10-Q 1 crmq3fy1610-q.htm 10-Q 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 31, 2015
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)

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 (the “Exchange Act”) 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  x   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  x   No  ¨
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.
Large accelerated filer  x
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  x
As of October 31, 2015, there were approximately 664.0 million shares of the Registrant’s Common Stock outstanding.






INDEX
 
 
 
Page No.
 
 
 
 
 
Item 1.
 
 
 
 
 
Condensed Consolidated Balance Sheets as of October 31, 2015 and January 31, 2015

 
 
 
 
Condensed Consolidated Statements of Operations for the three and nine months ended October 31, 2015 and 2014
 
 
 
 
Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended October 31, 2015 and 2014

 
 
 
 
Condensed Consolidated Statements of Cash Flows for the three and nine months ended October 31, 2015 and 2014

7
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.



2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
salesforce.com, inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
 
October 31,
2015
 
January 31,
2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,223,318

 
$
908,117

Short-term marketable securities
134,687

 
87,312

Accounts receivable, net
1,060,726

 
1,905,506

Deferred commissions
208,133

 
225,386

Prepaid expenses and other current assets
311,909

 
280,554

Land and building improvements held for sale
0

 
143,197

Total current assets
2,938,773

 
3,550,072

Marketable securities, noncurrent
943,301

 
894,855

Property and equipment, net
1,742,142

 
1,125,866

Deferred commissions, noncurrent
148,147

 
162,796

Capitalized software, net
397,013

 
433,398

Goodwill
3,849,054

 
3,782,660

Strategic investments
496,809

 
175,774

Other assets, net
396,727

 
452,546

Restricted cash
0

 
115,015

Total assets
$
10,911,966

 
$
10,692,982

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable, accrued expenses and other liabilities
$
1,149,693

 
$
1,103,335

Deferred revenue
2,827,285

 
3,286,768

Total current liabilities
3,976,978

 
4,390,103

Convertible 0.25% senior notes, net
1,088,910

 
1,070,692

Loan assumed on 50 Fremont
198,851

 
0

Revolving credit facility
0

 
300,000

Deferred revenue, noncurrent
19,225

 
34,681

Other noncurrent liabilities
878,048

 
922,323

Total liabilities
6,162,012

 
6,717,799

Stockholders’ equity:
 
 
 
Common stock
664

 
651

Additional paid-in capital
5,410,377

 
4,604,485

Accumulated other comprehensive loss
(33,325
)
 
(24,108
)
Accumulated deficit
(627,762
)
 
(605,845
)
Total stockholders’ equity
4,749,954

 
3,975,183

Total liabilities and stockholders’ equity
$
10,911,966

 
$
10,692,982







See accompanying Notes.

3


salesforce.com, inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Subscription and support
$
1,596,333

 
$
1,288,513

 
$
4,522,939

 
$
3,668,406

Professional services and other
115,634

 
95,142

 
334,879

 
260,572

Total revenues
1,711,967

 
1,383,655

 
4,857,818

 
3,928,978

Cost of revenues (1)(2):
 
 
 
 
 
 
 
Subscription and support
303,045

 
238,746

 
870,023

 
666,611

Professional services and other
120,638

 
94,465

 
340,846

 
266,736

Total cost of revenues
423,683

 
333,211

 
1,210,869

 
933,347

Gross profit
1,288,284

 
1,050,444

 
3,646,949

 
2,995,631

Operating expenses (1)(2):
 
 
 
 
 
 
 
Research and development
239,212

 
195,460

 
695,440

 
586,927

Marketing and sales
818,820

 
709,643

 
2,349,449

 
2,020,956

General and administrative
186,818

 
167,383

 
544,314

 
498,565

Operating lease termination resulting from purchase of 50 Fremont, net
0

 
0

 
(36,617
)
 
0

Total operating expenses
1,244,850

 
1,072,486

 
3,552,586

 
3,106,448

Income (loss) from operations
43,434

 
(22,042
)
 
94,363

 
(110,817
)
Investment income
3,507

 
2,622

 
11,351

 
7,055

Interest expense
(18,249
)
 
(17,682
)
 
(53,020
)
 
(56,355
)
Other expense (1)(3)
(7,093
)
 
(372
)
 
(6,064
)
 
