Salesforce Annual Report 2017

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2017
ANNUAL RE PORT

   $8.4 billion
         FY17 Revenue, up 26% year-over-year.
 
        $5.5 billion
         Deferred Revenue, up 29% year-over-year.
 
        $14.5 billion
        Billed and Unbilled Deferred Revenue,1 up 28% year-over-year.
 
       $2.2 billion
         Full year Operating Cash Flow, up 29% year-over-year.
         25,000+
         Employees
 ~90%
         of the "Fortune 100" run at least
         one app from the AppExchange.
         2 million+
         Hours contributed to the
         community since inception.
FY17
HIGHLIGHTS
Trailblazers create experiences that put customers at the center of everything. 
They learn from insights, innovate constantly, build trust into every touchpoint, 
and predict what customers want before they even ask.
Thanks to you, FY2017 was another record-breaking year for Salesforce.
We look forward to blazing even more new trails together in the year to come.
"Unbilled Deferred Revenue" represents business that
   is contracted but unbilled and off the balance sheet.

Salesforce delivered another exceptional year of growth and customer 
success. We reached nearly $8.4 billion in annual revenue, achieving that 
milestone faster than any other enterprise software company. No other 
enterprise software company of our size and scale is growing at this pace, 
and we've continued to balance this top line growth with improvement in 
non-GAAP operating margin. For fiscal 2018, we expect to surpass $10 
billion in revenue, on our path to $20 billion.
When we started the company in 1999, we had a vision that businesses 
would move to the cloud and subscription-based services. Salesforce led the 
industry as the first to bring cloud, social and then mobile to CRM. Now, with 
our Einstein AI services, we're once again leading companies into the future. 
Einstein brings artificial intelligence to the world's #1 CRM and millions of 
Salesforce users, across sales, service, marketing, commerce and more.
The Salesforce Intelligent Customer Success Platform is trusted at scale by 
a trailblazing community of 150,000+ customers, delivering tens of billions 
of secure transactions every day. We have strategic relationships with many 
of the largest and most successful companies in the world, including nearly 
400 of the Fortune 500. These companies rely on Salesforce to drive their 
digital transformations and enable them to connect with their customers in 
whole new ways.
Our continuous focus on innovating on behalf of customers has earned 
Salesforce recognition as the "Innovator of the Decade" by Forbes. In 
addition, Fortune ranked Salesforce as the 20th "Most Admired Company 
in the World" and 8th in its "100 Best Companies to Work For" rankings.
Salesforce has also been named the #1 "Workplace for Giving Back" 
by Fortune. In partnership with Salesforce.org, we now have given 
approximately $160 million in grants, logged over 2 million employee 
volunteer hours throughout the world, and more than 31,000 non-profit 
and higher education organizations use our service offerings for free or
at a discount. We've proven over our 18 years that a company can do well, 
while also doing good in the world.
I would like to extend my gratitude to our customers, partners and 
stockholders for their inspiration, guidance and support, and to our more 
than 25,000 employees across 25 countries around world, who dedicate 
themselves to delivering customer success and who embody our core 
values -- trust, growth, innovation and equality.
Mahalo,
Fellow stockholders,

World's #1 CRM Platform
SOURCE: GARTNER, 2016
Innovator of the Decade
SOURCE: FORBES, 2016
20th Most Admired
Company in the World
SOURCE: FORTUNE MAGAZINE, 2017
8th Best Company to Work For
SOURCE: FORTUNE MAGAZINE, 2017
Your inspiration, drive, and support
have made us who we are today.
thank you

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
 Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2017
OR
' Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-32224
salesforce.com, inc.
(Exact name of registrant as specified in its charter)
Delaware
94-3320693
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
The Landmark @ One Market, Suite 300
San Francisco, California 94105
(Address of principal executive offices)
Telephone Number (415) 901-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.001 per share
New York Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act:
Not applicable
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes  No '
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Act. Yes ' No 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days: Yes  No '
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes  No '
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. '
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer 
Accelerated filer
'
Non-accelerated filer ' (Do not check if a smaller reporting company)
Smaller reporting company '
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ' No 
Based on the closing price of the Registrant's Common Stock on the last business day of the Registrant's most recently completed
second fiscal quarter, which was July 29, 2016, the aggregate market value of its shares (based on a closing price of $81.80 per share) held by
non-affiliates was approximately $38.5 billion. Shares of the Registrant's Common Stock held by each executive officer and director and by
each entity or person that owned 5 percent or more of the Registrant's outstanding Common Stock were excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of January 31, 2017, there were approximately 707.5 million shares of the Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its 2017 Annual Meeting of Stockholders (the "Proxy Statement"), to be filed
within 120 days of the Registrant's fiscal year ended January 31, 2017, are incorporated by reference in Parts II and III of this Report on
Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed
to be filed as part of this Form 10-K.
salesforce.com, inc.
INDEX
Page No.
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Item 4A. Executive Officers of the Registrant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . .
39
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
62
Item 8.
Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . .
65
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . .
120
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . .
122
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123
Item 16. 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125
Index to Exhibits
2
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Words such as "expects," "anticipates," "aims," "projects,"
"intends," "plans," "believes," "estimates," "seeks," "assumes," "may," "should," "could," "would,"
"foresees," "forecasts," "predicts," "targets," variations of such words and similar expressions are intended to
identify such forward-looking statements, which may consist of, among other things, trend analyses and
statements regarding future events, future financial performance, anticipated growth and industry prospects.
These forward-looking statements are based on current expectations, estimates and forecasts, as well as the
beliefs and assumptions of our management, and are subject to risks and uncertainties that are difficult to
predict, including the effect of general economic and market conditions; the impact of foreign currency exchange
rate and interest rate fluctuations on our results; our business strategy and our plan to build our business,
including our strategy to be the leading provider of enterprise cloud computing applications and platforms; our
international expansion strategy; our service performance and security; the expenses associated with new data
centers and third party infrastructure providers; additional data center capacity; real estate and office facilities
space; our operating results; new services and product features; our strategy of acquiring or making investments
in complementary businesses, joint ventures, services, technologies and intellectual property rights; our ability to
successfully integrate acquired businesses and technologies; our ability to continue to grow and maintain
deferred revenue and unbilled deferred revenue; our ability to protect our intellectual property rights; our ability
to develop our brands; our ability to realize the benefits from strategic partnerships and investments; our
reliance on third- party hardware, software and platform providers; our dependency on the development and
maintenance of the infrastructure of the Internet; the effect of evolving government regulations, including import
and export controls; the valuation of our deferred tax assets; the potential availability of additional tax assets in
the future; the impact of new accounting pronouncements, the impact of expensing stock options and other equity
awards; the sufficiency of our capital resources; factors related to our outstanding convertible notes, revolving
credit facility, term loan and loan associated with 50 Fremont; compliance with our debt covenants and capital
lease obligations; and current and potential litigation involving us. These and other risks and uncertainties may
cause our actual results to differ materially and adversely from those expressed in any forward-looking
statements. Readers are directed to risks and uncertainties identified below under "Risk Factors" and elsewhere
in this report for additional detail regarding factors that may cause actual results to be different than those
expressed in our forward-looking statements. Except as required by law, we undertake no obligation to revise or
update publicly any forward-looking statements for any reason.
PART I
ITEM 1. BUSINESS
Overview
Salesforce is a leading provider of enterprise software, delivered through the cloud, with a focus on
customer relationship management, or CRM. We introduced our first CRM solution in 2000, and we have since
expanded our service offerings into new areas and industries with new editions, features and platform
capabilities. Our core mission is to empower our customers to connect with their customers in entirely new ways
through cloud, mobile, social, Internet of Things ("IoT") and artificial intelligence technologies.
Our service offerings are intuitive and easy to use. They can be deployed rapidly, configured easily and
integrated with other platforms and enterprise applications, or apps. We deliver our service offerings via major
internet browsers and on leading mobile devices. We sell to businesses of all sizes and in almost every industry
worldwide on a subscription basis, primarily through our direct sales efforts and also indirectly through partners.
Through our platform and other developer tools, we also encourage third parties to develop additional
functionality and new apps that run on our platform, which are sold separately from, or in conjunction with, our
service offerings.
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Our Customer Success Platform is a comprehensive portfolio of service offerings providing sales force
automation, customer service and support, marketing automation, digital commerce, community management,
analytics, application development, IoT integration, collaborative productivity tools and our professional cloud
services.
Salesforce also believes in giving back. We pioneered, and have inspired other companies to adopt, an
integrated philanthropy model called the 1-1-1 model, which leverages 1% of a company's equity, employee
time and product to help improve communities around the world. We also believe in equality for all, and have
spearheaded initiatives to create a world where equal pay, equal advancement, equal opportunity and equal rights
become a reality for our employees and the broader world.
We were incorporated in Delaware in February 1999. Our principal executive offices are located in
San Francisco, California, and our principal website address is www.salesforce.com. Our office address is The
Landmark @ One Market, Suite 300, San Francisco, California 94105.
The Age of the Customer
At Salesforce, we believe we are living in the single most innovative era in history, as everyone and every
thing becomes connected. There are now billions of mobile phones and intelligent connected devices. And
behind each and every device, interaction, product and connected community is a customer. Companies have the
opportunity to harness all of this information about customers in new and extraordinary ways, enabling them to
intelligently connect and engage with customers across every part of the customer experience.
Our Customer Success Platform provides a single view of the customer across all touchpoints. We bring
together the power of cloud, mobile, social, IoT and artificial intelligence technologies, enabling our customers
to harness data and deliver the connected experiences their customers are increasingly coming to expect.
Our Cloud Service Offerings
Our cloud service offerings empower our customers to:

grow their sales faster;

deliver customer service through multiple devices and channels;

create one-to-one customer journeys;

personalize buying experiences across all channels;

build branded communities for customers, partners and employees;

deliver analytics and predictive insights for every business user;

turn data generated by the IoT into meaningful actions;

collaborate on documents, spreadsheets and more to improve productivity, and;

develop modern mobile and desktop apps quickly and easily.
Our cloud service offerings are as follows:
Sales Cloud. The Sales Cloud, which was our first offering and continues to be the largest contributor to
total subscription and support revenues, enables companies to store data, monitor leads and progress,
forecast opportunities, gain insights through relationship intelligence and collaborate around any sale on
desktop and mobile devices. Our customers use the Sales Cloud to grow their sales pipelines, improve sales
productivity, simplify complex business processes and close more deals. The Sales Cloud also offers
solutions for partner relationship management, including channel management and partner communities,
and the ability to deliver quotes, contracts and invoices to improve forecasting and collect payments faster.
4
Service Cloud. The Service Cloud, which is our second largest contributor to total subscription and
support revenues, enables companies to deliver smarter, faster and more personalized customer service
and support. Our customers use the Service Cloud to connect their service agents with customers anytime
and anywhere, on popular devices and across multiple channelsphone, email, chat, live video, SMS,
self-service web portals, social networks, online communities and directly within their own products and
mobile apps. In addition, Service Cloud also offers a field service solution that enables companies to
connect agents, dispatchers and mobile employees through one centralized platform, through which they
can schedule and dispatch work intelligently, and track and manage jobs in real-time.
Marketing Cloud. The Marketing Cloud enables companies to plan, personalize and optimize one-to-one
customer interactions across email, mobile, social, web and connected products. In addition, companies
can segment and target audiences to power precise digital marketing at scale. With the Marketing Cloud,
customer data can also be integrated with the Sales Cloud and Service Cloud in the form of leads,
contacts and customer service cases to give companies a complete view of their customers.
Commerce Cloud. The Commerce Cloud empowers brands to deliver a comprehensive digital commerce
experience across web, mobile, social and store. It also offers mobile-first point-of-sale and store
operations capabilities that increase store personnel effectiveness, connecting the physical and digital
commerce experiences.
Community Cloud. The Community Cloud enables companies to quickly create and manage trusted,
branded digital destinations for customers, partners and employees. This allows companies to engage and
collaborate directly with groups of people by giving them access to relevant information, apps and
experts.
IoT Cloud. The IoT Cloud enables companies to harness the power behind billions of connected devices,
products, sensors and apps to derive entirely new levels of customer insights. With those insights,
companies can sell, service and market to their customers in smarter, more personalized ways, and engage
proactively with them in real time.
Analytics Cloud. The Analytics Cloud enables any employee across an organization to quickly and easily
explore business data, uncover new insights, make smarter decisions and take action from any device.
The Analytics Cloud embeds insights related to the context of the business users' roles directly into the
workflows and apps they use to make analytics easier and more intuitive, collaborative and actionable.
Salesforce Quip. Salesforce Quip is a next-generation productivity solution designed for teams with a
mobile-first strategy, empowering everyone to collaborate more effectively, work smarter and
supercharge their productivity, all without email. Salesforce Quip combines documents, spreadsheets,
task lists and team chat in one seamless experience known as a "living document."
Salesforce Platform. The Salesforce Platform (formerly App Cloud) is for building enterprise apps
powering Salesforce's CRM apps, with thousands of partner-built apps and millions of custom apps built
by customers. The Salesforce Platform offers a new continuum of tools, frameworks and services that
customers and partners need to build connected apps fast.
Professional Cloud Services
We offer professional cloud services including consulting, deployment, training, user-centric design and
integration to help customers to achieve business results faster through adoption of Salesforce solutions. We also
offer architects and innovation program teams that act as advisors to plan and execute digital transformations for
our customers, providing mission critical support, cloud specialists and pre-packaged accelerators that allow our
customers to build on the best practices of our community.
We offer several education service offerings to our customers and partners, ranging from introductory
online courses to advanced architecture certifications. With the Trailhead learning platform, our customers and
partners have access to free online courses that address topics such as using and administering our services and
5
developing on our platform. For more advanced education, we offer instructor-led and online courses to certify
our customers and partners on architecting, administering, deploying and developing our service offerings. In
addition, we make available a selection of online educational classes at no charge to customers that subscribe to
our customer service plans.
Business Benefits of Using Our Solution
The key advantages of our solution include:
Secure, private, scalable and reliable. Our service has been designed to provide our customers with
privacy and high levels of performance, reliability and security. We have built, and continue to invest in,
a comprehensive security infrastructure, including firewalls, intrusion detection systems, and encryption
for transmissions over the Internet, which we monitor and test on a regular basis. We built and maintain a
multi-tenant application architecture that has been designed to enable our service to scale securely,
reliably and cost effectively. Our multi-tenant application architecture maintains the integrity and
separation of customer data while still permitting all customers to use the same application functionality
simultaneously.
Rapid deployment and lower total cost of ownership. Our services can be deployed rapidly since our
customers do not have to spend time procuring, installing or maintaining the servers, storage, networking
equipment, security products or other hardware and software. We enable customers to achieve up-front
savings relative to the traditional enterprise software model. Customers benefit from the predictability of
their future costs since they generally pay for the service on a per subscriber basis for the term of the
subscription contract.
Ease of integration and configuration. Information technology ("IT") professionals are able to integrate
and configure our solutions with existing applications quickly and seamlessly. We provide a set of
application programming interfaces ("APIs") that enable customers and independent software developers
to both integrate our solution with existing third-party, custom and legacy apps and write their own
application services that integrate with our solutions. For example, many of our customers use our
Salesforce Platform (formerly App Cloud) API to move customer-related data from custom-developed
and packaged applications into our services on a periodic basis to provide greater visibility into their
activities.
High levels of user adoption. We have designed our solutions to be intuitive and easy to use. Our
solutions contain many tools and features recognizable to users of popular consumer web services, so
users have a more familiar user experience than typical enterprise applications. As a result, our users can
often use and gain benefit from our solutions with minimal training. We have also designed our solutions
to be used on popular mobile devices, making it possible for people to conduct business from their
phones.
Rapid development of apps and increased innovation. Our customers and third-party developers can
create apps rapidly because of the ease of use and the benefits of a multi-tenant platform. We provide the
capability for business users to easily configure our applications to suit their specific needs, and also
support a variety of programming languages so developers can code complex apps spanning multiple
business processes and deliver them via multiple mobile devices. By providing infrastructure and
development environments on demand, we provide developers the opportunity to create new and
innovative apps without having to invest in hardware. Developers with ideas for a new app can create, test
and support their solutions on the Salesforce Platform and make the app accessible for a subscription fee
to customers.
Continuous innovation. We release hundreds of new features to all of our customers three times a year.
Our metadata-driven, global multi-tenant cloud runs on a single code base, which enables every customer
to run their business on the latest release without disruption. Because we deploy all upgrades on our
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servers, new features and functionality automatically become part of our service on the upgrade release
date and therefore benefits all of our customers immediately.
Positive environmental impact. Our multi-tenant cloud computing model has a much smaller
environmental footprint than traditional IT hardware and software. When organizations move business
applications to Salesforce, they can significantly reduce their energy use and carbon footprint compared
to traditional on-premises solutions.
Our Strategy
Key elements of our strategy include:
Extending existing service offerings. We offer multiple editions of our service offerings at different
price points to meet the needs of customers of different sizes and we have designed our solutions to easily
accommodate new features and functionality. We intend to continue to extend all editions of our solutions
with new features, functions and increased security through our own development, acquisitions and
partnerships. Over the last year, for example, we have invested heavily in artificial intelligence
capabilities to create Salesforce Einstein, which will allow users of our products to deliver more
predictive customer experiences.
Cross selling and upselling. We see significant opportunity to deepen our relationships with our existing
customers. As our customers realize the benefits of our services, we aim to upgrade the customer to
premium editions and sell more subscriptions by targeting additional functional areas and business units,
ultimately becoming our customers' trusted advisors, inspiring enterprise-wide transformation and
accelerating strategic engagements through direct engagement with the highest levels of our customers'
executive management.
Expanding into new horizontal markets. As part of our growth strategy, we are delivering innovative
solutions in new categories, including analytics, commerce and IoT. We drive innovation both organically
and through acquisitions, such as our July 2016 acquisition of Demandware, a digital commerce leader.
Targeting vertical markets. In order to meet the needs of our customers in certain industries, we also
provide solutions specifically built for certain vertical industries, such as financial services, healthcare
and government.
Extending go-to-market capabilities. We believe that our offerings provide significant value for
businesses of any size. We will continue to pursue businesses of all sizes in top industries and major
regions globally, primarily through our direct sales force. We have steadily increased and plan to continue
to increase the number of direct sales professionals we employ, and we intend to develop additional
distribution channels for our solutions around the globe.
Reducing customer attrition. Our goal is to have all of our customers renew their subscriptions prior to
the end of their contractual terms. We run customer success and other related programs in an effort to
secure renewals of existing customers.
Encouraging the development of third-party applications on our cloud computing platforms. The
Salesforce Platform enables existing customers, independent software vendors ("ISVs") and third-party
developers to create and deliver cloud-based apps. It is a platform on which apps can be created, tested,
published and run. In addition, these apps can be marketed and sold on the AppExchange, our online
marketplace for business apps, or sold directly by software vendors. We believe our ecosystem of developers
and software vendors will address the business requirements of both current and future customers.
In addition to the key elements of our business strategy described above, from time to time, we evaluate
opportunities to acquire or invest in complementary businesses, services and technologies, and intellectual
property rights. This evaluation resulted in our acquisition in fiscal 2017 of several companies, such as:

SteelBrick, Inc., which provides us with apps to automate the quote-to-cash process,
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 MetaMind, Inc., which allows us to extend our intelligence in natural language processing and image
recognition across our clouds,
 BeyondCore, Inc., which provides us with smart data discovery technology that automatically explores
millions of variable combinations from structured data sources,
 Demandware, Inc., which allows us to expand our position in CRM and pursue the digital commerce
market,
 Quip, Inc., which provides us with a next generation productivity solution, and
 Krux Digital, Inc., which provides us with a data management platform.
Prior to this acquisition activity, our most significant acquisition was ExactTarget, Inc. in fiscal 2014.
Technology, Development and Operations
We deliver our Salesforce solutions as highly scalable, cloud computing application and platform services
on a multi-tenant technology architecture.
Multi-tenancy is an architectural approach that allows us to operate a single application instance for multiple
organizations, treating all customers as separate tenants who run in virtual isolation from each other. Customers
can use and customize an application as though they each have a separate instance, and their data and
customizations remain secure and insulated from the activities of all other tenants. Our multi-tenant services run
on a single stack of hardware and software, which is comprised of commercially available hardware and a
combination of proprietary and commercially available software. As a result, we are able to spread the cost of
delivering our services across our user base. In addition, because we do not have to manage thousands of distinct
applications with their own business logic and database schemas, we believe that we can scale our business faster
than traditional software vendors. Moreover, we can focus our resources on building new functionality to deliver
to our customer base as a whole rather than on maintaining an infrastructure to support each of their distinct
applications. Multi-tenancy also allows for faster bug and security fixes, automatic software updates and the
ability to deploy major releases and frequent, incremental improvements to our services, benefiting the entire
user community.
Our services are optimized to run on specific databases and operating systems using the tools and platforms
best suited to serve our customers rather than on-premise software that must be written to the different hardware,
operating systems and database platforms existing within a customer's unique systems environment. Our
developers build and support solutions and features on a single code base on our chosen technology platform.
Our efforts are focused on improving and enhancing the features, functionality, performance, availability
and security of our existing service offerings as well as developing new features, functionality and services. From
time to time, we supplement our internal research and development activities with outside development resources
and acquired technology. As part of our business strategy, we periodically acquire companies or technologies,
and we incorporate the acquired technologies into our solutions. Performance, functional depth, security and the
usability of our solutions influence our technology decisions and product direction.
Our customers access our services over the Internet via all of the major Internet browsers and on most major
mobile device operating systems.
We provide the majority of our services to our customers from infrastructure operated by us but secured
within third-party data center hosting facilities located in the United States and other countries. These third-party
data center providers provide space, physical security, continuous power and cooling. The remainder of our
services operate from cloud computing platform providers who offer Infrastructure as a Service, including
servers, storage, databases and networking.
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Sources of Revenue
All of the cloud offerings that we offer to customers are grouped into four major core cloud service
offerings: Sales Cloud, Service Cloud, Salesforce Platform and Other, and Marketing Cloud. Our subscription
and support revenues are disaggregated into these four core offerings. For a more detailed discussion, see the
"Revenue by Cloud Service Offering" discussion in Management's Discussion and Analysis.
We derive our revenues primarily from subscription fees for our service. We also derive revenues from
premier support, which provides customers with additional support beyond the standard support that is included
in the basic subscription fee.
We recognize subscription and support revenue ratably over the contract term, beginning on the
commencement date of each contract. We enter into professional services contracts that are on a time and
materials, fixed fee or subscription basis. We recognize revenue as the services are rendered for time and
materials contracts, when the milestones are achieved and accepted by the customer or on a proportional
performance basis for fixed price contracts and ratably over the contract term for subscription professional
services.
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. Deferred revenue primarily consists of
billings or payments received in advance of revenue recognition from subscription services described above and
is recognized as the revenue recognition criteria are met. Unbilled deferred revenue represents future billings
under our subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred
revenue. We generally invoice customers in annual installments.
Deferred revenue and unbilled deferred revenue are influenced by several factors, including new business
seasonality within the year, the specific timing, size and duration of large customer subscription agreements, the
timing and compounding effects of customer renewals, varying billing cycles of subscription agreements, invoice
timing, foreign currency fluctuations and new business linearity within the quarter.
Customers
We sell to businesses of all sizes and in almost every industry worldwide. The number of paying
subscriptions at each of our customers ranges from one to hundreds of thousands. None of our customers
accounted for more than five percent of our revenues in fiscal 2017, 2016 or 2015.
Sales, Marketing and Customer Support
We organize our sales and marketing programs by geographic regions, such as the Americas, Europe and
Asia Pacific, which includes Japan. The majority of our revenue from the Americas is attributable to customers
in the United States. Approximately 26 percent of our revenue comes from customers outside of the Americas.
Direct Sales
We sell our services primarily through our direct sales force, which is comprised of telephone sales
personnel based in regional hubs, and field sales personnel based in territories close to their customers. Both our
telephone sales and field sales personnel are supported by sales representatives, who are primarily responsible for
generating qualified sales leads.
Referral and Indirect Sales
We have a network of partners who refer sales leads to us and who then assist in selling to these prospects.
This network includes global consulting firms, systems integrators and other partners. In return, we typically
pay these partners a fee based on the first-year subscription revenue generated by the customers whom they refer.
9
We continue to invest in developing additional distribution channels for our subscription service.
Strategic Investments
Since 2009, we have been investing in early-to-late stage technology and professional cloud service
companies across the globe to support our key business initiatives, which include, among other things, extending
the capabilities of our platform and CRM offerings, increasing the ecosystem of enterprise cloud companies and
partners, accelerating the adoption of cloud technologies and creating the next-generation of mobile applications
and connected products. Our minority investments in over 180 companies as of January 31, 2017 also help us
stay connected with the pace of innovation that is currently occurring within the technology industry. In some
cases, we have acquired companies in which we have previously invested.
Because of the inherent risk in investing in early-to-late stage technology companies, our individual
investments are subject to a risk of partial or total loss of investment capital.
Marketing
Our marketing strategy is to promote our brand and generate demand for our offerings. We use a variety of
marketing programs across traditional and social channels to target our prospective and current customers,
partners and developers. We focus our marketing activities on the cities and countries with the largest market
opportunity.
Our primary marketing activities include:
 Multi-channel marketing campaigns that span email, social, web and more that align to a broader
customer journey;

Proprietary events of all sizes, ranging from Dreamforce to salon dinners, as well as participation in
trade shows and industry events, to create customer and prospect awareness;

Press and industry analyst relations to garner third-party validation and generate positive coverage for
our company, offerings and value proposition;
 Content marketing and engagement on all of the major social channels;

Search engine marketing and advertising to drive traffic to our Web properties;

Partner co-marketing activities with global and regional implementation partners;
 Web site development to engage and educate prospects and generate interest through product
information and demonstrations, case studies, white papers and marketing collateral;

Customer testimonials;

Tools that enable our sales organization to more effectively convert leads into customers; and
 Event sponsorships and primary real estate signage.
Customer Service and Support
Our global customer support group responds to both business and technical inquiries about the use of our
products via the web, telephone, email, social networks and other channels. We provide standard customer
support during regular business hours at no charge to customers who purchase any of our paying subscription
editions. We also offer premier customer support that is either included in a premium offering or sold for an
additional fee, which can include services such as priority access to technical resources, developer support, and
system administration. In addition, we offer a mission critical support add-on that is designed to provide
customers with responses for incidents from a dedicated team knowledgeable about the customer's specific
enterprise architecture, and which offers instruction to optimize their usage of our products.
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Seasonality
Our fourth quarter has historically been our strongest quarter for new business and renewals, and our first
quarter is our largest collections and operating cash flow quarter. For a more detailed discussion, see the
"Seasonal Nature of Deferred Revenue and Accounts Receivable" discussion in Management's Discussion and
Analysis.
Competition
The market for our service offerings is highly competitive, rapidly evolving and fragmented, and subject to
changing technology, shifting customer needs and frequent introductions of new products and services. Many
prospective customers have invested substantial personnel and financial resources to implement and integrate
their current enterprise software into their businesses and therefore may be reluctant or unwilling to migrate away
from their current solution to an enterprise cloud computing application service. Additionally, third-party
developers may be reluctant to build application services on our platform since they have invested in other
competing technology platforms.
We compete primarily with generalized platforms and vendors of packaged business software, as well as
companies offering enterprise apps, including CRM, collaboration, e-commerce and business intelligence
software. We also compete with internally developed apps. We may encounter competition from established
enterprise software vendors, as well as start-up and midsized companies focused on disruption, who may develop
toolsets and products that allow customers to build new apps that run on the customers' current infrastructure or
as hosted services. Our current competitors include:
 On-premises offerings from enterprise software application vendors;
 Cloud computing application service providers, either individually or with others;
 Marketing vendors, which may be specialized in advertising, targeting, messaging, or campaign
automation;

Software companies that provide their product or service free of charge, and only charge a premium for
advanced features and functionality;

Traditional platform development environment companies;
 Cloud computing development platform companies;

Internally developed applications (by our potential customers' IT departments);

IoT platforms from large companies that have existing relationships with hardware and software
companies;

E-commerce solutions from emerging cloud-only vendors and established on-premises vendors; and
 Artificial intelligence solutions from new startups and established companies.
We believe that as traditional enterprise software application and platform vendors shift more of their focus
to cloud computing, they may become a greater competitive threat.
Intellectual Property
We rely on a combination of trademark, copyright, trade secret and patent laws in the United States and
other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary
technology and our brands and maintain programs to protect and grow our rights. We also enter into
confidentiality and proprietary rights agreements with our employees, consultants and other third parties and
control access to software, services, documentation and other proprietary information. We believe the duration of
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our patents is adequate relative to the expected lives of our service offerings. We also purchase or license
technology that we incorporate into our products or services. At times, we make select intellectual property
broadly available at no or low cost to achieve a strategic objective, such as promoting industry standards,
advancing interoperability, fostering open source software or attracting and enabling our external development
community. While it may be necessary in the future to seek or renew licenses relating to various aspects of our
products and business methods, we believe, based upon past experience and industry practice, such licenses
generally could be obtained on commercially reasonable terms. We believe our continuing research and product
development are not materially dependent on any single license or other agreement with a third party relating to
the development of our products.
Employees
As of January 31, 2017, we had more than 25,000 employees. None of our employees in the United States
are represented by a labor union, however, for certain foreign subsidiaries, workers' councils represent our
employees.
Available Information
You can obtain copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and other filings with the SEC, and all amendments to these filings, free of charge from
our website at http://www.salesforce.com/company/investor/sec-filings/ as soon as reasonably practicable
following our filing of any of these reports with the SEC. You can also obtain copies free of charge by contacting
our Investor Relations department at our office address listed above. The public may read and copy any materials
filed by the Company with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Room 1580,
Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC at
www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company's
references to the URLs for these websites are intended to be inactive textual references only.
ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only ones facing us. Other events that we do not
currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows
and financial condition.
Risks Related to Our Business and Industry
If our security measures or those of our third-party data center hosting facilities, cloud computing
platform providers, or third-party service partners, are breached, and unauthorized access is obtained to a
customer's data, our data or our IT systems, our services may be perceived as not being secure, customers may
curtail or stop using our services, and we may incur significant legal and financial exposure and liabilities.
Our services involve the storage and transmission of our customers' and our customers' customers'
proprietary and other sensitive data, including financial information and other personally identifiable
information. Security breaches could expose us to a risk of loss of this information, litigation and possible
liability. While we have security measures in place, they may be breached as a result of third-party action,
including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in
someone obtaining unauthorized access to our IT systems, our customers' data or our data, including our
intellectual property and other confidential business information. Additionally, third parties may attempt to
fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords
or other information in order to gain access to our customers' data, our data or our IT systems. Because the
techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not
recognized until launched against a target, we may be unable to anticipate these techniques or to implement
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adequate preventative measures. In addition, our customers may authorize third-party technology providers to
access their customer data, and some of our customers may not have adequate security measures in place to
protect their data that is stored on our services. Because we do not control our customers or third-party
technology providers, or the processing of such data by third-party technology providers, we cannot ensure the
integrity or security of such transmissions or processing. Malicious third parties may also conduct attacks
designed to temporarily deny customers access to our services. Any security breach could result in a loss of
confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our
business and lead to legal liability.
Defects or disruptions in our services could diminish demand for our services and subject us to
substantial liability.
Because our services are complex and incorporate a variety of hardware and proprietary and third-party
software, our services may have errors or defects that could result in unanticipated downtime for our subscribers
and harm to our reputation and our business. Cloud services frequently contain undetected errors when first
introduced or when new versions or enhancements are released. We have from time to time found defects in, and
experienced disruptions to, our services and new defects or disruptions may occur in the future. In addition, our
customers may use our services in unanticipated ways that may cause a disruption in services for other customers
attempting to access their data. As we acquire companies, we may encounter difficulty in incorporating the
acquired technologies into our services and in augmenting the technologies to meet the quality standards that are
consistent with our brand and reputation. Since our customers use our services for important aspects of their
business, any errors, defects, disruptions in service or other performance problems could hurt our reputation and
may damage our customers' businesses. As a result, customers could elect to not renew our services or delay or
withhold payment to us. We could also lose future sales or customers may make warranty or other claims against
us, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for
accounts receivable or the expense and risk of litigation.
Interruptions or delays in services from our third-party data center hosting facilities or cloud computing
platform providers could impair the delivery of our services and harm our business.
We currently serve our customers from third-party data center hosting facilities and cloud computing
platform providers located in the United States and other countries. We rely on computer hardware purchased or
leased from, software licensed from, and cloud computing platforms provided by, third parties in order to offer
our services, including database software and hardware from a variety of vendors. Any damage to, or failure of
our systems generally, including the systems of our third-party platform providers, could result in interruptions in
our services. We have from time to time experienced interruptions in our services and such interruptions may
occur in the future. Interruptions in our services may reduce our revenue, cause us to issue credits or pay
penalties, cause customers to terminate their subscriptions and adversely affect our attrition rates and our ability
to attract new customers, all of which would reduce our revenue. Our business would also be harmed if our
customers and potential customers believe our services are unreliable.
As part of our current disaster recovery and business continuity arrangements, our production environment
and all of our customers' data are currently replicated in near real-time in a separate facility located elsewhere.
Companies and products added through acquisition may be served through alternate facilities. We do not control
the operation of any of these facilities, and they may be vulnerable to damage or interruption from earthquakes,
floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins,
sabotage, intentional acts of vandalism and similar misconduct, as well as local administrative actions, changes to
legal or permitting requirements and litigation to stop, limit or delay operation. Despite precautions taken at these
facilities, such as disaster recovery and business continuity arrangements, the occurrence of a natural disaster or
an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at
these facilities could result in lengthy interruptions in our services.
These hardware, software and cloud computing platforms may not continue to be available at reasonable
prices, on commercially reasonable terms or at all. Any loss of the right to use any of these hardware, software or
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cloud computing platforms could significantly increase our expenses and otherwise result in delays in the
provisioning of our services until equivalent technology is either developed by us, or, if available, is identified,
obtained through purchase or license and integrated into our services.
If we do not accurately plan for our infrastructure capacity requirements and we experience significant strains on
our data center capacity, our customers could experience performance degradation or service outages that may subject
us to financial liabilities, result in customer losses and harm our business. When we add data centers and add capacity,
we may move or transfer our data and our customers' data. Despite precautions taken during this process, any
unsuccessful data transfers may impair the delivery of our services, which may damage our business.
Our ability to deliver our services is dependent on the development and maintenance of the infrastructure
of the Internet by third parties.
The Internet's infrastructure is comprised of many different networks and services that are highly
fragmented and distributed by design. This infrastructure is run by a series of independent third party
organizations that work together to provide the infrastructure and supporting services of the Internet under the
governance of the Internet Corporation for Assigned Numbers and Names (ICANN) and the Internet Assigned
Numbers Authority (IANA), now under the stewardship of ICANN.
The Internet has experienced a variety of outages and other delays as a result of damages to portions of its
infrastructure, denial-of-service attacks or related cyber incidents, and it could face outages and delays in the
future. These outages and delays could reduce the level of Internet usage or result in fragmentation of the
Internet, resulting in multiple separate Internets. These scenarios are not under our control and could reduce the
availability of the Internet to us or our customers for delivery of our Internet-based services. Any resulting
interruptions in our services or the ability of our customers to access our services could result in a loss of
potential or existing customers and harm our business.
Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer
restrictions and other domestic or foreign regulations may limit the use and adoption of our services and
adversely affect our business.
Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign
governments continue to adopt new laws and regulations addressing data privacy and the collection, processing,
storage and use of personal information. In some cases, foreign data privacy laws and regulations, such as the
European Union's Data Protection Directive, and the country-specific laws and regulations that implement that
directive, also govern the processing of personal information. Further, laws are increasingly aimed at the use of
personal information for marketing purposes, such as the European Union's e-Privacy Directive, and the country-
specific regulations that implement that directive. Such laws and regulations are subject to new and differing
interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand
for our services or restrict our ability to store and process data or, in some cases, impact our ability to offer our
services in certain locations or our customers' ability to deploy our solutions globally. For example, in October
2015, the European Court of Justice invalidated the U.S.-EU Safe Harbor framework that had been in place since
2000, which allowed companies to meet certain European legal requirements for the transfer of personal data
from the European Economic Area to the United States. While other adequate legal mechanisms to lawfully
transfer such data remain, the invalidation of the U.S.-EU Safe Harbor framework may result in different
European data protection regulators applying differing standards for the transfer of personal data, which could
result in increased regulation, cost of compliance and limitations on data transfer for us and our customers. The
costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and
adoption of our services, reduce overall demand for our services, lead to significant fines, penalties or liabilities
for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business.
In addition to government activity, privacy advocacy and other industry groups have established or may
establish new self-regulatory standards that may place additional burdens on us. Our customers expect us to meet
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voluntary certification or other standards established by third parties, such as TRUSTe. If we are unable to
maintain these certifications or meet these standards, it could adversely affect our ability to provide our solutions
to certain customers and could harm our business.
Furthermore, concerns regarding data privacy may cause our customers' customers to resist providing the
data necessary to allow our customers to use our services effectively. Even the perception that the privacy of
personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales
of our products or services, and could limit adoption of our cloud-based solutions.
Industry-specific regulation and other requirements and standards are evolving and unfavorable
industry-specific laws, regulations, interpretive positions or standards could harm our business.
Our customers and potential customers conduct business in a variety of industries, including financial
services, the public sector, healthcare and telecommunications. Regulators in certain industries have adopted and
may in the future adopt regulations or interpretive positions regarding the use of cloud computing and other
outsourced services. The costs of compliance with, and other burdens imposed by, industry-specific laws,
regulations and interpretive positions may limit our customers' use and adoption of our services and reduce
overall demand for our services. Compliance with these regulations may also require us to devote greater
resources to support certain customers, which may increase costs and lengthen sales cycles. For example, some
financial services regulators have imposed guidelines for use of cloud computing services that mandate specific
controls or require financial services enterprises to obtain regulatory approval prior to outsourcing certain
functions. If we are unable to comply with these guidelines or controls, or if our customers are unable to obtain
regulatory approval to use our services where required, our business may be harmed. In addition, an inability to
satisfy the standards of certain voluntary third-party certification bodies that our customers may expect, such as
an attestation of compliance with the Payment Card Industry (PCI) Data Security Standards, may have an adverse
impact on our business and results. Further, there are various statutes, regulations, and rulings relevant to the
direct email marketing and text-messaging industries, including the Telephone Consumer Protection Act (TCPA)
and related Federal Communication Commission (FCC) orders. The interpretation of many of these statutes,
regulations, and rulings is evolving in the courts and administrative agencies and an inability to comply may have
an adverse impact on our business and results. If in the future we are unable to achieve or maintain industry-
specific certifications or other requirements or standards relevant to our customers, it may harm our business and
adversely affect our results.
In some cases, industry-specific laws, regulations or interpretive positions may also apply directly to us as a
service provider. Any failure or perceived failure by us to comply with such requirements could have an adverse
impact on our business.
The market in which we participate is intensely competitive, and if we do not compete effectively, our
operating results could be harmed.
The market for enterprise applications and platform services is highly competitive, rapidly evolving and
fragmented, and subject to changing technology, shifting customer needs and frequent introductions of new
products and services. We compete primarily with generalized platforms and vendors of packaged business
software, as well as companies offering enterprise apps, including CRM, collaboration, e-commerce and business
intelligence software. We also compete with internally developed apps and face competition from enterprise
software vendors and online service providers who may develop toolsets and products that allow customers to
build new applications that run on the customers' current infrastructure or as hosted services. Our current
competitors include:
 On-premises offerings from enterprise software application vendors;
 Cloud computing application service providers, either individually or with others;
 Marketing vendors, which may be specialized in advertising, targeting, messaging, or campaign
automation;
15

Software companies that provide their product or service free of charge, and only charge a premium for
advanced features and functionality;

Traditional platform development environment companies;
 Cloud computing development platform companies;

