Salesforce.com 2004 Annual Report Download - page 79

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Table of Contents
salesforce.com, inc.
Notes to Consolidated Financial Statements—(Continued)
In addition, the Company had two additional letters of credit outstanding related to office leases as of January 31, 2005, which were collateralized by
certificates of deposit in the aggregate of $391,000 and are maintained at the granting financial institution.
Leases
As of January 31, 2005, the Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates
through 2011.
In June 2004, the Company entered into a capital lease arrangement to obtain software licenses for use in its internal business operations. This
agreement is for 3 years, with an interest rate of 3.5 percent per year.
Future minimum lease payments under noncancelable operating and capital leases areas are as follows:
Capital
Leases
Operating
Leases
Fiscal Year Ended January 31:
2006 $ 585,000 $ 12,009,000
2007 585,000 9,011,000
2008 147,000 7,021,000
2009 — 6,083,000
2010 — 4,648,000
Thereafter — 6,361,000
Total minimum lease payments 1,317,000 $ 45,133,000
Less: amount representing interest (33,000)
Present value of capital lease obligations $ 1,284,000
The terms of the lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on the straight-line basis
over the lease period and has accrued for rent expense incurred but not paid.
Rent expense for fiscal 2005, 2004 and 2003 was $6,490,000, $4,686,000 and $3,708,000, respectively.
In December 2001, the Company abandoned 19,500 square feet of excess office space in San Francisco and recorded a lease abandonment charge of
$7,657,000. This amount consisted of the future rent obligations under the operating leases of $11,368,000, offset by projected subtenant income of
$3,711,000. The operating leases with the landlords expire on different dates through April 2011.
Of the total space abandoned, the Company subleased 7,500 square feet through the remaining term of its operating lease at the original sublease
assumptions. Additionally, in August 2003, the Company executed a Third Amendment to Office Lease with its landlord. This agreement modified the
original lease such that the total leased space under the amended agreement excluded 7,200 square feet of the space that was abandoned. As a result of this
amendment, the Company recorded a reduction in its lease liability of $4,342,000 during the third quarter of fiscal 2004.
At January 31, 2004, approximately 5,000 square feet of the 19,500 square feet of office space abandoned in December 2001 remained available for
sublease. The operating lease for this remaining space expires in April 2011. Due to the difficulty in securing subtenants to occupy the remaining 5,000 square
feet of available office
72