Salesforce.com 2007 Annual Report Download - page 69

Table of Contents
salesforce.com, inc.
Notes to Consolidated Financial Statements—(Continued)
During fiscal 2008 and 2007, the Company capitalized $2,068,000 and $808,000, respectively, of stock-based expenses related to internal-use software
development and deferred professional services costs.
During fiscal 2008, the Company recognized stock-based expense of $55.2 million. As of January 31, 2008, the aggregate stock compensation
remaining to be amortized to costs and expenses was $220.5 million. The Company expects this stock compensation balance to be amortized as follows: $81.1
million during fiscal 2009; $69.8 million during fiscal 2010; $48.1 million during fiscal 2011; and $21.5 million during fiscal 2012. The expected
amortization reflects only outstanding stock awards as of January 31, 2008 and assumes no forfeiture activity. The Company expects to continue to issue
share-based awards to its employees in future periods.
The Company grants stock options and restricted stock units to employees throughout the world. In certain foreign jurisdictions, the Company incurs a
payroll or social tax cost when its employees exercise their vested awards. Pursuant to SFAS 123R, the payroll and social tax costs are recognized as an
operating expense at the time of the exercise. As of January 31, 2008, the Company would incur as an operating expense in excess of $5.0 million for these
taxes if all vested awards held by employees in these foreign jurisdictions were exercised. This amount is based on the number of vested awards held and the
market price at the end of the reporting period of the Company's common stock. The timing of when employees in these foreign jurisdictions exercise their
vested awards could materially affect the Company's future results of operations in a particular period.
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. As of
January 31, 2008 and January 31, 2007, the reserve balance was approximately $0.4 million.
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.
Advertising Expenses
Advertising is expensed as incurred. Advertising expense was $25,562,000, $14,733,000 and $12,932,000 for fiscal 2008, 2007 and 2006, respectively.
66