(15,095
)
Gain on sales of land and building improvements
21,792

 
15,625

 
21,792

 
15,625

Income (loss) before provisions for income taxes
43,391

 
(21,849
)
 
68,422

 
(159,587
)
Provisions for income taxes
(68,548
)
 
(17,075
)
 
(90,339
)
 
(37,336
)
Net loss
$
(25,157
)
 
$
(38,924
)
 
$
(21,917
)
 
$
(196,923
)
Basic net loss per share
$
(0.04
)
 
$
(0.06
)
 
$
(0.03
)
 
$
(0.32
)
Diluted net loss per share
$
(0.04
)
 
$
(0.06
)
 
$
(0.03
)
 
$
(0.32
)
Shares used in computing basic net loss per share
664,131

 
629,548

 
659,160

 
619,748

Shares used in computing diluted net loss per share
664,131

 
629,548

 
659,160

 
619,748

_______________
(1) Amounts include amortization of purchased intangibles from business combinations, as follows:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Cost of revenues
$
20,296

 
$
20,351

 
$
60,825

 
$
70,294

Marketing and sales
18,966

 
15,095

 
57,995

 
44,708

Other non-operating expense
761

 
0

 
2,877

 
0

(2) Amounts include stock-based expense, as follows:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Cost of revenues
$
17,516

 
$
14,118

 
$
49,237

 
$
38,905

Research and development
31,534

 
26,868

 
96,508

 
87,264

Marketing and sales
69,561

 
72,892

 
211,819

 
210,510

General and administrative
25,706

 
25,582

 
77,092

 
76,284

(3) Amount includes approximately $10.2 million loss on conversions of our convertible 0.75% senior notes due January 2015 recognized during the nine months ended October 31, 2014.
See accompanying Notes.

4


salesforce.com, inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Net loss
$
(25,157
)
 
$
(38,924
)
 
$
(21,917
)
 
$
(196,923
)
Other comprehensive loss, before tax and net of reclassification adjustments:
 
 
 
 
 
 
 
Foreign currency translation and other losses
(1,173
)
 
(13,692
)
 
(8,419
)
 
(15,876
)
Unrealized gains (loss) on investments
(2,873
)
 
1,278

 
337

 
(3,055
)
Other comprehensive loss, before tax
(4,046
)
 
(12,414
)
 
(8,082
)
 
(18,931
)
Tax effect
(1,135
)
 
0

 
(1,135
)
 
0

Other comprehensive loss, net of tax
(5,181
)
 
(12,414
)
 
(9,217
)
 
(18,931
)
Comprehensive loss
$
(30,338
)
 
$
(51,338
)
 
$
(31,134
)
 
$
(215,854
)






















See accompanying Notes.

5


salesforce.com, inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Operating activities:
 
 
 
 
 
 
 
Net loss
$
(25,157
)
 
$
(38,924
)
 
$
(21,917
)
 
$
(196,923
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
134,236

 
111,954

 
393,838

 
330,358

Amortization of debt discount and transaction costs
7,138

 
9,420

 
20,290

 
31,160

Gain on sales of land and building improvements
(21,792
)
 
(15,625
)
 
(21,792
)
 
(15,625
)
50 Fremont lease termination, net
0

 
0

 
(36,617
)
 
0

Loss on conversions of convertible senior notes
0

 
1,340

 
0

 
10,230

Abandonment of leasehold improvement
7,086

 
0

 
7,086

 
0

Amortization of deferred commissions
78,934

 
65,371

 
232,768

 
186,526

Expenses related to employee stock plans
144,317

 
139,460

 
434,656

 
412,963

Excess tax benefits from employee stock plans
(44,607
)
 
(1,221
)
 
(48,698
)
 
(3,447
)
Changes in assets and liabilities, net of business combinations:
 
 
 
 
 
 
 
Accounts receivable, net
15,262

 
39,792

 
853,014

 
566,306

Deferred commissions
(80,030
)
 
(64,280
)
 
(200,867
)
 
(171,022
)
Prepaid expenses and other current assets and other assets
33,841

 
6,588

 
4,495

 
34,501

Accounts payable, accrued expenses and other liabilities
57,577

 
(1,933
)
 
12,276

 
(44,894
)
Deferred revenue
(188,898
)
 
