Salesforce.com 2008 Annual Report Download - page 72

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Table of Contents
salesforce.com, inc.
Notes to Consolidated Financial Statements—(Continued)
of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to
reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
The total income tax benefit recognized in the accompanying consolidated statements of operations related to SFAS 123R was $26.3 million, $18.5
million, and $12.4 million for fiscal 2009, 2008, and 2007 respectively.
The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or
Interpretation 48, on February 1, 2007. This interpretation utilizes a two-step approach to establish a threshold for the financial statement recognition and
measurement of income tax positions upon ultimate settlement with taxing authorities. It provides guidance on subsequent recognition, derecognition and the
accounting for interest and penalties associated with uncertain tax positions. It also addresses the presentation and classification of recorded amounts in the
financial statements and disclosure requirements.
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in its tax provision. As of January 31, 2009, the Company
accrued no penalties and an immaterial amount of interest in income tax expense.
Revenue Recognition
The Company derives its revenues from two sources: (1) subscription revenues, which are comprised of subscription fees from customers accessing its
enterprise cloud computing application service, and from customers purchasing additional support beyond the standard support that is included in the basic
subscription fee; and (2) related professional services and other revenue. Other revenues consist primarily of training fees. Because the Company provides its
application as a service, the Company follows the provisions of the Securities and Exchange Commission's, or SEC, Staff Accounting Bulletin No. 104,
Revenue Recognition and Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The Company recognizes revenue
when all of the following conditions are met:
• There is persuasive evidence of an arrangement;
• The service has been provided to the customer;
• The collection of the fees is reasonably assured; and
• The amount of fees to be paid by the customer is fixed or determinable.
The Company's arrangements do not contain general rights of return.
Subscription and support revenues are recognized ratably over the contract terms beginning on the commencement date of each contract. Amounts that
have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been
met.
Professional services and other revenues, when sold with subscription and support offerings, are accounted for separately when these services have
value to the customer on a standalone basis and there is objective and reliable evidence of fair value of each deliverable. When accounted for separately,
revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the
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