Salesforce.com 2013 Annual Report Download - page 94

Note Hedges
To minimize the impact of potential economic dilution upon conversion of the Notes, the Company entered
into convertible note hedge transactions with respect to its common stock (the “Note Hedges”). The Company
paid, in January 2010, an aggregate amount of $126.5 million for the Note Hedges. The Note Hedges cover
approximately 6.7 million shares of the Company’s common stock at a strike price that corresponds to the initial
conversion price of the Notes, also subject to adjustment, and are exercisable upon conversion of the Notes. The
Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential
economic dilution upon conversion of the Notes in the event that the market value per share of the Company’s
common stock, as measured under the Notes, at the time of exercise is greater than the conversion price of the
Notes. The Note Hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes
will not have any rights with respect to the Note Hedges. The Company initially recorded a deferred tax asset of
$51.4 million in connection with these Note Hedges.
Warrants
Separately, the Company in January 2010 also entered into warrant transactions (the “Warrants”), whereby
the Company sold warrants to acquire, subject to anti-dilution adjustments, up to 6.7 million shares of the
Company’s common stock at a strike price of $119.51 per share. The Company received aggregate proceeds of
$59.3 million from the sale of the Warrants. As the average market value per share of the Company’s common
stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the
Warrants would have a dilutive effect on the Company’s earnings/loss per share. The Warrants were anti-dilutive
during fiscal 2013 based on the Company’s net loss fiscal 2013. The Warrants are separate transactions, entered
into by the Company and are not part of the terms of the Notes or Note Hedges. Holders of the Notes and Note
Hedges will not have any rights with respect to the Warrants.
6. Other Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
As of January 31,
2013 2012
Deferred professional services costs .................. $ 3,522 $10,399
Prepaid income taxes .............................. 21,180 12,785
Prepaid expenses and other current assets ............. 101,291 57,135
$125,993 $80,319
Capitalized Software, net
Capitalized software consisted of the following (in thousands):
As of January 31,
2013 2012
Capitalized internal-use software development costs, net
of accumulated amortization of $72,448 and $50,300,
respectively .................................. $ 59,647 $ 41,442
Acquired developed technology, net of accumulated
amortization of $179,906 and $99,886, respectively . . 147,676 146,970
$207,323 $188,412
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