(129,431
)
 
(475,357
)
 
(298,642
)
Net cash provided by operating activities
117,907

 
122,511

 
1,153,175

 
841,491

Investing activities:
 
 
 
 
 
 
 
Business combinations, net of cash acquired
(27,759
)
 
38,071

 
(58,680
)
 
38,071

Proceeds from land and building improvements held for sale
127,066

 
192,240

 
127,066

 
223,240

Purchase of 50 Fremont land and building
0

 
0

 
(425,376
)
 
0

Deposit for purchase of 50 Fremont land and building
0

 
(114,935
)
 
115,015

 
(114,935
)
Non-refundable amounts received for sale of land available for sale
0

 
0

 
6,284

 
0

Strategic investments
(30,330
)
 
(12,852
)
 
(325,226
)
 
(47,905
)
Purchases of marketable securities
(200,001
)
 
(154,560
)
 
(543,422
)
 
(690,024
)
Sales of marketable securities
91,153

 
46,908

 
414,259

 
197,293

Maturities of marketable securities
7,166

 
22,288

 
23,445

 
46,248

Capital expenditures
(80,041
)
 
(73,426
)
 
(216,011
)
 
(205,100
)
Net cash used in investing activities
(112,746
)
 
(56,266
)
 
(882,646
)
 
(553,112
)
Financing activities:
 
 
 
 
 
 
 
Proceeds from revolving credit facility, net
0

 
297,325

 
0

 
297,325

Proceeds from employee stock plans
98,016

 
91,337

 
367,830

 
226,561

Excess tax benefits from employee stock plans
44,607

 
1,221

 
48,698

 
3,447

Payments on convertible senior notes
0

 
(89,645
)
 
0

 
(387,229
)
Principal payments on capital lease obligations
(10,945
)
 
(10,345
)
 
(68,844
)
 
(61,280
)
Payments on revolving credit facility and term loan
0

 
(270,000
)
 
(300,000
)
 
(285,000
)
Net cash provided by (used in) financing activities
131,678

 
19,893

 
47,684

 
(206,176
)
Effect of exchange rate changes
(2,872
)
 
(14,538
)
 
(3,012
)
 
(17,513
)
Net increase in cash and cash equivalents
133,967

 
71,600

 
315,201

 
64,690

Cash and cash equivalents, beginning of period
1,089,351

 
774,725

 
908,117

 
781,635

Cash and cash equivalents, end of period
$
1,223,318

 
$
846,325

 
$
1,223,318

 
$
846,325

See accompanying Notes.

6



salesforce.com, inc.
Condensed Consolidated Statements of Cash Flows
Supplemental Cash Flow Disclosure
(in thousands)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Supplemental cash flow disclosure:
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
Interest
$
4,085

 
$
4,285

 
$
32,756

 
$
21,274

Income taxes, net of tax refunds
$
8,248

 
$
6,187

 
$
24,450

 
$
30,986

Non-cash financing and investing activities:
 
 
 
 
 
 
 
Fixed assets acquired under capital leases
$
2,065

 
$
38,604

 
$
7,191

 
$
119,939

Building in progress - leased facility acquired under financing obligation
$
38,477

 
$
29,756

 
$
75,336

 
$
62,804

Fair value of loan assumed on 50 Fremont
$
0

 
$
0

 
$
198,751

 
$
0

Fair value of common stock issued as consideration for business combinations
$
0

 
$
338,033

 
$
0

 
$
338,033



















See accompanying Notes.


7


salesforce.com, inc.
Notes to Condensed 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 services. The Company is dedicated to helping customers of all sizes and industries worldwide transform themselves into “customer companies” by empowering them to connect with their customers, partners, employees and products in entirely new ways. The Company provides customers with the solutions they need to build a next generation social front office with social and mobile cloud technologies.
Fiscal Year
The Company’s fiscal year ends on January 31. References to fiscal 2016, for example, refer to the fiscal year ending January 31, 2016.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of October 31, 2015 and the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss and the condensed consolidated statements of cash flows for the three and nine months ended October 31, 2015 and 2014, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, 2015 was derived from the audited consolidated financial statements that are included in the Company’s fiscal 2015 Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2015. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s fiscal 2015 Form 10-K.
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in the Form 10-K, and include all adjustments necessary for the fair presentation of the Company’s balance sheet as of October 31, 2015, and its results of operations, including its comprehensive loss, and its cash flows for the three and nine months ended October 31, 2015 and 2014. All adjustments are of a normal recurring nature. The results for the three and nine months ended October 31, 2015 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2016.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the Company’s condensed 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 convertible notes,
the fair value of stock awards issued and related forfeiture rates,
the useful lives of intangible assets and property and equipment,
the valuation of strategic investments and the determination of other-than-temporary impairments, and
the assessment of determination of impairment of long-lived assets (property and equipment, goodwill and identified intangibles).

