Salesforce.com 2016 Annual Report Download - page 77

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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, Australian Dollar and
Japanese Yen. 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 $2.7 billion at January 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 purposes including possible acquisitions of, or
investments in, complementary businesses, services or technologies, working capital and capital expenditures.
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, 2016 could result in a
$20.9 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, 2015, we had cash, cash equivalents and marketable securities totaling $1.9 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 $13.5 million.
Market Risk and Market Interest Risk
In March 2013, we issued the 0.25% Senior Notes. Holders of the 0.25% Senior Notes may convert the
0.25% Senior 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 amounts of the 0.25% Senior Notes and the amounts in
excess of the principal amounts, if any, may be paid in cash or stock at our option. Concurrent with the issuance
of the 0.25% Senior 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 0.25%
Senior Notes.
The 0.25% Senior Notes have a fixed annual interest rate of 0.25%, and therefore we do not have economic
interest rate exposure on the 0.25% Senior Notes. However, the value of the 0.25% Senior Notes are exposed to
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