Salesforce.com 2012 Annual Report Download - page 101

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
As of January 31,
2012 2011
Deferred tax assets:
Net operating loss carryforwards ............................... $ 35,942 $ 21,929
Deferred stock compensation .................................. 61,029 31,872
Tax credits ................................................ 54,243 39,065
Deferred rent expense ....................................... 11,661 8,371
Accrued liabilities .......................................... 49,825 29,549
Deferred revenue ........................................... 5,936 9,727
Other .................................................... 6,792 4,508
Total deferred tax assets ......................................... 225,428 145,021
Less valuation allowance ......................................... (835) (1,142)
Deferred tax assets, net of valuation allowance ........................ 224,593 143,879
Deferred tax liabilities:
Deferred commissions ....................................... (49,029) (27,739)
Purchased intangibles ........................................ (18,052) (24,856)
Unrealized gains on investments ............................... (2,881) (5,005)
Depreciation and amortization ................................. (26,352) (13,500)
Other .................................................... (8,871) (4,064)
Total deferred tax liabilities ....................................... (105,185) (75,164)
Net deferred tax assets ........................................... $119,408 $ 68,715
Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which
are uncertain. Accordingly, the deferred tax assets have been partially offset by a valuation allowance. The
valuation allowance relates to net deferred tax assets from operating losses of certain foreign subsidiaries. The
excess tax benefits associated with stock option exercises are recorded directly to stockholders’ equity
controlling interest only when realized. As a result, the excess tax benefits included in net operating loss
carryforwards but not reflected in deferred tax assets for fiscal year 2012 and 2011 are $149.1 million and $80.6
million, respectively.
At January 31, 2012, the Company had net operating loss carryforwards for federal income tax purposes of
approximately $487.9 million, which expire in 2024 through 2032, federal research and development tax credits
of approximately $36.6 million, which expire in 2020 through 2032, foreign tax credits of $3.9 million, which
expires in 2019, and minimum tax credits of $0.7 million, which have no expiration date.
The Company also had net operating loss carryforwards for state income tax purposes of approximately
$319.0 million which expire beginning in 2014 and state research and development tax credits of approximately
$33.8 million and $6.5 million of state enterprise zone tax credits, which do not expire. The decrease in the
Company’s state effective tax rate resulting from California’s tax law change could potentially impact the
realizability of certain tax attributes. The Company will continue to re-assess the realizability of these tax
attributes on a regular basis.
Utilization of the Company’s net operating loss carryforwards may be subject to substantial annual
limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state
provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit
carryforwards before utilization.
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