8


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 condensed 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, who is the chief executive officer, in deciding how to allocate resources and assessing performance. Over the past few years, the Company has completed several 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, the Company’s business operates in one operating segment because all 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 condensed 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. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable. 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.
No single customer accounted for more than five percent of accounts receivable at October 31, 2015 and January 31, 2015. No single customer accounted for five percent or more of total revenue during the three and nine months ended October 31, 2015 and 2014.
Geographic Locations
As of October 31, 2015 and January 31, 2015, assets located outside the Americas were nine percent and 12 percent of total assets, respectively.
Revenues by geographical region are as follows (in thousands):
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Americas
$
1,258,148

 
$
995,331

 
$
3,575,441

 
$
2,812,654

Europe
302,704

 
252,982

 
848,413

 
730,324

Asia Pacific
151,115

 
135,342

 
433,964

 
386,000

 
$
1,711,967


$
1,383,655


$
4,857,818

 
$
3,928,978

Americas revenue attributed to the United States was approximately 95 percent and 94 percent during the three and nine months ended October 31, 2015 and 2014. No other country represented more than ten percent of total revenue during the three and nine months ended October 31, 2015 and 2014.
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.

9


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 majority of the Company’s professional services contracts are on a time and material basis. When these services are not combined with subscription revenues as a single unit of accounting, as discussed below, these revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts. 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 upon delivery, 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 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.


10


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, 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 and 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. 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 condensed 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
Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. 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 condensed consolidated statements of comprehensive 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 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.
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:
 
Computer, equipment and software
3 to 9 years
Furniture and fixtures
5 years
Leasehold improvements
The remaining lease term or up to 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.

11


Capitalized Internal-Use Software Costs
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.
Goodwill and Intangible Assets Impairment Assessments
The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during the fourth quarter or more often if and when circumstances indicate that goodwill may not be recoverable.
Intangible assets are amortized over their 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. The carrying amounts of these assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets 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.
Long- Lived Assets and Impairment Assessment
The company evaluates long-lived assets for possible impairment whenever events or 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. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value.
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 condensed consolidated 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 to operating expense.
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.
The Company additionally has entered into subleases for unoccupied leased office space. Losses are recognized in the period the sublease is executed. Any sublease payments received in excess of the straight-line rent payments for the sublease are recorded in other income (expense).

12


Accounting for Stock-Based Expense
The Company recognizes stock-based expenses related to stock options and restricted stock awards on a straight-line basis 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 Amended and Restated 2004 Employee Stock Purchase Plan (“ESPP” or “2004 Employee Stock Purchase Plan”) on a straight-line basis over the offering period, which is 12 months. Stock-based expenses are recognized net of estimated forfeiture activity. 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.
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:
 
 
Three Months Ended 
 October 31,
 
 
Nine Months Ended 
 October 31,
Stock Options
2015
 
 
2014
 
 
2015
 
2014
Volatility
35

%
 
37

%
 
35-37

%
 
37

%
Estimated life
3.6 years

 
 
3.5 years

 
 
3.6 years

 
 
3.5 years

 
Risk-free interest rate
1.21-1.27

%
 
1.34-1.53

%
 
1.13-1.42

%
 
1.20-1.53

%
Weighted-average fair value per share of grants
$
19.72

 
 
$
17.32

 
 
$
19.79

 
 
$
16.46

 

 
Three Months Ended 
 October 31,
 
 
Nine Months Ended 
 October 31,
ESPP
2015
 
 
2014
 
 
2015
 
2014
Volatility
n/a
 
 
n/a
 
 
34

%
 
34-35

%
Estimated life
n/a
 
 
n/a
 
 
0.75 years

 
 
0.75 years

 
Risk-free interest rate
n/a
 
 
n/a
 
 
0.06-0.27

%
 
0.07-0.16

%
Weighted-average fair value per share of grants
n/a
 
 
n/a
 
 
$
19.30

 
 
$
14.53

 

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.
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 condensed consolidated statement of operations in the period that includes the enactment date.
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 deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.
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.

