Salesforce.com 2006 Annual Report Download - page 70

Download and view the complete annual report

Please find page 70 of the 2006 Salesforce.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

Table of Contents
salesforce.com, inc.
Notes to Consolidated Financial Statements—(Continued)
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the Company's subscription service
described above and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers in annual or quarterly
installments. Accordingly, the deferred revenue balance does not represent the total contract value of annual or multi-year, noncancelable subscription
agreements.
Deferred Commissions
Deferred commissions are the incremental costs that are directly associated with noncancelable subscription contracts with customers and consist of
sales commissions paid to the Company's direct sales force. The commissions are deferred and amortized over the noncancelable terms of the related customer
contracts, which are typically 12 to 24 months. The commission payments are paid in full the month after the customer's service commences. The deferred
commission amounts are recoverable through the future revenue streams under the noncancelable customer contracts. The Company believes this is the
preferable method of accounting as the commission charges are so closely related to the revenue from the noncancelable customer contracts that they should
be recorded as an asset and charged to expense over the same period that the subscription revenue is recognized. Amortization of deferred commissions is
included in marketing and sales expense in the accompanying consolidated statements of operations.
Warranties and Indemnification
The Company's on-demand application service is 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 help documentation under normal use and circumstances.
The Company's arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a
third-party's intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any
liabilities related to such obligations in the accompanying consolidated financial statements.
The Company has entered into service level agreements with a small number of its customers warranting certain levels of uptime reliability and
performance and permitting those customers to receive credits or terminate their agreements in the event that the Company fails to meet those levels. During
fiscal 2007, the Company paid out approximately $0.8 million and reduced its reserve by $0.2 million. As of January 31, 2007 and 2006, the reserve balance
was approximately $0.4 million and $1.4 million, respectively.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and
settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by
reason of the person's service as a director or officer, including any action by the Company, arising out of that person's services as the Company's director or
officer or that person's services provided to any other company or enterprise at the Company's request. The Company maintains director and officer insurance
coverage that would generally enable the Company to recover a portion of any future amounts paid.
67