Internally developed applications (by our potential customers' IT departments);

IoT platforms from large companies that have existing relationships with hardware and software companies;

E-commerce solutions from emerging cloud-only vendors and established on-premises vendors; and
 Artificial intelligence solutions from new startups and established companies.
Many of our current and potential competitors enjoy substantial competitive advantages, such as greater
name recognition, longer operating histories and larger marketing budgets, as well as substantially greater
financial, technical and other resources. In addition, many of our current and potential competitors have
established marketing relationships and access to larger customer bases, and have major distribution agreements
with consultants, system integrators and resellers. As a result, our competitors may be able to respond more
quickly and effectively than we can to new or changing opportunities, technologies, standards or customer
requirements. Furthermore, because of these advantages, even if our services are more effective than the products
and services that our competitors offer, potential customers might select competitive products and services in lieu
of purchasing our services. For all of these reasons, we may not be able to compete successfully against our
current and future competitors.
As we acquire and invest in companies or technologies, we may not realize the expected business or
financial benefits and the acquisitions could prove difficult to integrate, disrupt our business, dilute
stockholder value and adversely affect our operating results and the market value of our common stock.
As part of our business strategy, we periodically make investments in, or acquisitions of, complementary
businesses, joint ventures, services and technologies and intellectual property rights, and we expect that we will
continue to make such investments and acquisitions in the future. Acquisitions and investments involve
numerous risks, including:

potential failure to achieve the expected benefits of the combination or acquisition;

difficulties in, and the cost of, integrating operations, technologies, services, platforms and personnel;

diversion of financial and managerial resources from existing operations;

the potential entry into new markets in which we have little or no experience or where competitors may
have stronger market positions;

potential write-offs of acquired assets or investments, and potential financial and credit risks associated
with acquired customers;

potential loss of key employees of the acquired company;

inability to generate sufficient revenue to offset acquisition or investment costs;

inability to maintain relationships with customers and partners of the acquired business;

difficulty of transitioning the acquired technology onto our existing platforms and customer acceptance
of multiple platforms on a temporary or permanent basis;

augmenting the acquired technologies and platforms to the levels that are consistent with our brand and
reputation;

increasing or maintaining the security standards for acquired technology consistent with our other services;

potential unknown liabilities associated with the acquired businesses;

unanticipated expenses related to acquired technology and its integration into our existing technology;
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negative impact to our results of operations because of the depreciation and amortization of amounts
related to acquired intangible assets, fixed assets and deferred compensation;

additional stock based compensation; the loss of acquired deferred revenue and unbilled deferred revenue;

delays in customer purchases due to uncertainty related to any acquisition;

ineffective or inadequate controls, procedures and policies at the acquired company may negatively
impact our results of operations;

challenges caused by integrating operations over distance, and across different languages and cultures;

currency and regulatory risks associated with foreign countries and potential additional cybersecurity
and compliance risks resulting from entry into new markets; and

the tax effects of any such acquisitions.
Any of these risks could harm our business. In addition, to facilitate these acquisitions or investments, we
may seek additional equity or debt financing, which may not be available on terms favorable to us or at all, which
may affect our ability to complete subsequent acquisitions or investments, and which may affect the risks of
owning our common stock. For example, if we finance acquisitions by issuing equity or convertible or other debt
securities or loans, our existing stockholders may be diluted, or we could face constraints related to the terms of,
and repayment obligation related to, the incurrence of indebtedness that could affect the market price of our
common stock.
We are subject to risks associated with our strategic investments. Other-than-temporary impairments in
the value of our investments could negatively impact our financial results.
We invest in early-to-late stage companies for strategic reasons and to support key business initiatives, and
may not realize a return on our strategic investments. Many such companies generate net losses and the market
for their products, services or technologies may be slow to develop, and, therefore, are dependent on the
availability of later rounds of financing from banks or investors on favorable terms to continue their operations.
The financial success of our investment in any company is typically dependent on a liquidity event, such as a
public offering, acquisition or other favorable market event reflecting appreciation to the cost of our initial
investment. The capital markets for public offerings and acquisitions are dynamic and the likelihood of liquidity
events for the companies we have invested in could significantly worsen. Further, valuations of privately-held
companies are inherently complex due to the lack of readily available market data. If we determine that any of
our investments in such companies have experienced a decline in value, we may be required to record an other
than temporary impairment, which could be material. We have in the past written off the full value of specific
investments. Similar situations could occur in the future and negatively impact our financial results. All of our
investments are subject to a risk of a partial or total loss of investment capital.
Our quarterly results are likely to fluctuate and our stock price and the value of our common stock could
decline substantially.
Our quarterly results are likely to fluctuate. For example, our fiscal fourth quarter has historically been our
strongest quarter for new business and renewals. The year-over-year compounding effect of this seasonality in
billing patterns and overall new business and renewal activity causes the value of invoices that we generate in the
fourth quarter to continually increase in proportion to our billings in the other three quarters of our fiscal year. As
a result, our fiscal first quarter is our largest collections and operating cash flow quarter.
Additionally, some of the important factors that may cause our revenues, operating results and cash flows to
fluctuate from quarter to quarter include:

our ability to retain and increase sales to existing customers, attract new customers and satisfy our
customers' requirements;

the attrition rates for our services;
17

the amount and timing of operating costs and capital expenditures related to the operations and
expansion of our business;

changes in deferred revenue and unbilled deferred revenue balances, which are not reflected in the
balance sheet, due to seasonality, the compounding effects of renewals, invoice duration, size and
timing, new business linearity between quarters and within a quarter and fluctuations due to foreign
currency movements;

the seasonality of our customers' businesses, especially Commerce Cloud customers, including
retailers and branded manufacturers;

changes in foreign currency exchange rates such as with respect to the British Pound;

variations in the revenue mix of our services and growth rates of our cloud subscription and support
offerings;

the number of new employees;

changes in our pricing policies and terms of contracts, whether initiated by us or as a result of
competition;

the cost, timing and management effort for the introduction of new features to our services;

the costs associated with acquiring new businesses and technologies and the follow-on costs of
integration and consolidating the results of acquired businesses;

the rate of expansion and productivity of our sales force;

the length of the sales cycle for our services;

new product and service introductions by our competitors;

our success in selling our services to large enterprises;

evolving regulations of cloud computing and cross-border data transfer restrictions and similar
regulations;

technical difficulties or interruptions in our services;

expenses related to our real estate, our office leases and our data center capacity and expansion;

changes in interest rates and our mix of investments, which would impact the return on our investments
in cash and marketable securities;

conditions, particularly sudden changes, in the financial markets, which have impacted and may
continue to impact the value of and liquidity of our investment portfolio;

income tax effects;

our ability to realize benefits from strategic partnerships, acquisitions or investments;

other than temporary impairments in the value of our strategic investments in early-to-late stage
privately held companies, which could be material in a particular quarter;

expenses related to significant, unusual or discrete events, which are recorded in the period in which
the events occur;

general economic conditions, which may adversely affect either our customers' ability or willingness to
purchase additional subscriptions or upgrade their services, or delay a prospective customer's
purchasing decision, reduce the value of new subscription contracts, or affect attrition rates;

timing of additional investments in our enterprise cloud computing application and platform services
and in our consulting services;

regulatory compliance costs;
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changes in payment terms and the timing of customer payments and payment defaults by customers;

extraordinary expenses such as litigation or other dispute-related settlement payments;

the impact of new accounting pronouncements, for example, the adoption of Accounting Standards
Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"), the
new revenue recognition standard;

equity issuances, including as consideration in acquisitions or due to the conversion of our outstanding
convertible notes at the election of the note holders;

the timing of stock awards to employees and the related adverse financial statement impact of having to
expense those stock awards on a straight-line basis over their vesting schedules;

the timing of commission, bonus, and other compensation payments to employees; and

the timing of payroll and other withholding tax expenses, which are triggered by the payment of
bonuses and when employees exercise their vested stock awards.
Many of these factors are outside of our control, and the occurrence of one or more of them might cause our
operating results to vary widely. As such, we believe that historical quarter-to-quarter comparisons of our
revenues, operating results, changes in our deferred revenue and unbilled deferred revenue balances and cash
flows may not be meaningful and should not be relied upon as an indication of future performance.
Additionally, if we fail to meet or exceed the expectations of securities analysts and investors, or if one or
more of the securities analysts who cover us adversely change their recommendation regarding our stock, the
market price of our common stock could decline. Moreover, our stock price may be based on expectations,
estimates and forecasts of our future performance that may be unrealistic or that may not be met. Further, our
stock price may fluctuate based on reporting by the financial media, including television, radio and press reports
and blogs.
If we experience significant fluctuations in our rate of anticipated growth and fail to balance our
expenses with our revenue forecasts, our results could be harmed.
Due to the pace of change and innovation in enterprise cloud computing services, the unpredictability of
future general economic and financial market conditions and the impact of foreign currency exchange rate
fluctuations, we may not be able to accurately forecast our rate of growth. We plan our expense levels and
investment on estimates of future revenue and future anticipated rate of growth. We may not be able to adjust our
spending appropriately if the addition of new subscriptions or the renewals of existing subscriptions fall short of
our expectations. A portion of our expenses may also be fixed in nature for some minimum amount of time, such
as with a data center contract or office lease, so it may not be possible to reduce costs in a timely manner or
without the payment of fees to exit certain obligations early. As a result, we expect that our revenues, operating
results and cash flows may fluctuate significantly on a quarterly basis. Our recent revenue growth rates may not
be sustainable and may decline in the future. We believe that historical period-to-period comparisons of our
revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication
of future performance.
Our efforts to expand our services beyond the CRM market and to develop our existing services in order
to keep pace with technological developments may not succeed and may reduce our revenue growth rate and
harm our business.
We derive substantially all of our revenue from subscriptions to our CRM enterprise cloud computing
application services, and we expect this will continue for the foreseeable future. The markets for our Analytics,
Community, IoT, Commerce and Salesforce Quip Clouds remain relatively new and it is uncertain whether our
efforts will ever result in significant revenue for us. Commerce Cloud originated as part of our Demandware
acquisition and Salesforce Quip originated from our acquisition of Quip. Further, the introduction of significant
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platform changes and upgrades, including our conversion to our new Lightning platform, and introduction of new
services beyond the CRM market, may not be successful, and early stage interest and adoption of such new
services may not result in long term success or significant revenue for us. Our efforts to expand our services
beyond the CRM market may not succeed and may reduce our revenue growth rate.
Additionally, if we are unable to develop enhancements to and new features for our existing or new services
that keep pace with rapid technological developments, our business will be harmed. The success of
enhancements, new features and services depends on several factors, including the timely completion,
introduction and market acceptance of the feature, service or enhancement. Failure in this regard may
significantly impair our revenue growth. In addition, because our services are designed to operate on a variety of
network hardware and software platforms using a standard browser, we will need to continuously modify and
enhance our services to keep pace with changes in Internet-related hardware, software, communication, browser
and database technologies. We may not be successful in either developing these modifications and enhancements
or in bringing them to market timely. Furthermore, uncertainties about the timing and nature of new network
platforms or technologies, or modifications to existing platforms or technologies, could increase our research and
development or service delivery expenses. Any failure of our services to operate effectively with future network
platforms and technologies could reduce the demand for our services, result in customer dissatisfaction and harm
our business.
Additionally, if we fail to anticipate or identify significant Internet-related and other technology trends and
developments early enough, or if we do not devote appropriate resources to adapting to such trends and
developments, our business could be harmed.
Sales to customers outside the United States expose us to risks inherent in international operations.
We sell our services throughout the world and are subject to risks and challenges associated with
international business. Historically, sales in Europe and Asia Pacific together have represented less than
30 percent of our total revenues, and we intend to continue to expand our international sales efforts. The risks and
challenges associated with sales to customers outside the United States, as well as international operations
generally, include:

localization of our services, including translation into foreign languages and associated expenses;

laws and business practices favoring local competitors;

pressure on the creditworthiness of sovereign nations, particularly in Europe, where we have customers
and a balance of our cash, cash equivalents and marketable securities;

liquidity issues or political actions by sovereign nations, which could result in decreased values of
these balances or potential difficulties protecting our foreign assets or satisfying local obligations;

foreign currency fluctuations and controls;

compliance with multiple, conflicting and changing governmental laws and regulations, including
employment, tax, privacy, anti-corruption, import/export, antitrust, data transfer, storage and
protection, and industry-specific laws and regulations, including rules related to compliance by our
third-party resellers;

regional data privacy laws and other regulatory requirements that apply to outsourced service providers
and to the transmission of our customers' data across international borders;

treatment of revenue from international sources and changes to tax codes, including being subject to
foreign tax laws and being liable for paying withholding income or other taxes in foreign jurisdictions;

different pricing environments;

difficulties in staffing and managing foreign operations;

different or lesser protection of our intellectual property;
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longer accounts receivable payment cycles and other collection difficulties;

natural disasters, acts of war, terrorism, pandemics or security breaches;

tax policies addressing multinational operations; and

regional economic and political conditions.
Any of these factors could negatively impact our business and results of operations. The above factors may
also negatively impact our ability to successfully expand into emerging market countries, where we have little or
no operating experience, where it can be costly and challenging to establish and maintain operations, including
hiring and managing required personnel, and difficult to promote our brand, and where we may not benefit from
any first-to-market advantage or otherwise succeed.
Additionally, our international subscription fees are paid either in U.S. Dollars or local currency. As a result,
fluctuations in the value of the U.S. Dollar and foreign currencies may make our services more expensive for
international customers, which could harm our business.
Because we recognize revenue from subscriptions for our services over the term of the subscription,
downturns or upturns in new business may not be immediately reflected in our operating results.
We generally recognize revenue from customers ratably over the terms of their subscription agreements,
which are typically 12 to 36 months. As a result, most of the revenue we report in each quarter is the result of
subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed
subscriptions in any one quarter may not be reflected in our revenue results for that quarter. Any such decline,
however, will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in
sales and market acceptance of our services, and potential changes in our attrition rate, may not be fully reflected
in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly
increase our revenue through additional sales in any period, as revenue from new customers must be recognized
over the applicable subscription term.
If our customers do not renew their subscriptions for our services or reduce the number of paying
subscriptions at the time of renewal, our revenue will decline and our business will suffer. If we cannot
accurately predict subscription renewals or upgrade rates, we may not meet our revenue targets, which may
adversely affect the market price of our common stock.
Our customers have no obligation to renew their subscriptions for our services after the expiration of their
contractual subscription period, which is typically 12 to 36 months, and in the normal course of business, some
customers have elected not to renew. In addition, our customers may renew for fewer subscriptions, renew for
shorter contract lengths, or switch to lower cost offerings of our services. It is difficult to predict attrition rates
given our varied customer base of enterprise and small and medium size business customers and the number of
multi-year subscription contracts. Our attrition rates may increase or fluctuate as a result of a number of factors,
including customer dissatisfaction with our services, customers' spending levels, decreases in the number of
users at our customers, competition, pricing increases or changes and deteriorating general economic conditions.
Our future success also depends in part on our ability to sell additional features and services, more
subscriptions or enhanced editions of our services to our current customers. This may also require increasingly
sophisticated and costly sales efforts that are targeted at senior management. Similarly, the rate at which our
customers purchase new or enhanced services depends on a number of factors, including general economic
conditions and that our customers do not react negatively to any price changes related to these additional features
and services. If our efforts to upsell to our customers are not successful our business may suffer.
If the market for our technology delivery model and enterprise cloud computing services develops more
slowly than we expect, our business could be harmed.
Our success depends on the willingness of third-party developers to build applications that are complementary to
our services. Without the development of these applications, both current and potential customers may not find our
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services sufficiently attractive. In addition, for those customers who authorize a third-party technology partner access
to their data, we do not provide any warranty related to the functionality, security and integrity of the data transmission
or processing. Despite contract provisions to protect us, customers may look to us to support and provide warranties for
the third-party applications, which may expose us to potential claims, liabilities and obligations for applications we did
not develop or sell, all of which could harm our business.
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial
results and cash flows from changes in the value of the U.S. Dollar versus local currencies.
We conduct our business in the following locations: United States, Europe, Canada, Asia, South America
and Australia. The expanding global scope of our business exposes us to risk of fluctuations in foreign currency
markets. This exposure is the result of selling in multiple currencies, growth in our international investments,
including data center expansion, additional headcount in foreign locations, and operating in countries where the
functional currency is the local currency. Specifically, our results of operations and cash flows are subject to
fluctuations primarily in British Pound Sterling, the Euro and Japanese Yen against the U.S. Dollar. These
exposures may change over time as business practices evolve and economic conditions change. The fluctuations
of currencies in which we conduct business can both increase and decrease our overall revenue and expenses for
any given fiscal period. Such volatility, even when it increases our revenues or decreases our expenses, impacts
our ability to accurately predict our future results and earnings. Recent events, including the United Kingdom's
2016 vote in favor of exiting the European Union, or "Brexit," and similar geopolitical developments and
uncertainty in the European Union and elsewhere could amplify the volatility of currency fluctuations and related
risks for our business.
Supporting our existing and growing customer base could strain our personnel resources and
infrastructure, and if we are unable to scale our operations and increase productivity, we may not be able to
successfully implement our business plan.
We continue to experience significant growth in our customer base and personnel, which has placed a strain
on our management, administrative, operational and financial infrastructure. We anticipate that additional
investments in our internal infrastructure, data center capacity, research, customer support and development, and
real estate spending will be required to scale our operations and increase productivity, to address the needs of our
customers, to further develop and enhance our services, to expand into new geographic areas, and to scale with
our overall growth. The additional investments we are making will increase our cost base, which will make it
more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term.
We regularly upgrade or replace our various software systems. If the implementations of these new
applications are delayed, or if we encounter unforeseen problems with our new systems or in migrating away
from our existing applications and systems, our operations and our ability to manage our business could be
negatively impacted.
Our success will depend in part upon the ability of our senior management to manage our projected growth
effectively. To do so, we must continue to increase the productivity of our existing employees and to hire, train
and manage new employees as needed. To manage the expected domestic and international growth of our
operations and personnel, we will need to continue to improve our operational, financial and management
controls, our reporting systems and procedures, and our utilization of real estate. If we fail to successfully scale
our operations and increase productivity, we will be unable to execute our business plan.
As more of our sales efforts are targeted at larger enterprise customers, our sales cycle may become more
time-consuming and expensive, we may encounter pricing pressure and implementation and customization
challenges, and we may have to delay revenue recognition for some complex transactions, all of which could
harm our business and operating results.
As we target more of our sales efforts at larger enterprise customers, including governmental entities, we
may face greater costs, longer sales cycles, greater competition and less predictability in completing some of our
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sales. In this market segment, the customer's decision to use our services may be an enterprise-wide decision
and, if so, these types of sales would require us to provide greater levels of education regarding the use and
benefits of our services, as well as education regarding privacy and data protection laws and regulations to
prospective customers with international operations. In addition, larger customers and governmental entities may
demand more customization, integration services and features. As a result of these factors, these sales
opportunities may require us to devote greater sales support and professional services resources to individual
customers, driving up costs and time required to complete sales and diverting our own sales and professional
services resources to a smaller number of larger transactions, while potentially requiring us to delay revenue
recognition on some of these transactions until the technical or implementation requirements have been met.
Pricing and packaging strategies for enterprise and other customers for subscriptions to our existing and
future service offerings may not be widely accepted by other new or existing customers. Our adoption of such
new pricing and packaging strategies may harm our business.
For large enterprise customers, professional services may also be performed by a third party or a combination of
our own staff and a third party. Our strategy is to work with third parties to increase the breadth of capability and depth
of capacity for delivery of these services to our customers. If a customer is not satisfied with the quality of work
performed by us or a third party or with the type of services or solutions delivered, then we could incur additional costs
to address the situation, the profitability of that work might be impaired, and the customer's dissatisfaction with our
services could damage our ability to obtain additional work from that customer. In addition, negative publicity related
to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to
compete for new business with current and prospective customers.
We have been and may in the future be sued by third parties for various claims including alleged
infringement of proprietary rights.
We are involved in various legal matters arising from the normal course of business activities. These may
include claims, suits, government investigations and other proceedings involving alleged infringement of third-
party patents and other intellectual property rights, commercial, corporate and securities, labor and employment,
class actions, wage and hour, and other matters.
The software and Internet industries are characterized by the existence of a large number of patents,
trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of
intellectual property rights. We have received in the past and may receive in the future communications from
third parties, including practicing entities and non-practicing entities, claiming that we have infringed their
intellectual property rights.
In addition, we have been, and may in the future be, sued by third parties for alleged infringement of their
claimed proprietary rights. Our technologies may be subject to injunction if they are found to infringe the rights
of a third party or we may be required to pay damages, or both. Further, many of our subscription agreements
require us to indemnify our customers for third-party intellectual property infringement claims, which would
increase the cost to us of an adverse ruling on such a claim.
The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. Any claims and
lawsuits, and the disposition of such claims and lawsuits, whether through settlement or licensing discussions, or
litigation, could be time-consuming and expensive to resolve, divert management attention from executing our
business plan, result in efforts to enjoin our activities, lead to attempts on the part of other parties to pursue
similar claims and, in the case of intellectual property claims, require us to change our technology, change our
business practices, pay monetary damages or enter into short- or long-term royalty or licensing agreements.
Any adverse determination related to intellectual property claims or other litigation could prevent us from
offering our services to others, could be material to our financial condition or cash flows, or both, or could
23
otherwise adversely affect our operating results. In addition, depending on the nature and timing of any such
dispute, an unfavorable resolution of a legal matter could materially affect our current or future results of
operations or cash flows in a particular quarter.
In addition, our exposure to risks associated with various claims, including the use of intellectual property, may
be increased as a result of acquisitions of other companies. For example, we may have a lower level of visibility into
the development process with respect to intellectual property or the care taken to safeguard against infringement
risks with respect to the acquired company or technology. In addition, third parties may make infringement and
similar or related claims after we have acquired technology that had not been asserted prior to our acquisition.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary
technology and our brand.
If we fail to protect our intellectual property rights adequately, our competitors may gain access to our
technology, and our business may be harmed. In addition, defending our intellectual property rights may entail
significant expense. Any of our patents, trademarks or other intellectual property rights may be challenged by
others or invalidated through administrative process or litigation. While we have some U.S. patents and many
U.S. and international patent applications pending, we may be unable to obtain patent protection for the
technology covered in our patent applications or the patent protection may not be obtained quickly enough to
meet our business needs. In addition, our existing patents and any patents issued in the future may not provide us
with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards
relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain, and we
also may face proposals to change the scope of protection for some intellectual property rights in the U.S.
Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in
which our services are available. The laws of some foreign countries may not be as protective of intellectual
property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be
inadequate. Also, our involvement in standard setting activity or the need to obtain licenses from others may
require us to license our intellectual property. Accordingly, despite our efforts, we may be unable to prevent third
parties from using our intellectual property.
We may be required to spend significant resources to monitor and protect our intellectual property rights
and we may conclude that in at least some instances the benefits of protecting our intellectual property rights may
be outweighed by the expense. We may initiate claims or litigation against third parties for infringement of our
proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved
in our favor, could result in significant expense to us and divert the efforts of our technical and management
personnel.
Our continued success depends on our ability to maintain and enhance our brands.
We believe that the brand identities we have developed have significantly contributed to the success of our
business. Maintaining and enhancing the Salesforce brand and our other brands are critical to expanding our base
of customers, partners and employees. Our brand strength will depend largely on our ability to remain a
technology leader and continue to provide high-quality innovative products, services, and features. In order to
maintain and enhance our brands, we may be required to make substantial investments that may later prove to be
unsuccessful. In addition, positions the Company takes on social issues may be unpopular with some customers
or potential customers, which may impact our ability to attract or retain such customers. If we fail to maintain
and enhance our brands, or if we incur excessive expenses in our efforts to do so, our business, operating results
and financial condition may be materially and adversely affected.
We may lose key members of our management team or development and operations personnel, and may
be unable to attract and retain employees we need to support our operations and growth.
Our success depends substantially upon the continued services of our executive officers and other key
members of management, particularly our Chief Executive Officer. From time to time, there may be changes in
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our executive management team resulting from the hiring or departure of executives. Such changes in our
executive management team may be disruptive to our business. We are also substantially dependent on the
continued service of our existing development and operations personnel because of the complexity of our
services and technologies. We do not have employment agreements with any of our executive officers, key
management, development or operations personnel and they could terminate their employment with us at any
time. The loss of one or more of our key employees or groups could seriously harm our business.
In the technology industry, there is substantial and continuous competition for engineers with high levels of
experience in designing, developing and managing software and Internet-related services, as well as competition
for sales executives, data scientists and operations personnel. We may not be successful in attracting and
retaining qualified personnel. We have from time to time experienced, and we expect to continue to experience,
difficulty in hiring and retaining highly skilled employees with appropriate qualifications. These difficulties may
be amplified by evolving restrictions on immigration, travel or availability of visas for skilled technology
workers. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and
future growth prospects could be severely harmed.
In addition, we believe in the importance of our corporate culture, or Aloha spirit, which fosters dialogue,
collaboration, recognition and a sense of family. As our organization grows, we may find it increasingly difficult
to maintain the beneficial aspects of our corporate culture. This could negatively impact our future success.
Any failure in our delivery of high-quality technical support services may adversely affect our
relationships with our customers and our financial results.
Our customers depend on our support organization to resolve technical issues relating to our applications.
We may be unable to respond quickly enough to accommodate short-term increases in customer demand for
support services. Increased customer demand for these services, without corresponding revenues, could increase
costs and adversely affect our operating results. In addition, our sales process is highly dependent on our
applications and business reputation and on positive recommendations from our existing customers. Any failure
to maintain high-quality technical support, or a market perception that we do not maintain high-quality support,
could adversely affect our reputation, our ability to sell our enterprise cloud computing solutions to existing and
prospective customers, and our business, operating results and financial position.
Periodic changes to our sales organization can be disruptive and may reduce our rate of growth.
We periodically change and make adjustments to our sales organization in response to market opportunities,
competitive threats, management changes, product introductions or enhancements, acquisitions, sales
performance, increases in sales headcount, cost levels and other internal and external considerations. Any such
future sales organization changes may result in a temporary reduction of productivity, which could negatively
affect our rate of growth. In addition, any significant change to the way we structure our compensation of our
sales organization may be disruptive and may affect our revenue growth.
Unanticipated changes in our effective tax rate and additional tax liabilities may impact our financial results.
We are subject to income taxes in the United States and various jurisdictions outside of the United States.
Our effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing
statutory tax rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in
excess tax benefits of stock-based compensation, changes in the valuation of deferred tax assets and liabilities
and our ability to utilize them, the applicability of withholding taxes and effects from acquisitions.
We are subject to tax examinations in multiple jurisdictions. While we regularly evaluate new information
that may change our judgment resulting in recognition, derecognition or change in measurement of a tax position
taken, there can be no assurance that the final determination of any examinations will not have an adverse effect
on our operating results and financial position.
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Our tax provision could also be impacted by changes in accounting principles, changes in U.S. federal and
state or international tax laws applicable to corporate multinationals such as the legislation enacted in the
United Kingdom and Australia, other fundamental law changes currently being considered by many countries,
including the U.S., and changes in taxing jurisdictions' administrative interpretations, decisions, policies and
positions. Additionally, in October 2015, the Organisation for Economic Co-Operation and Development
released final guidance covering various topics, including transfer pricing, country-by-country reporting and
definitional changes to permanent establishment which could ultimately impact our tax liabilities.
We may also be subject to additional tax liabilities due to changes in non-income based taxes resulting from
changes in federal, state or international tax laws, changes in taxing jurisdictions' administrative interpretations,
decisions, policies, and positions, results of tax examinations, settlements or judicial decisions, changes in
accounting principles, changes to the business operations, including acquisitions, as well as the evaluation of new
information that results in a change to a tax position taken in a prior period.
Our debt service obligations and operating lease commitments may adversely affect our financial
condition and cash flows from operations.
We have a high level of debt, including the 0.25% convertible senior notes we issued in March 2013 (the
"0.25% Senior Notes") due April 1, 2018, the loan we assumed when we purchased an office building located at
50 Fremont Street in San Francisco, California ("50 Fremont") and capital lease arrangements. Additionally, we
have significant contractual commitments in operating lease arrangements, which are not reflected on our
consolidated balance sheets. In addition, we have a financing obligation for a leased facility of which we are
deemed the owner for accounting purposes. In July 2016, we amended and restated our revolving credit facility
under which we can draw down up to $1.0 billion. Also in July 2016, we entered into the $500.0 million term
loan to finance our acquisition of Demandware. Maintenance of our indebtedness and contractual commitments
and any additional issuances of indebtedness could:

impair our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes;

cause us to dedicate a substantial portion of our cash flows from operations towards debt service
obligations and principal repayments;
 make us more vulnerable to downturns in our business, our industry or the economy in general; and

due to limitations within the revolving credit facility covenants, restrict our ability to incur additional
indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make
acquisitions, enter into transactions with affiliates, pay dividends or make distributions, repurchase
stock and enter into restrictive agreements, as defined in the credit agreement.
Our ability to meet our expenses and debt obligations will depend on our future performance, which will be
affected by financial, business, economic, regulatory and other factors. We will not be able to control many of
these factors, such as economic conditions and governmental regulations. Further, our operations may not
generate sufficient cash to enable us to service our debt or contractual obligations resulting from our leases. If we
fail to make a payment on our debt, we could be in default on such debt. If we are at any time unable to generate
sufficient cash flows from operations to service our indebtedness when payment is due, we may be required to
attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion
of the indebtedness or obtain additional financing. There can be no assurance that we would be able to
successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing
could be obtained on terms that are favorable or acceptable to us.
A failure to comply with the covenants and other provisions of our outstanding debt could result in events of
default under such instruments, which could permit acceleration of all of our notes and borrowings under our
revolving credit facility. Any required repayment of our notes or revolving credit facility as a result of a
26
fundamental change or other acceleration would lower our current cash on hand such that we would not have
those funds available for use in our business.
New lease accounting guidance will require that we record operating lease activity on our consolidated
balance sheet no later than fiscal 2020, which will result in an increase in both our assets and financing
obligations. The implementation of this guidance may impact our ability to obtain the necessary financing from
financial institutions at commercially viable rates or at all as this new guidance will result in a higher financing
obligation on our consolidated balance sheet.
Weakened global economic conditions may adversely affect our industry, business and results of operations.
Our overall performance depends in part on worldwide economic and geopolitical conditions. The
United States and other key international economies have experienced cyclical downturns from time to time in
which economic activity was impacted by falling demand for a variety of goods and services, restricted credit,
poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets,
bankruptcies and overall uncertainty with respect to the economy. These economic conditions can arise suddenly
and the full impact of such conditions can remain uncertain. In addition, recent geopolitical developments,
including Brexit, have increased levels of political and economic unpredictability globally, and may increase the
volatility of global financial markets; the impact of such developments on the global economy remains uncertain.
Moreover, these conditions can affect the rate of information technology spending and could adversely affect our
customers' ability or willingness to purchase our enterprise cloud computing services, delay prospective
customers' purchasing decisions, reduce the value or duration of their subscription contracts, or affect attrition
rates, all of which could adversely affect our operating results.
Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations,
international commerce and the global economy, and thus could have a strong negative effect on us. Our business
operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events
beyond our control. Although we maintain crisis management and disaster response plans, such events could
make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our
services. The majority of our research and development activities, corporate headquarters, information
technology systems, and other critical business operations, are located near major seismic faults in the
San Francisco Bay Area. Because we do not carry earthquake insurance for direct quake-related losses, with the
exception of the building that we own in San Francisco, and significant recovery time could be required to
resume operations, our financial condition and operating results could be materially adversely affected in the
event of a major earthquake or catastrophic event.
Current and future accounting pronouncements and other financial reporting standards, especially but
not only concerning revenue recognition, cost capitalization and lease accounting, may negatively impact our
financial results.
We regularly monitor our compliance with applicable financial reporting standards and review new
pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing
standards and changes in their interpretation, we might be required to change our accounting policies,
particularly concerning revenue recognition, the capitalized incremental costs to obtain a customer contract and
lease accounting, to alter our operational policies so that they reflect new or amended financial reporting
standards, or to restate our published financial statements. Such changes may have an adverse effect on our
reputation, business, financial position, and profit, or cause an adverse deviation from our revenue and operating
profit target, which may negatively impact our financial results.
We may be subject to risks related to government contracts and related procurement regulations.
Our contracts with federal, state, local, and foreign government entities are subject to various procurement
regulations and other requirements relating to their formation, administration and performance. We may be subject to
27
audits and investigations relating to our government contracts, and any violations could result in various civil and
criminal penalties and administrative sanctions, including termination of contract, refunding or suspending of
payments, forfeiture of profits, payment of fines, and suspension or debarment from future government business. In
addition, such contracts may provide for termination by the government at any time, without cause.
We are subject to governmental export and import controls that could impair our ability to compete in
international markets and subject us to liability if we are not in full compliance with applicable laws.
Our solutions are subject to export and import controls, including the Commerce Department's Export
Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations
established by the Treasury Department's Office of Foreign Assets Control. If we fail to comply with these U.S.
export control laws and import laws we and certain of our employees could be subject to substantial civil or
criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on us
and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or
managers. Obtaining the necessary authorizations, including any required license, may be time-consuming, is not
guaranteed and may result in the delay or loss of sales opportunities. Furthermore, the U.S. export control laws
and economic sanctions laws prohibit the shipment of certain products and services to U.S. embargoed or
sanctioned countries, governments and persons. Even though we take precautions to prevent our solutions from
being provisioned or provided to U.S. sanctions targets, our solutions could be provisioned to those targets or
provided by our resellers despite such precautions. Any such sales could have negative consequences, including
government investigations, penalties and reputational harm. Changes in our solutions or changes in export and
import regulations may create delays in the introduction, sale and deployment of our solutions in international
markets or prevent the export or import of our solutions to certain countries, governments or persons altogether.
Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely
adversely affect our business, financial condition and results of operations.
Risks Relating to Our Convertible Senior Notes and Our Common Stock
The market price of our common stock is likely to be volatile and could subject us to litigation.
The trading prices of the securities of technology companies have been highly volatile. Accordingly, the
market price of our notes and common stock has been and is likely to continue to be subject to wide fluctuations.
Factors affecting the market price of our notes and common stock include:

variations in our operating results, earnings per share, cash flows from operating activities, deferred
revenue, year-over-year growth rates for individual core service offerings and other financial metrics
and non-financial metrics, and how those results compare to analyst expectations;

variations in, and limitations of, the various financial and other metrics and modeling used by analysts
in their research and reports about our business;

forward-looking guidance to industry and financial analysts related to future revenue and earnings per
share;

changes in the estimates of our operating results or changes in recommendations by securities analysts
that elect to follow our common stock;

announcements of technological innovations, new services or service enhancements, strategic alliances
or significant agreements by us or by our competitors;

announcements by us or by our competitors of mergers or other strategic acquisitions, or rumors of
such transactions involving us or our competitors;

announcements of customer additions and customer cancellations or delays in customer purchases;

recruitment or departure of key personnel;
28

disruptions in our service due to computer hardware, software, network or data center problems;

the economy as a whole, market conditions in our industry and the industries of our customers;

trading activity by a limited number of stockholders who together beneficially own a significant
portion of our outstanding common stock;

the issuance of shares of common stock by us, whether in connection with an acquisition, a capital
raising transaction or upon conversion of some or all of our outstanding convertible senior notes; and

issuance of debt or other convertible securities.
In addition, if the market for technology stocks or the stock market in general experiences uneven investor
confidence, the market price of our notes and common stock could decline for reasons unrelated to our business,
operating results or financial condition. The market price of our notes and common stock might also decline in
reaction to events that affect other companies within, or outside, our industry even if these events do not directly
affect us. Some companies that have experienced volatility in the trading price of their stock have been the
subject of securities class action litigation. If we are the subject of such litigation, it could result in substantial
costs and a diversion of management's attention and resources.
We may issue additional shares of our common stock or instruments convertible into shares of our
common stock, including in connection with the conversion of the notes, and thereby materially and adversely
affect the market price of our common stock and the trading price of the notes.
We are not restricted from issuing additional shares of our common stock or other instruments convertible
into, or exchangeable or exercisable for, shares of our common stock during the life of the notes. If we issue
additional shares of our common stock or instruments convertible into shares of our common stock, it may
materially and adversely affect the market price of our common stock and, in turn, the trading price of the notes.
In addition, the conversion of some or all of the notes may dilute the ownership interests of existing holders of
our common stock, and any sales in the public market of any shares of our common stock issuable upon such
conversion of the notes could adversely affect the prevailing market price of our common stock. In addition, the
potential conversion of the notes could depress the market price of our common stock.
We may not have the ability to pay the amount of cash due upon conversion of the notes or the
fundamental change purchase price due when a holder submits its notes for purchase upon the occurrence of
a fundamental change.
Upon the occurrence of a fundamental change, holders of the notes may require us to purchase, for cash, all
or a portion of their notes. In addition, if a holder converts its notes, we will generally pay such holder an amount
of cash before delivering to such holder any shares of our common stock.
There can be no assurance that we will have sufficient financial resources, or will be able to arrange
financing, to pay the fundamental change purchase price if holders submit their notes for purchase by us upon the
occurrence of a fundamental change or to pay the amount of cash due if holders surrender their notes for
conversion. In addition, agreements governing any future debt may restrict our ability to make each of the
required cash payments even if we have sufficient funds to make them. Furthermore, our ability to purchase the
notes or to pay cash upon the conversion of the notes may be limited by law or regulatory authority. If we fail to
purchase the notes, to pay interest due on the notes, or to pay the amount of cash due upon conversion, we will be
in default under the indenture, which in turn may result in the acceleration of other indebtedness we may then
have. If the repayment of the other indebtedness were to be accelerated, we may not have sufficient funds to
repay that indebtedness and to purchase the notes or to pay the amount of cash due upon conversion. Our
inability to pay for the notes that are tendered for purchase or upon conversion could result in note holders
receiving substantially less than the principal amount of the notes, which could harm our reputation, financing
opportunities and our business.
29
The fundamental change provisions of the notes may delay or prevent an otherwise beneficial takeover
attempt of us.
The fundamental change purchase rights will allow holders of the notes to require us to purchase all or a
portion of their notes upon the occurrence of a fundamental change. The provisions requiring an increase to the
conversion rate for conversions in connection with a make-whole fundamental change may, in certain
circumstances, delay or prevent a takeover of us and the removal of incumbent management that might otherwise
be beneficial to investors.
The convertible note hedges and warrant transactions may affect the trading price of the notes and the
market price of our common stock.
We entered into privately negotiated convertible note hedge transactions with certain hedge counterparties
concurrently with the pricing of the notes. We also entered into privately negotiated warrant transactions with the
hedge counterparties. Taken together, the convertible note hedge transactions and the warrant transactions are
expected, but not guaranteed, to reduce the potential dilution with respect to our common stock upon conversion
of the notes. If, however, the price of our common stock, as measured under the terms of the warrant
transactions, exceeds the exercise price of the warrant transactions, the warrant transactions will have a dilutive
effect on our earnings per share to the extent that the price of our common stock as measured under the warrant
transactions exceeds the strike price of the warrant transactions.
The hedge counterparties and their respective affiliates periodically modify their hedge positions from time
to time following the pricing of the notes (and are particularly likely to do so during any observation period
relating to a conversion of the notes) by entering into or unwinding various over-the-counter derivative
transactions with respect to our common stock, or by purchasing or selling shares of our common stock or the
notes in privately negotiated transactions or open market transactions. The effect, if any, of these transactions and
activities on the market price of our common stock or the trading price of the notes will depend in part on market
conditions and cannot be ascertained at this time. Any of these activities, however, could adversely affect the
market price of our common stock and the trading price of the notes.
We do not make any representation or prediction as to the direction or magnitude of any potential effect that
the transactions described above may have on the price of the notes or our common stock. In addition, we do not
make any representation that the counterparties to those transactions will engage in these transactions or activities or
that these transactions and activities, once commenced, will not be discontinued without notice; the counterparties
or their affiliates may choose to engage in, or discontinue engaging in, any of these transactions or activities with or
without notice at any time, and their decisions will be in their sole discretion and not within our control.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The hedge counterparties are financial institutions or affiliates of financial institutions, and we will be subject to
the risk that these hedge counterparties may default under the convertible note hedge transactions. Our exposure to the
credit risk of the hedge counterparties will not be secured by any collateral. If one or more of the hedge counterparties
to one or more of our convertible note hedge transactions becomes subject to insolvency proceedings, we will become
an unsecured creditor in those proceedings with a claim equal to our exposure at the time under those transactions. Our
exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in
our stock price and the volatility of our stock. In addition, upon a default by one of the hedge counterparties, we may
suffer adverse tax consequences and dilution with respect to our common stock. We can provide no assurances as to
the financial stability or viability of any of the hedge counterparties.
Provisions in our amended and restated certificate of incorporation and bylaws and Delaware law might
discourage, delay or prevent a change of control of our company or changes in our management and,
therefore, depress the market price of our common stock.
Our amended and restated certificate of incorporation and bylaws contain provisions that could depress the
market price of our common stock by acting to discourage, delay or prevent a change in control of our company
30
or changes in our management that the stockholders of our company may deem advantageous. These provisions
among other things:

permit the board of directors to establish the number of directors;

provide that directors may only be removed with the approval of holders of 66 2/3 percent of our
outstanding capital stock;

require super-majority voting to amend some provisions in our amended and restated certificate of
incorporation and bylaws;

authorize the issuance of "blank check" preferred stock that our board could use to implement a
stockholder rights plan (also known as a "poison pill");

prohibit the ability of our stockholders to call special meetings of stockholders;