13


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 condensed consolidated statements of comprehensive loss. Foreign currency transaction gains and losses are included in net 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 liabilities related to such obligations in the accompanying condensed 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
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 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The standard also provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts. The FASB deferred the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP for one year. In accordance with the deferral, ASU 2014-09 will be effective for fiscal 2019, including interim periods within that reporting period. The Company is currently in the process of assessing the adoption methodology, which allows the amendment to be applied retrospectively to each prior period presented, or with the cumulative effect recognized as of the date of initial application. The Company is also evaluating the impact of the adoption of ASU 2014-09 on its condensed consolidated financial statements and has not determined whether the effect will be material to either its revenue results or its deferred commissions balances.
In May 2013, FASB issued Accounting Standards Update No. 2013-270, “a revision of the 2010 proposed FASB Accounting Standards Update, Leases (Topic 840)” (“ASU 2013-270”), to place leases on lessee’s balance sheets. ASU 2013-270 states a lessee would recognize a lease liability for lease payments and recognize an asset for its right to use the leased asset during the lease term. In November 2015, FASB set an effective date for annual periods after December 2018. The Company plans to adopt ASU 2013-270 in fiscal 2020 and is currently evaluating the impact to its condensed consolidated financial statements.
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. 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 new standard is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company is evaluating the impact of the adoption of ASU 2015-16 on its condensed consolidated financial statements.

14


Reclassification
Certain reclassifications to the fiscal 2015 balances were made to conform to the current period presentation in the Balance Sheet. These reclassifications include strategic investments and other assets, net.
2. Investments
Marketable Securities
At October 31, 2015, 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
$
636,779

 
$
905

 
$
(1,678
)
 
$
636,006

U.S. treasury securities
126,837

 
149

 
(42
)
 
126,944

Mortgage backed obligations
84,288

 
94

 
(401
)
 
83,981

Asset backed securities
176,633

 
73

 
(240
)
 
176,466

Municipal securities
36,358

 
141

 
(30
)
 
36,469

Foreign government obligations
2,094

 
16

 
(2
)
 
2,108

U.S. agency obligations
8,998

 
5

 
(9
)
 
8,994

Covered bonds
6,863

 
157

 
0

 
7,020

Total marketable securities
$
1,078,850


$
1,540


$
(2,402
)

$
1,077,988

At January 31, 2015, 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
$
605,724

 
$
3,031

 
$
(481
)
 
$
608,274

U.S. treasury securities
73,226

 
257

 
(1
)
 
73,482

Mortgage backed obligations
44,181

 
159

 
(415
)
 
43,925

Asset backed securities
120,049

 
131

 
(43
)
 
120,137

Municipal securities
36,447

 
115

 
(25
)
 
36,537

Foreign government obligations
12,023

 
278

 
0

 
12,301

U.S. agency obligations
19,488

 
26

 
(4
)
 
19,510

Covered bonds
66,816

 
1,185

 
0

 
68,001

Total marketable securities
$
977,954


$
5,182


$
(969
)

$
982,167

The duration of the investments classified as marketable securities is as follows (in thousands):
 
 
As of
 
October 31,
2015
 
January 31,
2015
Recorded as follows:
 
 
 
Short-term (due in one year or less)
$
134,687

 
$
87,312

Long-term (due after one year)
943,301

 
894,855

 
$
1,077,988

 
$
982,167


15


As of October 31, 2015, 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
$
330,654

 
$
(1,382
)
 
$
51,475

 
$
(296
)
 
$
382,129

 
$
(1,678
)
U.S. treasury securities
47,184

 
(42
)
 
0

 
0

 
47,184

 
(42
)
Mortgage backed obligations
51,412

 
(298
)
 
9,143

 
(103
)
 
60,555

 
(401
)
Asset backed securities
122,349

 
(212
)
 
