts. The FASB deferred the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP for one year. In accordance with the...

  • Page 96
    ...68,001 $982,167 The duration of the investments classified as marketable securities is as follows (in thousands): As of January 31, January 31, 2016 2015 Recorded as follows: Short-term (due in one year or less) ...Long-term (due after one year) ... $ 183,018 1,383,996 $1,567,014 $ 87,312 894,855...

  • Page 97
    ... rate marketable securities was...pricing sources and models utilizing observable market inputs. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1. Level 2. Level 3. Quoted prices (unadjusted) in active...

  • Page 98
    ...Level 1) (Level 2) (Level 3) 2016 Description Cash equivalents (1): Time deposits ...Money market mutual funds ...Commercial Paper ...Agency and sovereign paper ...Marketable securities: Corporate notes and obligations ...U.S. treasury securities... 31, 2016. (3) Included in "accounts payable, ...

  • Page 99
    ... 1) (Level 2) (Level 3) 2015 Description Cash equivalents (1): Time deposits ...Money market mutual funds ...Marketable securities: Corporate notes and obligations ...U.S. treasury securities ...Mortgage backed obligations ...Asset backed securities ...Municipal securities ...Foreign government...

  • Page 100
    ...securities. Marketable equity securities are measured using quoted prices in their respective active markets and the non-marketable equity and debt securities are recorded at cost. These investments are presented on the consolidated balance sheets within strategic investments. As of January 31, 2016...

  • Page 101
    ... using significant unobservable inputs or data in an inactive market and the valuation requires the Company's judgment due to the absence of market prices and inherent lack of liquidity. As of January 31, 2016 and 2015, the carrying value of the Company's non-marketable debt and equity securities...

  • Page 102
    ... costs, on the sale of this portion of the Company's land and building improvements and perpetual parking rights. Building In December 2013, the Company entered into a lease agreement for approximately 445,000 rentable square feet of office space at 350 Mission Street in San Francisco, California...

  • Page 103
    ... in San Francisco. Pursuant to the acquisition agreement, the Company also acquired existing third-party leases and other intangible property, terminated the Company's existing office leases with the seller and assumed the seller's outstanding loan on 50 Fremont. In accordance with Accounting...

  • Page 104
    ...outstanding stock of RelateIQ, Inc. ("RelateIQ"), a relationship intelligence platform company that uses data science and machine learning to automatically capture data from email, calendars and smartphone calls and provide data science-driven insights in real time. The Company acquired RelateIQ for...

  • Page 105
    ... acquired (in thousands) and their estimated useful lives as of the date of acquisition: Fair Value Useful Life Developed technology ...Customer relationships and other purchased intangible assets ...Total ... $14,470 1,730 $16,200 7 years 1-3 years The amount recorded for developed technology...

  • Page 106
    ...combinations are as follows as of January 31, 2016 (in thousands): Weighted Average Remaining Useful Life Gross Fair Value Accumulated Amortization Net Book Value Acquired developed technology ...Customer relationships ...Trade name and trademark ...Territory rights and other ...50 Fremont lease...

  • Page 107
    ... at any time on or after the convertible date noted above. • • • Holders of the 0.25% Senior 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...

  • Page 108
    ... price of the Company's common stock of $68.06 on January 29, 2016, the if-converted value of the 0.25% Senior Notes exceeded their principal amount by approximately $28.0 million. Based on the terms of the 0.25% Senior Notes, the Senior Notes were not convertible at any time during the fiscal year...

  • Page 109
    ...and the commitment fees are payable in arrears quarterly. The Company may use amounts borrowed under the Credit Facility for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions. Subject to certain conditions stated in the Credit Agreement, the...

  • Page 110
    ... on Convertible Senior Notes, Revolving Credit Facility and Loan Secured by 50 Fremont The following table sets forth total interest expense recognized related to the Notes, the Term Loan and the Credit Facility prior to capitalization of interest (in thousands): Fiscal Year Ended January 31, 2016...

  • Page 111
    ...and 2014, respectively. The Company capitalized $6.1 million, $5.3 million and $3.5 million of stock-based expenses related to capitalized internal-use software development and deferred professional services during fiscal 2016, 2015 and 2014, respectively. Other Assets, net Other assets consisted of...

  • Page 112
    ... by the terms and conditions of the 1999 Plan. On July 10, 2014, the Company adopted the 2014 Inducement Plan with a reserve of 335,000 shares of common stock for future issuance solely for the granting of inducement stock options and equity awards to new employees, including employees of acquired...

  • Page 113
    ... liabilities. Employees purchased 3.0 million shares for $155.0 million and 3.3 million shares for $127.8 million, in fiscal 2016 and 2015, respectively, under the ESPP. Prior to February 1, 2006, options issued under the Company's stock option plans generally had a term of 10 years. From February...

  • Page 114
    ... 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 vests over 4 years. The weighted-average grant date fair value of the restricted stock issued...

  • Page 115
    ...2014 Inducement Equity Incentive Plan ...2004 Employee Stock Purchase Plan ...Convertible senior notes ...Warrants ...26,258,798 21,294,585 46,233,360 646,548 6,844,796 17,308,880 17,308,880 135,895,847 During fiscal years 2016, 2015 and 2014, certain board members received stock grants totaling 67...