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a
meeting of our stockholders;

provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and

establish advance notice requirements for nominations for election to our board or for proposing
matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a
change in control of our company. Section 203 imposes certain restrictions on merger, business combinations
and other transactions between us and holders of 15 percent or more of our common stock.
In addition, the fundamental change purchase rights applicable to the notes, which will allow note holders to
require us to purchase all or a portion of their notes upon the occurrence of a fundamental change, and the
provisions requiring an increase to the conversion rate for conversions in connection with a make-whole
fundamental change, may in certain circumstances delay or prevent a takeover of us and the removal of
incumbent management that might otherwise be beneficial to investors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of January 31, 2017, our executive and principal offices for sales, marketing, professional services and
development consist of over 1.9 million square feet of leased and owned property in the San Francisco Bay Area.
Of this total, we lease and occupy approximately 1.3 million square feet and own and occupy a majority of the
approximately 820,000 square feet of total owned space at 50 Fremont Street. We also lease space in various
locations throughout the United States for local sales and professional services personnel. Our foreign
subsidiaries lease office space in a number of countries in Europe, North America, Asia, South America, Africa
and Australia for our international operations, primarily for local sales and professional services personnel.
In addition, in April 2014, we entered into a lease agreement for approximately 733,000 rentable square feet
of under construction office space located in San Francisco, California. The lease payments associated with the
lease will be approximately $590.0 million over the 15.5 year term of the lease, beginning in our second quarter
of fiscal 2018. We do not currently occupy this property, and we have excluded this square footage from the total
leased space in the San Francisco Bay Area stated above.
We operate data centers in the U.S., Europe and Asia pursuant to various co-location lease arrangements.
We believe that our existing facilities and offices are adequate to meet our current requirements. If we require
additional space, we believe that we will be able to obtain such space on acceptable, commercially reasonable terms.
31
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we are or may be involved in various legal proceedings and claims
related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate
and securities, labor and employment, class actions, wage and hour, and other claims. We have been, and may in
the future be put on notice or sued by third parties for alleged infringement of their proprietary rights, including
patent infringement.
We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and
counterclaims, settlement or litigation potential and the expected effect on us. Our technologies may be subject to
injunction if they are found to infringe the rights of a third party. In addition, many of our subscription
agreements require us to indemnify our customers for third-party intellectual property infringement claims,
which could increase the cost to us of an adverse ruling on such a claim.
The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. Any claims and
other lawsuits, and the disposition of such claims and lawsuits, whether through settlement or litigation, could be
time-consuming and expensive to resolve, divert our attention from executing our business plan, result in efforts
to enjoin our activities, lead to attempts by third parties to seek similar claims and, in the case of intellectual
property claims, require us to change our technology, change our business practices, pay monetary damages or
enter into short- or long-term royalty or licensing agreements.
In general, the resolution of a legal matter could prevent us from offering our service to others, could be
material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating results.
We make a provision for a liability relating to legal matters when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly
and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel
and other information and events pertaining to a particular matter. In our opinion, resolution of all current matters
is not expected to have a material adverse impact on our consolidated results of operations, cash flows or
financial position. However, depending on the nature and timing of any such dispute, an unfavorable resolution
of a matter could materially affect our current or future results of operations or cash flows in a particular quarter.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding our current executive officers as of March 1, 2017 (in
alphabetical order):
Name
Age Position
Joe Allanson . . . . . . . . . . . . . . . . . . .
53 Chief Accounting Officer and Corporate Controller
Marc Benioff . . . . . . . . . . . . . . . . . . .
52 Chairman of the Board of Directors and Chief Executive Officer
Keith Block . . . . . . . . . . . . . . . . . . . .
55 Vice Chairman, President and Chief Operating Officer
Alexandre Dayon . . . . . . . . . . . . . . .
49
President, Products
Parker Harris . . . . . . . . . . . . . . . . . . .
50 Co-Founder and Chief Technology Officer
Mark Hawkins . . . . . . . . . . . . . . . . . .
57 Chief Financial Officer, Principal Financial Officer and
Executive Vice President
Maria Martinez . . . . . . . . . . . . . . . . .
59
President, Global Customer Success and Latin America
Burke Norton . . . . . . . . . . . . . . . . . . .
50 Chief Legal Officer and Chief of Corporate and
Government Affairs
Cindy Robbins . . . . . . . . . . . . . . . . . .
44 Executive Vice President, Global Employee Success
Amy Weaver . . . . . . . . . . . . . . . . . . .
49
President, Legal and General Counsel
32
Joe Allanson has served as our Chief Accounting Officer and Corporate Controller since February 2014 and
our Senior Vice President, Chief Accountant and Corporate Controller since July 2011. Prior to that,
Mr. Allanson served as our Senior Vice President, Corporate Controller since July 2007, and served in various
other management positions in finance since joining Salesforce in 2003. Prior to Salesforce, Mr. Allanson spent
four years at Autodesk, Inc. and three years at Chiron Corporation in key corporate finance positions. Previously,
he worked at Arthur Andersen LLP for 11 years in its Audit and Business Advisory Services group. Mr. Allanson
graduated from Santa Clara University with a B.S. in Accounting.
Marc Benioff co-founded Salesforce in February 1999 and has served as our Chairman of the Board of
Directors since inception. He has served as our Chief Executive Officer since 2001. From 1986 to 1999, Mr. Benioff
was employed at Oracle Corporation, an enterprise software company, where he held a number of positions in sales,
marketing and product development, including as a Senior Vice President. Mr. Benioff also serves as Chairman of
the Board of Salesforce.org, a non-profit public benefit corporation, the Salesforce.com Foundation, a philanthropic
private foundation, and as a member of the board of trustees of the World Economic Forum. In the past five years,
Mr. Benioff served as a director of Cisco Systems, Inc. Mr. Benioff received a B.S. in Business Administration from
the University of Southern California, where he is also on the Board of Trustees.
Keith Block has served as our Vice Chairman, President and as a Director since joining Salesforce in June
2013, and has served as our Chief Operating Officer since February 2016. Prior to Salesforce, Mr. Block was
employed at Oracle Corporation from 1986 to June 2012 where he held a number of positions, most recently
Executive Vice President, North America. Mr. Block currently serves on the World Economic Forum's
Information Technology Community as a Governor, the Board of Trustees at Carnegie-Mellon University, the
President's Advisory Council at Carnegie-Mellon University Heinz Graduate School and the Board of Trustees at
the Concord Museum. Mr. Block received both a B.S. in Information Systems and an M.S. in Management &
Policy Analysis from Carnegie-Mellon University.
Alexandre Dayon has served as our President, Products since March 2014. Prior to that, he was President,
Applications and Platform from December 2012 to March 2014, Executive Vice President, Applications from
September 2011 to December 2012, Executive Vice President, Product Management from February 2010 to
December 2012, and Senior Vice President, Product Management from September 2008 to January 2010.
Mr. Dayon joined Salesforce through the acquisition of InStranet, a leading knowledge-base company, where he
was a founder and served as CEO. Prior to InStranet, Mr. Dayon was a founding member of Business Objects SA
where he led the product group for more than 10 years. Mr. Dayon, who holds several patents, is focused on
creating business value out of technology disruption. Mr. Dayon holds a master's degree in electrical engineering
from Ecole Suprieure d'Electricit (SUPELEC) in France.
Parker Harris has served as our Co-Founder and Chief Technology Officer since September 2016.
Mr. Harris co-founded Salesforce in February 1999 and has served in senior technical positions since inception.
From December 2004 to February 2013, Mr. Harris served as our Executive Vice President, Technology. Prior to
Salesforce, Mr. Harris was a Vice President at Left Coast Software, a Java consulting firm he co-founded, from
October 1996 to February 1999. Mr. Harris received a B.A. from Middlebury College.
Mark Hawkins has served as our Chief Financial Officer, Principal Financial Officer and Executive Vice
President since August 2014. He served as Executive Vice President and Chief Financial Officer and principal
financial officer for Autodesk, Inc., a design software and services company, from April 2009 to July 2014. From
April 2006 to April 2009, Mr. Hawkins served as Senior Vice President, Finance and Information Technology,
and Chief Financial Officer of Logitech International S.A. Previously, Mr. Hawkins held various finance and
business-management roles with Dell Inc. and Hewlett-Packard Company. Mr. Hawkins currently serves as a
director of Plex Systems, Inc., where he is the Chairman of the Audit Committee, and SecureWorks, Inc., where
he is also a member of the Compensation Committee and the Chairman of the Audit Committee. Mr. Hawkins
also served on the Board of Directors of BMC Software, Inc. from May 2010 through September 2013, at which
time BMC was taken private. Mr. Hawkins holds a B.A. in Operations Management from Michigan State
33
University and an M.B.A. in Finance from the University of Colorado. He also completed the Advanced
Management Program at Harvard Business School.
Maria Martinez has served as our President, Global Customer Success and Latin America since February
2016. Prior to that, Ms. Martinez served as President, Sales and Customer Success since February 2013,
Executive Vice President, Chief Growth Officer from February 2012 to February 2013 and Executive Vice
President, Customers for Life from February 2010 to February 2012. Prior to Salesforce, Ms. Martinez was at
Microsoft Corporation and served as its Corporate Vice President of Worldwide Services. In addition to
Microsoft, she was president and CEO of Embrace Networks, and also held senior leadership roles at Motorola,
Inc. and AT&T Inc. / Bell Laboratories. Ms. Martinez currently serves as a director of Plantronics, Inc., where
she is also a member of the Nominating and Corporate Governance Committee and the Strategy Committee.
Ms. Martinez received a B.S. in Electrical Engineering from the University of Puerto Rico and an M.S. in
Computer Engineering from Ohio State University.
Burke Norton has served as our Chief Legal Officer and Chief of Corporate and Government Affairs since
April 2016. Prior to that, he served as Chief Legal Officer since October 2011. Prior to Salesforce, Mr. Norton
was Executive Vice President, General Counsel and Secretary and a member of the office of the chairman at
Expedia, Inc. from October 2006 to October 2011. Previously, Mr. Norton was a partner at the law firm of
Wilson Sonsini Goodrich & Rosati P.C., where he practiced corporate and securities law, representing clients in
the enterprise software, telecommunications, semiconductor, life sciences, entertainment and ecommerce
industries. Mr. Norton holds a J.D. from the University of California, Berkeley School of Law.
Cindy Robbins has served as our Executive Vice President, Global Employee Success since July 2015. She
served as Senior Vice President, Global Employee Success from October 2014 to June 2015 and Vice President,
Global Employee Success from November 2013 to September 2014. Prior to that, Ms. Robbins held various other
positions in Executive Recruiting, Sales and Marketing at the Company since 2006. Ms. Robbins holds a B.S. in
Political Science from Santa Clara University.
Amy Weaver has served as our President, Legal and General Counsel since February 2017. Prior to that, she
served as our Executive Vice President and General Counsel since July 2015 and our Senior Vice President and
General Counsel from October 2013 to July 2015. From December 2010 to June 2013, Ms. Weaver served as
Executive Vice President and General Counsel at Univar Inc. Previously, Ms. Weaver was Senior Vice President
and Deputy General Counsel at Expedia, Inc. and before that she practiced law at Cravath, Swaine & Moore LLP
and Perkins Coie LLP. Ms. Weaver also served as a clerk on the U.S. Court of Appeals, Ninth Circuit.
Ms. Weaver holds a B.A. in Political Science from Wellesley College and a J.D. from Harvard Law School.
34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Our common stock is traded on the New York Stock Exchange under the symbol "CRM."
The following table sets forth for the indicated periods the high and low sales prices of our common stock as
reported by the New York Stock Exchange.
High
Low
Fiscal year ending January 31, 2017
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$77.27
$54.05
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$83.77
$73.81
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$81.63
$68.42
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$79.10
$68.41
Fiscal year ending January 31, 2016
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$74.65
$57.28
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$75.71
$69.16
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78.77
$65.17
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$82.14
$65.69
Dividend Policy
We have never paid any cash dividends on our common stock. Our board of directors currently intends to
retain any future earnings to support operations and to finance the growth and development of our business and
does not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination
related to our dividend policy will be made at the discretion of our board and if the board chooses to declare a
cash dividend it will be in compliance with the consolidated leverage ratio covenant associated with our
revolving credit facility.
Stockholders
As of January 31, 2017 there were 767 registered stockholders of record of our common stock, including
The Depository Trust Company, which holds shares of Salesforce common stock on behalf of an indeterminate
number of beneficial owners.
Securities Authorized for Issuance under Equity Compensation Plans
The information concerning our equity compensation plans is incorporated by reference herein to the section
of the Proxy Statement entitled "Equity Compensation Plan Information," to be filed within 120 days of our
January 31, 2017 fiscal year end.
Outstanding Convertible Senior Notes and Warrants
In March 2013, we issued at par value $1.15 billion of 0.25% convertible senior notes (the "0.25% Senior
Notes") due April 1, 2018 and we issued 17.3 million warrants to purchase our common stock. See Note 8
"Debt" in the Notes to the Consolidated Financial Statements for more information.
35
Stock Performance Graph
The following shall not be deemed incorporated by reference into any of our other filings under the
Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.
The graph below compares the cumulative total stockholder return on our common stock with the cumulative
total return on the Standard & Poor's 500 Index and the Nasdaq Computer & Data Processing Index for each of the
last five fiscal years ended January 31, 2017, assuming an initial investment of $100. Data for the Standard &
Poor's 500 Index and the Nasdaq Computer & Data Processing Index assume reinvestment of dividends.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to
forecast, future performance of our common stock.
Comparison of Cumulative Total Return of salesforce.com, inc.  
0
50
FY12FY13FY14FY15FY16FY17100
150
300
200
250
DOLLARSsalesforce.com
Nasdaq Computer
S&P 500 Index
1/31/2012
1/31/2013
1/31/2014
1/31/2015
1/31/2016
1/31/2017
salesforce.com . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
147.00
207.00
193.00
233.00
271.00
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
114.00
136.00
152.00
148.00
174.00
Nasdaq Computer & Data Processing Index . . . . .
100.00
105.00
134.00
158.00
166.00
205.00
Recent Sales of Unregistered Securities
As previously disclosed on a Form 8-K filed on October 3, 2016, the Company entered into an Agreement
and Plan of Reorganization to acquire Krux, Inc. ("Krux"), a data management platform. Upon closing the
transaction on November 1, 2016, the Company issued 4,708,785 shares of Company common stock in exchange
for the outstanding shares of Krux capital stock. The issuance of shares was made in reliance on the registration
exemption Regulation D promulgated under the Securities Act of 1933, as amended.
Also as consideration in certain acquisitions since November 1, 2016, the Company issued 252,228 shares
of its common stock on January 13, 2017 and 215,768 shares of its common stock on February 1, 2017. All or a
portion of each such issuance of shares is subject to vesting conditions based upon continued employment of
certain recipients following closing of the acquisitions. These issuances were made in reliance on one or more of
the following exemptions or exclusions from the registration requirements of the Securities Act: Section 4(a)(2)
of the Securities Act and Regulation D promulgated under the Securities Act.
36
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with our audited
consolidated financial statements and related notes thereto and with Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included elsewhere in this Form 10-K. The
consolidated statement of operations data for fiscal 2017, 2016 and 2015, and the selected consolidated balance
sheet data as of January 31, 2017 and 2016 are derived from, and are qualified by reference to, the audited
consolidated financial statements that are included in this Form 10-K. The consolidated statement of operations
data for fiscal 2014 and 2013 and the consolidated balance sheet data as of January 31, 2015, 2014 and 2013 are
derived from audited consolidated financial statements which are not included in this Form 10-K.
Fiscal Year Ended January 31,
(in thousands, except per share data)
2017
2016
2015
2014
2013
Consolidated Statement of Operations
Revenues:
Subscription and support . . . . . . . . . . . .
$7,756,205 $6,205,599 $5,013,764 $3,824,542 $2,868,808
Professional services and other . . . . . . .
635,779
461,617
359,822
246,461
181,387
Total revenues . . . . . . . . . . . . . . . .
8,391,984
6,667,216
5,373,586
4,071,003
3,050,195
Cost of revenues (1)(2):
Subscription and support . . . . . . . . . . . .
1,556,353
1,188,967
924,638
711,880
494,187
Professional services and other . . . . . . .
677,686
465,581
364,632
256,548
189,392
Total cost of revenues . . . . . . . . . .
2,234,039
1,654,548
1,289,270
968,428
683,579
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
6,157,945
5,012,668
4,084,316
3,102,575
2,366,616
Operating expenses (1)(2):
Research and development . . . . . . . . . .
1,208,127
946,300
792,917
623,798
429,479
Marketing and sales . . . . . . . . . . . . . . . .
3,918,027
3,239,824
2,757,096
2,168,132
1,614,026
General and administrative . . . . . . . . . .
967,563
748,238
679,936
596,719
433,821
Operating lease termination resulting
from purchase of 50 Fremont . . . . . .
0
(36,617)
0
0
0
Total operating expenses . . . . . . . .
6,093,717
4,897,745
4,229,949
3,388,649
2,477,326
Income (loss) from operations . . . . . . . . . . .
64,228
114,923
(145,633)
(286,074)
(110,710)
Investment income . . . . . . . . . . . . . . . . . . . .
27,374
15,341
10,038
10,218
19,562
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
(88,988)
(72,485)
(73,237)
(77,211)
(30,948)
Other income (expense) (1) . . . . . . . . . . . . . .
9,072
(15,292)
(19,878)
(4,868)
(5,698)
Gain on sales of land and building
improvements . . . . . . . . . . . . . . . . . . . . . .
0
21,792
15,625
0
0
Gains from acquisitions of strategic
investments . . . . . . . . . . . . . . . . . . . . . . . .
13,697
0
0
0
0
Income (loss) before benefit from (provision
for) income taxes . . . . . . . . . . . . . . . . . . . .
25,383
64,279
(213,085)
(357,935)
(127,794)
Benefit from (provision for) income
taxes (3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
154,249
(111,705)
(49,603)
125,760
(142,651)
Net income (loss)
. . . . . . . . . . . . . . . . . . . . .
$ 179,632 $ (47,426) $ (262,688) $ (232,175) $ (270,445)
Net income (loss) per share-basic and
diluted (4):
Basic net income (loss) per share . . . . .
$
0.26 $
(0.07) $
(0.42) $
(0.39) $
(0.48)
Diluted net income (loss) per share . . . .
$
0.26 $
(0.07) $
(0.42) $
(0.39) $
(0.48)
Shares used in computing basic net
income (loss) per share . . . . . . . . . . .
687,797
661,647
624,148
597,613
564,896
Shares used in computing diluted net
income (loss) per share . . . . . . . . . . .
700,217
661,647
624,148
597,613
564,896
37
Fiscal Year Ended January 31,
(in thousands)
2017
2016
2015
2014
2013
(1) Amounts include amortization of purchased
intangibles from business combinations, as follows:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $127,676 $ 80,918 $ 90,300 $109,356 $ 77,249
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . .
97,601
77,152
64,673
37,179
10,922
Other non-operating expense . . . . . . . . . . . . . . . . . . .
2,491
3,636
0
0
0
(2) Amounts include stock-based expenses, as follows:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $107,457 $ 69,443 $ 53,812 $ 45,608 $ 33,757
Research and development . . . . . . . . . . . . . . . . . . . . .
187,487
129,434
121,193
107,420
76,333
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . .
388,937
289,152
286,410
258,571
199,284
General and administrative . . . . . . . . . . . . . . . . . . . .
136,486
105,599
103,350
91,681
69,976
(3) Amounts include a $210.3 million tax benefit recorded during fiscal 2017 as a result of the release of a portion
of the valuation allowance related to the Demandware, Inc. acquisition. See Note 11 "Income Taxes."
(4) Fiscal 2013 has been adjusted to reflect the four-for-one stock split effected through a stock dividend which
occurred in April 2013.
As of January 31,
(in thousands)
2017
2016
2015
2014
2013
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable
securities (4) . . . . . . . . . . . . . . . . . . . .
$ 2,208,887 $ 2,725,377 $ 1,890,284 $1,321,017 $1,758,285
(Negative) working capital (5) . . . . . . . .
(1,261,526)
114,318
19,296
(866,972)
(8,770)
Total assets (6)
. . . . . . . . . . . . . . . . . . . .
17,584,923
12,762,920
10,654,053
9,096,124
5,516,200
Long-term obligations excluding
deferred revenue (6)(7) . . . . . . . . . . . .
2,789,330
2,119,160
2,254,086
2,002,311
172,607
Accumulated deficit
. . . . . . . . . . . . . . . .
(464,910)
(653,271)
(605,845)
(343,157)
(110,982)
Total stockholders' equity . . . . . . . . . . . .
7,500,127
5,002,869
3,975,183
3,038,510
2,317,633
(4) Excludes the restricted cash balance of $115.0 million as of January 31, 2015.
(5) The Company considers all its marketable debt securities to be available to support current liquidity needs
including those with maturity dates beyond one year, and therefore classifies these securities within current
assets on the consolidated balance sheets. For consistency in presentation, working capital in the table above as
of January 31, 2016, 2015, 2014, and 2013 includes amounts previously in Marketable securities, noncurrent.
(6)
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, "InterestImputation of
Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"), which
simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a
deduction from the corresponding debt liability rather than as an asset. However, ASU 2015-03 does not
address deferred issuance costs for line-of-credit arrangements; therefore, in August 2015, the FASB issued
Accounting Standards Update No. 2015-15, "Interest-Imputation of Interest: Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" ("ASU 2015-15").
ASU 2015-15 allows an entity to defer debt issuance costs associated with line-of-credit arrangements,
including arrangements with no outstanding borrowings, and classify them as an asset, and amortize them
over the term of the arrangements. We adopted this standard retrospectively and reclassified all of our
unamortized debt issuance costs previously reported in other assets, net to net against the respective debt
liability balances. As a result of the reclassifications, total assets, working capital, long-term obligations
excluding deferred revenue in the table above as of January 31, 2016, 2015, 2014 and 2013 were reclassified
out of assets and netted against the long-term obligations.
(7) Long-term obligations primarily excludes deferred revenue, noncurrent and includes the term loan entered
into in July 2016 for $500.0 million, loan assumed on 50 Fremont, the 0.75% convertible senior notes issued
in January 2010, the 0.25% convertible senior notes issued in March 2013, the term loan entered into in July
2013 which was subsequently paid off in fiscal 2016, and the revolving credit facility entered into in
October 2014 and amended July 2016. At January 31, 2015, the 0.75% notes had matured and were no
longer outstanding. At January 31, 2014 and 2013, the 0.75% notes were convertible and accordingly were
classified as a current liability.
38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements, including, without limitation, our
expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity,
plans, strategies and objectives of management and any assumptions underlying any of the foregoing. Our actual
results may differ significantly from those projected in the forward-looking statements. Our forward-looking
statements and factors that might cause future actual results to differ materially from our recent results or those
projected in the forward-looking statements include, but are not limited to, those discussed in the section titled
"Forward-Looking Information" and "Risk Factors" of this Annual Report on Form 10-K. Except as required by
law, we assume no obligation to update the forward-looking statements or our risk factors for any reason.
Overview
We are a leading provider of enterprise cloud computing solutions, with a focus on customer relationship
management, or CRM. We introduced our first CRM solution in February 2000, and we have since expanded our
service offerings with new editions, features and platform capabilities.
Our core mission is to help our customers transform by empowering them to connect with their customers in
entirely new ways. Our Customer Success Platformincluding sales force automation, customer service and
support, marketing automation, digital commerce, community management, analytics, application development,
Internet of Things ("IoT") integration and collaborative productivity toolsprovides the tools customers need to
succeed in a digital world. Key elements of our strategy include:

extend existing service offerings;

cross sell and upsell;

expand into new horizontal markets;

target vertical markets and industries;

extend go-to-market capabilities;

reduce customer attrition; and

encourage the development of third-party applications on our cloud computing platforms.
In addition to the key elements of our business strategy described above, we evaluate opportunities to
acquire or invest in complementary businesses, services and technologies and intellectual property rights. This
evaluation resulted in a significant increase in our acquisition activity during fiscal 2017.
We believe the factors that will influence our ability to achieve our objectives include: our prospective
customers' willingness to migrate to enterprise cloud computing services; the availability, performance and
security of our service; our ability to continue to release, and gain customer acceptance of new and improved
features; our ability to successfully integrate acquired businesses and technologies; successful customer adoption
and utilization of our service; acceptance of our service in markets where we have few customers; the emergence
of additional competitors in our market and improved product offerings by existing and new competitors; the
location of new data centers that we operate as well as the new locations of services provided by third-party
cloud computing platform providers; third-party developers' willingness to develop applications on our
platforms; our ability to attract new personnel and retain and motivate current personnel; and general economic
conditions which could affect our customers' ability and willingness to purchase our services, delay the
customers' purchasing decision or affect attrition rates.
To address these factors, we will need to, among other things, continue to add substantial numbers of paying
subscriptions, upgrade our customers to fully featured versions or arrangements such as an Enterprise License
Agreement, provide high quality technical support to our customers, encourage the development of third-party
applications on our platforms and continue to focus on retaining customers at the time of renewal. Our plans to
39
invest for future growth include the continuation of the expansion of our data center capacity, the hiring of
additional personnel, particularly in direct sales, other customer-related areas and research and development, the
expansion of domestic and international selling and marketing activities, specifically in our top markets,
continuing to develop our brands, the addition of distribution channels, the upgrade of our service offerings, the
development of new services such as the introduction of our Analytics Cloud, Community Cloud, and IoT Cloud,
the integration of new and acquired technologies such as Commerce Cloud, artificial intelligence technologies
and Salesforce Quip, the expansion of our Marketing Cloud and Salesforce Platform (formerly App Cloud) core
service offerings, and the additions to our global infrastructure to support our growth.
We also regularly evaluate acquisitions or investment opportunities in complementary businesses, joint
ventures, services and technologies and intellectual property rights in an effort to expand our service offerings.
We expect to continue to make such investments and acquisitions in the future and we plan to reinvest a
significant portion of our incremental revenue in future periods to grow our business and continue our leadership
role in the cloud computing industry. As part of our growth strategy, we are delivering innovative solutions in
new categories, including analytics, e-commerce, artificial intelligence and the Internet of Things. We drive
innovation organically and to a lesser extent through acquisitions, such as our July 2016 acquisition of
Demandware, Inc. ("Demandware"), a digital commerce leader. We have a disciplined and thoughtful acquisition
process where we routinely survey the industry landscape across a wide range of companies. As a result of our
aggressive growth plans and integration of our previously acquired businesses, we have incurred significant
expenses from equity awards and amortization of purchased intangibles, which have reduced our operating
income. We remained focused on improving operating margins in fiscal 2017 and expect to remain similarly
focused in fiscal 2018.
Our typical subscription contract term is 12 to 36 months, although terms range from one to 60 months, so
during any fiscal reporting period only a subset of active subscription contracts is eligible for renewal. We
calculate our attrition rate as of the end of each month. Our current attrition rate calculation does not include the
Marketing and Commerce Cloud service offerings. Our attrition rate was between eight and nine percent during
the fiscal year ended January 31, 2017, which is comparable to the eight and nine percent attrition rate during the
same period a year ago. While it is difficult to predict, we expect our attrition rate to remain in this range as we
continue to expand our enterprise business and invest in customer success and related programs.
We expect marketing and sales costs, which were 47 percent of our total revenues for the fiscal year ended
January 31, 2017 and 49 percent for the same period a year ago, to continue to represent a substantial portion of
total revenues in the future as we seek to grow our customer base, sell more products to existing customers, and
build greater brand awareness.
In July 2016 we acquired Demandware, an industry-leading provider of enterprise cloud commerce
solutions in the digital commerce market. We acquired Demandware to expand our position in customer
relationship management and to pursue the digital commerce market segment with the new Salesforce Commerce
Cloud. The financial results of Demandware are included in our consolidated financial statements from the date
of acquisition. The total purchase price for Demandware was approximately $2.9 billion.
In July 2016, we entered into a credit agreement (the "Term Loan Credit Agreement") which provides for a
$500.0 million term loan (the "Term Loan") that matures on July 11, 2019. All amounts borrowed under the
Term Loan were used to pay a portion of the total purchase price for Demandware. Additionally, we entered into
an Amended and Restated Credit Agreement (the "Revolving Loan Credit Agreement") with Wells Fargo Bank,
National Association, and certain other institutional lenders that increased our existing revolving credit facility
dated October 2014 to $1.0 billion. As of January 31, 2017, there was $200.0 million of borrowings outstanding
under the revolving credit facility.
In August 2016, we acquired the outstanding stock of Quip, Inc. ("Quip"). Quip combines content and
communication to create living documents to allow work-teams to write, edit and discuss documents, spreadsheets
and checklists in a single experience. The total purchase price for Quip was approximately $412.0 million.
40
In November 2016, we acquired the outstanding stock of Krux Digital, Inc. ("Krux"). Krux is a leading data
management platform that unifies, segments and activates audiences to increase engagement with users,
prospects and customers. The total purchase price for Krux was approximately $741.8 million.
Prior to these and other acquisitions during fiscal 2017, our most significant acquisition was ExactTarget,
Inc in fiscal 2014.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal 2017, for example, refer to the fiscal year ending
January 31, 2017.
Operating Segments
We operate as one operating segment. Operating segments are defined as components of an enterprise for
which separate financial information is evaluated regularly by the chief operating decision maker, who in our
case is the chief executive officer, in deciding how to allocate resources and assess performance. Over the past
few years, including fiscal 2017, we have completed a number of acquisitions. These acquisitions have allowed
us to expand our offerings, presence and reach in various market segments of the enterprise cloud computing
market. While we have offerings in multiple enterprise cloud computing market segments, including as a result
of the Company's acquisitions, our business operates in one operating segment because the majority of our
offerings operate on a single platform and are deployed in an identical way, and our chief operating decision
maker evaluates our financial information and resources and assesses the performance of these resources on a
consolidated basis. Since we operate as one operating segment, all required financial segment information can be
found in the consolidated financial statements.
Sources of Revenues
We derive our revenues from two sources: (1) subscription revenues, which are comprised of subscription
fees from customers accessing our enterprise cloud computing services and from customers paying for additional
support beyond the standard support that is included in the basic subscription fees; and (2) related professional
services such as process mapping, project management, implementation services and other revenue. "Other
revenue" consists primarily of training fees. Subscription and support revenues accounted for approximately
92 percent of our total revenues for fiscal 2017. Subscription revenues are driven primarily by the number of
paying subscribers, varying service types, the price of our service and renewals. We define a "customer" as a
separate and distinct buying entity (e.g., a company, a distinct business unit of a large corporation, a partnership,
etc.) that has entered into a contract to access our enterprise cloud computing services. We define a
"subscription" as a unique user account purchased by a customer for use by its employees or other customer-
authorized users, and we refer to each such user as a "subscriber." The number of paying subscriptions at each of
our customers ranges from one to hundreds of thousands. None of our customers accounted for more than five
percent of our revenues during fiscal 2017, 2016 or 2015.
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement dates of each contract. The typical subscription and support term is 12 to 36 months, although
terms range from one to 60 months. Our subscription and support contracts are non-cancelable, though customers
typically have the right to terminate their contracts for cause if we materially fail to perform. We generally
invoice our customers in advance, in annual installments, and typical payment terms provide that our customers
pay us within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable and in
deferred revenue, or in revenue depending on whether the revenue recognition criteria have been met. In general,
we collect our billings in advance of the subscription service period.
Professional services and other revenues consist of fees associated with consulting and implementation
services and training. Our consulting and implementation engagements are billed on a time and materials, fixed
41
fee or subscription basis. We also offer a number of training classes on implementing, using and administering
our service that are billed on a per person, per class basis. Our typical professional services payment terms
provide that our customers pay us within 30 days of invoice.
In determining whether professional services can be accounted for separately from subscription and support
revenues, we consider a number of factors, which are described in "Critical Accounting Policies and Estimates
Revenue Recognition" below.
Revenue by Cloud Service Offering
The information below is provided on a supplemental basis to give additional insight into the revenue
performance of our individual core service offerings.
All of the cloud offerings that we offer to customers are grouped into four major core cloud service
offerings. Subscription and support revenues consisted of the following (in millions):
Fiscal Year Ended January 31,
2017
2016
2015
Variance-Percent
FY'17
and FY'16
Variance-Percent
FY'16
and FY'15
Sales Cloud . . . . . . . . . . . . . . . . . . . . . $3,060.6 $2,699.0 $2,443.0
13%
10%
Service Cloud . . . . . . . . . . . . . . . . . . .
2,320.7
1,817.8
1,320.2
28%
38%
Salesforce Platform and Other . . . . . .
1,441.6
1,034.7
745.3
39%
39%
Marketing Cloud . . . . . . . . . . . . . . . . .
933.3
654.1
505.3
43%
29%
Total . . . . . . . . . . . . . . . . . . . . . . $7,756.2 $6,205.6 $5,013.8
Subscription and support revenues from the Analytics Cloud, Community Cloud, IoT Cloud, Commerce
Cloud and Salesforce Quip were not significant. Analytics Cloud, IoT Cloud and Salesforce Quip revenue is
included with Salesforce Platform and Other in the table above. Community Cloud revenue is included in either
Sales Cloud, Service Cloud or Salesforce Platform and Other revenue depending on the primary service offering
purchased. Commerce Cloud revenue, resulting from our Demandware acquisition in July 2016, is included in
Marketing Cloud. As required under U.S. generally accepted accounting principles ("U.S. GAAP"), we recorded
deferred revenue related to acquired contracts from Demandware at fair value. As a result, we did not recognize
certain revenues related to these acquired contracts that Demandware would have otherwise recorded as an
independent entity. Of the $933.3 million subscription and support revenue for Marketing Cloud for the fiscal
year 2017, approximately 11 percent was attributed to our Demandware acquisition. To the extent Demandware
contracts are renewed following the acquisition, we will recognize the revenues for the full values of the
contracts over the respective contractual periods.
In situations where a customer purchases multiple cloud offerings, such as through an Enterprise License
Agreement, we allocate the contract value to each core service offering based on the customer's estimated
product demand plan and the service that was provided at the inception of the contract. We do not update these
allocations based on actual product usage during the term of the contract. We have allocated approximately
13 percent of our total subscription and support revenues for fiscal 2017 and 10 percent for fiscal 2016, based on
customers' estimated product demand plans and these allocated amounts are included in the table above.
Additionally, some of our service offerings have similar features and functions. For example, customers
may use the Sales Cloud, the Service Cloud or our Salesforce Platform to record account and contact
information, which are similar features across these core service offerings. Depending on a customer's actual and
projected business requirements, more than one core service offering may satisfy the customer's current and
future needs. We record revenue based on the individual products ordered by a customer, and not according to
the customer's business requirements and usage. In addition, as we introduce new features and functions within
42
each offering and refine our allocation methodology for changes in our business, we do not expect it to be
practical to adjust historical revenue results by core service offering for comparability. Accordingly, comparisons
of revenue performance by service offering over time may not be meaningful.
Our Sales Cloud service offering is our most widely distributed service offering and has historically been
the largest contributor of subscription and support revenues. As a result, Sales Cloud has the most international
exposure and foreign exchange rate exposure, relative to the other cloud service offerings. Conversely, revenue
for Marketing Cloud is primarily derived from the Americas, with little impact from foreign exchange rate
movement.
The revenue growth rates of each of our core service offerings fluctuate from quarter to quarter and over
time. While we are a market leader in each core offering, we manage the total balanced product portfolio to
deliver solutions to our customers. Accordingly, the revenue result for each cloud service offering is not
necessarily indicative of the results to be expected for any subsequent quarter.
Seasonal Nature of Deferred Revenue, Accounts Receivable and Operating Cash Flow
Deferred revenue primarily consists of billings to customers for our subscription service. Over 90 percent of
the value of our billings to customers is for our subscription and support service. We generally invoice our
customers in annual cycles. Approximately 80 percent of all subscription and support invoices were issued with
annual terms during fiscal 2017, which is consistent with fiscal 2016. Occasionally, we bill customers for their
multi-year contract on a single invoice which results in an increase in noncurrent deferred revenue. We typically
issue renewal invoices in advance of the renewal service period, and depending on timing, the initial invoice for
the subscription and services contract and the subsequent renewal invoice may occur in different quarters. This
may result in an increase in deferred revenue and accounts receivable. There is a disproportionate weighting
towards annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns. Our
fourth quarter has historically been our strongest quarter for new business and renewals. The year on year
compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the
value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a
proportion of our total annual billings. Accordingly, because of this billing activity, our first quarter is our largest
collections and operating cash flow quarter.
The sequential quarterly changes in accounts receivable, related deferred revenue and operating cash flow
during the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in
the fourth quarter as displayed below (in thousands, except unbilled deferred revenue):
January 31,
2017
October 31,
2016
July 31,
2016
April 30,
2016
Fiscal 2017
Accounts receivable, net . . . . . . . . . . . . . . .
$3,196,643
$1,281,425
$1,323,114
$1,192,965
Deferred revenue, current and
noncurrent . . . . . . . . . . . . . . . . . . . . . . . .
5,542,802
3,495,133
3,823,561
4,006,914
Operating cash flow (1) . . . . . . . . . . . . . . . .
706,146
154,312
250,678
1,051,062
Unbilled deferred revenue (2) . . . . . . . . . . .
9.0 bn
8.6 bn
8.0 bn
7.6 bn
January 31,
2016
October 31,
2015
July 31,
2015
April 30,
2015
Fiscal 2016
Accounts receivable, net . . . . . . . . . . . . . . .
$2,496,165
$1,060,726
$1,067,799
$ 926,381
Deferred revenue, current and
noncurrent . . . . . . . . . . . . . . . . . . . . . . . .
4,291,553
2,846,510
3,034,991
3,056,820
Operating cash flow (1) . . . . . . . . . . . . . . . .
470,208
162,514
304,278
735,081
Unbilled deferred revenue (2) . . . . . . . . . . .
7.1 bn
6.7 bn
6.2 bn
6.0 bn
43
January 31,
2015
October 31,
2014
July 31,
2014
April 30,
2014
Fiscal 2015
Accounts receivable, net . . . . . . . . . . . . . . .
$1,905,506
$ 794,590
$ 834,323
$ 684,155
Deferred revenue, current and
noncurrent . . . . . . . . . . . . . . . . . . . . . . . .
3,321,449
2,223,977
2,352,904
2,324,615
Operating cash flow (1) . . . . . . . . . . . . . . . .
336,506
123,732
239,078
482,128
Unbilled deferred revenue (2) . . . . . . . . . . .
5.7 bn
5.4 bn
5.0 bn
4.8 bn
(1) Operating cash flow represents net cash provided by operating activities for the three months ended in the
periods stated above. In the first quarter of fiscal year 2017, we adopted Accounting Standards Update
No. 2016-09, "Stock Compensation (Topic 718): Improvements to Employee Shared-Based Payment
Accounting" ("ASU 2016-09"), which addresses among other items, updates to the presentation and
treatment of excess tax benefits related to stock based compensation on the Statements of Cash Flows. We
have adopted changes to the statement of cash flows on a retrospective basis and have accordingly updated
the operating cash flow amounts presented above.
(2) Unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that
have not been invoiced and, accordingly, are not recorded in deferred revenue.
Unbilled Deferred Revenue, an Operational Measure
The U.S. GAAP deferred revenue balance on our consolidated balance sheet does not represent the total
contract value of annual or multi-year, non-cancelable subscription agreements. Unbilled deferred revenue is an
operational measure that represents future billings under our subscription agreements that have not been invoiced
and, accordingly, are not recorded in deferred revenue. Unbilled deferred revenue amounts by quarter are
reflected in the table above. Our typical contract length is between 12 and 36 months. We expect that the amount
of unbilled deferred revenue will change from quarter to quarter for several reasons, including the specific
timing, duration and size of large customer subscription agreements, varying billing cycles of subscription
agreements, the specific timing of customer renewals, foreign currency fluctuations, the timing of when unbilled
deferred revenue is to be recognized as revenue, and changes in customer financial circumstances. For multi-year
subscription agreements billed annually, the associated unbilled deferred revenue is typically high at the
beginning of the contract period, zero just prior to renewal, and increases if the agreement is renewed. Low
unbilled deferred revenue attributable to a particular subscription agreement is often associated with an
impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such
customer. Accordingly, we expect that the amount of aggregate unbilled deferred revenue will change from year-
to-year depending in part upon the number and dollar amount of subscription agreements at particular stages in
their renewal cycle. Such fluctuations are not a reliable indicator of future revenues. Unbilled deferred revenue
does not include minimum revenue commitments from indirect sales channels, as we recognize revenue, deferred
revenue, and any unbilled deferred revenue upon sell-through to an end user customer. Unbilled deferred revenue
also does not include any estimates for overage billings above a customer's minimum commitment.
Cost of Revenues and Operating Expenses
Cost of Revenues. Cost of subscription and support revenues primarily consists of expenses related to
delivering our service and providing support, the costs of data center capacity, depreciation or operating lease
expense associated with computer equipment and software, allocated overhead, amortization expense associated
with capitalized software related to our services and acquired developed technologies and certain fees paid to
various third parties for the use of their technology, services and data. We allocate overhead such as information
technology infrastructure, rent and occupancy charges based on headcount. Employee benefit costs and taxes are
allocated based upon a percentage of total compensation expense. As such, general overhead expenses are
reflected in each cost of revenue and operating expense category. Cost of professional services and other
revenues consists primarily of employee-related costs associated with these services, including stock-based
44
expenses, the cost of subcontractors, certain third party fees and allocated overhead. The cost of providing
professional services is significantly higher as a percentage of the related revenue than for our enterprise cloud
computing subscription service due to the direct labor costs and costs of subcontractors.
We intend to continue to invest additional resources in our enterprise cloud computing services. For
example, we have invested in additional database software and we plan to increase the capacity that we are able
to offer globally through data centers and third party infrastructure providers. As we acquire new businesses and
technologies, the amortization expense associated with this activity will be included in cost of revenues.
Additionally, as we enter into new contracts with third parties for the use of their technology, services or data, or
as our sales volume grows, the fees paid to use such technology or services may increase. The timing of these
additional expenses will affect our cost of revenues, both in terms of absolute dollars and as a percentage of
revenues, in the affected periods.
Research and Development. Research and development expenses consist primarily of salaries and related
expenses, including stock-based expenses, the costs of our development and test data center and allocated
overhead. We continue to focus our research and development efforts on adding new features and services,
integrating acquired technologies, increasing the functionality and security and enhancing the ease of use of our
enterprise cloud computing services. Our proprietary, scalable and secure multi-tenant architecture enables us to
provide all of our customers with a service based on a single version of our application. As a result, we do not
have to maintain multiple versions, which enables us to have relatively lower research and development expenses
as compared to traditional enterprise software companies.
We expect that in the future, research and development expenses will increase in absolute dollars and may
increase as a percentage of total revenues as we invest in building the necessary employee and system
infrastructure required to support the development of new, and improve existing, technologies and the integration
of acquired businesses and technologies.
Marketing and Sales. Marketing and sales expenses are our largest cost and consist primarily of salaries and
related expenses, including stock-based expenses, for our sales and marketing staff, including commissions,
payments to partners, marketing programs and allocated overhead. Marketing programs consist of advertising,
events, corporate communications, brand building and product marketing activities.
We plan to continue to invest in marketing and sales by expanding our domestic and international selling
and marketing activities, building brand awareness, attracting new customers and sponsoring additional
marketing events. The timing of these marketing events, such as our annual and largest event, Dreamforce, will
affect our marketing costs in a particular quarter. We expect that in the future, marketing and sales expenses will
increase in absolute dollars and continue to be our largest cost.
General and Administrative. General and administrative expenses consist of salaries and related expenses,
including stock-based expenses, for finance and accounting, legal, internal audit, human resources and
management information systems personnel, legal costs, professional fees, other corporate expenses and
allocated overhead. We expect that in the future, general and administrative expenses will increase in absolute
dollars as we invest in our infrastructure and we incur additional employee related costs, professional fees and
insurance costs related to the growth of our business and international expansion. We expect general and
administrative costs as a percentage of total revenues to either remain flat or decrease for the next several
quarters. However, the timing of additional expenses in a particular quarter, both in terms of absolute dollars and
as a percentage of revenues, will affect our general and administrative expenses.
Stock-Based Expenses. Our cost of revenues and operating expenses include stock-based expenses related to
equity plans for employees and non-employee directors. We recognize our stock-based compensation as an
expense in the statement of operations based on their fair values and vesting periods. These charges have been
significant in the past and we expect that they will increase as our stock price increases, as we acquire more
companies, as we hire more employees and seek to retain existing employees.
45
During fiscal 2017, we recognized stock-based expense of $820.4 million. As of January 31, 2017, the
aggregate stock compensation remaining to be amortized to costs and expenses was $2.6 billion. We expect this
stock compensation balance to be amortized as follows: $980.5 million during fiscal 2018; $762.9 million during
fiscal 2019; $540.5 million during fiscal 2020; $249.7 million during fiscal 2021; $17.4 million during fiscal
2022; $17.2 million during fiscal 2023; $8.0 million during fiscal 2024. The expected amortization reflects only
outstanding stock awards as of January 31, 2017 and assumes no forfeiture activity. We expect to continue to
issue stock-based awards to our employees in future periods.
Amortization of Purchased Intangibles from Business Combinations. Our cost of revenues and operating
expenses include amortization of acquisition-related intangible assets, such as the amortization of the cost
associated with an acquired company's research and development efforts, trade names, customer lists and
customer relationships. We expect this expense to fluctuate as we acquire more companies.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses,
and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may
differ from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in Note 1 "Summary of Business
and Significant Accounting Policies" to our consolidated financial statements, the following accounting policies
involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most
critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
Revenue Recognition. We derive our revenues from two sources: (1) subscription revenues, which are
comprised of subscription fees from customers accessing our enterprise cloud computing services and from
customers purchasing additional support beyond the standard support that is included in the basic subscription
fee; and (2) related professional services such as process mapping, project management, implementation services
and other revenue. "Other revenue" consists primarily of training fees.
We commence revenue recognition when all of the following conditions are satisfied:

there is persuasive evidence of an arrangement;

the service has been or is being 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.
Our subscription service arrangements are non-cancelable and do not contain refund-type provisions.
Subscription and Support Revenues
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract, which is the date our service is made available to customers. 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
Our professional services contracts are either on a time and materials, fixed-fee or subscription basis. As
discussed below, these revenues are recognized as the services are rendered for time and materials contracts, and
46
when the milestones are achieved and accepted by the customer or on a proportional performance basis for fixed
price contracts and ratably over the contract term for subscription professional services. The milestone method
for revenue recognition is used when there is substantive uncertainty at the date the contract is entered into
whether the milestone will be achieved. Training revenues are recognized after the services are performed.
Multiple Deliverable Arrangements
We enter into arrangements with multiple deliverables that generally include multiple subscriptions,
premium support, and professional services. If the deliverables have standalone value at contract inception, we
account for each deliverable separately. Subscription services have standalone value as such services are often
sold separately. In determining whether professional services have standalone value, we consider the following
factors for each professional services agreement: availability of the services from other vendors, the nature of the
professional services, the timing of when the professional services contract was signed in comparison to the
subscription service start date, and the contractual dependence of the subscription service on the customer's
satisfaction with the professional services work. To date, we have concluded that all of the professional services
included in multiple deliverable arrangements executed have standalone value.
Multiple deliverables included in an arrangement are separated into different units of accounting and the
arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy.
We determine the relative selling price for a deliverable based on its vendor-specific objective evidence of selling
price ("VSOE"), if available, or our best estimate of selling price ("BESP"), if VSOE is not available. We have
determined that third-party evidence ("TPE") is not a practical alternative due to differences in our service
offerings compared to other parties and the availability of relevant third-party pricing information. The amount of
revenue allocated to delivered items is limited by contingent revenue, if any.
For certain professional services, we have established VSOE as a consistent number of standalone sales of
this deliverable have been priced within a reasonably narrow range. We have not established VSOE for our
subscription services due to lack of pricing consistency, the introduction of new services and other factors.
Accordingly, we use our BESP to determine the relative selling price.
We determined BESP by considering our overall pricing objectives and market conditions. Significant
pricing practices taken into consideration include our discounting practices, the size and volume of our
transactions, the customer demographic, the geographic area where our services are sold, our price lists, our go-
to-market strategy, historical standalone sales and contract prices. The determination of BESP is made through
consultation with and approval by management, taking into consideration the go-to-market strategy. As our go-
to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in
relative selling prices, including both VSOE and BESP.
Deferred Revenue. The deferred revenue balance does not represent the total contract value of annual or
multi-year, non-cancelable subscription agreements. Deferred revenue primarily consists of billings or payments
received in advance of revenue recognition from subscription services described above and is recognized as the
revenue recognition criteria are met. We generally invoice customers in annual installments. The deferred
revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals,
invoice duration, invoice timing, dollar size and new business linearity within the quarter.
Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current
deferred revenue and the remaining portion is recorded as noncurrent.
Deferred Commissions. We defer commission payments to our direct sales force. The commissions are
deferred and amortized to sales expense over the non-cancelable terms of the related subscription contracts with
our customers, which are typically 12 to 36 months. The commission payments, which are paid in full the month
after the customer's service commences, are a direct and incremental cost of the revenue arrangements. The
deferred commission amounts are recoverable through the future revenue streams under the non-cancelable
customer contracts. We believe this is the preferable method of accounting as the commission charges are so
47
closely related to the revenue from the non-cancelable customer contracts that they should be recorded as an
asset and charged to expense over the same period that the subscription revenue is recognized.
During fiscal 2017, we deferred $462.0 million of commission expenditures and we amortized
$371.5 million to sales expense. During fiscal 2016, we deferred $380.0 million of commission expenditures and
we amortized $319.1 million to sales expense. Deferred commissions on our consolidated balance sheets totaled
$539.6 million at January 31, 2017 and $449.1 million at January 31, 2016.
Capitalized Internal-Use Software Costs. We are required to follow the guidance of Accounting Standards
Codification 350 ("ASC 350"), Intangibles- Goodwill and Other in accounting for the cost of computer software
developed for internal-use and the accounting for web-based product development costs. ASC 350 requires
companies to capitalize qualifying computer software costs, which are incurred during the application
development stage, and amortize these costs on a straight-line basis over the estimated useful life of the
respective asset. We deliver our enterprise cloud computing solutions as a service via all the major Internet
browsers and on leading major mobile device operating systems. As a result of this software as a service delivery
model, we believe we have larger capitalized costs as compared to traditional enterprise software companies as
they are required to use a different accounting standard.
Costs related to preliminary project activities and post implementation activities are expensed as incurred.
Internal-use software is amortized on a straight-line basis over its estimated useful life. We evaluate the useful
lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances
occur that could impact the recoverability of these assets.
Stock-Based Expense.We recognize stock-based expenses related to stock options and restricted stock awards
on a straight-line basis, net of estimated forfeitures, over the requisite service period of the awards, which is
generally the vesting term of four years. We recognize stock-based expenses related to shares issued pursuant to our
2004 Employee Stock Purchase Plan ("ESPP") on a straight-line basis over the offering period, which is 12 months.
Stock-based expenses related to performance share grants are measured based on grant date fair value and
expensed on a straight-line basis over the service period of the awards, which is generally the vesting term of
three years.
We, at times, grant unvested restricted shares to employee stockholders of certain acquired companies in
lieu of cash consideration. These awards are generally subject to continued post-acquisition employment, and as
a result, we have accounted for them as post-acquisition stock-based expense. We recognize stock-based
expenses equal to the grant date fair value of the restricted stock awards on a straight-line basis over the requisite
service period of the awards.
Business Combinations. Accounting for business combinations requires us to make significant estimates and
assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and
liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately
assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date.
Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired
include but are not limited to:

future expected cash flows from subscription and support contracts, professional services contracts,
other customer contracts and acquired developed technologies and patents;

the acquired company's trade name, trademark and existing customer relationship, as well as
assumptions about the period of time the acquired trade name and trademark will continue to be used in
our offerings;