7,398

 
(28
)
 
129,747

 
(240
)
Municipal securities
3,990

 
(18
)
 
3,949

 
(12
)
 
7,939

 
(30
)
Foreign government obligations
1,576

 
(2
)
 
0

 
0

 
1,576

 
(2
)
U.S. agency obligations
4,991

 
(9
)
 
0

 
0

 
4,991

 
(9
)
 
$
562,156

 
$
(1,963
)
 
$
71,965

 
$
(439
)
 
$
634,121

 
$
(2,402
)
The unrealized losses for each of the fixed rate marketable securities were less than $74,000. 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 October 31, 2015. The Company expects to receive the full principal and interest on all of these marketable securities.
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.

16



The following table presents information about the Company’s assets and liabilities that are measured at fair value as of October 31, 2015 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
October 31, 2015
Cash equivalents (1):
 
 
 
 
 
 
 
Time deposits
$
0

 
$
235,695

 
$
0

 
$
235,695

Money market mutual funds
339,446

 
0

 
0

 
339,446

Marketable securities:
 
 
 
 
 
 
 
Corporate notes and obligations
0

 
636,006

 
0

 
636,006

U.S. treasury securities
0

 
126,944

 
0

 
126,944

Mortgage backed obligations
0

 
83,981

 
0

 
83,981

Asset backed securities
0

 
176,466

 
0

 
176,466

Municipal securities
0

 
36,469

 
0

 
36,469

Foreign government obligations
0

 
2,108

 
0

 
2,108

U.S. agency obligations
0

 
8,994

 
0

 
8,994

Covered bonds
0

 
7,020

 
0

 
7,020

Foreign currency derivative contracts (2)
0

 
7,789

 
0

 
7,789

Total Assets
$
339,446

 
$
1,321,472

 
$
0

 
$
1,660,918

Liabilities
 
 
 
 
 
 
 
Foreign currency derivative contracts (3)
$
0

 
$
5,996

 
$
0

 
$
5,996

Total Liabilities
$
0

 
$
5,996

 
$
0

 
$
5,996

_____________ 
(1)Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheet as of October 31, 2015, in addition to $648.2 million of cash.
(2)Included in “prepaid expenses and other current assets” in the accompanying condensed consolidated balance sheet as of October 31, 2015.
(3)Included in “accounts payable, accrued expenses and other liabilities” in the condensed consolidated balance sheet as of October 31, 2015.

17


The following table presents information about the Company’s assets and liabilities that are measured at fair value as of January 31, 2015 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, 2015
Cash equivalents (1):
 
 
 
 
 
 
 
Time deposits
$
0

 
$
292,487

 
$
0

 
$
292,487

Money market mutual funds
13,983

 
0

 
0

 
13,983

Marketable securities:
 
 
 
 
 
 
 
Corporate notes and obligations
0

 
608,274

 
0

 
608,274

U.S. treasury securities
0

 
73,482

 
0

 
73,482

Mortgage backed obligations
0

 
43,925

 
0

 
43,925

Asset backed securities
0

 
120,137

 
0

 
120,137

Municipal securities
0

 
36,537

 
0

 
36,537

Foreign government obligations
0

 
12,301

 
0

 
12,301

U.S. agency obligations
0

 
19,510

 
0

 
19,510

Covered bonds
0

 
68,001

 
0

 
68,001

Foreign currency derivative contracts (2)
0

 
10,611

 
0

 
10,611

Total Assets
$
13,983

 
$
1,285,265

 
$
0

 
$
1,299,248

Liabilities
 
 
 
 
 
 
 
Foreign currency derivative contracts (3)
$
0

 
$
5,694

 
$
0

 
$
5,694

Total Liabilities
$
0

 
$
5,694

 
$
0

 
$
5,694

______________ 
(1)Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheet as of January 31, 2015, in addition to $601.6 million of cash.
(2)Included in “prepaid expenses and other current assets” in the accompanying condensed consolidated balance sheet as of January 31, 2015.
(3)Included in “accounts payable, accrued expenses and other liabilities” in the accompanying condensed consolidated balance sheet as of January 31, 2015.
Derivative Financial Instruments
The Company enters into foreign currency derivative contracts with financial institutions to reduce foreign exchange risk. The Company uses forward currency derivative contracts to minimize the Company’s exposure to balances primarily denominated in British pounds, Euros, Japanese yen, Canadian dollars and Australian dollars. 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 October 31, 2015 and January 31, 2015, the foreign currency derivative contracts that were not settled were recorded at fair value on the condensed 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.

