Salesforce.com 2007 Annual Report Download - page 41

Table of Contents
the future, research and development expenses will increase in absolute dollars as we upgrade and extend our service offerings and develop new technologies.
Marketing and Sales. Marketing and sales expenses are our largest cost and consist primarily of salaries and related expenses, including stock-based
expenses, for our sales and marketing staff, including commissions, payments to partners, marketing programs and allocated overhead. Marketing programs
consist of advertising, events, corporate communications and brand building and product marketing activities.
We plan to continue to invest heavily in marketing and sales by increasing the number of direct sales personnel in order to add new customers and
increase penetration within our existing customer base, expanding our domestic and international selling and marketing activities, building brand awareness
and sponsoring additional marketing events. We expect that in the future, marketing and sales expenses will increase in absolute dollars and continue to be our
largest cost.
General and Administrative. General and administrative expenses consist of salaries and related expenses, including stock-based expenses, for finance
and accounting, human resources and management information systems personnel, legal costs, professional fees, other corporate expenses and allocated
overhead. We expect that in the future, general and administrative expenses will increase in absolute dollars as we add personnel and incur additional
professional fees and insurance costs related to the growth of our business and international expansion.
Stock-Based Expenses. Our cost of revenues and operating expenses include stock-based expenses related to option and stock awards to employees and
non-employee directors. We account for stock-based expenses pursuant to the provisions of Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment, or SFAS 123R which we adopted on February 1, 2006. SFAS 123R requires that share-based payments, including grants of
employee stock options be recognized as an expense in the statement of operations based on their fair values and vesting periods. These charges are
significant and we expect them to increase in absolute dollars in the future.
Joint Venture
In December 2000, we established a Japanese joint venture, Kabushiki Kaisha salesforce.com, with SunBridge, Inc., a Japanese corporation, to assist us
with our sales efforts in Japan. As of January 31, 2008, we owned a 65 percent interest in the joint venture. Because of this majority interest, we consolidate
the venture's financial results, which are reflected in each revenue, cost of revenues and expense category in our consolidated statement of operations. We
then record minority interest, which reflects the minority investors' interest in the venture's results, exclusive of intercompany charges. Through January 31,
2008, the operating performance and liquidity requirements of the Japanese joint venture has not been significant. While we plan to expand our selling and
marketing activities in Japan in order to add new customers, we believe the future operating performance and liquidity requirements of the Japanese joint
venture will not be significant.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of
these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs
and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates
under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in note 1 to our consolidated financial statements, the following accounting
policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding
and evaluating our consolidated financial condition and results of operations.
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