uncertain tax positions and tax related valuation allowances assumed; and

discount rates.
48
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such
assumptions, estimates or actual results.
In the event that we acquire an entity in which we previously held a strategic investment, the difference
between the fair value of the shares as of the date of the acquisition and the carrying value of the strategic
investment is recorded as a gain or loss and disclosed separately within the statements of operations.
Goodwill and Intangibles. We make estimates, assumptions, and judgments when valuing goodwill and
other intangible assets in connection with the initial purchase price allocation of an acquired entity, as well as
when evaluating the recoverability of our goodwill and other intangible assets on an ongoing basis. These
estimates are based upon a number of factors, including historical experience, market conditions, and information
obtained from the management of acquired companies. Critical estimates in valuing certain intangible assets
include, but are not limited to, historical and projected attrition rates, discount rates, anticipated growth in
revenue from the acquired customers and acquired technology, and the expected use of the acquired assets. These
factors are also considered in determining the useful life of acquired intangible assets. The amounts and useful
lives assigned to identified intangible assets impact the amount and timing of future amortization expense.
Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on temporary differences between the financial statement
and tax basis of assets and liabilities 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 the
consolidated statements of operations in the period that includes the enactment date.
Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We
recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is
sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is
measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement
with the taxing authority. We recognize interest accrued and penalties related to unrecognized tax benefits in our
income tax provision.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are
more likely than not expected to be realized based on the weighting of positive and negative evidence. Future
realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the
appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods
available under the applicable tax law. We regularly review the deferred tax assets for recoverability based on
historical taxable income, projected future taxable income, the expected timing of the reversals of existing
temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to
many factors, including future market conditions and the ability to successfully execute the business plans and/or
tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax
provision would increase or decrease in the period in which the assessment is changed.
Strategic Investments.We hold strategic investments in marketable equity securities and non-marketable debt
and equity securities in which we do not have a controlling interest or significant influence, as defined in
Accounting Standards Codification 323 ("ASC 323"), InvestmentsEquity Method and Joint Ventures. Marketable
equity securities are measured using quoted prices in their respective active markets and non-marketable debt and
equity securities are recorded at cost. If, based on the terms of our ownership of these marketable and non-
marketable securities, we determine that we exercise significant influence on the entity to which these marketable
and non-marketable securities relate, we apply the equity method of accounting for such investments.
We determine the fair value of our marketable equity securities and non-marketable debt and equity
securities quarterly for impairment and disclosure purposes; however, the non-marketable debt and equity
securities are recorded at fair value only if an impairment is recognized. The measurement of fair value requires
significant judgment and includes a qualitative and quantitative analysis of events and circumstances that impact
the fair value of the investment. Our assessment of the severity and duration of the impairment and qualitative
49
and quantitative analysis includes the investee's financial metrics, the investee's products and technologies
meeting or exceeding predefined milestones, market acceptance of the product or technology, other competitive
products or technology in the market, general market conditions, management and governance structure of the
investee, investee's liquidity, debt ratios and the rate at which the investee is using its cash, and investee's receipt
of additional funding at a lower valuation. In determining the estimated fair value of our strategic investments in
privately held companies, we utilize the most recent data available to us. Valuations of privately held companies
are inherently complex due to the lack of readily available market data.
If the fair value of an investment is below our cost, we determine whether the investment is other-than-
temporarily impaired based on our qualitative and quantitative analysis, which includes the severity and duration
of the impairment. If the investment is considered to be other-than-temporarily impaired, we record the
investment at fair value by recognizing an impairment through the income statement and establishing a new cost
basis for the investment.
Results of Operations
The following tables set forth selected data for each of the periods indicated (in thousands):
Fiscal Year Ended January 31,
2017
As a % of
Total
Revenues
2016
As a % of
Total
Revenues
2015
As a % of
Total
Revenues
Revenues:
Subscription and support . . . . . . . .
$7,756,205
92% $6,205,599
93% $5,013,764
93%
Professional services and other . . .
635,779
8
461,617
7
359,822
7
Total revenues . . . . . . . . . . . .
8,391,984
100
6,667,216
100
5,373,586
100
Cost of revenues (1)(2):
Subscription and support . . . . . . . .
1,556,353
19
1,188,967
18
924,638
17
Professional services and other . . .
677,686
8
465,581
7
364,632
7
Total cost of revenues . . . . . .
2,234,039
27
1,654,548
25
1,289,270
24
Gross profit . . . . . . . . . . . . . . . . . . . . . .
6,157,945
73
5,012,668
75
4,084,316
76
Operating expenses (1)(2):
Research and development . . . . . .
1,208,127
14
946,300
14
792,917
15
Marketing and sales . . . . . . . . . . .
3,918,027
47
3,239,824
49
2,757,096
51
General and administrative . . . . . .
967,563
11
748,238
11
679,936
13
Operating lease termination
resulting from purchase of 50
Fremont . . . . . . . . . . . . . . . . . . .
0
0
(36,617)
(1)
0
0
Total operating expenses . . . .
6,093,717
72
4,897,745
73
4,229,949
79
Income (loss) from operations . . . . . . .
64,228
1
114,923
2
(145,633)
(3)
Investment income . . . . . . . . . . . . . . . .
27,374
0
15,341
0
10,038
0
Interest expense . . . . . . . . . . . . . . . . . . .
(88,988)
(1)
(72,485)
(1)
(73,237)
(1)
Other income (expense) (1)
. . . . . . . . .
9,072
0
(15,292)
0
(19,878)
0
Gain on sales of land and building
improvements . . . . . . . . . . . . . . . . . .
0
0
21,792
0
15,625
0
Gains from acquisitions of strategic
investments . . . . . . . . . . . . . . . . . . . .
13,697
0
0
0
0
0
Income (loss) before benefit from
(provision for) income taxes . . . . . . .
25,383
0
64,279
1
(213,085)
(4)
Benefit from (provision for) income
taxes (3) . . . . . . . . . . . . . . . . . . . . . . .
154,249
2
(111,705)
(2)
(49,603)
(1)
Net income (loss) . . . . . . . . . . . . . . . . .
$ 179,632
2% $ (47,426)
(1)% $ (262,688)
(5)%
50
(1) Cost of revenues and marketing and sales expenses include the following amounts related to amortization of
purchased intangibles from business combinations (in thousands):
Fiscal Year Ended January 31,
2017
As a % of
Total
Revenues
2016
As a % of
Total
Revenues
2015
As a % of
Total
Revenues
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . .
$127,676
2%
$80,918
1%
$90,300
2%
Marketing and sales . . . . . . . . . . . . . . . . . . . . . .
97,601
1
77,152
1
64,673
1
Other non-operating expense . . . . . . . . . . . . . . .
2,491
0
3,636
0
0
0
(2) Cost of revenues and operating expenses include the following amounts related to stock-based expenses (in
thousands):
Fiscal Year Ended January 31,
2017
As a % of
Total
Revenues
2016
As a % of
Total
Revenues
2015
As a % of
Total
Revenues
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . .
$107,457
1%
$ 69,443
1%
$ 53,812
1%
Research and development
. . . . . . . . . . . . . .
187,487
2
129,434
2
121,193
2
Marketing and sales . . . . . . . . . . . . . . . . . . . .
388,937
5
289,152
4
286,410
5
General and administrative . . . . . . . . . . . . . .
136,486
2
105,599
2
103,350
2
(3) Amounts include a $210.3 million tax benefit recorded during fiscal 2017 as a result of the partial release of
the valuation allowance related to the Demandware, Inc. acquisition. See Note 11 "Income Taxes."
As of January 31,
2017
2016
Selected Balance Sheet Data (in thousands):
Cash, cash equivalents and marketable securities . . . .
$2,208,887
$2,725,377
Deferred revenue, current and noncurrent
. . . . . . . . .
5,542,802
4,291,553
Unbilled deferred revenue (an operational
measure) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,000,000
7,100,000
Principal due on our outstanding debt obligations . . .
2,050,000
1,350,000
Unbilled deferred revenue was approximately $9.0 billion as of January 31, 2017 and $7.1 billion as of
January 31, 2016. Unbilled deferred revenue represents future billings under our non-cancelable subscription
agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue. The January 31,
2017 balance includes approximately $450.0 million related to Demandware, which we acquired in July 2016.
Fiscal Years Ended January 31, 2017 and 2016
Revenues.
Fiscal Year Ended January 31,
Variance
(in thousands)
2017
2016
Dollars
Percent
Subscription and support . . . . . . . . . . . . . . . . .
$7,756,205
$6,205,599
$1,550,606
25%
Professional services and other . . . . . . . . . . . .
635,779
461,617
174,162
38%
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .
$8,391,984
$6,667,216
$1,724,768
26%
Total revenues were $8.4 billion for fiscal 2017, compared to $6.7 billion during the same period a year ago, an
increase of $1.7 billion, or 26 percent. Subscription and support revenues were $7.8 billion, or 92 percent of total
51
revenues, for fiscal 2017, compared to $6.2 billion, or 93 percent of total revenues, during the same period a year
ago, an increase of $1.6 billion, or 25 percent. The increase in subscription and support revenues in fiscal 2017 was
primarily caused by volume-driven increases from new business, which includes new customers, upgrades and
additional subscriptions from existing customers. Revenue resulting from our July 2016 acquisition of Demandware
contributed $120.4 million to total revenues for fiscal 2017. Revenues from other acquired businesses in fiscal 2017
were not material. We continue to invest in a variety of customer programs and initiatives, which, along with
increasing enterprise adoption, have helped keep our attrition rate consistent as compared to the prior year. Our
attrition rate also played a role in the increase in subscription and support revenues. Changes in our pricing have not
been a significant driver of revenue growth for the periods presented. Professional services and other revenues were
$635.8 million, or eight percent of total revenues, for fiscal 2017, compared to $461.6 million, or seven percent of
total revenues, for the same period a year ago, an increase of $174.2 million, or 38 percent. The increase is primarily
due to the growth in our subscription professional services.
Revenues by geography were as follows (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,224,971
$4,910,745
$3,868,329
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,373,547
1,162,808
984,919
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
793,466
593,663
520,338
$8,391,984
$6,667,216
$5,373,586
Fiscal Year Ended January 31,
2017
2016
2015
Revenues by geography:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . .
74%
74%
72%
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
17
18
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . .
10
9
10
100%
100%
100%
Revenues in Europe and Asia Pacific accounted for $2.2 billion, or 26 percent of total revenues, for fiscal
2017, compared to $1.8 billion, or 26 percent of total revenues, during the same period a year ago, an increase of
$410.5 million, or 23 percent. The increase in revenues on a total dollar basis outside of the Americas was the
result of the increasing acceptance of our service, our focus on marketing our services internationally, additional
resources and consistent attrition rates as a result of the reasons stated above. Revenues outside of the Americas
increased on a total dollar basis in fiscal 2017 despite an overall strengthening of the U.S. dollar, which reduced
aggregate international revenues by $103.8 million compared to fiscal 2016.
Americas revenue attributed to the United States was approximately 96 percent, 95 percent and 94 percent
for fiscal 2017, 2016 and 2015, respectively. No other country represented more than ten percent of total revenue
during fiscal 2017, 2016 or 2015.
Cost of Revenues.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2017
2016
Subscription and support . . . . . . . . . . . . . . . . . . . .
$1,556,353
$1,188,967
$367,386
Professional services and other . . . . . . . . . . . . . . .
677,686
465,581
212,105
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . .
$2,234,039
$1,654,548
$579,491
Percent of total revenues . . . . . . . . . . . . . . . . . . . .
27%
25%
52
Cost of revenues was $2.2 billion, or 27 percent of total revenues, for fiscal 2017, compared to $1.7 billion,
or 25 percent of total revenues, during the same period a year ago, an increase of $579.5 million. The increase in
absolute dollars was primarily due to an increase of $240.9 million in employee-related costs, an increase of
$38.0 million in stock-based expenses, an increase of $162.4 million in service delivery costs, primarily due to
our efforts to increase data center capacity, an increase of $23.5 million in professional and outside services, an
increase of amortization of purchased intangibles of $46.8 million, an increase in depreciation of equipment of
$16.2 million and an increase in allocated overhead of $35.9 million. We have increased our headcount by
34 percent since January 31, 2016 to meet the higher demand for services from our customers and as a result of
our fiscal 2017 acquisitions. We intend to continue to invest additional resources in our enterprise cloud
computing services and data center capacity. Additionally, the amortization of purchased intangible assets may
increase as we acquire additional businesses and technologies. We also plan to add additional employees in our
professional services group to facilitate the adoption of our services. The timing of these expenses will affect our
cost of revenues, both in terms of absolute dollars and as a percentage of revenues in future periods.
The cost of professional services and other revenues exceeded the related revenue during fiscal 2017 and
fiscal 2016 by $41.9 million and $4.0 million, respectively. The increase is primarily due to the growth in our
headcount as well as the increase in employee costs for our subscription professional services employees. We
expect the cost of professional services to continue to exceed revenue from professional services in future fiscal
years. We believe that this investment in professional services facilitates the adoption of our service offerings.
Operating Expenses.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2017
2016
Research and development . . . . . . . . . . . . . . . . .
$1,208,127
$ 946,300
$ 261,827
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . .
3,918,027
3,239,824
678,203
General and administrative . . . . . . . . . . . . . . . . .
967,563
748,238
219,325
Operating lease termination resulting from
purchase of 50 Fremont . . . . . . . . . . . . . . . . . .
0
(36,617)
36,617
Total operating expenses . . . . . . . . . . . . . . . . . . .
6,093,717
4,897,745
1,195,972
Percent of total revenues . . . . . . . . . . . . . . . . . . .
72%
73%
Research and development expenses were $1.2 billion, or 14 percent of total revenues, for fiscal 2017,
compared to $946.3 million, or 14 percent of total revenues, during the same period a year ago, an increase of
$261.8 million. The increase in absolute dollars was primarily due to an increase of $173.2 million in employee-
related costs, an increase of $58.1 million in stock-based expense, an increase of $28.1 million in development
and test data center expense, and an increase in allocated overhead. We increased our research and development
headcount by 35 percent since January 31, 2016 in order to improve and extend our service offerings and develop
new technologies as a result of our fiscal 2017 acquisitions. We expect that research and development expenses
will increase in absolute dollars and may increase as a percentage of revenues in future periods as we continue to
invest in additional employees and technology to support the development of new, and improve existing,
technologies and the integration of acquired technologies.
Marketing and sales expenses were $3.9 billion, or 47 percent of total revenues, for fiscal 2017, compared to
$3.2 billion, or 49 percent of total revenues, during the same period a year ago, an increase of $678.2 million.
The increase in absolute dollars was primarily due to increases of $484.3 million in employee-related costs,
including amortization of deferred commissions, $34.7 million in advertising expense, $20.4 million in
amortization of purchased intangibles, $99.8 million stock-based expense and $36.5 million in allocated
overhead. Our marketing and sales headcount increased by 24 percent since January 31, 2016. The increase in
headcount was also attributable to hiring additional sales personnel to focus on adding new customers and
increasing penetration within our existing customer base.
53
General and administrative expenses were $967.6 million, or 11 percent of total revenues, for fiscal 2017,
compared to $748.2 million, or 11 percent of total revenues, during the same period a year ago, an increase of
$219.3 million. The increase was primarily due to an increase of $175.2 million in employee-related costs, an
increase of $30.9 million in stock-based expense and an increase in professional and outside services. Our
general and administrative headcount increased by 22 percent since January 31, 2016 as we added personnel to
support our growth.
In connection with the purchase of 50 Fremont, we recognized a net non-cash gain in fiscal 2016 totaling
approximately $36.6 million on the termination of the lease signed in January 2012.
Other income and expense.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2017
2016
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27,374
$ 15,341
$ 12,033
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(88,988)
(72,485)
(16,503)
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . .
9,072
(15,292)
24,364
Gain on sales of land and building improvements . . . . .
0
21,792
(21,792)
Gains from acquisitions of strategic investments
. . . . .
13,697
0
13,697
Investment income consists of income on our cash and marketable securities balances. Investment income
was $27.4 million for fiscal 2017 and was $15.3 million during the same period a year ago. The increase was due
to both realized gains resulting from the sales of marketable securities as well as higher interest income across
our portfolio.
Interest expense consists of interest on our convertible senior notes, capital leases, financing obligation
related to 350 Mission, the loan assumed on 50 Fremont, revolving credit facility and the $500.0 million term
loan that was entered into in connection with our acquisition of Demandware. Interest expense was $89.0 million
for fiscal 2017 and was $72.5 million during the same period a year ago. The increase was primarily due to the
term loan in fiscal 2017 associated with the Demandware purchase and our outstanding balance in our revolving
facility in in fiscal 2017.
Other income (expense) primarily consists of non-operating transactions such as strategic investments fair
market value adjustments, gains and losses from foreign exchange rate fluctuations and real estate transactions.
Gain on sales of land and building improvements consists of the gain the company recognized from sales of
undeveloped real estate and a portion of associated perpetual parking rights in San Francisco, California. Gain on
sales of land and building improvements, net of closing costs, was $21.8 million during fiscal 2016.
Gains from acquisitions of strategic investments represents gains on sales of strategic investments when we
acquire an entity in which we previously held a strategic investment. The difference between the fair value of the
shares as of the date of the acquisition and the carrying value of the strategic investment is recorded as a gain or
loss and disclosed separately within the statements of operations.
Benefit from (provision for) income taxes.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2017
2016
Benefit from (provision for) income taxes . . . . . . . . .
$154,249
$(111,705)
$265,954
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(608)%
174%
We reported a tax benefit of $154.2 million on a pretax income of $25.4 million, which resulted in a
negative effective tax rate of 608 percent for fiscal 2017. The most significant component of this tax amount was
54
the tax benefit of $210.3 million from a partial release of the valuation allowance in connection with the
acquisition of Demandware. The net deferred tax liability from the acquisition of Demandware provided a source
of additional income to support the realizability of our preexisting deferred tax assets and as a result, we released
a portion of our tax valuation allowance. The tax benefit associated with the release of the valuation allowance
was partially offset by income taxes in profitable jurisdictions outside the United States. Additionally, as a result
of early adopting Accounting Standards Update No. 2016-09, "Stock Compensation (Topic 718): Improvements
to Employee Shared-Based Payment Accounting" ("ASU 2016-09") and our valuation allowance position, we
did not record significant U.S. current income tax expense.
We recorded a tax provision of $111.7 million with a pretax income of $64.3 million, which resulted in an
effective tax rate of 174 percent for fiscal 2016. We had a tax provision in profitable jurisdictions outside the
United States and current tax expense in the United States. We had U.S. current tax expense as a result of taxable
income before considering certain excess tax benefits from stock options and vesting of restricted stock.
We regularly assess the realizability of our deferred tax assets and establish a valuation allowance if it is
more-likely-than-not that some or all of our deferred tax assets will not be realized. We evaluate and weigh all
available positive and negative evidence such as historic results, future reversals of existing deferred tax
liabilities, projected future taxable income, as well as prudent and feasible tax-planning strategies. Generally,
more weight is given to objectively verifiable evidence, such as the cumulative loss in recent years. We will
adjust our valuation allowance in the event sufficient positive evidence overcomes the negative evidence of
losses in recent years, for example, if the trend in increasing taxable income continues. Our valuation allowance
could contribute to the volatility of our effective tax rate and is difficult to forecast in future periods.
Fiscal Years Ended January 31, 2016 and 2015
Revenues.
Fiscal Year Ended
January 31,
Variance
(in thousands)
2016
2015
Dollars
Percent
Subscription and support
. . . . . . . . . . . . . . . . . .
$6,205,599
$5,013,764
$1,191,835
24%
Professional services and other . . . . . . . . . . . . . .
461,617
359,822
101,795
28%
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,667,216
$5,373,586
$1,293,630
24%
Total revenues were $6.7 billion for fiscal 2016, compared to $5.4 billion for fiscal 2015, an increase of
$1.3 billion, or 24 percent. Subscription and support revenues were $6.2 billion, or 93 percent of total revenues,
for fiscal 2016, compared to $5.0 billion, or 93 percent of total revenues for fiscal 2015, an increase of $1.2
billion, or 24 percent. The increase in subscription and support revenues in fiscal 2016 was primarily attributable
to volume-driven increases from new business, which includes new customers, upgrades and additional
subscriptions from existing customers. Our attrition rate, which was favorable compared to the prior year, also
played a role in the increase in subscription and support revenues. Changes in the net price per user per month
were not a significant driver of revenue growth for the periods presented. Professional services and other
revenues were $461.6 million, or seven percent of total revenues, for fiscal 2016, compared to $359.8 million, or
seven percent of total revenues, for the same period a year ago, an increase of $101.8 million, or 28 percent.
Revenues in Europe and Asia Pacific accounted for $1.8 billion, or 26 percent of total revenues, for fiscal
2016, compared to $1.5 billion, or 28 percent of total revenues, during the same period a year ago, an increase of
$251.2 million, or 17 percent. The increase in revenues on a total dollar basis outside of the Americas was the
result of the increasing acceptance of our service, our focus on marketing our services internationally, additional
resources and consistent attrition rates as a result of the reasons stated above. Revenues outside of the Americas
increased on a total dollar basis in fiscal 2016 despite an overall strengthening of the U.S. dollar, which reduced
aggregate international revenues by $170.5 million compared to fiscal 2015.
55
Cost of Revenues.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2016
2015
Subscription and support . . . . . . . . . . . . . . . . . . . .
$1,188,967
$ 924,638
$264,329
Professional services and other . . . . . . . . . . . . . . .
465,581
364,632
100,949
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . .
$1,654,548
$1,289,270
$365,278
Percent of total revenues . . . . . . . . . . . . . . . . . . . .
25%
24%
Cost of revenues was $1.7 billion, or 25 percent of total revenues, for fiscal 2016, compared to $1.3 billion,
or 24 percent of total revenues, for fiscal 2015, an increase of $365.3 million. The increase in absolute dollars
was primarily due to an increase of $127.9 million in employee-related costs, an increase of $15.6 million in
stock-based expenses, an increase of $137.2 million in service delivery costs, primarily due to our efforts to
increase data center capacity, an increase of $40.6 million in professional and outside services, an increase in
depreciation of equipment and an increase in allocated overhead, offset by a decrease of $9.4 million in
amortization of purchased intangibles. Our headcount increased by 34 percent in fiscal 2016 to meet the higher
demand for services from our customers.
The cost of professional services and other revenues exceeded the related revenue during fiscal 2016 by $4.0
million as compared to $4.8 million for fiscal 2015.
Operating Expenses.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2016
2015
Research and development . . . . . . . . . . . . . . . . . . .
$ 946,300
$ 792,917
$153,383
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . .
3,239,824
2,757,096
482,728
General and administrative . . . . . . . . . . . . . . . . . .
748,238
679,936
68,302
Operating lease termination resulting from
purchase of 50 Fremont . . . . . . . . . . . . . . . . . . .
(36,617)
0
(36,617)
Total operating expenses . . . . . . . . . . . . . . . . . . . .
$4,897,745
$4,229,949
$667,796
Percent of total revenues . . . . . . . . . . . . . . . . . . . .
73%
79%
Research and development expenses were $946.3 million, or 14 percent of total revenues, for fiscal 2016,
compared to $792.9 million, or 15 percent of total revenues, for fiscal 2015, an increase of $153.4 million. The
increase in absolute dollars was primarily due to an increase of $114.0 million in employee-related costs, an
increase of $8.2 million in stock-based expense, an increase of $18.2 million in development and test data center
expense, and an increase in allocated overhead. Our research and development headcount increased by 16 percent
in fiscal 2016 in order to improve and extend our service offerings and develop new technologies.
Marketing and sales expenses were $3.2 billion, or 49 percent of total revenues, for fiscal 2016, compared to
$2.8 billion, or 51 percent of total revenues, for fiscal 2015, an increase of $482.7 million. The increase in
absolute dollars was primarily due to increases of $304.7 million in employee-related costs, including
amortization of deferred commissions, $112.0 million in advertising expense, $12.5 million in amortization of
purchased intangibles, $2.7 million stock-based expense and $40.4 million in allocated overhead. Our marketing
and sales headcount increased by 21 percent in fiscal 2016. The increase in headcount was primarily attributable
to hiring additional sales personnel to focus on adding new customers and increasing penetration within our
existing customer base.
56
General and administrative expenses were $748.2 million, or 11 percent of total revenues, for fiscal 2016,
compared to $679.9 million, or 13 percent of total revenues, for fiscal 2015, an increase of $68.3 million. The
increase was primarily due to an increase of $39.0 million in employee-related costs, an increase of $8.1 million
in bad debt expense, an increase of $2.2 million in stock-based expense and an increase in professional and
outside services. Our general and administrative headcount increased by 16 percent in fiscal 2016 as we added
personnel to support our growth.
In connection with the purchase of 50 Fremont, we recognized in fiscal 2016 a net non-cash gain totaling
approximately $36.6 million on the termination of the lease signed in January 2012.
Other income and expense.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2016
2015
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,341
$ 10,038
$5,303
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(72,485)
(73,237)
752
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,292)
(19,878)
4,586
Gain on sales of land and building improvements . . . . . .
21,792
15,625
6,167
Investment income consists of income on our cash and marketable securities balances. Investment income
was $15.3 million for fiscal 2016 and was $10.0 million for fiscal 2015. The increase was primarily due to the
increase in cash, cash equivalent and marketable securities balances.
Interest expense consists of interest on our convertible senior notes, capital leases, term loan and revolving
credit facility. Interest expense, net of interest costs capitalized, was $72.5 million for fiscal 2016 and was
$73.2 million during fiscal 2015. The decrease was primarily due to the payment of our revolving credit facility
in 2015.
Other expense primarily consists of non-operating costs such as strategic investments fair market
adjustments, foreign exchange rate fluctuations, real estate transactions and losses on derecognition of debt. The
decrease in other expense for fiscal 2016 was primarily due to losses totaling $10.3 million related to the
extinguishment of the 0.75% Senior Notes converted by noteholders in fiscal 2015.
Gain on sales of land and building improvements consists of the gain we recognized from sales of
undeveloped real estate and a portion of associated perpetual parking rights in San Francisco, California. Gain on
sales of land and building improvements, net of closing costs, was $21.8 million for fiscal 2016 and was
$15.6 million for fiscal 2015.
Provision for income taxes.
Fiscal Year Ended
January 31,
Variance
Dollars
(in thousands)
2016
2015
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . .
$(111,705)
$(49,603)
$(62,102)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174%
(23)%
We reported a tax provision of $111.7 million on a pretax income of $64.3 million, which resulted in an
effective tax rate of 174 percent for fiscal 2016. We had a tax provision in profitable jurisdictions outside the
United States and current tax expense in the United States. We had U.S. current tax expense as a result of taxable
income before considering certain excess tax benefits from stock options and vesting of restricted stock.
57
We recorded a tax provision of $49.6 million on a pretax loss of $213.1 million, which resulted in a negative
effective tax rate of 23 percent for fiscal 2015. We had a tax provision primarily due to income taxes in profitable
jurisdictions outside the United States, which was partially offset by tax benefits from losses incurred by
ExactTarget in certain state jurisdictions.
Liquidity and Capital Resources
At January 31, 2017, our principal sources of liquidity were cash, cash equivalents and marketable securities
totaling $2.2 billion and accounts receivable of $3.2 billion.
Net cash provided by operating activities was $2.2 billion during fiscal 2017 and $1.7 billion during the
same period a year ago. Net cash provided by operating activities was $1.7 billion during fiscal 2016 and
$1.2 billion in fiscal 2015. Cash provided by operating activities has historically been affected by the amount of
net income adjusted for non-cash expense items such as depreciation and amortization; amortization of purchased
intangibles from business combinations; amortization of debt discount; discrete items such as the non-cash gain
from the termination of the 50 Fremont lease; the expense associated with stock-based awards; gains on sales of
strategic investments; the timing of employee related costs including commissions and bonus payments; the
timing of payments against accounts payable, accrued expenses and other current liabilities; the timing of
collections from our customers, which is our largest source of operating cash flows; the timing of business
combination activity and the related integration and transaction costs; and changes in working capital accounts.
Net cash provided by operating activities was also impacted by payments made during fiscal 2017 for the
transaction fees related to the acquisitions we completed during the year.
Our working capital accounts consist of cash, cash equivalents and marketable securities, accounts
receivable, deferred commissions, prepaid assets and other current assets. Claims against working capital include
accounts payable, accrued expenses, deferred revenue, and other current liabilities and payments related to our
debt obligations. Our working capital may be impacted by factors in future periods such as billings to customers
for subscriptions and support services and the subsequent collection of those billings, certain amounts and timing
of which are seasonal. Our working capital in some quarters, may be impacted by adverse foreign currency
exchange rate movements. Our billings are also influenced by new business linearity within the quarters and
across quarters.
As described above in "Seasonal Nature of Deferred Revenue, Accounts Receivable and Operating Cash
Flow," our fourth quarter has historically been our strongest quarter for new business and renewals. The year on
year compounding effect of this seasonality in both billing patterns and overall business causes the value of
invoices that we generate in the fourth quarter to increase as a proportion of our total annual billings.
We generally invoice our customers for our subscription and services contracts in advance in annual
installments. We typically issue renewal invoices in advance of the renewal service period, and depending on
timing, the initial invoice for the subscription and services contract and the subsequent renewal invoice may
occur in different quarters. Such invoice amounts are initially reflected in accounts receivable and deferred
revenue, which is reflected on the balance sheet. The operating cash flow benefit of increased billing activity
generally occurs in the subsequent quarter when we collect from our customers. As such, our first quarter is our
largest collections and operating cash flow quarter.
Net cash used in investing activities was $2.7 billion during fiscal 2017 and $1.5 billion during the same
period a year ago. The net cash used in investing activities during fiscal 2017 primarily related to business
combinations with the largest being the acquisition of Demandware in July 2016, purchases of marketable
securities of approximately $1.1 billion, new office build-outs and strategic and capital investments, which were
offset by the cash inflows for the period from sales and maturities of marketable securities of $2.0 billion. Net
cash used in investing activities was $1.5 billion during fiscal 2016 and $698.4 million during fiscal 2015. The
net cash used in investing activities during fiscal 2016 primarily related to capital expenditures, strategic
investments, business combinations, purchase of 50 Fremont land and building, new office build-outs,
58
investment of cash balances offset by proceeds from sales and maturities of marketable securities and proceeds
from sales of Mission Bay land and the use of restricted cash to purchase 50 Fremont land and building.
Net cash provided by financing activities was $997.7 million during fiscal 2017 as compared to net cash
provided by financing activities of $73.2 million during the same period a year ago. Net cash provided by
financing activities during fiscal 2017 consisted primarily of $748.8 million proceeds from borrowings under our
revolving credit facility, $495.6 million of proceeds from the Term Loan, net of loan fees, $401.5 million from
proceeds from equity plans and the reclassification of excess tax benefits from employee stock plans to cash
flows from operating activities due to the early adoption of ASU 2016-09 offset by $98.2 million of principal
payments on capital leases and $550.0 million payment of our revolving credit facility. Net cash provided by
financing activities was $73.2 million during fiscal 2016 as compared to net cash used in financing activities of
$318.2 million during fiscal 2015. Net cash provided by financing activities during fiscal 2016 consisted
primarily of $455.5 million from proceeds from equity plan offset by $82.3 million of principal payments on
capital leases and $300.0 million payment of our revolving credit facility. During fiscal 2015, we repaid the
convertible senior notes that matured.
In March 2013, we issued at par value $1.15 billion of 0.25% convertible senior notes (the "0.25% Senior
Notes"), due April 1, 2018, unless earlier purchased by us or converted. The 0.25% Senior Notes will be
convertible if during any 20 trading days during the 30 consecutive trading days of any fiscal quarter, our
common stock trades at a price exceeding 130% of the conversion price of $66.44 per share applicable to the
0.25% Senior Notes. The 0.25% Senior Notes are classified as a noncurrent liability on our consolidated balance
sheet as of January 31, 2017. Our common stock did not trade at a price exceeding 130% of the conversion price
of $66.44 per share applicable to the Notes during the fiscal quarter ended January 31, 2017. Accordingly, the
0.25% Senior Notes were not convertible at the holders' option.
In July 2016, in order to partially finance the acquisition of Demandware, we entered into a $500.0 million
term loan (the "Term Loan") which matures in July 2019 and bears interest at our option, at either a base rate
plus a spread of 0.00% to 0.75% or an adjusted LIBOR rate plus a spread of 1.00% to 1.75%, in each case with
such spread being determined based on the Company's consolidated leverage ratio for the preceding four fiscal
quarter period.
The Term Loan Credit Agreement contains customary affirmative and negative covenants, including
covenants that limit or restrict us and our subsidiaries' ability to, among other things, incur indebtedness, grant
liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with
affiliates, pay dividends or make distributions and repurchase stock. We are also required to maintain compliance
with a consolidated leverage ratio and a consolidated interest coverage ratio. The Term Loan Credit Agreement
includes customary events of default. Under certain circumstances, a default interest rate will apply on all
obligations during the existence of an event of default under the Term Loan Credit Agreement at a per annum
rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate
applicable for base rate loans for any other overdue amounts. The occurrence of an event of default could result
in the acceleration of obligations under the Term Loan Credit Agreement. We were in compliance with the Term
Loan Credit Agreement's covenants as of January 31, 2017.
In July 2016, we entered into a credit agreement (the "Revolving Loan Credit Agreement"), which provides
for a $1.0 billion unsecured revolving credit facility (the "Credit Facility") that matures in July 2021. We may
