Salesforce.com 2007 Annual Report Download - page 49

Table of Contents
$49.8 million. The increase in absolute dollars was primarily due to an increase of $17.0 million in employee- related costs, primarily all of which was due to
the 59 percent increase in the headcount of our professional services organization since January 31, 2006, an increase of $4.9 million in stock-based expenses,
an increase of $15.6 million in service delivery costs, primarily due to our efforts in adding data center capacity, an increase of $3.9 million in depreciation
and amortization expenses, an increase of $5.4 million in outside subcontractor and other service costs and an increase of $2.1 million in allocated overhead.
The cost of the additional professional services headcount resulted in the cost of professional services and other revenues to be in excess of the related revenue
during fiscal 2007 by $12.0 million. We increased the professional services headcount in order to meet the current and anticipated demand for our consulting
and training services as our subscriber base expanded and includes more large businesses and as we have expanded internationally.
Research and Development. Research and development expenses were $44.6 million, or 9 percent of total revenues, during fiscal 2007, compared to
$23.3 million, or 8 percent of total revenues, during the same period a year ago, an increase of $21.3 million. The increase in absolute dollars was due to an
increase of $12.0 million in employee-related costs, an increase of $4.2 million in stock-based expenses, an increase of $2.7 million in depreciation expense,
equipment and service costs and an increase of $2.4 million in allocated overhead. We increased our research and development headcount by 84 percent since
January 31, 2006 in order to upgrade and extend our service offerings and develop new technologies.
Marketing and Sales. Marketing and sales expenses were $252.9 million, or 51 percent of total revenues, during fiscal 2007, compared to $149.6
million, or 48 percent of total revenues, during the same period a year ago, an increase of $103.3 million. The increase in absolute dollars was primarily due to
increases of $71.4 million in employee-related costs, $17.1 million in stock-based expenses, $2.9 million in marketing, advertising and event costs, $1.5
million in partner referral fees and $9.2 million in allocated overhead. Our marketing and sales headcount increased by 55 percent since January 31, 2006 as
we hired additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base.
General and Administrative. General and administrative expenses were $84.3 million, or 17 percent of total revenues, during fiscal 2007, compared to
$47.7 million, or 16 percent of total revenues, during the same period a year ago, an increase of $36.6 million. The increase was primarily due to increases in
employee-related costs, stock-based expenses, infrastructure-related costs and professional and outside service costs. Our general and administrative
headcount increased by 62 percent since January 31, 2006 as we added personnel to support our growth.
Operating Income (Loss). Operating loss during fiscal 2007 was $3.6 million and included $39.2 million of stock-based expenses related to SFAS
123R. During the same period a year ago, operating income was $20.1 million and included $3.4 million of stock-based expenses. The increase in our
revenues was re-invested in an effort to expand our business.
Interest Income. Interest income consists of investment income on cash and marketable securities balances. Interest income was $15.0 million during
fiscal 2007 and was $7.7 million during the same period a year ago. The increase was primarily due to increased marketable securities balances resulting from
the cash generated by operating activities and increased market interest rates.
(Provision) Benefit for Income Taxes. We recorded a provision for income taxes of $9.8 million during fiscal 2007, compared to a benefit for income
taxes of $1.3 million during the same period a year ago. Included in the fiscal 2006 $1.3 million income tax benefit was a $7.2 million reversal of the
valuation allowance related to certain of our deferred tax assets. Prior to the third quarter of fiscal 2006, we recorded a full valuation allowance to reserve for
the benefit of our deferred tax assets due to the uncertainty surrounding our ability to realize these assets.
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