Salesforce.com 2016 Annual Report Download - page 103

the Company had capitalized $125.3 million of construction costs, based on the construction costs incurred to date
by the landlord, and recorded a corresponding noncurrent financing obligation liability of $125.3 million. The total
expected financing obligation associated with this lease upon completion of the construction of the building,
inclusive of the amounts currently recorded, is $334.0 million, including interest (see Note 10 “Commitments” for
future commitment details). The obligation will be settled through monthly lease payments to the landlord once the
office space is ready for occupancy. To the extent that operating expenses for 350 Mission are material, the
Company, as the deemed accounting owner, will record the operating expenses. In April 2015, the building was
placed into service and depreciation commenced.
4. Business Combinations
50 Fremont
In February 2015, the Company acquired 50 Fremont Street, a 41 -story building totaling approximately
817,000 rentable square feet located in San Francisco, California (“50 Fremont”). At the time of the acquisition,
the Company was leasing approximately 500,000 square feet of the available space in 50 Fremont. As of
January 31, 2016, the Company occupied approximately 567,000 square feet. The Company acquired 50 Fremont
for the purpose of expanding its global headquarters 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 Standards Codification 805 (“ASC 805”), Business Combinations, the Company accounted for the
building purchase as a business combination.
The purchase consideration for the corporate headquarters building was as follows (in thousands):
Fair Value
Cash .................................................... $435,189
Loan assumed on 50 Fremont ................................ 200,000
Prorations due to ownership transfer midmonth .................. 2,411
Total purchase consideration ................................. $637,600
The following table summarizes the fair values of net tangible and intangible assets acquired (in thousands):
Fair Value
Building ................................................. $435,390
Land .................................................... 183,888
Termination of salesforce operating lease ....................... 9,483
Acquired lease intangibles ................................... 7,590
Loan assumed on 50 Fremont fair market value adjustment ......... 1,249
Total .................................................... $637,600
To fund the purchase of 50 Fremont, the Company used $115.0 million of restricted cash that the Company
had on the balance sheet as of January 31, 2015.
In connection with the purchase, the Company recognized a net non-cash gain totaling approximately
$36.6 million on the termination of the lease signed in January 2012. This amount reflects a gain of $46.1 million
for the reversal of tenant incentives provided from the previous landlord at the inception of the lease and a loss of
$9.5 million related to the termination of the Company’s operating lease. The tax impact as a result of the
difference between tax and book basis of the building is insignificant after considering the impact of the
Company’s valuation allowance. The amounts above have been included in the Company’s consolidated
statements of operations and consolidated balance sheet. The Company has included the rental income from third
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