use any future borrowings under the Credit Facility for refinancing other indebtedness, working capital, capital
expenditures and other general corporate purposes, including permitted acquisitions. We may borrow amounts
under the Credit Facility at any time during the term of the Revolving Loan Credit Agreement. As of January 31,
2017, we had $200.0 million in outstanding borrowings under the Credit Facility. Subsequent to January 31,
2017, we paid the remaining outstanding balance of the Credit Facility.
The Revolving Loan Credit Agreement contains certain customary affirmative and negative covenants,
including a consolidated leverage ratio covenant, a consolidated interest coverage ratio covenant, a limit on our
59
ability to incur additional indebtedness, dispose of assets, make certain acquisition transactions, pay dividends or
distributions, and certain other restrictions on our activities each defined specifically in the Revolving Loan
Credit Agreement. We were in compliance with the Revolving Loan Credit Agreement's covenants as of
January 31, 2017.
In February 2015, we acquired 50 Fremont Street, a 41-story building totaling approximately 820,000
rentable square feet located in San Francisco, California ("50 Fremont"). At the time of the acquisition, we were
leasing approximately 500,000 square feet of the available space in 50 Fremont. The total purchase price for
50 Fremont was $637.6 million. In financing the purchase price, we used $115.0 million of restricted cash on
hand and assumed a $200.0 million loan secured by the property with the remainder paid in cash.
In April 2016, we entered into an agreement with a third party provider for certain infrastructure services for
a period of four years. The agreement provides that we will pay $96.0 million in fiscal 2018, $108.0 million in
fiscal 2019 and $126.0 million in fiscal 2020. During fiscal 2017, we paid $70.0 million.
Our cash, cash equivalents and marketable securities are comprised primarily of corporate notes and other
obligations, U.S. treasury securities, government obligations, collateralized mortgage obligations, mortgage
backed securities, time deposits, money market mutual funds and municipal securities.
As of January 31, 2017, we have a total of $83.3 million in letters of credit outstanding in favor of certain
landlords for office space. To date, no amounts have been drawn against the letters of credit, which renew
annually and expire at various dates through December 2030.
We do not have any special purpose entities, and other than operating leases for office space and computer
equipment, we do not engage in off-balance sheet financing arrangements.
Our principal commitments consist of obligations under leases for office space, co-location data center
facilities, and our development and test data center, as well as leases for computer equipment, software, furniture
and fixtures. At January 31, 2017, the future non-cancelable minimum payments under these commitments were
as follows (in thousands):
Contractual Obligations
Payments Due by Period
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Capital lease obligations, including interest . . . .
$ 436,747 $119,342 $ 317,369 $
36 $
0
Operating lease obligations: . . . . . . . . . . . . . . . .
Facilities space . . . . . . . . . . . . . . . . . . . . . .
2,536,933
257,387
569,210
507,519
1,202,817
Computer equipment and furniture and
fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . .
382,215
205,863
176,352
0
0
0.25% Convertible Senior Notes, including
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,154,313
2,875
1,151,438
0
0
Loan assumed on 50 Fremont . . . . . . . . . . . . . . .
200,000
0
0
0
200,000
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500,000
0
500,000
0
0
Revolving Credit Facility . . . . . . . . . . . . . . . . . .
200,000
0
0
200,000
0
Financing obligationleased facility . . . . . . . . .
322,340
21,437
44,206
45,984
210,713
Contractual commitments . . . . . . . . . . . . . . . . . .
365,200
122,660
239,558
2,982
0
$6,097,748 $729,564 $2,998,133 $756,521 $1,613,530
The majority of our operating lease agreements provide us with the option to renew. Our future operating
lease obligations would change if we exercised these options and if we entered into additional operating lease
agreements as we expand our operations.
60
The financing obligation above represents the total obligation for our lease of approximately 445,000
rentable square feet of office space in San Francisco, California. As of January 31, 2017, $220.3 million of the
total obligation noted above was recorded to Financing obligationleased facility, of which the current portion
is included in "Accounts payable, accrued expenses and other liabilities" and the non-current portion is included
in "Other noncurrent liabilities" on the consolidated balance sheets.
Purchase orders are not included in the table above. Our purchase orders represent authorizations to
purchase rather than binding agreements. The contractual commitment amounts in the table above are associated
with agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or
minimum services to be used; fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Obligations under contracts that we can cancel without a significant penalty are not included in the
table above.
In April 2014, we entered into an office lease agreement to lease approximately 732,000 rentable square feet
of an office building located in San Francisco, California that is under construction. The lease payments
associated with the lease will be approximately $590.0 million over the 15.5 year term of the lease, beginning in
our second quarter of fiscal 2018, which is reflected above under Operating Leases.
In February 2016, we entered into an agreement to sublease additional office space in New York,
New York. The amounts associated with the agreement will be approximately $288.0 million over the
approximately 12 year term of the agreement, beginning in our first quarter of fiscal 2018. In May 2016, we
entered into an agreement to lease additional office space in Indianapolis, Indiana. The amounts associated with
the agreement will be approximately $77.0 million over the approximately 13 year term of the agreement,
beginning in our second quarter of fiscal 2018.
During fiscal 2017 and in future fiscal years, we have made and expect to continue to make additional
investments in our infrastructure to scale our operations and increase productivity. We plan to upgrade or replace
various internal systems to scale with the overall growth of the Company. Additionally, we expect capital
expenditures to be higher in absolute dollars and remain consistent as a percentage of total revenues in future
periods as a result of continued office build-outs, other leasehold improvements and data center investments.
In the future, we may enter into arrangements to acquire or invest in complementary businesses or joint
ventures, services and technologies, and intellectual property rights. To facilitate these acquisitions or
investments, we may seek additional equity or debt financing, which may not be available on terms favorable to
us or at all, which may affect our ability to complete subsequent acquisitions or investments, and which may
affect the risks of owning our common stock.
We believe our existing cash, cash equivalents and marketable securities and cash provided by operating
activities will be sufficient to meet our working capital, capital expenditure and debt repayment needs over the
next 12 months.
New Accounting Pronouncements
See Note 1 "Summary of Business and Significant Accounting Policies" to the consolidated financial
statements for our discussion about new accounting pronouncements adopted and those pending.
61
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK
Foreign Currency Exchange Risk
We primarily conduct our business in the following locations: the United States, Europe, Canada, Asia,
South America and Australia. The expanding global scope of our business exposes us to risk of fluctuations in
foreign currency markets. This exposure is the result of selling in multiple currencies, growth in our international
investments, including data center expansion, additional headcount in foreign countries, and operating in
countries where the functional currency is the local currency. Specifically, our results of operations and cash
flows are subject to fluctuations in the following currencies: the Euro, British Pound Sterling, Canadian Dollar,
Australian Dollar and Japanese Yen against the United States Dollar ("USD"). These exposures may change over
time as business practices evolve and economic conditions change. Changes in foreign currency exchange rates
could have an adverse impact on our financial results and cash flows.
Our European revenue, operating expenses and significant balance sheet accounts denominated in currencies
other than the USD primarily flow through our United Kingdom subsidiary, which has a functional currency of
the British Pound. This results in a two-step currency exchange process wherein the currencies in Europe other
than the British Pound are first converted into the British Pound and then British Pounds are translated into USD
for our Consolidated Financial Statements. As an example, revenues in France are translated from the Euro to the
British Pound and then into the USD. Our Statement of Operations and balance sheet accounts are also impacted
by the re-measurement of non-functional currency transactions such as USD denominated intercompany loans,
cash accounts held by our overseas subsidiaries, accounts receivable denominated in foreign currencies, deferred
revenue and accounts payable denominated in foreign currencies.
Foreign Currency Transaction Risk
Our foreign currency exposures typically arise from selling annual and multi-year subscriptions in multiple
currencies, customer trade accounts, intercompany transfer pricing arrangements and other intercompany
transactions. Our foreign currency management objective is to minimize the effect of fluctuations in foreign
exchange rates on selected assets or liabilities without exposing us to additional risk associated with transactions
that could be regarded as speculative.
We pursue our objective by utilizing foreign currency forward contracts to offset foreign exchange risk. Our
foreign currency forward contracts are generally short-term in duration. We neither use these foreign currency
forward contracts for trading purposes nor do we currently designate these forward contracts as hedging
instruments pursuant to Accounting Standards Codification 815 ("ASC 815"), Derivatives and Hedging.
Accordingly, we record the fair values of these contracts as of the end of our reporting period to our consolidated
balance sheet with changes in fair values recorded to our consolidated statement of operations. Given the short
duration of the forward contracts, the amount recorded is not significant. Our ultimate realized gain or loss with
respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions
that we enter into, the currency exchange rates associated with these exposures and changes in those rates, the net
realized gain or loss on our foreign currency forward contracts and other factors.
Foreign Currency Translation Risk
Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenues, operating expense
and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into U.S. Dollars.
As the U.S. Dollar strengthened against certain international currencies over the past several months, the amounts
of revenue and deferred revenue that we reported in U.S. Dollars for foreign subsidiaries that transact in
international currencies were lower relative to what we would have reported using a constant currency rate.
Interest Rate Sensitivity
We had cash, cash equivalents and marketable securities totaling $2.2 billion at January 31, 2017. This
amount was invested primarily in money market funds, time deposits, corporate notes and bonds, government
62
securities and other debt securities with credit ratings of at least BBB or better. The cash, cash equivalents and
marketable securities are held for general corporate purposes including possible acquisitions of, or investments
in, complementary businesses, services or technologies, working capital and capital expenditures. Our
investments are made for capital preservation purposes. We do not enter into investments for trading or
speculative purposes.
Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in
interest rates. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest rates fall. Due in part to these
factors, our future investment income may fall short of expectations due to changes in interest rates or we may
suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest
rates. However because we classify our debt securities as "available for sale," no gains or losses are recognized
due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are
determined to be other-than-temporary. Our fixed-income portfolio is subject to interest rate risk.
An immediate increase or decrease in interest rates of 100-basis points at January 31, 2017 could result in a
$13.0 million market value reduction or increase of the same amount. This estimate is based on a sensitivity
model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our
investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in
other comprehensive income, and are realized only if we sell the underlying securities.
At January 31, 2016, we had cash, cash equivalents and marketable securities totaling $2.7 billion. The
fixed-income portfolio was also subject to interest rate risk. Changes in interest rates of 100-basis points would
have resulted in market value changes of $20.9 million.
Market Risk and Market Interest Risk
We deposit our cash with multiple financial institutions.
In March 2013, we issued the 0.25% Senior Notes due April 1, 2018. Holders of the 0.25% Senior Notes
may convert the 0.25% Senior Notes prior to maturity upon the occurrence of certain circumstances. Upon
conversion, we would pay the holder an amount of cash equal to the principal amounts of the 0.25% Senior Notes
and the amounts in excess of the principal amounts, if any, may be paid in cash or stock at our option. Concurrent
with the issuance of the 0.25% Senior Notes, we entered into separate note hedging transactions and the sale of
warrants. These separate transactions were completed to reduce the potential economic dilution from the
conversion of the 0.25% Senior Notes.
The 0.25% Senior Notes have a fixed annual interest rate of 0.25%, and therefore we do not have economic
interest rate exposure on the 0.25% Senior Notes. However, the value of the 0.25% Senior Notes are exposed to
interest rate risk. Generally, the fair values of our fixed interest rate 0.25% Senior Notes will increase as interest
rates fall and decrease as interest rates rise. In addition, the fair value of our 0.25% Senior Notes is affected by
our stock price. The principal balance of our 0.25% Senior Notes was $1.15 billion as of January 31, 2017. The
total estimated fair value of our 0.25% Senior Notes at January 31, 2017 was $1.5 billion. The fair value was
determined based on the closing trading price per $100 of the 0.25% Senior Notes as of the last day of trading for
the fourth quarter of fiscal 2017, which was $126.52.
In July 2016, we amended our credit agreement (the "Revolving Loan Credit Agreement") to provide for a
$1.0 billion unsecured revolving credit facility (the "Credit Facility") that matures in July 2021.
The borrowings under the Credit Facility bear interest, at our option, at a base rate plus a spread of 0.00% to
0.75% or an adjusted LIBOR rate plus a spread of 1.00% to 1.75%, in each case with such spread being
determined based on our consolidated leverage ratio for the preceding four fiscal quarter period. Regardless of
what amounts, if any, are outstanding under the Credit Facility, we are also obligated to pay an ongoing
63
commitment fee at a rate of 0.125% to 0.25%, with such rate being based on the our consolidated leverage ratio
for the preceding four fiscal quarter period, payable in arrears quarterly. As of January 31, 2017, there was a
$200.0 million outstanding borrowing amount under the Credit Agreement. The weighted average interest rate on
the borrowings under the Credit Facility was 1.9% for fiscal 2017. Subsequent to January 31, 2017, we paid the
remaining balance of the Credit Facility.
In February 2015, we assumed a $200.0 million loan with the acquisition of 50 Fremont (the "Loan"). The
Loan bears an interest rate of 3.75% per annum and is due in June 2023. The Loan requires interest only
payments with the remaining principal due at maturity. The Loan can be prepaid at any time subject to a yield
maintenance fee. The agreement governing the Loan contains certain customary affirmative and negative
covenants that we were in compliance with as of January 31, 2017.
In July 2016, we entered into a $500.0 million term loan (the "Term Loan") which matures in July 2019 and
bears interest at our option, at either a base rate plus a spread of 0.00% to 0.75% or an adjusted LIBOR rate plus
a spread of 1.00% to 1.75%, in each case with such spread being determined based on the Company's
consolidated leverage ratio for the preceding four fiscal quarter period. We entered into the Term Loan for
purposes of partially funding the acquisition of Demandware. Interest is due and payable in arrears quarterly for
loans bearing interest at a rate based on the base rate and at the end of an interest period in the case of loans
bearing interest at the adjusted LIBOR rate. The Term Loan is payable in July 2019, with the outstanding
principal amount of the term loan being due and payable at maturity.
By entering into the Term Loan, we have assumed risks associated with variable interest rates based upon a
variable base rate or LIBOR. The weighted average interest rate on the Term Loan was 1.8% as of January 31,
2017. Changes in the overall level of interest rates affect the interest expense that we recognize in our statements
of operations.
The bank counterparties to our derivative contracts potentially expose us to credit-related losses in the event
of their nonperformance. To mitigate that risk, we only contract with counterparties who meet the minimum
requirements under our counterparty risk assessment process. We monitor ratings, credit spreads and potential
downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, we adjust our
exposure to various counterparties. We generally enter into master netting arrangements, which reduce credit risk
by permitting net settlement of transactions with the same counterparty. However, we do not have any master
netting arrangements in place with collateral features.
Our strategic investments portfolio consists of investments in over 180 privately held companies, primarily
comprised of ISVs and system integrators. We invest in early-to-late stage technology and professional cloud
service companies across the globe to support our key business initiatives, which include, among other things,
extending the capabilities of our platform and CRM offerings, increasing the ecosystem of enterprise cloud
companies and partners, accelerating the adoption of cloud technologies and creating the next-generation of
mobile applications and connected products. We invest in both domestic and international companies and
currently hold investments in all of our regions: the Americas, Europe and Asia Pacific. Our investments in these
companies range from $0.2 million to over $70.0 million, with 16 investments individually equal to or in excess
of $10 million. As of January 31, 2017 and January 31, 2016 the carrying value of our investments in privately
held companies was $526.0 million and $504.5 million, respectively. The estimated fair value of our investments
in privately held companies was $758.3 million and $714.1 million as of January 31, 2017 and January 31, 2016,
respectively. The financial success of our investment in any company is typically dependent on a liquidity event,
such as a public offering, acquisition or other favorable market event reflecting appreciation to the cost of our
initial investment. If we determine that any of our investments in such companies have experienced a decline in
fair value, we may be required to record an impairment that is other than temporary, which could be material. We
have in the past written off the full value of specific investments. Similar situations could occur in the future and
negatively impact our financial results. All of our investments are subject to a risk of partial or total loss of
investment capital.
64
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements are filed as part of this Annual Report on Form 10-K:
Page No.
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
Consolidated Statements of Comprehensive Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
65
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of salesforce.com, inc.
We have audited the accompanying consolidated balance sheets of salesforce.com, inc. as of January 31,
2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows for each of the three years in the period ended January 31, 2017. Our audits
also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of salesforce.com, inc. at January 31, 2017 and 2016 and the consolidated results
of its operations and its cash flows for each of the three years in the period ended January 31, 2017, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Notes 1 and 11 to the consolidated financial statements, the Company changed its method of
accounting for share-based payments to employees as a result of the adoption of the amendments to FASB
Accounting Standards Codification resulting from Accounting Standards Update No. 2016-09, "Improvements to
Employee Share-Based Payment Accounting," effective February 1, 2016.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), salesforce.com, inc.'s internal control over financial reporting as of January 31, 2017, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations on the Treadway Commission (2013 framework) and our report dated March 6, 2017 expressed an
unqualified opinion thereon.
/s/
ERNST & YOUNG LLP
Redwood City, California
March 6, 2017
66
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of salesforce.com, inc.
We have audited salesforce.com, inc.'s internal control over financial reporting as of January 31, 2017 based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Salesforce.com, inc.'s
management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion
on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting,
management's assessment of and conclusion on the effectiveness of internal control over financial reporting did
not include the internal controls of Demandware, Inc., which is included in the January 31, 2017 consolidated
financial statements of salesforce.com, inc. and constituted two percent of both consolidated total and net assets
as of January 31, 2017, and one percent of consolidated total revenues for the year then ended. Our audit of
internal control over financial reporting of salesforce.com, inc. also did not include an evaluation of the internal
control over financial reporting of Demandware, Inc.
In our opinion, salesforce.com, inc. maintained, in all material respects, effective internal control over
financial reporting as of January 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the 2017 consolidated financial statements of salesforce.com, inc. and our report dated March 6,
2017 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Redwood City, California
March 6, 2017
67
salesforce.com, inc.
Consolidated Balance Sheets
(in thousands, except per share data)
January 31,
2017
January 31,
2016
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,606,549 $ 1,158,363
Marketable securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
602,338
1,567,014
Accounts receivable, net of allowance for doubtful accounts of $12,039 and
$10,488 at January 31, 2017 and 2016, respectively . . . . . . . . . . . . . . . . . . .
3,196,643
2,496,165
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
311,770
259,187
Prepaid expenses and other current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
279,527
250,594
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,996,827
5,731,323
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,787,534
1,715,828
Deferred commissions, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
227,849
189,943
Capitalized software, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141,671
123,065
Strategic investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
566,953
520,721
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,263,846
3,849,937
Intangible assets acquired through business combinations, net . . . . . . . . . . . . . . . . .
1,113,374
490,006
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
486,869
142,097
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,584,923 $12,762,920
Liabilities and stockholders' equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities
. . . . . . . . . . . . . . . . .
$ 1,752,664 $ 1,349,338
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,505,689
4,267,667
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,258,353
5,617,005
Deferred revenue, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,113
23,886
Convertible 0.25% senior notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,116,360
1,088,097
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
497,221
0
Loan assumed on 50 Fremont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
198,268
197,998
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
196,542
0
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
780,939
833,065
Total liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,084,796
7,760,051
Commitments and contingencies (Notes 13 and 15) Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized and none issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
Common stock, $0.001 par value; 1,600,000 shares authorized, 707,460 and
670,929 issued and outstanding at January 31, 2017 and 2016,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
708
671
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,040,170
5,705,386
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(75,841)
(49,917)
Accumulated deficit (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(464,910)
(653,271)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,500,127
5,002,869
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,584,923 $12,762,920
See accompanying Notes.
68
salesforce.com, inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Fiscal Year Ended January 31,
2017
2016
2015
Revenues:
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,756,205
6,205,599 $5,013,764
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
635,779
461,617
359,822
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,391,984
6,667,216
5,373,586
Cost of revenues (1)(2):
Subscription and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,556,353
1,188,967
924,638
Professional services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
677,686
465,581
364,632
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,234,039
1,654,548
1,289,270
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,157,945
5,012,668
4,084,316
Operating expenses (1)(2):
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,208,127
946,300
792,917
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,918,027
3,239,824
2,757,096
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
967,563
748,238
679,936
Operating lease termination resulting from purchase of
50 Fremont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
(36,617)
0
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,093,717
4,897,745
4,229,949
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,228
114,923
(145,633)
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,374
15,341
10,038
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(88,988)
(72,485)
(73,237)
Other income (expense) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,072
(15,292)
(19,878)
Gain on sales of land and building improvements . . . . . . . . . . . . . . . . . .
0
21,792
15,625
Gains from acquisitions of strategic investments . . . . . . . . . . . . . . . . . . .
13,697
0
0
Income (loss) before benefit from (provision for) income taxes . . . . . . .
25,383
64,279
(213,085)
Benefit from (provision for) income taxes (3) . . . . . . . . . . . . . . . . . . . . .
154,249
(111,705)
(49,603)
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 179,632 $ (47,426) $ (262,688)
Basic net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.26 $
(0.07) $
(0.42)
Diluted net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.26 $
(0.07) $
(0.42)
Shares used in computing basic net income (loss) per share . . . . . . . . . .
687,797
661,647
624,148
Shares used in computing diluted net income (loss) per share . . . . . . . . .
700,217
661,647
624,148
(1) Amounts include amortization of purchased intangibles from business combinations, as follows:
Fiscal Year Ended January 31,
2017
2016
2015
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 127,676
$ 80,918
$ 90,300
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . .
97,601
77,152
64,673
Other non-operating expense . . . . . . . . . . . . . . . . . . .
2,491
3,636
0
(2) Amounts include stock-based expenses, as follows:
Fiscal Year Ended January 31,
2017
2016
2015
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$107,457
$ 69,443
$ 53,812
Research and development . . . . . . . . . . . . . . . . . . . . . .
187,487
129,434
121,193
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
388,937
289,152
286,410
General and administrative . . . . . . . . . . . . . . . . . . . . .
136,486
105,599
103,350
(3) Amounts include a $210.3 million tax benefit recorded during fiscal 2017 as a result of the release of a portion
of the valuation allowance related to the Demandware, Inc. acquisition. See Note 11 "Income Taxes."
See accompanying Notes.
69
salesforce.com, inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Fiscal Year Ended January 31,
2017
2016
2015
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$179,632 $(47,426) $(262,688)
Other comprehensive income (loss), before tax and net of reclassification
adjustments:
Foreign currency translation and other losses . . . . . . . . . . . . . . . . . . . . . .
(43,070)
(16,616)
(43,276)
Unrealized gains (losses) on investments . . . . . . . . . . . . . . . . . . . . . . . . .
14,500
(9,193)
1,488
Other comprehensive loss, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,570)
(25,809)
(41,788)
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,646
0
0
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,924)
(25,809)
(41,788)
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$153,708 $(73,235) $(304,476)
See accompanying Notes.
70
salesforce.com, inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income/(Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
Shares
Amount
Balances at January 31, 2014 . . . . . . . . . . . . . . .
610,143
$610
$3,363,377
$ 17,680
$(343,157)
$3,038,510
Exercise of stock options and stock grants
to board members for board services . . . .
7,413
8
182,270
0
0
182,278
Vested restricted stock units converted to
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,259
9
0
0
0
9
Shares issued related to business
combinations . . . . . . . . . . . . . . . . . . . . . .
7,185
7
339,076
0
0
339,083
Shares issued under employee stock
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,264
4
127,816
0
0
127,820
Tax benefits from employee stock plans . . .
0
0
7,730
0
0
7,730
Settlement of 0.75% convertible notes and
related warrants . . . . . . . . . . . . . . . . . . . .
13,332
13
22,736
0
0
22,749
Stock-based expenses . . . . . . . . . . . . . . . . .
0
0
561,480
0
0
561,480
Other comprehensive loss, net of tax . . . . . .
0
0
0
(41,788)
0
(41,788)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
0
0
(262,688)
(262,688)
Balances at January 31, 2015 . . . . . . . . . . . . . . .
650,596
$651
$4,604,485
$(24,108)
$(605,845)
$3,975,183
Exercise of stock options and stock grants
to board members for board services . . . .
8,278
8
296,493
0
0
296,501
Vested restricted stock units converted to
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,933
9
0
0
0
9
Shares issued related to business
combinations . . . . . . . . . . . . . . . . . . . . . .
117
0
0
0
0
0
Shares issued under employee stock
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,005
3
154,957
0
0
154,960
Tax benefits from employee stock plans . . .
0
0
59,496
0
0
59,496
Stock-based expenses . . . . . . . . . . . . . . . . .
0
0
589,955
0
0
589,955
Other comprehensive loss, net of tax . . . . . .
0
0
0
(25,809)
0
(25,809)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
0
0
(47,426)
(47,426)
Balances at January 31, 2016 . . . . . . . . . . . . . . .
670,929
$671
$5,705,386
$(49,917)
$(653,271)
$5,002,869
Exercise of stock options and stock grants
to board members for board services . . . .
5,555
6
200,760
0
0
200,766
Vested restricted stock units converted to
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,098
8
0
0
0
8
Shares issued related to business
combinations . . . . . . . . . . . . . . . . . . . . . .
19,697
20
1,192,170
0
0
1,192,190
Shares issued under employee stock
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,181
3
126,147
0
0
126,150
Stock-based expenses . . . . . . . . . . . . . . . . .
0
0
815,707
0
0
815,707
Other comprehensive loss, net of tax . . . . . .
0
0
0
(25,924)
0
(25,924)
Excess tax benefits cumulative-effect
adjustment resulting from the adoption of
ASU 2016-09 (Note 1) . . . . . . . . . . . . . .
0
0
0
0
8,729
8,729
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
0
0
179,632
179,632
Balances at January 31, 2017 . . . . . . . . . . . . . . .
707,460
$708
$8,040,170
$(75,841)
$(464,910)
$7,500,127
See accompanying Notes.
71
salesforce.com, inc.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Year Ended January 31,
2017
2016
2015
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
179,632 $
(47,426) $ (262,688)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
632,245
525,750
448,296
Amortization of debt discount and transaction costs . . . . . . . . . . . . . . . . . . . . .
30,541
27,467
39,620
Gain on sales of land and building improvements . . . . . . . . . . . . . . . . . . . . . .
0
(21,792)
(15,625)
Gains from acquisitions of strategic investments . . . . . . . . . . . . . . . . . . . . . . .
(13,697)
0
0
50 Fremont lease termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
(36,617)
0
Loss on conversions of convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . .
0
0
10,326
Amortization of deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
371,541
319,074
257,642
Expenses related to employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
820,367
593,628
564,765
Changes in assets and liabilities, net of business combinations:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(628,477)
(582,425)
(544,610)
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(462,030)
(380,022)
(320,904)
Prepaid expenses and other current assets and other assets . . . . . . . . . . . .
(28,850)
50,772
45,819
Accounts payable, accrued expenses and other liabilities . . . . . . . . . . . . .
49,953
253,986
159,973
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,210,973
969,686
798,830
Net cash provided by operating activities (1) . . . . . . . . . . . . . . . . . . . . . .
2,162,198
1,672,081
1,181,444
Investing activities:
Business combinations, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,192,739)
(58,680)
38,071
Proceeds from land and building improvements held for sale . . . . . . . . . . . . . . . . .
0
127,066
223,240
Purchase of 50 Fremont land and building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
(425,376)
0
Deposit and withdrawal for purchase of 50 Fremont land and building . . . . . . . . . .
0
115,015
(126,435)
Non-refundable amounts received for sale of land and building . . . . . . . . . . . . . . . .
0
6,284
0
Strategic investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,987)
(366,519)
(93,725)
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,070,412)
(1,139,267)
(780,540)
Sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,005,301
500,264
243,845
Maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,454
37,811
87,638
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(463,958)
(284,476)
(290,454)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,684,341)
(1,487,878)
(698,360)
Financing activities:
Proceeds from revolving credit facility, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
748,824
0
297,325
Payments on revolving credit facility, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(550,000)
(300,000)
0
Proceeds from (payments on) term loan, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
495,550
0
(285,000)
Proceeds from employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
401,481
455,482
308,989
Payments on convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
(568,862)
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(98,157)
(82,330)
(70,663)
Net cash provided by (used in) financing activities (1) . . . . . . . . . . . . . . .
997,698
73,152
(318,211)
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,369)
(7,109)
(38,391)
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
448,186
250,246
126,482
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . .
1,158,363
908,117
781,635
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,606,549 $ 1,158,363 $ 908,117
(1) As of the start of fiscal 2017, the Company early adopted Accounting Standards Update No. 2016-09, "Improvements to
Employee Share-Based Payment Accounting (Topic 718)" ("ASU 2016-09"), which addresses among other items,
updates to the presentation and treatment of excess tax benefits related to stock based compensation. Excess tax benefits
are no longer classified as a reduction of operating cash flows. The Company has adopted changes to the consolidated
statements of cash flows on a retrospective basis. The impact for fiscal 2016 and 2015 was an increase of $59,496 and
$7,730 to net cash provided by operating activities with a correlating decrease of equal amounts to net cash provided by
(used in) financing activities, respectively.
See accompanying Notes.
72
salesforce.com, inc.
Consolidated Statements of Cash Flows
Supplemental Cash Flow Disclosure
(in thousands)
Fiscal Year Ended January 31,
2017
2016
2015
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
54,999 $ 37,954 $ 24,684
Income taxes, net of tax refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
36,388 $ 31,462 $ 36,219
Non-cash financing and investing activities:
Fixed assets acquired under capital leases . . . . . . . . . . . . . . . . . . . . . . .
$
585 $ 12,948 $124,099
Buildingleased facility acquired under financing obligation . . . . . . .
$
0 $ 77,057 $ 85,118
Fair value of equity awards assumed . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 103,267 $
0 $ 1,050
Fair value of common stock issued as consideration for business
combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,088,917 $
0 $338,033
Fair value of loan assumed on 50 Fremont . . . . . . . . . . . . . . . . . . . . . . .
$
0 $198,751 $
0
Non-cash equity liability (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
68,355 $
0 $
0
See accompanying Notes.
73
salesforce.com, inc.
Notes to Consolidated Financial Statements
1. Summary of Business and Significant Accounting Policies
Description of Business
Salesforce.com, inc. (the "Company") is a leading provider of enterprise cloud computing solutions, with a
focus on customer relationship management, or CRM. The Company introduced its first CRM solution in
February 2000, and has since expanded its service offerings with new editions, features and platform capabilities.
Our core mission is to help our customers transform by empowering them to connect with their customers in
entirely new ways. Our Customer Success Platformincluding sales force automation, customer service and
support, marketing automation, digital commerce, community management, analytics, application development,
Internet of Things ("IoT") integration and collaborative productivity toolsprovide the tools customers need to
succeed in a digital world.
Fiscal Year
The Company's fiscal year ends on January 31. References to fiscal 2017, for example, refer to the fiscal
year ending January 31, 2017.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
("U.S. GAAP") requires management to make estimates and assumptions in the Company's consolidated
financial statements and notes thereto.
Significant estimates and assumptions made by management include the determination of:

the best estimate of selling price of the deliverables included in multiple deliverable revenue
arrangements,

the fair value of assets acquired and liabilities assumed for business combinations,

the recognition, measurement and valuation of current and deferred income taxes,

the fair value of certain stock awards issued,

the useful lives of intangible assets, property and equipment and building and structural components,
and