  • Page 116
    ... Court ("Tax Court") formally entered its decision in Altera Corporation's ("Altera") litigation with the Internal Revenue Service ("IRS"). The litigation relates to the treatment of stockbased compensation expense in an inter-company cost-sharing arrangement with Altera's foreign subsidiary. In its...

  • Page 117
    ... Tax Increase Prevention Act of 2014 was signed into law, which retroactively renewed expired provisions including research and development tax credits through the end of calendar year 2014. The enacted law change did not impact the Company's fiscal 2015 tax provision as the retroactive benefit of...

  • Page 118
    ... 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. The Company...

  • Page 119
    ... under audit by the U.S. Internal Revenue Service and California Franchise Tax Board for fiscal 2011 to 2012 and fiscal 2009 to 2010, respectively. Additionally, examinations are conducted in other international jurisdictions, including Switzerland and the United Kingdom. During fiscal 2016, the...

  • Page 120
    ...diluted earnings/loss per share because the effect would have been anti-dilutive (in thousands): Fiscal Year Ended January 31, 2016 2015 2014 Employee Stock awards ...Convertible senior notes ...Warrants ...10. Commitments Letters of Credit 26,615 17,309 17,309 22,157 25,953 37,517 19,664 43,965...

  • Page 121
    ...Claims In the ordinary course of business, the Company is or may be involved in various legal proceedings and claims related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, class actions, wage and hour...

  • Page 122
    ... 1-1-1 model. Beginning in 2008, Salesforce.org, which is a non-profit public benefit corporation, was established to resell the Company's services to nonprofit organizations and certain higher education organizations. The Company's chairman is the chairman of both the Foundation and Salesforce.org...

  • Page 123
    ...an addendum with model clauses for the processing of personal data transferred from the European Economic Area. The value of the subscriptions pursuant to reseller agreements was approximately $69.9 million for the fiscal year 2016. The Company plans to continue these programs. 14. Subsequent Events...

  • Page 124
    ... 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, 2016...

  • Page 125
    (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 ...

  • Page 126
    ...officers. The Code of Conduct is available on our website 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...

  • Page 127
    ... 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...

  • Page 128
    salesforce.com, inc. Schedule II Valuation and Qualifying Accounts Balance at Beginning of Year Deductions Write-offs Balance at End of Year Description Additions Fiscal year ended January 31, 2016 Allowance for doubtful accounts ...Fiscal year ended January 31, 2015 Allowance for doubtful ...

  • Page 129
    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 4, 2016 salesforce.com, inc. By: MARK J. HAWKINS Mark J. Hawkins ...

  • Page 130
    Signature Title Date /s/ KEITH BLOCK Keith Block Director, Vice Chairman, President and Chief Operating Officer Director March 4, 2016 /s/ CRAIG CONWAY Craig Conway March 4, 2016 /s/ ALAN HASSENFELD Alan Hassenfeld COLIN POWELL Colin Powell Director March 4, 2016 /s/ Director March ...

  • Page 131
    ... Kokua Bonus Plan, as amended and restated December 5, 2014, effective February 1, 2015 RelateIQ, Inc. 2011 Stock Plan and related forms of equity award agreements Resource Sharing Agreement, dated August 1, 2015, by and between salesforce.com, inc., the salesforce.com foundation, and Salesforce.org...

  • Page 132
    ... and Sale Agreement, dated November 10, 2014, between salesforce.com, inc. and 50 Fremont Tower, LLC 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...

  • Page 133
    ... No. Exhibit Description Provided Herewith Form Incorporated by Reference SEC File No. Exhibit Filing Date 31.2 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...

  • Page 134
    ... Officer President, Sales & Customer Success Chief Legal Officer and Chief of Corporate and Government Affairs Executive Vice President, Global Employee Success Executive Vice President, General Counsel Investor Relations [email protected], +1-415-536-6250 Stock Listing Salesforce.com...

  • Page 135
    WORLDWIDE CORPORATE HEADQUARTERS salesforce.com, inc. The Landmark @ One Market Suite 300 San Francisco, CA 94105 USA

  • Page 136
    ... your chance to do better be better and live better. (We are in a renaissance of giving.) 1.3 HOURS MILLION contributed to the community since inception hero " Salesforce helps us deliver personalized medicine to our patients. LAURA ESSERMAN, MD, MBA DIRECTOR, UCSF BREAST CARE...

  • Page 137
    "I stand for equality." MARC BENIOFF As a CEO, you have a responsibility to say " With Salesforce, we cultivate smarter, stronger partnerships to help women succeed. RACHEL THOMAS PRESIDENT & CO-FOUNDER LEAN IN "The business of business is to improve the state of the world." MARC BENIOFF

  • Page 138
    CORPORATE HEADQUARTERS The Landmark @ One Market | Suite 300 San Francisco, CA 94105 United States 1-800-NO-SOFTWARE www.salesforce.com | /salesforce | @salesforce Copyright © 2016, salesforce.com, inc. All rights reserved. Salesforce and salesforce.com are registered trademarks of salesforce....