the valuation of strategic investments and the determination of other-than-temporary impairments.
Actual results could differ materially from those estimates. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable, the result of which forms the
basis for making judgments about the carrying values of assets and liabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Segments
The Company operates as one operating segment. Operating segments are defined as components of an
enterprise for which separate financial information is evaluated regularly by the chief operating decision maker,
74
who is the chief executive officer, in deciding how to allocate resources and assessing performance. Over the past
few years, including fiscal 2017, the Company has completed a number of acquisitions. These acquisitions have
allowed the Company to expand its offerings, presence and reach in various market segments of the enterprise
cloud computing market. While the Company has offerings in multiple enterprise cloud computing market
segments, including as a result of the Company's acquisitions, the Company's business operates in one operating
segment because the majority of the Company's offerings operate on a single platform and are deployed in an
identical way, and the Company's chief operating decision maker evaluates the Company's financial information
and resources and assesses the performance of these resources on a consolidated basis. Since the Company
operates in one operating segment, all required financial segment information can be found in the consolidated
financial statements.
Concentrations of Credit Risk and Significant Customers
The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of
cash and cash equivalents, marketable securities and trade accounts receivable. In addition, in connection with
the Company's 0.25% Senior Notes, the Company entered into convertible note hedge transactions with respect
to its common stock which are exposed to concentrations of credit risk. Collateral is not required for accounts
receivable or the note hedge transactions. The Company maintains an allowance for doubtful accounts receivable
balances. This allowance is based upon historical loss patterns, the number of days that billings are past due and
an evaluation of the potential risk of loss associated with delinquent accounts. Receivables are written-off and
charged against its recorded allowance when the Company has exhausted collection efforts without success.
No single customer accounted for more than five percent of accounts receivable at January 31, 2017 and
2016. No single customer accounted for five percent or more of total revenue during fiscal 2017, 2016 and 2015.
Geographic Locations
As of January 31, 2017 and 2016, assets located outside the Americas were 12 percent and 11 percent of
total assets, respectively. As of January 31, 2017 and 2016, assets located in the United States were 86 percent
and 87 percent of total assets, respectively.
Revenues by geographical region are as follows (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,224,971
$4,910,745
$3,868,329
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,373,547
1,162,808
984,919
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
793,466
593,663
520,338
$8,391,984
$6,667,216
$5,373,586
Americas revenue attributed to the United States was approximately 96 percent, 95 percent and 94 percent
in fiscal 2017, 2016 and 2015, respectively. No other country represented more than ten percent of total revenue
during fiscal 2017, 2016 or 2015.
Revenue Recognition
The Company derives its revenues from two sources: (1) subscription revenues, which are comprised of
subscription fees from customers accessing the Company's enterprise cloud computing services and from
customers paying for additional support beyond the standard support that is included in the basic subscription
fees; and (2) related professional services such as process mapping, project management, implementation
services and other revenue. "Other revenue" consists primarily of training fees.
75
The Company commences revenue recognition when all of the following conditions are satisfied:

there is persuasive evidence of an arrangement;

the service has been or is being 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 subscription service arrangements are non-cancelable and do not contain refund-type
provisions.
Subscription and Support Revenues
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract, which is the date the Company's service is made available to customers.
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
The Company's professional services contracts are either on a time and materials, fixed fee basis or
subscription basis. These revenues are recognized as the services are rendered for time and materials contracts,
when the milestones are achieved and accepted by the customer or on a proportional performance basis for fixed
price contracts and ratably over the contract term for subscription professional services contracts. The milestone
method for revenue recognition is used when there is substantive uncertainty at the date the contract is entered
into whether the milestone will be achieved. Training revenues are recognized as the services are performed.
Multiple Deliverable Arrangements
The Company enters into arrangements with multiple deliverables that generally include multiple
subscriptions, premium support and professional services. If the deliverables have standalone value at contract
inception, the Company accounts for each deliverable separately. Subscription services have standalone value as
such services are often sold separately. In determining whether professional services have standalone value, the
Company considers the following factors for each professional services agreement: availability of the services
from other vendors, the nature of the professional services, the timing of when the professional services contract
was signed in comparison to the subscription service start date and the contractual dependence of the subscription
service on the customer's satisfaction with the professional services work. To date, the Company has concluded
that all of the professional services included in multiple deliverable arrangements executed have standalone
value.
Multiple deliverables included in an arrangement are separated into different units of accounting and the
arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy.
The Company determines the relative selling price for a deliverable based on its vendor-specific objective
evidence of selling price ("VSOE"), if available, or its best estimate of selling price ("BESP"), if VSOE is not
available. The Company has determined that third-party evidence of selling price ("TPE") is not a practical
alternative due to differences in its service offerings compared to other parties and the availability of relevant
third-party pricing information. The amount of revenue allocated to delivered items is limited by contingent
revenue, if any.
For certain professional services, the Company has established VSOE as a consistent number of standalone
sales of these deliverables have been priced within a reasonably narrow range. The Company has not established
VSOE for its subscription services due to lack of pricing consistency, the introduction of new services and other
76
factors. Accordingly, the Company uses its BESP to determine the relative selling price for its subscription
services.
The Company determines BESP by considering its overall pricing objectives and market conditions.
Significant pricing practices taken into consideration include the Company's discounting practices, the size and
volume of the Company's transactions, the customer demographic, the geographic area where services are sold,
price lists, its go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is
made through consultation with and approval by the Company's management, taking into consideration the go-
to-market strategy. As the Company's go-to-market strategies evolve, the Company may modify its pricing
practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.
Deferred Revenue
The deferred revenue balance does not represent the total contract value of annual or multi-year, non-
cancelable subscription agreements. Deferred revenue primarily consists of billings or payments received in
advance of revenue recognition from subscription services described above and is recognized as the revenue
recognition criteria are met. The Company generally invoices customers in annual installments. The deferred
revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals,
invoice duration, invoice timing, dollar size and new business linearity within the quarter.
Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current
deferred revenue and the remaining portion is recorded as noncurrent.
Deferred Commissions
Deferred commissions are the incremental costs that are directly associated with non-cancelable
subscription contracts with customers and consist of sales commissions paid to the Company's direct sales force.
The commissions are deferred and amortized over the non-cancelable terms of the related customer
contracts, which are typically 12 to 36 months. The commission payments are paid in full the month after the
customer's service commences. The deferred commission amounts are recoverable through the future revenue
streams under the non-cancelable customer contracts. The Company believes this is the preferable method of
accounting as the commission charges are so closely related to the revenue from the non-cancelable customer
contracts that they should be recorded as an asset and charged to expense over the same period that the
subscription revenue is recognized. Amortization of deferred commissions is included in marketing and sales
expense in the accompanying consolidated statements of operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. Cash and cash equivalents are stated at fair value.
Marketable Securities
Securities are classified as available for sale and are carried at fair value, with the change in unrealized gains
and losses, net of tax, reported as a separate component on the consolidated statements of comprehensive income
(loss). Fair value is determined based on quoted market rates when observable or utilizing data points that are
observable, such as quoted prices, interest rates and yield curves. Declines in fair value judged to be other-than-
temporary on securities available for sale are included as a component of investment income. In order to
determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the
duration and extent to which the fair value has been less than the carrying value and its intent and ability to retain
the investment for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of
77
securities sold is based on the specific-identification method. Interest on securities classified as available for sale
is also included as a component of investment income.
Strategic Investments
The Company holds certain marketable and non-marketable equity securities which are accounted for using
the cost method of accounting. Marketable equity securities are measured using quoted prices in their respective
active markets and the non-marketable equity securities are recorded at cost. Equity investments without readily
determinable fair values for which we do not have the ability to exercise significant influence are accounted for
using the cost method of accounting and classified as strategic investments on the consolidated balance sheets.
Marketable securities are recorded at fair value with changes in fair value recorded through accumulated other
comprehensive income. Under the cost method of accounting, the non-marketable securities are carried at cost
and are adjusted only for other-than-temporary impairments, certain distributions and additional investments.
Fair Value Measurement
The Company measures its cash equivalents, marketable securities and foreign currency derivative contracts
at fair value.
The additional disclosures regarding the Company's fair value measurements are included in Note 2
"Investments".
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the
estimated useful lives of those assets as follows:
Computers, equipment and software . .
3 to 9 years
Furniture and fixtures . . . . . . . . . . . . . .
5 years
Leasehold improvements . . . . . . . . . . .
Shorter of the estimated lease
term or 10 years
Building and structural components . . . Average weighted useful life
of 32 years
Building- leased facility . . . . . . . . . . . .
27 years
Building improvements . . . . . . . . . . . . .
10 years
When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization
are removed from their respective accounts and any loss on such retirement is reflected in operating expenses.
Capitalized Software
The Company capitalizes costs related to its enterprise cloud computing services and certain projects for
internal use incurred during the application development stage. Costs related to preliminary project activities and
post implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line
basis over its estimated useful life, which is generally three to five years. Management evaluates the useful lives
of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur
that could impact the recoverability of these assets.
Intangible Assets acquired through Business Combinations
Intangible assets are amortized over their estimated useful lives. Each period the Company evaluates the
estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a
revision to the remaining period of amortization.
78
Impairment Assessment
The Company evaluates intangible assets and long-lived assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes
but is not limited to significant adverse changes in business climate, market conditions, or other events that
indicate an asset's carrying amount may not be recoverable. Recoverability of these assets is measured by
comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to
generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of
these assets, then the carrying amount of such assets is reduced to fair value.
The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during
our fourth quarter of each fiscal year or more often if and when circumstances indicate that goodwill may not be
recoverable.
There was no impairment of intangible assets, long-lived assets or goodwill during fiscal 2017, 2016 or
2015.
Business Combinations
The Company uses its best estimates and assumptions to accurately assign fair value to the tangible and
intangible assets acquired and liabilities assumed at the acquisition date. The Company's estimates are inherently
uncertain and subject to refinement. During the measurement period, which may be up to one year from the
acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets
acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions
and tax-related valuation allowances are initially established in connection with a business combination as of the
acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions
quarterly and records any adjustments to the Company's preliminary estimates to goodwill provided that the
Company is within the measurement period. Upon the conclusion of the measurement period or final
determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to the Company's consolidated statements of operations.
In the event that the Company acquires an entity in which the Company previously held a strategic
investment, the difference between the fair value of the shares as of the date of the acquisition and the carrying
value of the strategic investment is recorded as a gain or loss and disclosed separately within the statements of
operations.
Leases and Asset Retirement Obligations
The Company categorizes leases at their inception as either operating or capital leases. In certain lease
agreements, the Company may receive rent holidays and other incentives. The Company recognizes lease costs
on a straight-line basis once control of the space is achieved, without regard to deferred payment terms such as
rent holidays that defer the commencement date of required payments. Additionally, incentives received are
treated as a reduction of costs over the term of the agreement.
The Company establishes assets and liabilities for the present value of estimated future costs to retire long-
lived assets at the termination or expiration of a lease. Such assets are depreciated over the lease period into
operating expense, and the recorded liabilities are accreted to the future value of the estimated retirement costs.
In the event the Company is the deemed owner for accounting purposes during construction, the Company
records assets and liabilities for the estimated construction costs incurred under build-to-suit lease arrangements
to the extent it is involved in the construction of structural improvements or takes construction risk prior to
commencement of a lease.
79
The Company additionally has entered into subleases for unoccupied leased office space. To the extent there
are losses associated with the sublease, they are recognized in the period the sublease is executed. Gains are
recognized over the sublease term. Any sublease payments received in excess of the straight-line rent payments
for the sublease are recorded in other income (expense).
Accounting for Stock-Based Expense
The Company recognizes stock-based expenses related to stock options and restricted stock awards on a
straight-line basis, net of estimated forfeitures, over the requisite service period of the awards, which is generally
the vesting term of four years. The Company recognizes stock-based expenses related to shares issued pursuant
to its 2004 Employee Stock Purchase Plan ("ESPP") on a straight-line basis over the offering period, which is
12 months.
Stock-based expenses related to performance share grants are measured based on grant date fair value and
expensed on a straight-line basis over the service period of the awards, which is generally the vesting term of
three years.
The Company, at times, grant unvested restricted shares to employee stockholders of certain acquired
companies in lieu of cash considerations. These awards are generally subject to continued post-acquisition
employment, therefore the Company has accounted for them as post-acquisition stock-based expense. The
Company recognizes stock-based expenses equal to the grant date fair value of the restricted stock awards on a
straight-line basis over the requisite service period of the awards.
Advertising Expenses
Advertising is expensed as incurred. Advertising expense was $350.3 million, $315.6 million and
$203.6 million for fiscal 2017, 2016 and 2015, respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on temporary differences between the financial statement
and tax basis of assets and liabilities 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 laws is recognized in the
consolidated statement of operations in the period that includes the enactment date.
The Company's tax positions are subject to income tax audits by multiple tax jurisdictions throughout the
world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that
the position is sustainable upon examination by the taxing authority, solely based on its technical merits. The tax
benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be
realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties
related to unrecognized tax benefits in the income tax provision.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are
more likely than not expected to be realized based on the weighting of positive and negative evidence. Future
realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the
appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods
available under the applicable tax law. The Company regularly reviews the deferred tax assets for recoverability
based on historical taxable income, projected future taxable income, the expected timing of the reversals of
existing temporary differences and tax planning strategies. The Company's judgments regarding future
profitability may change due to many factors, including future market conditions and the ability to successfully
execute its business plans and/or tax planning strategies. Should there be a change in the ability to recover
80
deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is
changed.
Foreign Currency Translation
The functional currency of the Company's major foreign subsidiaries is generally the local currency.
Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are
recorded as a separate component on the consolidated statements of comprehensive income (loss). Foreign
currency transaction gains and losses are included in net income (loss) for the period. All assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date.
Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are
translated using historical exchange rates.
Warranties and Indemnification
The Company's enterprise cloud computing services are 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 obligations and has not accrued any material liabilities related
to such obligations in the accompanying consolidated financial statements.
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. The Company may also be subject to
indemnification obligations by law with respect to the actions of its employees under certain circumstances and
in certain jurisdictions.
New Accounting Pronouncements Adopted in Fiscal 2017
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
No. 2015-03, "InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs" ("ASU 2015-03"), which simplifies the presentation of debt issuance costs by requiring debt issuance
costs to be presented as a deduction from the corresponding debt liability rather than an asset that is amortized.
However, ASU 2015-03 does not address deferred issuance costs for line-of-credit arrangements; therefore, in
August 2015, the FASB issued Accounting Standards Update No. 2015-15, "Interest-Imputation of Interest:
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements" ("ASU 2015-15"). ASU 2015-15 allows an entity to defer debt issuance costs associated with
line-of-credit arrangements, including arrangements with no outstanding borrowings, and classify them as an
asset, and amortize them over the term of the arrangements. The recognition and measurement guidance for debt
issuance costs is not affected by the standards. These standards are adopted on a retrospective basis in the period
of adoption. The Company adopted the standards in fiscal 2017. Upon adoption, the unamortized debt issuance
costs previously reported in Other assets, net, with a carrying amount of approximately $7.9 million at
January 31, 2016, were reclassified and presented as a deduction of the corresponding liabilities, Convertible
0.25% senior notes, net, Term Loan, and Loan assumed on 50 Fremont.
81
In September 2015, the FASB issued Accounting Standards Update No. 2015-16, "Simplifying the
Accounting for Measurement-Period Adjustments (Topic 805)" ("ASU 2015-16"), which eliminates the
requirement to restate prior period financial statements for measurement period adjustments in business
combinations. ASU 2015-16 requires that the cumulative impact of a measurement period adjustment (including
the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The
Company adopted this standard during the three months ended April 30, 2016 and there was no material impact
of this on the Company's financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "Stock Compensation
(Topic 718): Improvements to Employee Shared-Based Payment Accounting" ("ASU 2016-09"), which
simplifies and improves several aspects of the accounting for employee share-based payment transactions for
public entities. The new guidance requires companies to record excess tax benefits and tax deficiencies as
income tax benefit or expense in the statement of operations when the awards vest or are settled, and eliminates
the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing
activities on the statement of cash flows. The Company adopted the standard in the three months ended April 30,
2016. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the
modified retrospective transition method, which resulted in a cumulative-effect adjustment of $8.7 million to
accumulated deficit. This adjustment reduced the accumulated deficit balance for fiscal 2017. The previously
unrecognized excess tax effects were recorded as a deferred tax asset, which was almost fully offset by a
valuation allowance. Without the valuation allowance, the Company's deferred tax assets would have increased
by $614.5 million. The Company also elected to apply the change in presentation to the statements of cash flows
retrospectively and no longer classified the excess tax benefits from employee stock plans as a reduction from
operating cash flows for all periods presented. As a result of the adoption of ASU 2016-09, the consolidated
statements of cash flows for fiscal 2016 and 2015 were adjusted as follows: $59.5 million and $7.7 million
increases to net cash provided by operating activities, respectively, and $59.5 million and $7.7 million decrease
to net cash used in financing activities, respectively.
Pending Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09") which amended the existing
FASB Accounting Standards Codification. This standard replaces existing revenue recognition guidance with a
comprehensive revenue measurement and recognition standard and expanded disclosure requirements. The standard
also provides guidance on the recognition of costs related to obtaining customer contracts. ASU 2014-09, as
amended, will be effective for the beginning of fiscal 2019, including interim periods within that reporting period.
The Company currently anticipates adopting the standard using the full retrospective method to restate each
prior reporting period presented. The Company's ability to adopt using the full retrospective method is dependent
upon system readiness for both revenue and commissions and the completion of the analysis of information
necessary to restate prior period financial statements.
The Company is continuing to assess the impact of adopting ASU 2014-09 on its financial position, results
of operations, cash flows and related disclosures and has not yet determined whether the effect will be material.
Additionally, as the Company continues to assess the new standard along with industry trends and additional
interpretive guidance, the Company may adjust its implementation plan accordingly.
The Company believes that the new standard will impact the following policies and disclosures:

The removal of the current limitation on contingent revenue may result in revenue being recognized
earlier for certain contracts;
 Allocation of revenue across different clouds and professional services;

Estimation of variable consideration for arrangements with overage fees;
82
 Required disclosures including information about the remaining transaction price and when the
Company expects to recognize revenue; and
 Accounting for deferred commissions including costs that qualify for deferral and the amortization
period.
The commission accounting under the new standard is significantly different than the Company's current
capitalization policy. The new standard will result in additional types of costs that will be capitalized.
Additionally, all amounts capitalized will be amortized over a period longer than the Company's current policy
of amortizing the deferred amounts over the specific revenue contract terms.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, "Financial Instrument-
Overall (Subtopic 825-10)" ("ASU 2016-01"), which requires entities to measure equity instruments at fair value
and recognize any changes in fair value in net income. However, for equity investments that do not have readily
determinable fair values and do not qualify for the existing practical expedient, the investments will be measured
at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer. The new standard is effective for interim
and annual periods beginning after December 15, 2017 and early adoption is permitted. The Company is
currently evaluating the impact of the adoption of ASU 2016-01, including the impact to its marketable securities
and strategic investments. The adoption could have a material impact on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)"
("ASU 2016-02"), which requires lessees to put most leases on their balance sheets but recognize the expenses
on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would
recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use
the underlying asset for the lease term. The new standard is effective for interim and annual periods beginning
after December 15, 2018 and early adoption is permitted. The Company expects its leases designated as
operating leases in Note 13, "Commitments," will be reported on the consolidated balance sheets upon adoption.
The Company is currently evaluating the impact to its consolidated financial statements as it relates to other
aspects of the business.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, "Income Taxes (Topic 740):
Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16")", which requires entities to recognize
the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer
occurs. The new standard is effective for annual periods beginning after December 15, 2017, with early adoption
permitted as of the beginning of a fiscal year. The Company plans to adopt the new standard in its first quarter of
fiscal 2019 and does not expect it to have a material impact on its consolidated financial statements.
Reclassifications
Certain reclassifications to fiscal 2016 balances were made to conform to the current period presentation in
the Balance Sheet. These reclassifications include short-term marketable securities, marketable securities,
noncurrent capitalized software, net, intangible assets acquired from business combinations, net and other assets,
net.
2. Investments
Marketable Securities
The Company considers all its marketable debt securities as available for use in current operations,
including those with maturity dates beyond one year, and therefore classifies these securities within current assets
on the consolidated balance sheets. Marketable securities are carried at fair value, with the unrealized gains and
losses, net of income taxes, reflected in accumulated other comprehensive income until realized. For the purposes
of computing realized and unrealized gains and losses, cost is determined on a specific identification basis.
83
At January 31, 2017, marketable securities consisted of the following (in thousands):
Investments classified as Marketable Securities
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Corporate notes and obligations . . . . . . . . . . . . . . .
$321,284
$ 887
$(1,531)
$320,640
U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . .
62,429
68
(674)
61,823
Mortgage backed obligations . . . . . . . . . . . . . . . . .
74,882
39
(669)
74,252
Asset backed securities . . . . . . . . . . . . . . . . . . . . . .
101,913
74
(197)
101,790
Municipal securities
. . . . . . . . . . . . . . . . . . . . . . . .
33,523
35
(183)
33,375
Foreign government obligations . . . . . . . . . . . . . . .
10,491
3
(36)
10,458
Total marketable securities . . . . . . . . . . . . . . . . . . .
$604,522
$1,106
$(3,290)
$602,338
At January 31, 2016, marketable securities consisted of the following (in thousands):
Investments classified as Marketable Securities
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Corporate notes and obligations . . . . . . . . . . . .
$ 949,266
$1,398
$(2,983)
$ 947,681
U.S. treasury securities . . . . . . . . . . . . . . . . . . .
157,625
375
(56)
157,944
Mortgage backed obligations . . . . . . . . . . . . . .
104,242
106
(323)
104,025
Asset backed securities . . . . . . . . . . . . . . . . . . .
271,292
186
(226)
271,252
Municipal securities
. . . . . . . . . . . . . . . . . . . . .
44,934
209
(6)
45,137
Foreign government obligations . . . . . . . . . . . .
18,014
42
(5)
18,051
U.S. agency obligations . . . . . . . . . . . . . . . . . . .
16,076
16
(6)
16,086
Covered bonds . . . . . . . . . . . . . . . . . . . . . . . . . .
6,690
148
0
6,838
Total marketable securities . . . . . . . . . . . . . . . .
$1,568,139
$2,480
$(3,605)
$1,567,014
The contractual maturities of the investments classified as marketable securities is as follows (in thousands):
As of January 31,
2017
2016
Due within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,631
$ 309,944
Due in 1 year through 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
494,127
1,240,711
Due in 5 years through 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,580
16,359
$602,338
$1,567,014
As of January 31, 2017, the following marketable securities were in an unrealized loss position
(in thousands):
Less than 12 Months
12 Months or Greater
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Corporate notes and obligations . . . . . $121,810 $(1,528)
$1,997
$ (3)
$123,807 $(1,531)
U.S. treasury securities . . . . . . . . . . . .
49,945
(674)
0
0
49,945
(674)
Mortgage backed obligations . . . . . . .
60,187
(669)
0
0
60,187
(669)
Asset backed securities . . . . . . . . . . . .
51,420
(187)
1,193
(10)
52,613
(197)
Municipal securities
. . . . . . . . . . . . . .
20,457
(183)
0
0
20,457
(183)
Foreign government obligations . . . . .
8,280
(36)
0
0
8,280
(36)
$312,099 $(3,277)
$3,190
$(13)
$315,289 $(3,290)
84
The unrealized loss for each individual fixed rate marketable securities was less than $0.2 million. The
Company does not believe any of the unrealized losses represent an other-than-temporary impairment based on its
evaluation of available evidence as of January 31, 2017, such as the Company's intent to hold and whether it is
more likely than not that the Company will be required to sell the investment before recovery of the investment's
amortized basis. The Company expects to receive the full principal and interest on all of these marketable securities.
Investment Income
Investment income consists of interest income, realized gains, and realized losses on the Company's cash, cash
equivalents and marketable securities. The components of investment income are presented below (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,901
$14,146
$10,129
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,858
3,287
517
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,385)
(2,092)
(608)
Total investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,374
$15,341
$10,038
Reclassification adjustments out of accumulated other comprehensive income (loss) into net income (loss)
were immaterial for fiscal 2017, 2016 and 2015, respectively.
Strategic Investments
As of January 31, 2017, the Company had six investments in marketable equity securities with a fair value
of $41.0 million, which include an unrealized gain of $24.5 million. As of January 31, 2016, the Company had
six investments in marketable equity securities with a fair value of $16.2 million, which included an unrealized
gain of $8.5 million. The change in the fair value of the investments in publicly held companies is recorded in the
consolidated balance sheets within strategic investments and accumulated other comprehensive loss.
The Company's interest in non-marketable debt and equity securities consists of noncontrolling equity
investments in privately held companies. The Company's investments in these privately held companies are
reported at cost or marked down to fair value when an event or circumstance indicates an other-than-temporary
decline in value has occurred. These investments are valued using significant unobservable inputs or data in an
inactive market and the valuation requires the Company's judgment due to the absence of market prices and
inherent lack of liquidity. Fair value is not estimated if there are no identified events or changes in circumstances
that may have an effect on the fair value of the investment.
As of January 31, 2017 and 2016, the carrying value of the Company's non-marketable debt and equity
securities was $526.0 million and $504.5 million, respectively. The estimated fair value of the non-marketable
debt and equity securities was approximately $758.3 million and $714.1 million as of January 31, 2017 and
January 31, 2016, respectively. These investments are measured using the cost method of accounting, therefore
the unrealized gains of $232.3 million and $209.6 million as of January 31, 2017 and January 31, 2016,
respectively, are not recorded in the consolidated financial statements.
Strategic investments consisted of the following (in thousands):
Description
Balance at
Beginning of
Year
Additions
Sales,
Dispositions
and fair
Market Value
Adjustments (1)
Balance at
End of Year
Fiscal year ended January 31, 2017 . . . . . . . .
$520,721
110,329
(64,097)
$566,953
Fiscal year ended January 31, 2016 . . . . . . . .
$175,774
386,219
(41,272)
$520,721
85
(1) Amounts include the release of the cost-basis and the current unrealized gain or loss balance recorded in
accumulated other comprehensive loss when shares of a publicly-held investment are sold, disposition-
related reductions of a cost-basis investment if a privately-held company within the portfolio is acquired by
another company, fair market value adjustments such as cost basis reductions related to impairments that are
other-than-temporary and unrealized gains or losses related to investments held in publicly traded
companies.
The carrying value of the Company's strategic investments is affected by various events such as entering
into new investments, disposition-related reductions of a cost-basis investment if a privately-held company
within the portfolio is acquired by another company, fair market value adjustments including impairments or
initial public offerings. The cash inflows from exits and cash outflows from new investments are disclosed as
Strategic investments, net, within the investing activities section of the Statement of Cash Flows and any gains or
losses or fair market value adjustments are recorded within the operating activities of the Statement of Cash
Flows for each of the respective fiscal year periods.
3. Derivatives
Derivative Financial Instruments
The Company enters into foreign currency derivative contracts with financial institutions to reduce the risk
that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The
Company uses forward currency derivative contracts to minimize the Company's exposure to balances primarily
denominated in British Pound Sterling, the Euro and Japanese Yen. The Company's foreign currency derivative
contracts, which are not designated as hedging instruments, are used to reduce the exchange rate risk associated
primarily with intercompany receivables and payables. The Company's derivative financial instruments program
is not designated for trading or speculative purposes. As of January 31, 2017 and 2016, the foreign currency
derivative contracts that were not settled were recorded at fair value on the consolidated balance sheets.
Foreign currency derivative contracts are marked-to-market at the end of each reporting period with gains
and losses recognized as other expense to offset the gains or losses resulting from the settlement or
remeasurement of the underlying foreign currency denominated receivables and payables. While the contract or
notional amount is often used to express the volume of foreign currency derivative contracts, the amounts
potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties'
obligations under the agreements exceed the obligations of the Company to the counterparties.
Details on outstanding foreign currency derivative contracts related primarily to intercompany receivables
and payables are presented below (in thousands):
As of January 31,
2017
2016
Notional amount of foreign currency derivative contracts . . . . . . . . . . . .
$1,280,953
$1,274,515
Fair value of foreign currency derivative contracts . . . . . . . . . . . . . . . . .
$
10,205
$
(9,294)
86
The fair value of the Company's outstanding derivative instruments are summarized below (in thousands):
Fair Value of Derivative Instruments
As of January 31,
Balance Sheet Location
2017
2016
Derivative Assets
Derivatives not designated as hedging
instruments:
Foreign currency derivative
contracts . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and
other current assets
$13,238
$ 4,731
Derivative Liabilities
Derivatives not designated as hedging
instruments:
Foreign currency derivative
contracts . . . . . . . . . . . . . . . . . . . . .
Accounts payable,
accrued expenses
and other liabilities
$ 3,033
$14,025
The effect of the derivative instruments not designated as hedging instruments on the consolidated
statements of operations during fiscal 2017, 2016 and 2015, respectively, are summarized below (in thousands):
Derivatives Not Designated as Hedging
Instruments
Gains (losses) on Derivative Instruments
Recognized in Other income (expense)
Fiscal Year Ended January 31,
Location
2017
2016
2015
Foreign currency derivative contracts . . . . . . . . .
Other expense
$(86,239)
$(25,786)
$(1,186)
4. Fair Value Measurement
All of the Company's cash equivalents, marketable securities and foreign currency derivative contracts are
classified within Level 1 or Level 2 because the Company's cash equivalents, marketable securities and foreign
currency derivative contracts are valued using quoted market prices or alternative pricing sources and models
utilizing observable market inputs.
The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation
methodologies in measuring fair value:
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2. Other inputs that are directly or indirectly observable in the marketplace.
Level 3. Unobservable inputs which are supported by little or no market activity.
87
The following table presents information about the Company's assets and liabilities that are measured at fair
value as of January 31, 2017 and indicates the fair value hierarchy of the valuation (in thousands):
Description
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balances as of
January 31,
2017
Cash equivalents (1):
Time deposits
. . . . . . . . . . . . . . . . . . .
$
0
$ 25,100
$
0
$
25,100
Money market mutual funds . . . . . . . .
956,479
0
0
956,479
Marketable securities:
Corporate notes and obligations . . . . .
0
320,640
0
320,640
U.S. treasury securities . . . . . . . . . . . .
0
61,823
0
61,823
Mortgage backed obligations . . . . . . .
0
74,252
0
74,252
Asset backed securities . . . . . . . . . . . .
0
101,790
0
101,790
Municipal securities . . . . . . . . . . . . . .
0
33,375
0
33,375
Foreign government obligations . . . . .
0
10,458
0
10,458
Foreign currency derivative
contracts (2) . . . . . . . . . . . . . . . . . . . . . . .
0
13,238
0
13,238
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . .
$956,479
$640,676
$
0
$1,597,155
Liabilities
Foreign currency derivative
contracts (3) . . . . . . . . . . . . . . . . . . . . . . .
$
0
$ 3,033
$
0
$
3,033
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .
$
0
$ 3,033
$
0
$
3,033
(1) Included in "cash and cash equivalents" in the accompanying consolidated balance sheet as of January 31,
2017, in addition to $625.0 million of cash.
(2)
Included in "prepaid expenses and other current assets" in the accompanying consolidated balance sheet as
of January 31, 2017.
(3)
Included in "accounts payable, accrued expenses and other liabilities" in the consolidated balance sheet as
of January 31, 2017.
88
The following table presents information about the Company's assets and liabilities that are measured at fair
value as of January 31, 2016 and indicates the fair value hierarchy of the valuation (in thousands):
Description
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balances as of
January 31,
2016
Cash equivalents (1):
Time deposits
. . . . . . . . . . . . . . . . . . .
$
0
$ 236,798
$
0
$ 236,798
Money market mutual funds . . . . . . . .
216,107
0
0
216,107
Commercial Paper . . . . . . . . . . . . . . . .
0
159,230
0
159,230
Agency and sovereign paper . . . . . . . .
0
13,599
0
13,599
Marketable securities:
Corporate notes and obligations . . . . .
0
947,681
0
947,681
U.S. treasury securities . . . . . . . . . . . .
0
157,944
0
157,944
Mortgage backed obligations . . . . . . .
0
104,025
0
104,025
Asset backed securities . . . . . . . . . . . .
0
271,252
0
271,252
Municipal securities . . . . . . . . . . . . . .
0
45,137
0
45,137
Foreign government obligations . . . . .
0
18,051
0
18,051
U.S. agency obligations . . . . . . . . . . . .
0
16,086
0
16,086
Covered bonds . . . . . . . . . . . . . . . . . . .
0
6,838
0
6,838
Foreign currency derivative
contracts (2) . . . . . . . . . . . . . . . . . . . . . . .
0
4,731
0
4,731
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . .
$216,107
$1,981,372
$
0
$2,197,479
Liabilities
Foreign currency derivative
contracts (3) . . . . . . . . . . . . . . . . . . . . . . .
$
0
$
14,025
$
0
$
14,025
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .
$
0
$
14,025
$
0
$
14,025
(1) Included in "cash and cash equivalents" in the accompanying consolidated balance sheet as of January 31,
2016, in addition to $532.6 million of cash.
(2)
Included in "prepaid expenses and other current assets" in the accompanying consolidated balance sheet as
of January 31, 2016.
(3)
Included in "accounts payable, accrued expenses and other liabilities" in the accompanying consolidated
balance sheet as of January 31, 2016.
5. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
As of January 31,
2017
2016
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
183,888
$ 183,888
Buildings and building improvements . . . . . . . . . . . . . . . . . . . .
621,377
614,081
Computers, equipment and software . . . . . . . . . . . . . . . . . . . . .
1,440,986
1,281,766
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,564
82,242
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
627,069
473,688
2,985,884
2,635,665
Less accumulated depreciation and amortization . . . . . . . . . . .
(1,198,350)
(919,837)
$ 1,787,534
$1,715,828
89
Depreciation and amortization expense totaled $322.8 million, $302.0 million and $246.6 million during
fiscal 2017, 2016 and 2015, respectively.
Computers, equipment and software at January 31, 2017 and 2016 included a total of $729.0 million and
$747.1 million acquired under capital lease agreements, respectively. Accumulated amortization relating to
computers, equipment and software under capital leases totaled $386.9 million and $310.3 million, respectively,
at January 31, 2017 and 2016. Amortization of assets under capital leases is included in depreciation and
amortization expense.
Land
In October 2015, the Company sold approximately 8.8 net acres of undeveloped real estate and the
associated perpetual parking rights in San Francisco, California, which were classified as held for sale. The total
proceeds from the sale were $157.1 million, of which the Company received $127.1 million in October 2015 and
previously received a nonrefundable deposit in the amount of $30.0 million during April 2014. The Company
recognized a gain of $21.8 million, net of closing costs, on the sale of this portion of the Company's land and
building improvements and perpetual parking rights.
Building- 350 Mission
In December 2013, the Company entered into a lease agreement for approximately 445,000 rentable square
feet of office space at 350 Mission Street ("350 Mission") in San Francisco, California, which is the total office
space available in the building. As a result of the Company's involvement during the construction period, the
Company is considered for accounting purposes to be the owner of the construction project. As a result, the
Company has capitalized the construction costs as Building with a corresponding current and noncurrent
financing obligation liability and has accounted for the underlying land implicitly as an operating lease. As of
January 31, 2017, construction has been completed for 350 Mission and the Company has capitalized
$178.8 million of total construction costs, incurred by the landlord, and recorded a corresponding current and
noncurrent financing obligation liability of $19.6 million and $200.7 million, respectively. As of January 31,
2016, the Company had capitalized $174.6 million of construction costs, based on the construction costs incurred
to date by the landlord, and recorded a corresponding current and noncurrent financing obligation liability of
$15.4 million and $196.7 million, respectively. The total expected financing obligation in the form of minimum
lease payments inclusive of the amounts currently recorded, is $322.3 million, including interest (see Note 13
"Commitments" for future commitment details). The obligation will be settled through monthly lease payments
to the landlord, which commenced on October 2015. To the extent that operating expenses for 350 Mission are
material, the Company, as the deemed accounting owner, will record the operating expenses.
6. Business Combinations
Krux
In November 2016, the Company acquired the outstanding stock of Krux Digital, Inc. ("Krux"), for
consideration consisting of cash, common stock, and equity awards assumed. Krux is a leading data management
platform that unifies, segments and activates audiences to increase engagement with users, prospects and
customers. The Company has included the financial results of Krux in the consolidated financial statements from
the date of acquisition, which have not been material to date. The transaction costs associated with the
acquisition were not material.
90
The preliminary acquisition date fair value consideration transferred for Krux was approximately $741.8
million, which consisted of the following (in thousands, except for share data):
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$367,995
Common stock (4,210,773 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
317,703
Fair value of stock options and restricted stock awards assumed . . . . .
56,068
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$741,766
The fair value of stock options assumed by the Company was determined using the Black-Scholes option
pricing model. The share conversion ratio of 0.2 was applied to convert Krux's outstanding equity awards for
Krux's common stock into equity awards for shares of the Company's common stock.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the
date of acquisition (in thousands):
Fair Value
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,883
Other current and noncurrent tangible assets . . . . . . . . . . . . . . . . . . . . .
12,418
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
642,489
Deferred revenue, current and noncurrent . . . . . . . . . . . . . . . . . . . . . . .
(7,037)
Other liabilities, current and noncurrent
. . . . . . . . . . . . . . . . . . . . . . . .
(9,308)
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(679)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$741,766
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible assets acquired, liabilities assumed and
identifiable intangible assets are based on management's estimates and assumptions. The deferred tax liability
established was primarily a result of the difference in the book basis and tax basis related to the identifiable
intangible assets. The preliminary estimated fair values of assets acquired and liabilities assumed, including
current and noncurrent income taxes payable, deferred taxes, and certain identifiable intangible assets, may be
subject to change as additional information is received and certain tax returns are finalized. Thus the provisional
measurements of fair value set forth above are subject to change. The Company expects to finalize the valuation
as soon as practicable, but not later than one year from the acquisition date.
The following table sets forth the components of identifiable intangible assets acquired (in thousands) and
their estimated useful lives as of the date of acquisition.
Fair
Value
Useful Life
Developed technology . . . . . . . . . . . . . . . . . . . . .
$75,000
3 years
Customer relationships . . . . . . . . . . . . . . . . . . . .
10,000
9 years
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . .
1,000
2 years
Total intangible assets subject to amortization . . .
$86,000
The amount recorded for developed technology represents the estimated fair value of Krux's data
management platform technology. The amount recorded for customer relationships represents the fair values of
the underlying relationship with Krux customers. The goodwill balance is primarily attributed to the assembled
workforce and expanded market opportunities when integrating Krux's technology with the Company's other
offerings. The goodwill balance is not deductible for U.S. income tax purposes.
91
The Company assumed equity awards for shares of Krux's common stock with a fair value of $104.4
million, of which $56.1 million was allocated to the consideration transferred.
BeyondCore
In September 2016, the Company acquired the outstanding stock of BeyondCore, Inc. ("BeyondCore"), for
consideration consisting of cash, common stock, and equity awards assumed. BeyondCore is a smart data
discovery technology company that automatically explores millions of variable combinations from structured
data sources. The Company has included the financial results of BeyondCore in the consolidated financial
statements from the date of acquisition, which have not been material to date. The transaction costs associated
with the acquisition were not material.
The acquisition date fair value consideration transferred for BeyondCore was approximately $106.6 million,
which consisted of the following (in thousands, except for share data):
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21,053
Common stock (1,073,432 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,484
Fair value of stock options and restricted stock awards assumed . . . . .
4,061
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$106,598
The fair value of stock options assumed by the Company was determined using the Black-Scholes option
pricing model. The share conversion ratio of 0.0464 was applied to convert BeyondCore's outstanding equity
awards for BeyondCore's common stock into equity awards for shares of the Company's common stock.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the
date of acquisition (in thousands):
Fair Value
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,046
Other current and noncurrent tangible assets . . . . . . . . . . . . .
462
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,600
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,794
Deferred revenue, current and noncurrent . . . . . . . . . . . . . . .
(818)
Other liabilities, current and noncurrent
. . . . . . . . . . . . . . . .
(923)
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(563)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$106,598
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible assets acquired, liabilities assumed and
identifiable intangible assets are based on management's estimates and assumptions. The deferred tax liability
established was primarily a result of the difference in the book basis and tax basis related to the identifiable
intangible assets. The preliminary estimated fair values of assets acquired and liabilities assumed, including
current and noncurrent income taxes payable and deferred taxes may be subject to change as additional
information is received and certain tax returns are finalized. Thus the provisional measurements of fair value set
forth above are subject to change. The Company expects to finalize the valuation as soon as practicable, but not
later than one year from the acquisition date.
92
The following table sets forth the components of identifiable intangible assets acquired (in thousands) and
their estimated useful lives as of the date of acquisition.
Fair
Value
Useful Life
Developed technology . . . . . . . . . . . . . . . . . . . . .
$14,900
6 years
Customer relationships . . . . . . . . . . . . . . . . . . . .
700
2 years
Total intangible assets subject to amortization . . .
$15,600
The amount recorded for developed technology represents the estimated fair value of BeyondCore's smart
data analytics technology. The amount recorded for customer relationships represents the fair values of the
underlying relationships with BeyondCore customers. The goodwill balance is primarily attributed to the
assembled workforce and expanded market opportunities when integrating BeyondCore's technology with the
Company's other offerings. The goodwill balance is not deductible for U.S. income tax purposes.
The Company assumed equity awards for shares of BeyondCore's common stock with a fair value of $8.6
million, of which $4.1 million was allocated to the consideration transferred.
Quip
In August 2016, the Company acquired the outstanding stock of Quip, Inc. ("Quip") for consideration
consisting of cash, common stock, fair value of equity awards assumed, as well as fair value of the Company's
pre-existing relationship. Quip combines content and communication to create living documents to allow work-
teams to write, edit and discuss documents, spreadsheets and checklists in a single experience. The Company
acquired Quip for its product offerings and employees. The Company has included the financial results of Quip
in the consolidated financial statements from the date of acquisition, which have not been material to date. The
transaction costs associated with the acquisition were not material.
The acquisition date fair value consideration transferred for Quip was approximately $412.0 million, which
consisted of the following (in thousands, except for share data):
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,711
Common stock (4,796,152 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
385,131
Fair value of stock options and restricted stock awards assumed . . . . .
22,345
Fair value of pre-existing relationship . . . . . . . . . . . . . . . . . . . . . . . . . .
1,833
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$412,020
The fair value of stock options assumed by the Company was determined using the Black-Scholes option
pricing model. The share conversion ratio of 0.5514 was applied to convert Quip's outstanding equity awards for
Quip's common stock into equity awards for shares of the Company's common stock.
The Company had a $1.0 million, or approximately 0.3 percent, noncontrolling equity investment in Quip
prior to the acquisition. The acquisition date fair value of the Company's previously held equity interest was
approximately $1.8 million and is included in the measurement of the consideration transferred. The Company
recognized a gain of approximately $0.8 million as a result of remeasuring its prior equity interest in Quip held
before the business combination. The gain is included in gains from acquisitions of strategic investments in the
consolidated statement of operations.
93
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the
date of acquisition (in thousands):
Fair Value
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27,985
Other current and noncurrent tangible assets . . . . . . . . . . . . .
556
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,200
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
357,610
Other liabilities, current and noncurrent
. . . . . . . . . . . . . . . .
(2,491)
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,840)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$412,020
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible assets acquired, liabilities assumed and
identifiable intangible assets are based on management's estimates and assumptions. The deferred tax liability
established was primarily a result of the difference in the book basis and tax basis related to the identifiable
intangible assets. The preliminary estimated fair values of assets acquired and liabilities assumed, including
current and noncurrent income taxes payable and deferred taxes may be subject to change as additional
information is received and certain tax returns are finalized. Thus the provisional measurements of fair value set
forth above are subject to change. The Company expects to finalize the valuation as soon as practicable, but not
later than one year from the acquisition date.
The following table sets forth the components of identifiable intangible assets acquired (in thousands) and
their estimated useful lives as of the date of acquisition.
Fair
Value
Useful Life
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,590
5 years
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,460
10 years
Other purchased intangible assets . . . . . . . . . . . . . . . . . . . .
150
3 years
Total intangible assets subject to amortization . . . . . . . . . .
$31,200
The amount recorded for developed technology represents the estimated fair value of Quip's productivity
technology. The amount recorded for customer relationships represents the fair values of the underlying
relationship with Quip customers. The goodwill balance is primarily attributed to the assembled workforce and
expanded market opportunities when integrating Quip's technology with the Company's other offerings. The
goodwill balance is not deductible for U.S. income tax purposes.
The Company assumed equity awards for shares of Quip's common stock with a fair value of $68.0 million,
of which $22.3 million was allocated to the consideration transferred.
Demandware
In July 2016, the Company acquired for cash the outstanding stock of Demandware, Inc. ("Demandware"),
an industry-leading provider of enterprise cloud commerce solutions in the digital commerce market. The
Company acquired Demandware to, among other things, expand the Company's position in customer relationship
management and to pursue the digital commerce market with the new Salesforce Commerce Cloud. The
Company has included the financial results of Demandware in the consolidated financial statements from the
date of acquisition. The transaction costs associated with the acquisition were $15.5 million and are recorded in
general and administrative expense. The acquisition date fair value of the consideration transferred for
94
Demandware was approximately $2.9 billion, including the proceeds from the term loan of $500.0 million (see
Note 8), which consisted of the following (in thousands):
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,920,336
Fair value of stock options and restricted stock awards assumed . . . .
9,344
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,929,680
The estimated fair value of the stock options assumed by the Company was determined using the Black-
Scholes option pricing model. The share conversion ratio of 0.9545 was applied to convert Demandware's
outstanding equity awards for Demandware's common stock into equity awards for shares of the Company's
common stock.
The following table summarizes the preliminary estimated fair values of assets acquired and liabilities
assumed as of the date of acquisition (in thousands):
Fair Value
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 139,259
Marketable securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,230
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,982
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,545
Customer contract asset, noncurrent . . . . . . . . . . . . . . . . . .
327,830
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
633,277
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,463
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,579
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,985,269
Accounts payable, accrued expenses and other liabilities . . .
(51,870)
Deferred revenue, current and noncurrent
. . . . . . . . . . . . .
(22,647)
Other liabilities, noncurrent
. . . . . . . . . . . . . . . . . . . . . . . .
(12,935)
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(210,302)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,929,680
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets
acquired and liabilities assumed are based on management's estimates and assumptions. The deferred tax liability
established was primarily a result of the difference in the book basis and tax basis related to the identifiable
intangible assets. The preliminary estimated fair values of assets acquired and liabilities assumed, specifically,
the current and noncurrent income taxes payable and deferred taxes, may be subject to change as additional
information is received and certain tax returns are finalized. The Company expects to finalize the valuation as
soon as practicable, but not later than one year from the acquisition date.
During fiscal 2017, and subsequent to the initial purchase accounting, the Company identified additional
information that existed as of the date of the acquisition related to the valuation of the customer relationship
assets and therefore adjusted the measurement of the fair value of these assets. As a result of the updated
valuation, the Company recorded measurement period adjustments, which included a decrease to the fair value of
the customer relationship asset of $168.8 million. Additionally, these measurement period adjustments resulted in
a corresponding decrease to the deferred tax liability recognized of $61.2 million. The net effect of these changes
resulted in a corresponding increase to goodwill of $100.4 million. These adjustments are reflected in the table
above.
95
The following table sets forth the components of identifiable intangible assets acquired and their estimated
useful lives as of the date of acquisition (in thousands):
Fair
Value
Useful Life
Developed technology . . . . . . . . . . . . . . . . . . .
$242,550
2 to 5 years
Customer relationships . . . . . . . . . . . . . . . . . .
384,590 3 to 10 years
Other purchased intangible assets . . . . . . . . . .
6,137 3 to 10 years
Total intangible assets subject to amortization . . .
$633,277
Developed technology represents the fair value of Demandware's e-commerce technology. Customer
relationships represent the fair values of the underlying relationships with Demandware customers. Other
purchased intangible assets also includes intangibles such as trademarks and favorable leases, which span over
lease terms varying from 1 to 10 years. The goodwill balance is primarily attributed to the assembled workforce
and expanded market opportunities when integrating Demandware's e-commerce technology with the
Company's other offerings. The majority of the goodwill balance is not deductible for U.S. income tax purposes.
The Company assumed equity awards with an estimated fair value of $135.2 million, of which $9.3 million
was allocated to the purchase consideration.
The Demandware acquisition was significant to our consolidated financial statements and their results are
included in the consolidated financial statements from the date of acquisition. The amounts of revenue and
earnings of Demandware included in the Company's consolidated statement of operations from the acquisition
date of July 11, 2016 through January 31, 2017 are as follows (in thousands):
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 120,383
Pretax loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(102,524)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(103,149)
SteelBrick
In February 2016, the Company acquired the outstanding stock of SteelBrick, Inc. ("SteelBrick") for
consideration consisting of cash and common stock. SteelBrick is a next generation quote-to-cash platform,
delivered 100 percent natively on the Salesforce platform, which offers applications, or apps, for automating the
entire deal close processfrom generating quotes and configuring orders to collecting cash. The Company has
included the financial results of SteelBrick in the consolidated financial statements from the date of acquisition,
which have not been material to date. The transaction costs associated with the acquisition were not material.
The acquisition date fair value consideration transferred for SteelBrick was approximately $314.8 million,
which consisted of the following (in thousands, except for share data):
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,698
Common stock (4,288,447 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
278,372
Fair value of stock options and restricted stock awards assumed . . . . . . . . . . . . .
10,989
Fair value of pre-existing relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,726
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$314,785
The fair value of stock options assumed by the Company was determined using the Black-Scholes option
pricing model. The share conversion ratio of 0.08 was applied to convert SteelBrick's outstanding equity awards
for SteelBrick's common stock into equity awards for shares of the Company's common stock.
96
The Company had a $13.9 million, or approximately six percent, noncontrolling equity investment in
SteelBrick prior to the acquisition. The acquisition date fair value of the Company's previously held equity
interest was approximately $23.7 million and is included in the measurement of the consideration transferred.
The Company recognized a gain of approximately $9.8 million as a result of remeasuring its prior equity interest
in SteelBrick held before the business combination. The gain is included in gains from acquisitions of strategic
investments on the Consolidated Statement of Operations.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the
date of acquisition (in thousands):
Fair Value
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 59,296
Other current and noncurrent tangible assets . . . . . . . . . . . . . . . . . . . . .
3,012
Customer contract asset, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,954
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,160
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
217,986
Deferred revenue, current and noncurrent . . . . . . . . . . . . . . . . . . . . . . .
(8,479)
Other liabilities, current and noncurrent
. . . . . . . . . . . . . . . . . . . . . . . .
(2,665)
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,479)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$314,785
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets
acquired was recorded as goodwill. The fair values assigned to tangible assets acquired, liabilities assumed and
identifiable intangible assets are based on management's estimates and assumptions.
The following table sets forth the components of identifiable intangible assets acquired (in thousands) and
their estimated useful lives as of the date of acquisition.
Fair
Value
Useful Life
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,700
4 years
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,110
7 years
Other purchased intangible assets . . . . . . . . . . . . . . . . . . . .
1,350
1 year
Total intangible assets subject to amortization . . . . . . . . . .
$49,160
The amount recorded for developed technology represents the estimated fair value of SteelBrick's quote-to-
cash and billing technology. The amount recorded for customer relationships represents the fair values of the
underlying relationship with SteelBrick customers. The goodwill balance is primarily attributed to the assembled
workforce and expanded market opportunities when integrating SteelBrick's quote-to-cash technology with the
Company's other offerings. The majority of the goodwill balance is not deductible for U.S. income tax purposes.
The Company assumed equity awards for shares of SteelBrick's common stock with a fair value of
$39.6 million, of which $11.0 million was allocated to the consideration transferred.
MetaMind
In April 2016, the Company acquired MetaMind, Inc. ("MetaMind") for approximately $32.8 million in
cash, net of cash acquired. This amount includes amounts to be paid after an initial holdback period, and assumed
equity awards. The primary reason for the acquisition was to extend the Company's intelligence in natural
language processing and image recognition across all clouds. The Company has included the financial results of
MetaMind, which have not been material to date, in its consolidated financial statements from the date of
97
acquisition. The transaction costs associated with the acquisition were not material. In allocating the purchase
consideration for MetaMind based on estimated fair values, the Company recorded $31.2 million of goodwill and
$1.9 million of identifiable intangible assets. The goodwill balance is not deductible for U.S. income tax
purposes. The estimated fair values of assets acquired and liabilities assumed, specifically current and noncurrent
income taxes payable and deferred taxes, may be subject to change as additional information is received and
certain tax returns are finalized. Thus, the provisional measurements of fair value are subject to change. The
Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition
date.
The Company assumed equity awards for shares of MetaMind's common stock with a fair value of
$5.5 million, of which $0.5 million was allocated to the purchase consideration.
The Company's chairman, who held a greater than ten percent ownership interest in MetaMind, received
approximately $6.0 million in total proceeds, subject to customary escrow amounts, in connection with this
acquisition.
Other Fiscal 2017 Business Combinations
During fiscal 2017, the Company acquired seven other companies for an aggregate of $108.7 million in
cash, net of cash acquired, and has included the financial results of these companies in its consolidated financial
statements from the respective dates of acquisition. These transactions, individually and in the aggregate, are not
material to the Company. The costs associated with these acquisitions were not material. The Company
accounted for these transactions as business combinations. In allocating the purchase consideration for each
company based on estimated fair values, the Company recorded $108.2 million of goodwill and $34.2 million of
identifiable intangible assets. Amounts allocated to the remaining acquired tangible assets and liabilities were not
material. The majority of the goodwill balance associated with these transactions is not deductible for U.S.
income tax purposes. The Company expects to finalize the valuations as soon as practicable, but not later than
one year from the acquisition dates.
Fiscal Year 2016
50 Fremont
In February 2015, the Company acquired 50 Fremont Street, a 41-story building totaling approximately
817,000 rentable square feet located in San Francisco, California ("50 Fremont"). At the time of the acquisition,
the Company was leasing approximately 500,000 square feet of the available space in 50 Fremont. The Company
acquired 50 Fremont for the purpose of expanding its global headquarters in San Francisco. Pursuant to the
acquisition agreement, the Company also acquired existing third-party leases and other intangible property,
terminated the Company's existing office leases with the seller and assumed the seller's outstanding loan on
50 Fremont. In accordance with Accounting Standards Codification 805 ("ASC 805"), Business Combinations,
the Company accounted for the building purchase as a business combination.
The purchase consideration for the corporate headquarters building was as follows (in thousands):
Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$435,189
Loan assumed on 50 Fremont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200,000
Prorations due to ownership transfer midmonth . . . . . . . . . . . . . . . . . .
2,411
Total purchase consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$637,600
98
The following table summarizes the fair values of net tangible and intangible assets acquired (in thousands):
Fair Value
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$435,390
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
183,888
Termination of salesforce operating lease . . . . . . . . . . . . . . . . . . . . . . .
9,483
Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,590
Loan assumed on 50 Fremont fair market value adjustment . . . . . . . . .
1,249
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$637,600
To fund the purchase of 50 Fremont, the Company used $115.0 million of restricted cash that the Company
had on the balance sheet as of January 31, 2015.
In connection with the purchase, the Company recognized a net non-cash gain totaling approximately $36.6
million on the termination of the lease signed in January 2012. This amount reflects a gain of $46.1 million for
the reversal of tenant incentives provided from the previous landlord at the inception of the lease and a loss of
$9.5 million related to the termination of the Company's operating lease. The tax impact as a result of the
difference between tax and book basis of the building is insignificant after considering the impact of the
Company's valuation allowance. The amounts above have been included in the Company's consolidated
statements of operations and consolidated balance sheet. The Company has included the rental income from third
party leases with other tenants in the building, and the proportionate share of building expenses for those leases
in other expense in the Company's consolidated results of operations from the date of acquisition. These amounts
are recorded in other expense as this net rental income is not part of our core operations. These amounts were not
material for the periods presented.
Other Fiscal 2016 Business Combinations
During fiscal 2016, the Company acquired several companies for an aggregate of $60.1 million in cash, net
of cash acquired, and has included the financial results of these companies in its consolidated financial
statements from the respective dates of acquisition. These transactions, individually and in aggregate, are not
material to the Company. The costs associated with these acquisitions were not material. The Company
accounted for these transactions as business combinations. In allocating the purchase consideration for each
company based on estimated fair values, the Company recorded $68.7 million of goodwill. Some of the goodwill
balance associated with these transactions is deductible for U.S. income tax purposes.
Unaudited Pro Forma Results of Acquirees
The Company has included the financial results of each of the acquirees in the consolidated financial
statements from the respective dates of acquisition; the revenues and the results of each of the acquirees, except
for Demandware, have not been material both individually or in the aggregate to the Company's fiscal 2017 and
2016 results.
The following unaudited pro forma financial information summarizes the combined results of operations for
the Company, Demandware and other acquisitions, as though the companies were combined as of the beginning
of the Company's fiscal 2016. The unaudited pro forma financial information was as follows (in thousands):
Fiscal Year Ended
January 31,
2017
2016
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,470,154
$6,813,535
Pretax loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(167,950)
(362,882)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(239,169)
(212,342)
99
The pro forma financial information for all periods presented has been calculated after adjusting the results
of Demandware and other acquisitions to reflect the business combination accounting effects resulting from these
acquisitions including the amortization expense from acquired intangible assets and the stock-based
compensation expense for unvested stock options and restricted stock awards assumed as though the acquisition
occurred as of the beginning of the Company's fiscal year 2016. The historical financial information has been
adjusted to give effect to pro forma events that are directly attributable to the business combinations and factually
supportable. The pro forma financial information is for informational purposes only and is not indicative of the
results of operations that would have been achieved if the acquisitions had taken place at the beginning of the
Company's fiscal 2016.
The pro forma financial information for fiscal 2017 and 2016 combines the historical results of the
Company, the adjusted historical results of Demandware and other acquisitions for fiscal 2017 and 2016, due to
differences in reporting periods and considering the date the Company acquired Demandware and other
acquisitions, and the effects of the pro forma adjustments described above.
7. Intangible Assets Acquired Through Business Combinations and Goodwill
Intangible assets acquired through business combinations
Intangible assets acquired through business combinations are as follows as of January 31, 2017 (in
thousands):
Intangible Assets, Gross
Accumulated Amortization
Intangible Assets, Net Weighted
Average
Useful
Life
Jan 31,
2016
Additions
Jan 31,
2017
Jan 31,
2016
Expense
Jan 31,
2017
Jan 31,
2016
Jan 31,
2017
Acquired developed technology . . . $ 684,260 $407,901 $1,092,161 $(451,889) $(126,040) $(577,929) $232,371 $ 514,232
3.6
Customer relationships . . . . . . . . .
410,763
432,851
843,614
(160,866)
(93,169)
(254,035) 249,897
589,579
5.4
Trade name and trademark . . . . . .
38,980
6,970
45,950
(38,980)
(2,369)
(41,349)
0
4,601
2.3
Territory rights and other . . . . . . .
12,372
3,414
15,786
(8,585)
(3,671)
(12,256)
3,787
3,530
7.3
50 Fremont lease intangibles . . . .
7,713
0
7,713
(3,762)
(2,519)
(6,281)
3,951
1,432
2.1
Total . . . . . . . . . . . . . . . . . . . . . . . $1,154,088 $851,136 $2,005,224 $(664,082) $(227,768) $(891,850) $490,006 $1,113,374
4.5
Amortization of intangibles for fiscal 2017, 2016, and 2015 classified in the Consolidated Statements of
Operations were $227.8 million, $161.7 million, $155.0 million, respectively.
The expected future amortization expense for intangible assets as of January 31, 2017 is as follows (in
thousands):
Fiscal Period:
Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 287,950
Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265,806
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
224,612
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169,055
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110,926
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,025
Total amortization expense . . . . . . . . . . . . . . . . . . . . . . . . .
$1,113,374
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net
tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at
least annually during the fourth quarter.
100
The changes in the carrying amounts of goodwill, which is generally not deductible for tax purposes, were
as follows (in thousands):
Balance as of January 31, 2015 . . . . . . . . . . . . . . . . . . . . . .
$3,782,660
Other acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,655
Adjustments of acquisition date fair values: . . . . . . . .
(1,378)
Balance as of January 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
3,849,937
SteelBrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
217,986
MetaMind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,242
Demandware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,884,886
Quip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
357,610
BeyondCore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,794
Krux . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
642,489
Other acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,164
Adjustments of acquisition date fair values:
Demandware . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,383
Other business combinations and adjustments . .
(19,645)
Balance as of January 31, 2017 . . . . . . . . . . . . . . . . . . . . . .
$7,263,846
8. Debt
Convertible Senior Notes
Par Value
Outstanding
Equity
Component
Recorded
at Issuance
Liability Component of Par
Value as of January 31,
(in thousands)
2017
2016
0.25% Convertible Senior Notes due April 1,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,150,000
$122,421(1) $1,116,360
$1,088,097
(1) This amount represents the equity component recorded at the initial issuance of the 0.25% convertible senior
notes.
In March 2013, the Company issued at par value $1.15 billion of 0.25% convertible senior notes (the
"0.25% Senior Notes") due April 1, 2018, unless earlier purchased by the Company or converted. Interest is
payable semi-annually, in arrears on April 1 and October 1 of each year.
The 0.25% Senior Notes are governed by an indenture between the Company, as issuer, and U.S. Bank
National Association, as trustee. The 0.25% Senior Notes are unsecured and do not contain any financial
covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or
the issuance or repurchase of securities by the Company.
If converted, holders of the 0.25% Senior Notes will receive cash equal to the principal amount, and at the
Company's election, cash, shares of the Company's common stock, or a combination of cash and shares, for any
amounts in excess of the principal amounts.
Certain terms of the conversion features of the 0.25% Senior Notes are as follows:
Conversion
Rate per $1,000
Par Value
Initial
Conversion
Price per
Share
Convertible Date
0.25% Senior Notes . . . . . . . . . . . . . . . . . .
15.0512
$66.44
January 1, 2018
101
Throughout the term of the 0.25% Senior Notes, the conversion rate may be adjusted upon the occurrence of
certain events, including any cash dividends. Holders of the 0.25% Senior Notes will not receive any cash
payment representing accrued and unpaid interest upon conversion of a Note. Accrued but unpaid interest will be
deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited.
Holders may convert the 0.25% Senior Notes under the following circumstances:

during any fiscal quarter, if, for at least 20 trading days during the 30 consecutive trading day period
ending on the last trading day of the immediately preceding fiscal quarter, the last reported sales price
of the Company's common stock for such trading day is greater than or equal to 130% of the applicable
conversion price on such trading day share of common stock on such last trading day;

in certain situations, when the trading price of the 0.25% Senior Notes is less than 98% of the product
of the sale price of the Company's common stock and the conversion rate;

upon the occurrence of specified corporate transactions described under the 0.25% Senior Notes
indenture, such as a consolidation, merger or binding share exchange; or

at any time on or after the convertible date noted above (as described in the indenture).
Holders of the 0.25% Senior Notes have the right to require the Company to purchase with cash all or a
portion of the Notes upon the occurrence of a fundamental change, such as a change of control, at a purchase
price equal to 100% of the principal amount of the 0.25% Senior Notes plus accrued and unpaid interest.
Following certain corporate transactions that constitute a change of control, the Company will increase the
conversion rate for a holder who elects to convert the 0.25% Senior Notes in connection with such change of
control.
In accounting for the issuances of the 0.25% Senior Notes, the Company separated the 0.25% Senior Notes
into liability and equity components. The carrying amount of the liability component was calculated by
measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying
amount of the equity component representing the conversion option was determined by deducting the fair value
of the liability component from the par value of the 0.25% Senior Notes as a whole. The excess of the principal
amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense
over the term of the 0.25% Senior Notes. The equity component is not remeasured as long as it continues to meet
the conditions for equity classification.
In accounting for the transaction costs related to the 0.25% Senior Notes issuance, the Company allocated
the total amount incurred to the liability and equity components based on its relative values. Transaction costs
attributable to the liability component are being amortized to expense over the terms of the 0.25% Senior Notes,
and transaction costs attributable to the equity component were netted with the equity component in
stockholders' equity.
The 0.25% Senior Notes consisted of the following (in thousands):
As of January 31,
2017
2016
Liability component :
Principal (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,150,000
$1,150,000
Less: debt discount, net (2) . . . . . . . . . . . . . . . . .
(29,954)
(54,941)
Less: debt issuance cost (3) . . . . . . . . . . . . . . . . .
(3,686)
(6,962)
Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,116,360
$1,088,097
(1) The effective interest rates of the 0.25% Senior Notes is 2.53%. These interest rates were based on the
interest rates of a similar liability at the time of issuance that did not have an associated convertible feature.
102
(2)
Included in the consolidated balance sheets within Convertible 0.25% Senior Notes (which is classified as a
noncurrent liability) and is amortized over the life of the 0.25% Senior Notes using the effective interest rate
method.
(3)
In April 2015, the FASB issued ASU 2015-03 which simplifies the presentation of debt issuance costs by
requiring debt issuance costs to be presented as a deduction from the corresponding debt liability rather than
an asset that is amortized. The Company retrospectively adopted this standard for the prior period presented.
The total estimated fair values of the Company's 0.25% Senior Notes at January 31, 2017 was $1.5 billion.
The fair value was determined based on the closing trading price per $100 of the 0.25% Senior Notes as of the
last day of trading for fiscal 2017.
Based on the closing price of the Company's common stock of $79.10 on January 31, 2017, the if-converted
value of the 0.25% Senior Notes exceeded their principal amount by approximately $219.1 million. Based on the
terms of the 0.25% Senior Notes, the Senior Notes were not convertible at any time during the fiscal year ended
January 31, 2017.
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").
(in thousands, except for shares)
Date
Purchase
Shares
0.25% Note Hedges . . . . . . . . . . . . . . . . . . . . . . .
March 2013
$153,800
17,308,880
The Note Hedges cover shares of the Company's common stock at a strike price that corresponds to the
initial conversion price of the respective 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 Note Hedges do not
impact earnings per share.
Warrants
Date
Proceeds
(in thousands)
Shares
Strike
Price
0.25% Warrants . . . . . . . . . . . . . . . . . . . . . . . .
March 2013
$84,800
17,308,880
$90.40
In March 2013, the Company also entered into a warrants transaction (the "0.25% Warrants"), whereby the
Company sold warrants to acquire, subject to anti-dilution adjustments, shares of the Company's common stock.
The 0.25% Warrants were anti-dilutive for the periods presented. The 0.25% Warrants are separate transactions
entered into by the Company and are not part of the terms of the 0.25% Senior Notes or the 0.25% Note Hedges.
Holders of the 0.25% Senior Notes and 0.25% Note Hedges will not have any rights with respect to the 0.25%
Warrants.
Term Loan
In July 2016, the Company entered into a credit agreement (the "Term Loan Credit Agreement") with Bank
of America, N.A. and certain other institutional lenders for a $500.0 million term loan facility (the "Term Loan")
that matures on July 11, 2019. The Term Loan will bear interest, at the Company's option, at either a base rate
plus a spread of 0.00% to 0.75% or an adjusted LIBOR rate plus a spread of 1.00% to 1.75%, in each case with
such spread being determined based on the Company's consolidated leverage ratio for the preceding four fiscal
quarter period.
103
In July 2016, the Company borrowed the full $500.0 million under the Term Loan. All of the net proceeds
of the Term Loan were for the purposes of partially funding the acquisition of Demandware.
Interest on the Term Loan is due and payable in arrears quarterly for loans bearing interest at a rate based on
the base rate and at the end of an interest period in the case of loans bearing interest at the adjusted LIBOR rate.
All outstanding amounts under the Term Loan Credit Agreement will be due and payable on July 11, 2019.
The Company may prepay the Term Loan, in whole or in part, at any time without premium or penalty, subject to
certain conditions, and amounts repaid or prepaid may not be reborrowed. The Company's obligations under the
Term Loan Credit Agreement are required to be guaranteed by certain of its subsidiaries meeting certain
thresholds set forth in the Term Loan Credit Agreement.
The Term Loan Credit Agreement contains customary affirmative and negative covenants, including
covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, incur
indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter
into transactions with affiliates, pay dividends or make distributions and repurchase stock. The Company is also
required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio.
The Term Loan Credit Agreement includes customary events of default. Under certain circumstances, a default
interest rate will apply on all obligations during the existence of an event of default under the Term Loan Credit
Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and
2.00% above the rate applicable for base rate loans for any other overdue amounts. The occurrence of an event of
default could result in the acceleration of obligations under the Term Loan Credit Agreement. The Company was
in compliance with the Term Loan Credit Agreement's covenants as of January 31, 2017.
The weighted average interest rate on the Term Loan was 1.8% for the fiscal year ended January 31, 2017.
Accrued interest on the Term Loan was $5.2 million as of January 31, 2017. As of January 31, 2017, the
outstanding principal portion was $500.0 million, all of which was classified as noncurrent.
Revolving Credit Facility
In July 2016, the Company entered into an Amended and Restated Credit Agreement (the "Revolving Loan
Credit Agreement") with Wells Fargo Bank, National Association, and certain other institutional lenders that
provides for $1.0 billion unsecured revolving credit facility (the "Credit Facility") that matures in July 2021. The
Revolving Loan Credit Agreement amended and restated the Company's existing revolving credit facility dated
October 2014. The Company may use the proceeds of future borrowings under the Credit Facility for refinancing
other indebtedness, working capital, capital expenditures and other general corporate purposes, including
permitted acquisitions.
The borrowings under the Credit Facility bear interest, at the Company's option, at a base rate plus a spread
of 0.00% to 0.75% or an adjusted LIBOR rate plus a spread of 1.00% to 1.75%, in each case with such spread
being determined based on the Company's consolidated leverage ratio for the preceding four fiscal quarter
period. Interest is due and payable in arrears quarterly for loans bearing interest at a rate based on the base rate
and at the end of an interest period in the case of loans bearing interest at the adjusted LIBOR rate. Regardless of
what amounts, if any, are outstanding under the Credit Facility, the Company is also obligated to pay an ongoing
commitment fee at a rate of 0.125% to 0.25%, with such rate being based on the Company's consolidated
leverage ratio for the preceding four fiscal quarter period, payable in arrears quarterly.
The Revolving Loan Credit Agreement contains customary affirmative and negative covenants, including
covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, incur
indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter
into transactions with affiliates, pay dividends or make distributions and repurchase stock. The Company is also
required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio.
104
The Revolving Loan Credit Agreement includes customary events of default. Under certain circumstances, a
default interest rate will apply on all obligations during the existence of an event of default under the Revolving
Loan Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue
principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts. The occurrence
of an event of default could result in the acceleration of obligations under the Revolving Loan Credit Agreement.
The Company was in compliance with the Revolving Loan Credit Agreement's covenants as of January 31, 2017.
In the fourth quarter of fiscal 2017, the Company drew upon $750.0 million of the Credit Facility and
subsequently paid down $550.0 million of outstanding borrowings under the Credit Facility. There were $200.0
million outstanding borrowings under the Credit Facility as of January 31, 2017. The weighted average interest
rate on the borrowings under the Credit Facility was 1.9% for fiscal 2017. The Company continues to pay a fee
on the undrawn amount of the Credit Facility.
Loan Assumed on 50 Fremont
The Company assumed a $200.0 million loan with the acquisition of 50 Fremont (the "Loan"). The Loan
bears an interest rate of 3.75% per annum and is due in June 2023. The Loan initially requires interest only
payments. Beginning in fiscal year 2019, principal and interest payments are required, with the remaining
principal due at maturity. For the fiscal year 2017 and 2016, total interest expense recognized was $7.5 million
and $7.3 million, respectively. The Loan can be prepaid at any time subject to a yield maintenance fee. The
agreement governing the Loan contains certain customary affirmative and negative covenants that the Company
was in compliance with as of January 31, 2017.
Interest Expense on Convertible Senior Notes, Term Loan, Revolving Credit Facility and Loan Assumed on
50 Fremont
The following table sets forth total interest expense recognized related to the Notes, the Term Loan, the
Credit Facility and the Loan Assumed on 50 Fremont prior to capitalization of interest (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Contractual interest expense . . . . . . . . . . . . . . . . . . .
$19,023
$11,879
$10,224
Amortization of debt issuance costs . . . . . . . . . . . . . .
5,403
4,105
4,622
Amortization of debt discount . . . . . . . . . . . . . . . . . .
25,137
24,504
36,575
$49,563
$40,488
$51,421
9. 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,
2017
2016
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 26,932
$ 22,044
Other taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,177
27,341
Prepaid expenses and other current assets
. . . . . . . . . . . .
218,418
201,209
$279,527
$250,594
Included in prepaid expenses and other current assets are value-added tax and sales tax receivables
associated with the sale of the Company's services to third parties. Value-added tax and sales tax receivables
totaled $34.2 million and $27.3 million at January 31, 2017 and 2016, respectively.
105
Capitalized Software, net
Capitalized software, net at January 31, 2017 and 2016 was $141.7 million and $123.1 million, respectively.
Accumulated amortization relating to capitalized software, net totaled $250.9 million and $186.3 million,
respectively, at January 31, 2017 and 2016.
Capitalized internal-use software amortization expense totaled $64.6 million, $49.9 million, $35.7 million
for fiscal 2017, 2016 and 2015, respectively.
The Company capitalized $7.2 million, $6.1 million and $5.3 million of stock-based expenses related to
capitalized internal-use software development during fiscal 2017, 2016 and 2015, respectively.
Other Assets, net
Other assets consisted of the following (in thousands):
As of January 31,
2017
2016
Deferred income taxes, noncurrent, net
. . . . . . . . . . . . . .
$ 28,939
$ 15,986
Long-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,597
19,469
Domain names and patents, net of accumulated
amortization of $ 41,783 and $ 25,254, respectively . .
39,213
40,332
Customer contract asset (Note 6) . . . . . . . . . . . . . . . . . . .
281,733
93
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
113,387
66,217
$486,869
$142,097
(1) In April 2015, the FASB issued ASU 2015-03 which simplifies the presentation of debt issuance costs by
requiring debt issuance costs to be presented as a deduction from the corresponding debt liability rather than
an asset that is amortized. The Company retrospectively adopted this standard for the prior period presented,
which resulted in a decrease in the carrying value of $7.9 million to Other as of January 31, 2016.
Domain names and patents amortization expense for fiscal 2017, 2016 and 2015 was $16.5 million,
$15.5 million, $11.9 million respectively.
Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable, accrued expenses and other liabilities consisted of the following (in thousands):
As of January 31,
2017
2016
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 115,257
$
71,481
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . .
730,390
554,502
Non-cash equity liability (1) . . . . . . . . . . . . . . . . . . . .
68,355
0
Accrued other liabilities . . . . . . . . . . . . . . . . . . . . . . .
521,405
454,287
Accrued income and other taxes payable . . . . . . . . . .
239,699
205,781
Accrued professional costs . . . . . . . . . . . . . . . . . . . . .
38,254
33,814
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,710
14,071
Financing obligation-leased facility, current (2) . . . . .
19,594
15,402
$1,752,664
$1,349,338
106
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following (in thousands):
As of January 31,
2017
2016
Deferred income taxes and income taxes payable . . . . . .
$ 99,378
$ 85,996
Financing obligation-leased facility (2) . . . . . . . . . . . . . .
200,711
196,711
Long-term lease liabilities and other . . . . . . . . . . . . . . . . .
480,850
550,358
$780,939
$833,065
(1) Non-cash equity liability represents the purchase price of shares issued to non-executive employees, as to
shares exceeding previously registered ESPP shares at the time of sale to the extent the shares had not been
subsequently sold by the employee purchaser. The Company expects this liability will be relieved within a
year or earlier as the shares are subsequently sold.
(2) As of January 31, 2016, 350 Mission was in construction. In March 2016, construction was completed on
the building. See Note 5 "Property and Equipment" for further discussion.
10. Stockholders' Equity
The Company maintains the following stock plans: the ESPP, the 2013 Equity Incentive Plan and the 2014
Inducement Equity Incentive Plan (the "2014 Inducement Plan"). The expiration of the 1999 Stock Option Plan
("1999 Plan") in fiscal 2010 did not affect awards outstanding, which continue to be governed by the terms and
conditions of the 1999 Plan.
On July 10, 2014, the Company adopted the 2014 Inducement Plan with a reserve of 335,000 shares of
common stock for future issuance solely for the granting of inducement stock options and equity awards to new
employees, including employees of acquired companies. In addition, approximately 319,000 shares of common
stock that remained available for grant under the 2006 Inducement Equity Incentive Plan (the "Prior Inducement
Plan") as of July 9, 2014 were added to the 2014 Inducement Plan share reserve and the Prior Inducement Plan
was terminated. Further, any shares of common stock subject to outstanding awards under the Prior Inducement
Plan that expire, are forfeited, or are repurchased by the Company will also become available for future grant
under the 2014 Inducement Plan. Termination of the Prior Inducement Plan did not affect the outstanding awards
previously issued thereunder. The 2014 Inducement Plan was adopted without stockholder approval in reliance
on the "employment inducement exemption" provided under the New York Stock Exchange Listed Company
Manual.
In September 2011, the Company's Board of Directors amended and restated the ESPP. In conjunction with
the amendment of the ESPP, the Company's Board of Directors determined that the offerings under the ESPP
would commence, beginning with a twelve month offering period starting in December 2011. As of January 31,
2017, $48.4 million has been withheld on behalf of employees for future purchases under the ESPP and is
recorded in accounts payable, accrued expenses and other liabilities. Employees purchased 3.2 million shares for
$126.1 million and 3.0 million shares for $155.0 million, in fiscal 2017 and 2016, respectively, under the ESPP.
Prior to February 1, 2006, options issued under the Company's stock option plans generally had a term of 10
years. From February 1, 2006 through July 3, 2013, options issued had a term of five years. After July 3, 2013,
options issued have a term of seven years years.
107
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions and fair value per share:
Fiscal Year Ended January 31,
Stock Options
2017
2016
2015
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.4-32.3%
32-37%
37%
Estimated life . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5 years
3.5 years
3.6 years
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . .
0.89-1.55%
1.09-1.42%
1.12-1.53%
Weighted-average fair value per share of
grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
19.13
$
20.22
$
17.20
Fiscal Year Ended January 31,
ESPP
2017
2016
2015
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.2-35.2%
30-34%
32-35%
Estimated life . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.75 years
0.75 years
0.75 years
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . .
0.47-0.98%
0.06-0.76%
0.07-0.23%
Weighted-average fair value per share of
grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
20.18
$
19.49
$
14.56
The Company estimated its future stock price volatility considering both its observed option-implied
volatilities and its historical volatility calculations. Management believes this is the best estimate of the expected
volatility over the expected life of its stock options and stock purchase rights.
The estimated life for the stock options was based on an analysis of historical exercise activity. The
estimated life of the ESPP was based on the two purchase periods within each offering period. The risk-free
interest rate is based on the rate for a U.S. government security with the same estimated life at the time of the
option grant and the stock purchase rights.
The estimated forfeiture rate applied is based on historical forfeiture rates. The Company does not anticipate
paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the
option pricing model.
During fiscal 2017 and 2016, the Company granted performance-based restricted stock unit awards to the
Chairman of the Board and Chief Executive Officer as well as to other executive officers subject to vesting based
on a performance-based condition and a service-based condition. These performance-based restricted stock units
will vest simultaneously if the performance condition is achieved.
108
Stock activity excluding the ESPP is as follows:
Options Outstanding
Shares
Available
for Grant
Outstanding
Stock
Options
Weighted-
Average
Exercise Price
Aggregate
Intrinsic Value
(in thousands)
Balance as of January 31, 2016 . . . . . . .
46,879,908
26,258,798
$56.26
Increase in shares authorized:
2013 Equity Incentive Plan . .
191,592
0
0
2014 Inducement Plan . . . . . .
2,287,652
0
0
Assumed equity plans . . . . . .
4,923,185
0
0
Options granted under all plans . . .
(10,726,140)
10,726,140
57.24
Restricted stock activity . . . . . . . . .
(27,461,541)
0
0
Performance restricted stock
units . . . . . . . . . . . . . . . . . . . . . .
(448,729)
0
0
Stock grants to board and
advisory board members . . . . . .
(210,479)
0
0
Exercised . . . . . . . . . . . . . . . . . . . .
0
(5,457,123)
35.91
Plan shares expired . . . . . . . . . . . .
(78,365)
0
0
Canceled . . . . . . . . . . . . . . . . . . . . .
1,174,739
(1,174,739)
66.20
Balance as of January 31, 2017 . . . . . . .
16,531,822
30,353,076
$59.88
$594,313
Vested or expected to vest . . . . . . . . . . .
27,676,715
$58.89
$569,222
Exercisable as of January 31, 2017 . . . .
12,180,819
$49.82
$359,591
The total intrinsic value of the options exercised during fiscal 2017, 2016 and 2015 was $224.3 million,
$291.3 million and $250.3 million respectively. The intrinsic value is the difference between the current market
value of the stock and the exercise price of the stock option.
The weighted-average remaining contractual life of vested and expected to vest options is approximately
5.2 years.
As of January 31, 2017, options to purchase 12,180,819 shares were vested at a weighted average exercise
price of $49.82 per share and had a remaining weighted-average contractual life of approximately 4.1 years. The
total intrinsic value of these vested options as of January 31, 2017 was $359.6 million.
During fiscal 2017, the Company recognized stock-based expense of $820.4 million. As of January 31,
2017, the aggregate stock compensation remaining to be amortized to costs and expenses was $2.6 billion. It is
expected that this stock compensation balance will be amortized as follows: $980.5 million during fiscal 2018;
$762.9 million during fiscal 2019; $540.5 million during fiscal 2020; $249.7 million during fiscal 2021;
$17.4 million during fiscal 2022; $17.2 million during fiscal 2023; $8.0 million during fiscal 2024. The expected
amortization reflects only outstanding stock awards as of January 31, 2017 and assumes no forfeiture activity.
The aggregate stock compensation remaining to be amortized to costs and expenses will be recognized over
a weighted average period of 2.1 years.
109
The following table summarizes information about stock options outstanding as of January 31, 2017:
Options Outstanding
Options Exercisable
Range of Exercise
Prices
Number
Outstanding
Weighted-Average
Remaining
Contractual Life
(Years)
Weighted-Average
Exercise Price
Number of
Shares
Weighted-Average
Exercise Price
$0.86 to $39.09 . . . . . . .
5,365,871
4.4
$21.83
3,937,735
$26.53
$40.19 to $54.36 . . . . . .
4,296,003
3.8
51.78
3,082,048
51.62
$52.22 to $58.86 . . . . . .
557,788
4.6
57.05
295,043
56.97
$59.34 . . . . . . . . . . . . . .
5,707,488
4.8
59.34
2,895,013
59.34
$59.37 to $75.01 . . . . . .
2,164,797
5.8
68.85
396,998
68.69
$75.57 . . . . . . . . . . . . . .
6,106,407
6.8
75.57
0
0.00
$76.48 to $82.55 . . . . . .
6,154,722
5.9
80.75
1,573,982
80.95
30,353,076
5.3
$59.88
12,180,819
$49.82
Restricted stock activity is as follows:
Restricted Stock Outstanding
Outstanding
Weighted-
Average
Exercise Price
Aggregate
Intrinsic
Value
(in thousands)
Balance as of January 31, 2015 . . . . . . . . . . . .
23,144,008
$0.001
Granted- restricted stock units and
awards . . . . . . . . . . . . . . . . . . . . . . . . . .
9,736,623
0.001
Granted- performance stock units . . . . . .
191,382
0.001
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,715,332)
0.001
Vested and converted to shares . . . . . . . .
(9,062,096)
0.001
Balance as of January 31, 2016 . . . . . . . . . . . .
21,294,585
$0.001
Granted- restricted stock units and
awards . . . . . . . . . . . . . . . . . . . . . . . . . .
16,392,948
0.001
Granted- performance stock units . . . . . .
208,711
0.001
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,017,842)
0.001
Vested and converted to shares . . . . . . . .
(8,424,904)
0.001
Balance as of January 31, 2017 . . . . . . . . . . . .
27,453,498
$0.001
$2,171,572
Expected to vest . . . . . . . . . . . . . . . . . . . . . . . .
22,960,255
$1,816,156
The restricted stock, which upon vesting entitles the holder to one share of common stock for each share of
restricted stock, has an exercise price of $0.001 per share, which is equal to the par value of the Company's
common stock, and generally vests over 4 years.
The weighted-average grant date fair value of the restricted stock issued for fiscal 2017, 2016 and 2015 was
$75.99, $73.61 and $58.89, respectively.
110
Common Stock
The following number of shares of common stock were reserved and available for future issuance at
January 31, 2017:
Options outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,353,076
Restricted stock awards and units and performance stock
units outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,453,498
Stock available for future grant:
2013 Equity Incentive Plan . . . . . . . . . . . . . . . . . . . .
15,987,951
2014 Inducement Plan . . . . . . . . . . . . . . . . . . . . . . . .
461,465
Amended and Restated 2004 Employee Stock
Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,663,369
Assumed Equity Plans . . . . . . . . . . . . . . . . . . . . . . . .
82,406
Convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . .
17,308,880
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,308,880
112,619,525
During fiscal years 2017, 2016 and 2015, certain board members received stock grants totaling 62,632
shares of common stock, 67,041 shares of common stock and 83,127 shares of common stock, respectively for
board services pursuant to the terms described in the 2013 Plan and previously, the 2004 Outside Directors Stock
Plan. The expense related to these awards, which was expensed immediately at the time of the issuance, totaled
$4.7 million, $4.8 million and $5.0 million for fiscal 2017, 2016 and 2015, respectively.
Preferred Stock
The Company's board of directors has the authority, without further action by stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series. The Company's board of directors may designate the
rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights,
voting rights, terms of redemption, liquidation preference, sinking fund terms, and number of shares constituting
any series or the designation of any series. The issuance of preferred stock could have the effect of restricting
dividends on the Company's common stock, diluting the voting power of its common stock, impairing the
liquidation rights of its common stock, or delaying or preventing a change in control. The ability to issue
preferred stock could delay or impede a change in control. As of January 31, 2017 and 2016, no shares of
preferred stock were outstanding.
11. Income Taxes
The domestic and foreign components of income (loss) before provision for (benefit from) income taxes
consisted of the following (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,432
$ (49,558)
$(211,253)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(40,049)
113,837
(1,832)
$ 25,383
$ 64,279
$(213,085)
111
The provision for (benefit from) income taxes consisted of the following (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
153
$ 40,723
$
893
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,626
13,023
1,388
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71,878
57,347
50,493
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,657
111,093
52,774
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(182,848)
1,453
8,771
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35,808)
(426)
(10,830)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,250)
(415)
(1,112)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(230,906)
612
(3,171)
Provision for (benefit from) income taxes . . . . . .
$(154,249)
$111,705
$ 49,603
As described in Note 1 "Summary of Business and Significant Accounting Policies", the Company early adopted
ASU 2016-09 in fiscal 2017. The excess tax benefits resulted from the vesting or the settlement of the stock awards
recorded in the consolidated statement of operations during fiscal 2017 were immaterial, after considering the change
in the Company's valuation allowance. Prior to the adoption of ASU 2016-09, the Company recorded the excess tax
benefits of $59.5 million and $7.7 million directly to stockholders' equity, in fiscal 2016 and 2015 respectively.
In fiscal 2017, the Company recorded a net tax benefit of $154.2 million. The most significant component of this
tax amount was the benefit of $210.3 million resulting from a partial release of its valuation allowance in connection
with the acquisition of Demandware. The net deferred tax liability from acquisitions provided an additional source of
income to support the realizability of the Company's pre-existing deferred tax assets and as a result, the Company
released a portion of its valuation allowance. The tax benefit associated with the release of the valuation allowance was
partially offset by income taxes in profitable jurisdictions outside the United States. In addition, as a result of adopting
ASU 2016-09 and the Company's valuation allowance position, it did not record significant current tax expense for the
United States. In fiscal 2016, the Company recorded income taxes in profitable jurisdictions outside the United States
and current tax expense in the United States. The Company had U.S. current tax expense as a result of taxable income
before considering certain excess tax benefits from stock options and vesting of restricted stock. In fiscal 2015, the
Company recorded income taxes in profitable jurisdictions outside the United States, which was partially offset by tax
benefits from losses incurred by ExactTarget in certain state jurisdictions.
A reconciliation of income taxes at the statutory federal income tax rate to the provision for (benefit from)
income taxes included in the accompanying consolidated statements of operations is as follows (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
U.S. federal taxes at statutory rate . . . . . . . . . . . . . . . .
$
8,884
$ 22,498
$ (74,580)
State, net of the federal benefit . . . . . . . . . . . . . . . . . . .
838
(5,260)
(5,332)
Foreign taxes in excess of the U.S. statutory rate (1) . . . .
61,912
(25,780)
29,880
Change in valuation allowance . . . . . . . . . . . . . . . . . . .
(128,797)
139,565
100,143
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50,216)
(48,943)
(28,056)
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . .
47,836
26,841
26,224
Tax expense from acquisitions . . . . . . . . . . . . . . . . . . .
568
1,584
2,341
Excess tax benefits related to shared based
compensation (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(95,030)
0
0
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(244)
1,200
(1,017)
Provision for (benefit from) income taxes . . . . . . . . . .
$(154,249)
$111,705
$ 49,603
112
(1)
In fiscal 2016, most of the Altera related tax benefits was reflected in the foreign taxes in excess of the U.S.
statutory rate, which was partially offset by a change in valuation allowance.
(2)
In fiscal 2017, due to the early adoption of ASU 2016-09, the excess tax benefits resulted from the vesting
or the settlement of the stock awards were recorded in the tax provision, which was offset by the valuation
allowance in the U.S. jurisdiction.
The Company received certain tax incentives in Switzerland and Singapore in the form of reduced tax rates.
The tax reduction program in Switzerland expired in fiscal 2015, and the program in Singapore expired in fiscal
2016.
Deferred Income Taxes
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,
2017
2016
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . .
$1,018,080
$ 260,015
Deferred stock-based expense . . . . . . . . . . . . . . . .
133,921
89,532
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
240,925
211,997
Deferred rent expense . . . . . . . . . . . . . . . . . . . . . .
65,779
49,790
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
141,008
122,950
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
0
14,261
Basis difference on strategic and other
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,034
26,202
Financing obligation . . . . . . . . . . . . . . . . . . . . . . .
140,539
127,198
Deferred cost sharing adjustment . . . . . . . . . . . . .
30,351
30,351
Non-cash equity liability . . . . . . . . . . . . . . . . . . . .
26,155
0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,432
22,845
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
1,860,224
955,141
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
(948,386)
(439,971)
Deferred tax assets, net of valuation allowance . . . . . .
911,838
515,170
Deferred tax liabilities:
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . .
(139,641)
(121,071)
Purchased intangibles . . . . . . . . . . . . . . . . . . . . . .
(408,203)
(160,200)
Unrealized gains on investments . . . . . . . . . . . . .
(8,547)
(2,858)
Depreciation and amortization . . . . . . . . . . . . . . .
(251,782)
(224,435)
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
(98,997)
0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
(2,207)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
(907,170)
(510,771)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,668
$
4,399
At January 31, 2017, for federal income tax purposes, the Company had net operating loss carryforwards of
approximately $2.7 billion, which expire in fiscal 2021 through fiscal 2038, federal research and development tax
credits of approximately $196.1 million, which expire in fiscal 2020 through fiscal 2037, foreign tax credits of
approximately $42.8 million, which expire in fiscal 2019 through fiscal 2027, and minimum tax credits of
$0.7 million, which have no expiration date. For California income tax purposes, the Company had net operating
loss carryforwards of approximately $890.2 million which expire beginning in fiscal 2018 through fiscal 2038,
113
California research and development tax credits of approximately $157.3 million, which do not expire, and
$9.5 million of enterprise zone tax credits, which expire in fiscal 2025. For other states income tax purposes, the
Company had net operating loss carryforwards of approximately $1.1 billion which expire beginning in fiscal
2018 through fiscal 2037 and tax credits of approximately $17.1 million, which expire beginning in fiscal 2021
through fiscal 2027. 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.
The Company regularly assesses the realizability of its deferred tax assets and establishes a valuation
allowance if it is more-likely-than-not that some or all of its deferred tax assets will not be realized. The
Company evaluates and weighs all available positive and negative evidence such as historic results, future
reversals of existing deferred tax liabilities, projected future taxable income, as well as prudent and feasible tax-
planning strategies. Generally, more weight is given to objectively verifiable evidence, such as the cumulative
loss in recent years. During fiscal 2017, the valuation allowance increased by $508.4 million. The net increase
was primarily a result of the early adoption of ASU 2016-09, which was offset by the partial release of the
valuation allowance in connection with the acquisitions. The Company will continue to assess the realizability of
the deferred tax assets in each of the applicable jurisdictions going forward. The Company will adjust its
valuation allowance in the event sufficient positive evidence overcomes the negative evidence of losses in recent
years, for example, if the trend in increasing taxable income continues.
Tax Benefits Related to Stock-Based Expense
The total income tax benefit related to stock-based awards was $228.8 million, $180.2 million and
$170.8 million for fiscal 2017, 2016 and 2015, respectively, the majority of which was not recognized as a result
of the valuation allowance.
Unrecognized Tax Benefits and Other Considerations
The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its
subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. Certain prior year
tax returns are currently being examined by various taxing authorities in countries including the United States
and France. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not
that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax
benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be
realized upon settlement with the taxing authority. The Company had gross unrecognized tax benefits of
$231.3 million, $172.7 million, and $146.2 million as of January 31, 2017, 2016 and 2015 respectively.
A reconciliation of the beginning and ending balance of total unrecognized tax benefits for fiscal years
2017, 2016 and 2015 is as follows (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Balance as of February 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
$172,741
$146,188
$102,275
Tax positions taken in prior period:
Gross increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,254
7,456
17,938
Gross decreases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,131)
(7,264)
(1,967)
Tax positions taken in current period:
0
Gross increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,872
38,978
34,226
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,598)
(8,684)
0
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,261)
(781)
(1,224)
Currency translation effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
440
(3,152)
(5,060)
Balance as of January 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . .
$231,317
$172,741
$146,188
114
For fiscal 2017, 2016 and 2015 total unrecognized tax benefits in an amount of $73.0 million, $56.2 million
and $44.6 million, respectively, if recognized, would reduce income tax expense and the Company's effective tax
rate after considering the impact of the change in valuation allowance in the U.S.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the income
tax provision. The Company accrued penalties and interest in the amount of $0.2 million, $1.3 million and
$1.3 million in income tax expense during fiscal 2017, 2016 and 2015, respectively. The balance in the non-
current income tax payable related to penalties and interest was $6.7 million, $6.3 million and $4.6 million as of
January 31, 2017, 2016 and 2015, respectively.
The Company has operations and taxable presence in multiple jurisdictions in the U.S. and outside of the
U.S. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax
jurisdictions around the world. The Company currently considers U.S. federal and state, Canada, Japan,
Australia, Germany, France and the United Kingdom to be major tax jurisdictions. The Company's U.S. federal
and state tax returns since February 1999, which was the inception of the Company, remain open to examination.
With some exceptions, tax years prior to fiscal 2011 in jurisdictions outside of U.S. are generally closed.
However, in Japan and United Kingdom, the Company is no longer subject to examinations for years prior to
fiscal 2014 and fiscal 2015, respectively.
The Company is currently under audit by the U.S. Internal Revenue Service for fiscal 2011 to 2012.
Additionally, examinations are conducted in other international jurisdictions, including France. During fiscal
2017, the Company completed
examinations or effectively settled on tax positions with various taxing authorities and accordingly,
decreased unrecognized tax benefits by $15.6 million resulting from settlements. The Company regularly
evaluates its uncertain tax positions and the likelihood of outcomes from these tax examinations. Significant
judgment and estimates are necessary in the determination of income tax reserves. The Company believes that it
has provided adequate reserves for its income tax uncertainties. However, the outcome of the tax audits cannot be
predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner
inconsistent with management's expectations, the Company could adjust its provision for income taxes in the
future. However, in general, any adjustments resulting from the U.S. audits should not have an impact to the
Company's tax provision due to its valuation allowance. In the next twelve months, as some of these ongoing
examinations are completed and tax positions in these tax years meet the conditions of being effectively settled,
the Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits up to
approximately $12.0 million may occur.
12. Earnings/Loss Per Share
Basic earnings/loss per share is computed by dividing net income (loss) by the weighted-average number of
common shares outstanding for the fiscal period. Diluted earnings/loss per share is computed by giving effect to
all potential weighted average dilutive common stock, including options, restricted stock units, warrants and the
convertible senior notes. The dilutive effect of outstanding awards and convertible securities is reflected in
diluted earnings per share by application of the treasury stock method. Diluted loss per share for fiscal 2016 and
2015 are the same as basic loss per share as there is a net loss in these periods and inclusion of potentially
issuable shares is anti-dilutive.
115
A reconciliation of the denominator used in the calculation of basic and diluted loss per share is as follows
(in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Numerator:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$179,632
$ (47,426)
$(262,688)
Denominator:
Weighted-average shares outstanding for basic
earnings (loss) per share . . . . . . . . . . . . . . . . . . . . .
687,797
661,647
624,148
Effect of dilutive securities:
Convertible senior notes . . . . . . . . . . . . . . . . . . .
1,906
0
0
Employee stock awards . . . . . . . . . . . . . . . . . . . .
10,514
0
0
Adjusted weighted-average shares outstanding and
assumed conversions for diluted earnings (loss)
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
700,217
661,647
624,148
The weighted-average number of shares outstanding used in the computation of basic and diluted earnings/
loss per share does not include the effect of the following potential outstanding common stock. The effects of
these potentially outstanding shares were not included in the calculation of diluted earnings/loss per share
because the effect would have been anti-dilutive (in thousands):
Fiscal Year Ended January 31,
2017
2016
2015
Employee Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,527
26,615
22,157
Convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
17,309
25,953
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,309
17,309
37,517
13. Commitments
Letters of Credit
As of January 31, 2017, the Company had a total of $83.3 million in letters of credit outstanding
substantially in favor of certain landlords for office space. These letters of credit renew annually and expire at
various dates through December 2030.
Leases
The Company leases facilities space and certain fixed assets under non-cancelable operating and capital
leases with various expiration dates.
116
As of January 31, 2017, the future minimum lease payments under non-cancelable operating and capital
leases are as follows (in thousands):
Capital
Leases
Operating
Leases
Financing
Obligation-Leased
Facility(1)
Fiscal Period:
Fiscal 2018 . . . . . . . . . . . . . . . . . . .
$119,342
$ 463,250
$ 21,437
Fiscal 2019 . . . . . . . . . . . . . . . . . . .
115,791
413,435
21,881
Fiscal 2020 . . . . . . . . . . . . . . . . . . .
201,578
332,127
22,325
Fiscal 2021 . . . . . . . . . . . . . . . . . . .
36
266,253
22,770
Fiscal 2022 . . . . . . . . . . . . . . . . . . .
0
241,266
23,214
Thereafter . . . . . . . . . . . . . . . . . . . .
0
1,202,817
210,713
Total minimum lease payments . . .
436,747
$2,919,148
$322,340
Less: amount representing
interest . . . . . . . . . . . . . . . . . . . . .
(39,531)
Present value of capital lease
obligations . . . . . . . . . . . . . . . . . .
$397,216
(1) Total Financing Obligation -Leased Facility noted above represents the total obligation on the lease
agreement noted in Note 5 "Property and Equipment." As of January 31, 2017, $220.3 million of the total
$322.3 million obligation noted above was recorded to Financing obligationleased facility, of which the
current portion is included in "Accounts payable, accrued expenses and other liabilities" and the non-current
portion is included in "Other noncurrent liabilities" on the consolidated balance sheets.
The Company's agreements for the facilities and certain services provide the Company with the option to
renew. The Company's future contractual obligations would change if the Company exercised these options.
The terms of the lease agreements provide for rental payments on a graduated basis. The Company
recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred
but not paid. Of the total operating lease commitment balance of $2.9 billion, approximately $2.5 billion is
related to facilities space. The remaining commitment amount is related to computer equipment and furniture and
fixtures.
Rent expense for fiscal 2017, 2016 and 2015 was $226.0 million, $174.6 million and $162.8 million,
respectively.
Other Purchase Commitments
In April 2016, the Company entered into an agreement with a third party provider for certain infrastructure
services for a period of four years. The agreement provides that the Company will pay $96.0 million in fiscal
2018, $108.0 million in fiscal 2019 and $126.0 million in fiscal 2020.
14. Employee Benefit Plan
The Company has a 401(k) plan covering all eligible employees in the United States and a Registered
Retirement Savings plan covering all eligible employees in Canada. Since January 1, 2006, the Company has
been contributing to the plans. Total Company contributions during fiscal 2017, 2016 and 2015, were
$56.4 million, $45.6 million and $38.1 million, respectively.
117
15. Legal Proceedings and Claims
In the ordinary course of business, the Company is or may be involved in various legal proceedings and
claims related to alleged infringement of third-party patents and other intellectual property rights, commercial,
corporate and securities, labor and employment, class actions, wage and hour, and other claims. The Company
has been, and may in the future be, put on notice and/or sued by third parties for alleged infringement of their
proprietary rights, including patent infringement.
In general, the resolution of a legal matter could prevent the Company from offering its service to others,
could be material to the Company's financial condition or cash flows, or both, or could otherwise adversely
affect the Company's operating results.
The Company makes a provision for a liability relating to legal matters when it is both probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed
at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice
of legal counsel and other information and events pertaining to a particular matter. In management's opinion,
resolution of all current matters is not expected to have a material adverse impact on the Company's consolidated
results of operations, cash flows or financial position. However, depending on the nature and timing of any such
dispute, an unfavorable resolution of a matter could materially affect the Company's current or future results of
operations or cash flows in a particular quarter.
16. Related-Party Transactions
In January 1999, the Salesforce.com Foundation, also referred to as the Foundation, was chartered on an
idea of leveraging the Company's people, technology, and resources to help improve communities around the
world. The Company calls this integrated philanthropic approach the 1-1-1 model. Beginning in 2008,
Salesforce.org, which is a non-profit public benefit corporation, was established to resell the Company's services
to nonprofit organizations and certain higher education organizations.
The Company's Chairman is the chairman of both the Foundation and Salesforce.org. The Company's
Chairman holds one of the three Foundation board seats. The Company's Chairman, one of the Company's
employees and one of the Company's board members hold three of Salesforce.org's nine board seats. The
Company does not control the Foundation's or Salesforce.org's activities, and accordingly, the Company does
not consolidate either of the related entities' statement of activities with its financial results.
Since the Foundation's and Salesforce.org's inception, the Company has provided at no charge certain
resources to those entities' employees such as office space, furniture, equipment, facilities, services, and other
resources. The value of these items was approximately $3.3 million for the fiscal year 2017.
The resource sharing agreement was amended in August 2015 to include resources outside of the
United States and is more explicit about the types of resources that the Company will provide.
Additionally, the Company has donated subscriptions of the Company's services to other qualified non-
profit organizations. The Company also allows Salesforce.org to resell the Company's service to non-profit
organizations and certain higher education entities. The Company does not charge Salesforce.org for these
subscriptions, therefore revenue from subscriptions provided to non-profit organizations is donated back to the
community through charitable grants made by the Foundation and Salesforce.org. For instance, the reseller
agreement was amended in August 2015 to include additional customer segments and certain customers outside
the U.S. and was amended in October 2015 to add an addendum with model clauses for the processing of
personal data transferred from the European Economic Area. The value of the subscriptions pursuant to reseller
agreements, as amended, was approximately $112.4 million for the fiscal year 2017. The Company plans to
continue these programs.
118
As described in Note 6 "Business Combinations," the Company's Chairman held an ownership interest in an
acquisition that was completed by the Company in April 2016.
17. Subsequent Events
In February 2017, the Company paid down the remaining $200.0 million of outstanding borrowings under
the Credit Facility. As of the filing date, there were no outstanding borrowings under the Credit Facility.
In February 2017, the Company acquired the outstanding stock of Sequence, Inc. ("Sequence"), a consulting
firm that helps lead design-driven transformation by creating connected customer experiences. The Company
acquired Sequence for its employees and product offerings. Beginning with the fiscal quarter ended April 30,
2017, the Company will include the financial results of Sequence in its condensed consolidated financial
statements from the date of the acquisition. The total estimated consideration for Sequence was approximately
$18.0 million.
18. Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information for fiscal 2017 and 2016 is as follows:
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Fiscal Year
(in thousands, except per share data)
Fiscal 2017
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,916,603 $2,036,618 $2,144,775 $2,293,988 $8,391,984
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
1,419,622
1,511,039
1,559,253
1,668,031
6,157,945
Income (loss) from operations . . . . . . . . . . .
51,986
32,551
3,036
(23,345)
64,228
Net income (loss)
. . . . . . . . . . . . . . . . . . . . .
$
38,759 $ 229,622 $ (37,309) $
(51,440) $ 179,632
Basic net income (loss) per share . . . . . . . . .
$
0.06 $
0.34 $
(0.05) $
(0.07) $
0.26
Diluted net income (loss) per share . . . . . . . .
$
0.06 $
0.33 $
(0.05) $
(0.07) $
0.26
Fiscal 2016
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,511,167 $1,634,684 $1,711,967 $1,809,398 $6,667,216
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
1,129,365
1,229,300
1,288,284
1,365,719
5,012,668
Income from operations . . . . . . . . . . . . . . . .
31,105
19,824
43,434
20,560
114,923
Net income (loss)
. . . . . . . . . . . . . . . . . . . . .
$
4,092 $
(852) $
(25,157) $
(25,509) $
(47,426)
Basic net income (loss) per share . . . . . . . . .
$
0.01 $
0.00 $
(0.04) $
(0.04) $
(0.07)
Diluted net income (loss) per share . . . . . . . .
$
0.01 $
0.00 $
(0.04) $
(0.04) $
(0.07)
119
ITEM 9. CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer
and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this Annual Report on
Form 10-K.
In designing and evaluating our disclosure controls and procedures, management recognizes that any
disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management's evaluation, our chief executive officer and chief financial officer concluded that
our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable
level that the information we are required to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosures.
(b) Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and
with the participation of our management, including our chief executive officer and chief financial officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31,
2017 based on the guidelines established in the Internal ControlIntegrated Framework (2013 framework)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our internal
control over financial reporting includes policies and procedures that provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles.
In accordance with guidance issued by the Securities and Exchange Commission, companies are permitted
to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal
year in which the acquisition occurred. Our management's evaluation of internal control over financial reporting
excluded the internal control activities of Demandware, Inc. ("Demandware"), which we acquired in July 2016,
as discussed in Note 6, "Business Combinations," of the Notes to the Consolidated Financial Statements. We
have included the financial results of Demandware in the consolidated financial statements from the date of
acquisition. Total revenues subject to Demandware's internal control over financial reporting represented
approximately one percent of our consolidated total revenues for the fiscal year ended January 31, 2017. Total
assets subject to Demandware's internal control over financial reporting represented approximately two percent
of our consolidated total asset, excluding acquisition method fair value adjustments, as of January 31, 2017. Total
net assets subject to Demandware's internal control over financial reporting represented approximately two
percent of our consolidated net assets, excluding acquisition method fair value adjustments, as of
January 31, 2017.
120
Based on the results of our evaluation, our management concluded that our internal control over financial
reporting was effective as of January 31, 2017. We reviewed the results of management's assessment with our
Audit Committee.
The effectiveness of our internal control over financial reporting as of January 31, 2017 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in
Item 8 of this Annual Report on Form 10-K.
(c) Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended
January 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
(d) Inherent Limitations on Effectiveness of Controls
Our management, including our chief executive officer and chief financial officer, do not expect that our
disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a
simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls. The design of any system of controls
is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
None.
121
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning our directors, compliance with Section 16(a) of the Exchange Act, our Audit
Committee and any changes to the process by which stockholders may recommend nominees to the Board
required by this Item are incorporated herein by reference to information contained in the Proxy Statement,
including "Directors and Corporate Governance" and "Section 16(a) Beneficial Ownership Reporting
Compliance."
The information concerning our executive officers required by this Item is incorporated by reference herein
to the section of this Annual Report on Form 10-K in Part I, entitled "Executive Officers of the Registrant."
We have adopted a code of ethics, our Code of Conduct, which applies to all employees, including our
principal executive officer, Marc Benioff, principal financial officer, Mark Hawkins, principal accounting
officer, Joe Allanson, and all other executive officers. The Code of Conduct is available on our website at
http://investor.salesforce.com/about-us/investor/corporate-governance/. A copy may also be obtained without
charge by contacting Investor Relations, salesforce.com, inc., The Landmark @ One Market, Suite 300,
San Francisco, California 94105 or by calling (415) 901-7000.
We plan to post on our website at the address described above future amendments and waivers of our Code
of Conduct as permitted under applicable NYSE and SEC rules.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including "Compensation Discussion and Analysis," "Committee Reports," "Directors and
Corporate Governance" and "Executive Compensation and Other Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
AND RELATED STOCKHOLDERMATTERS
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including "Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters" and "Equity Compensation Plan Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including "Directors and Corporate Governance" and "Employment Contracts and Certain
Transactions."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to information contained in the
Proxy Statement, including "Ratification of Appointment of Independent Auditors."
122
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
1. Financial Statements: The information concerning our financial statements, and Report of
Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to
the section of this Annual Report on Form 10-K in Item 8, entitled "Consolidated Financial Statements and
Supplementary Data."
2. Financial Statement Schedules: Schedule II Valuation and Qualifying Accounts is filed as part of
this Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
The Financial Statement Schedules not listed have been omitted because they are not applicable or are
not required or the information required to be set forth herein is included in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits: See "Index to Exhibits."
(b) Exhibits. The exhibits listed below in the accompanying "Index to Exhibits" are filed or incorporated by
reference as part of this Annual Report on Form 10-K.
(c) Financial Statement Schedules.
123
salesforce.com, inc.
Schedule II Valuation and Qualifying Accounts
Description
Balance at
beginning of
year
Additions
Deductions
write-offs
Balance at
end of year
Fiscal year ended January 31, 2017
Allowance for doubtful accounts . .
$10,488,000
$17,591,000
$(16,040,000) $12,039,000
Fiscal year ended January 31, 2016
Allowance for doubtful accounts . .
$ 8,146,000
$14,738,000
$(12,396,000) $10,488,000
Fiscal year ended January 31, 2015
Allowance for doubtful accounts . .
$ 4,769,000
6,867,000
(3,490,000) $ 8,146,000
ITEM 16. 10-K SUMMARY
Omitted at registrant's option.
124
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: March 6, 2017
salesforce.com, inc.
By:
/S/ MARK J. HAWKINS
Mark J. Hawkins
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: March 6, 2017
salesforce.com, inc.
By:
/S/
JOE ALLANSON
Joe Allanson
Executive Vice President, Chief Accounting
Officer and Corporate Controller
(Principal Accounting Officer)
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Marc Benioff, Mark J. Hawkins, Joe Allanson and Amy Weaver, his or her attorney-in-
fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-
in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ MARC BENIOFF
Marc Benioff
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
March 6, 2017
/s/ MARK J. HAWKINS
Mark J. Hawkins
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
March 6, 2017
/s/
JOE ALLANSON
Joe Allanson
Executive Vice President, Chief
Accounting Officer and
Corporate Controller (Principal
Accounting Officer)
March 6, 2017
125
Signature
Title
Date
/s/ KEITH BLOCK
Keith Block
Director, Vice Chairman, President
and Chief Operating Officer
March 6, 2017
/s/ CRAIG CONWAY
Craig Conway
Director
March 6, 2017
/s/ ALAN HASSENFELD
Alan Hassenfeld
Director
March 6, 2017
/s/ NEELIE KROES
Neelie Kroes
Director
March 6, 2017
/s/ COLIN POWELL
Colin Powell
Director
March 6, 2017
/s/ SANFORD R. ROBERTSON
Sanford R. Robertson
Director
March 6, 2017
/s/
JOHN V. ROOS
John V. Roos
Director
March 6, 2017
/s/ LAWRENCE TOMLINSON
Lawrence Tomlinson
Director
March 6, 2017
/s/ ROBIN WASHINGTON
Robin Washington
Director
March 6, 2017
/s/ MAYNARD WEBB
Maynard Webb
Director
March 6, 2017
/s/ SUSAN WOJCICKI
Susan Wojcicki
Director
March 6, 2017
126
Index to Exhibits
Exhibit
No.
Provided
Herewith
Incorporated by Reference
Exhibit Description
Form
SEC File No.
Exhibit
Filing Date
2.1
Agreement and Plan of Merger, dated as of
May 31, 2016, by and among
salesforce.com, inc., Dynasty Acquisition
Corp. and Demandware, Inc.
8-K
001-32224
2.1
6/1/2016
3.1
Amended and Restated Certificate of
Incorporation of salesforce.com, inc.
8-K
001-32224
3.1
6/3/2016
3.2
Amended and Restated Bylaws of
salesforce.com, inc.
8-K
001-32224
3.2
3/21/2016
4.1
Specimen Common Stock Certificate
S-1/A 333-111289
4.2
4/20/2004
4.2
Indenture dated March 18, 2013 between
salesforce.com, inc. and U.S. Bank
National Association including the form of
0.25% Convertible Senior Notes due 2018
therein
8-K
001-32224
4.1
3/18/2013
10.1*
Form of Indemnification Agreement
between salesforce.com, inc. and its
officers and directors
S-1/A 333-111289
10.1
4/20/2004
10.2*
2004 Equity Incentive Plan, as amended
10-Q
001-32224
10.1
8/22/2008
10.3*
2013 Equity Incentive Plan and related
forms of equity award agreements, as
amended
8-K
001-32224
10.1
6/9/2015
10.4*
2004 Employee Stock Purchase Plan, as
amended
8-K
001-32224
10.1
6/9/2015
10.5*
2004 Outside Directors Stock Plan, as
amended
10-K
001-32224
10.5
3/23/2011
10.6*
2006 Inducement Equity Incentive Plan, as
amended
8-K
001-32224
10.1
6/8/2012
10.7*
2014 Inducement Equity Incentive Plan, as
amended and restated effective September
8, 2016, and related forms of equity
awards
S-8
333-213685
4.3
9/16/2016
10.8*
Kokua Bonus Plan, as amended and
restated December 5, 2014, effective
February 1, 2015
10-K
001-32224
10.7
3/6/2015
10.9
Resource Sharing Agreement, dated
August 1, 2015, by and between
salesforce.com, inc., the salesforce.com
foundation, and Salesforce.org
10-Q
001-32224
10.5
8/25/2015
10.10
Reseller Agreement, dated August 1, 2015,
between salesforce.com, inc. and
Salesforce.org
10-Q
001-32224
10.4
8/25/2015
Exhibit
No.
Provided
Herewith
Incorporated by Reference
Exhibit Description
Form
SEC File No.
Exhibit
Filing Date
10.11
Amendment to Reseller Agreement, dated
October 13, 2015, between salesforce.com,
inc. and Salesforce.org
10-Q
001-32224
10.1
11/20/2015
10.12*
Form of Offer Letter for Executive
Officers and schedule of omitted details
thereto
10-K
001-32224
10.1
3/9/2012
10.13*
Employment Offer Letter, dated May 2,
2013 between salesforce.com, inc. and
Keith Block
8-K
001-32224
10.1
6/11/2013
10.14*
Employment Offer Letter, dated June 11,
2014, between salesforce.com, inc. and
Mark Hawkins
8-K
001-32224
10.2
6/30/2014
10.15*
Form of Change of Control and Retention
Agreement as entered into with Marc
Benioff
10-K
001-32224 10.13
3/9/2009
10.16*
Form of Change of Control and Retention
Agreement as entered into with non-CEO
Executive Officers
10-K
001-32224 10.14
3/9/2009
10.17*
Form of Performance-Based Restricted
Stock Unit Agreement for Executive
Officers
X
10.18
Form of Convertible Bond Hedge
Confirmation
8-K
001-32224
10.2
3/18/2013
10.19
Form of Warrant Confirmation
8-K
001-32224
10.3
3/18/2013
10.20
Office Lease dated as of April 10, 2014 by
and between salesforce.com, inc. and
Transbay Tower LLC
10-Q
001-32224
10.2
5/30/2014
10.21
Purchase and Sale Agreement, dated
November 10, 2014, between
salesforce.com, inc. and 50 Fremont
Tower, LLC
10-Q
001-32224
10.2
11/26/2014
10.22
Commitment Letter, dated as of May 31,
2016, by and among salesforce.com, inc.,
Bank of America, N.A. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated
8-K
001-32224
10.1
6/1/2016
10.23
Credit Agreement, dated as of July 7,
2016, by and among salesforce.com, inc.,
the guarantors from time to time party
thereto, the lenders from time to time party
thereto and Bank of America, N.A., as
Administrative Agent
8-K
001-32224
10.1
7/11/2016
Exhibit
No.
Provided
Herewith
Incorporated by Reference
Exhibit Description
Form
SEC File No.
Exhibit
Filing Date
10.24
Amended and Restated Credit Agreement,
dated as of July 7, 2016, by and among
salesforce.com, inc., the subsidiaries of the
Company party thereto as guarantors, the
lenders from time to time thereto and
Wells Fargo Bank, N.A., as Administrative
Agent
8-K
001-32224
10.2
7/11/2016
21.1
List of Subsidiaries
X
23.1
Consent of Independent Registered Public
Accounting Firm
X
24.1
Power of Attorney (incorporated by
reference to the signature page of this
Annual Report on Form 10-K)
X
31.1
Certification of Chief Executive Officer
pursuant to Exchange Act Rule 13a-14(a)
or 15(d)-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
X
31.2
Certification of Chief Financial Officer
pursuant to Exchange Act Rule 13a-14(a)
or 15(d)-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
X
32.1
Certification of Chief Executive Officer
and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act
of 2002
X
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
Document
101.CAL
XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF
XBRL Extension Definition
101.LAB
XBRL Taxonomy Extension Label
Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase Document
* Indicates a management contract or compensatory plan or arrangement.
[THIS PAGE INTENTIONALLY LEFT BLANK]
SALESFORCE FORM 10-K 

Board of Directors
Marc Benioff 
Chairman of the Board of Directors & Chief Executive Officer
Keith Block 
Vice Chairman, President & Chief Operating Officer
Craig Conway 
Former Chief Executive Officer, PeopleSoft, Inc.
Alan Hassenfeld 
Director, Hasbro, Inc.
Neelie Kroes 
Former Vice President of the European Commission
Colin Powell 
General, Former U.S. Secretary of State, Former Chairman,
 
Joint Chiefs of Staff
Sanford Robertson 
Principal, Francisco Partners
John V. Roos 
Former U.S. Ambassador to Japan
Larry Tomlinson 
Former Senior Vice President & Treasurer, Hewlett-Packard Co.
Robin Washington 
Executive Vice President & Chief Financial Officer, Gilead Sciences, Inc.
Maynard Webb 
Chairman Emeritus, Yahoo! Inc. & Director, Visa Inc.
Susan Wojcicki 
Chief Executive Officer, YouTube Inc.
Executive Team
Marc Benioff 
Chairman of the Board of Directors & Chief Executive Officer
Joe Allanson 
Chief Accounting Officer & Corporate Controller
Keith Block 
Vice Chairman, President & Chief Operating Officer
Alexandre Dayon 
President, Chief Product Officer
Parker Harris 
Co-Founder & Chief Technology Officer
Mark Hawkins 
Executive Vice President & Chief Financial Officer
Maria Martinez 
President, Global Customer Success and Latin America
Burke Norton 
Chief Legal Officer & Chief of Corporate and Government Affairs
Cindy Robbins 
Executive Vice President, Global Employee Success
Amy Weaver 
President, Legal, General Counsel & Secretary
Note on Forward-Looking Statements
This annual report contains forward-looking statements within the meaning of the federal 
securities laws. Actual results could differ materially from those expressed in such statements. 
Further information on factors that could affect results is included in the fiscal 2017 Form 10-K, 
included in this annual report.
Investor Relations 
investor@salesforce.com, +1-415-536-6250
Stock Listing 
Salesforce trades on the New York Stock Exchange
 
under the ticker symbol "CRM."

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