18


Details on outstanding foreign currency derivative contracts related primarily to intercompany receivables and payables are presented below (in thousands):
 
 
As of
 
October 31, 2015
 
January 31, 2015
Notional amount of foreign currency derivative contracts
$
1,067,250

 
$
942,086

Fair value of foreign currency derivative contracts
$
1,793

 
$
4,917


The fair value of the Company’s outstanding derivative instruments are summarized below (in thousands):
 
 
 
Fair Value of Derivative Instruments
 
 
As of
  
Balance Sheet Location
October 31, 2015
 
January 31, 2015
Derivative Assets
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency derivative contracts
Prepaid expenses and other current assets
$
7,789

 
$
10,611

Derivative Liabilities
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency derivative contracts
Accounts payable, accrued expenses and other liabilities
$
5,996

 
$
5,694


The effect of the derivative instruments not designated as hedging instruments on the condensed consolidated statements of operations during the three and nine months ended October 31, 2015 and 2014, respectively, are summarized below (in thousands):
 
Derivatives Not Designated as Hedging
Instruments
Losses on Derivative Instruments
Recognized in Income
 
 

Three Months Ended 
 October 31,
 
Location

2015

2014
Foreign currency derivative contracts
Other expense

$
(2,888
)

$
(3,068
)












Derivatives Not Designated as Hedging
Instruments
Gains (Losses) on Derivative Instruments
Recognized in Income
  
 

Nine Months Ended 
 October 31,
 
Location

2015

2014
Foreign currency derivative contracts
Other expense

$
9,773


$
(2,964
)
Strategic Investments
The Company's strategic investments are comprised of marketable equity securities and non-marketable debt and equity securities. Marketable equity securities are measured using quoted prices in their respective active markets and the non-marketable equity and debt securities are recorded at cost. These investments are presented on the condensed consolidated balance sheets within strategic investments.

As of October 31, 2015, the Company had six investments in marketable equity securities with a fair value of $26.0 million, which includes an unrealized gain of $18.3 million. As of January 31, 2015, the Company had four investments in marketable equity securities with a fair value of $17.8 million, which included an unrealized gain of $13.1 million. The change

19


in the fair value of the investments in publicly held companies is recorded in the condensed 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 debt and 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.
As of October 31, 2015 and January 31, 2015, the carrying value of the Company’s non-marketable debt and equity securities was $470.8 million and $158.0 million, respectively. The estimated fair value of the non-marketable debt and equity securities was approximately $654.0 million and $280.0 million as of October 31, 2015 and January 31, 2015, respectively. These investments are measured using the cost method of accounting, therefore the unrealized gains of $183.2 million and $122.0 million as of October 31, 2015 and January 31, 2015, respectively, are not recorded in the condensed consolidated financial statements.
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):
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
 
2015
 
2014
 
2015
 
2014
 
Interest income
$
3,700

 
$
2,720

 
$
9,919

 
$
7,051

 
Realized gains
257

 
78

 
3,197

 
424

 
Realized losses
(450
)
 
(176
)
 
(1,765
)
 
(420
)
 
Total investment income
$
3,507

 
$
2,622


$
11,351

 
$
7,055

 
Reclassification adjustments out of accumulated other comprehensive loss into net income (loss) were immaterial for the three and nine months ended October 31, 2015 and 2014, respectively.
3. Property and Equipment
Property and Equipment
Property and equipment consisted of the following (in thousands):
 
As of
 
October 31, 2015
 
January 31, 2015
 
 
 
 
Land
$
183,888

 
$
0

Buildings
614,349

 
125,289

Computers, equipment and software
1,259,210

 
1,171,762

Furniture and fixtures
77,606

 
71,881

Leasehold improvements
450,565

 
376,761

 
$
2,585,618

 
$
1,745,693

Less accumulated depreciation and amortization
(843,476
)
 
(619,827
)
 
$
1,742,142

 
$
1,125,866

Depreciation and amortization expense totaled $77.4 million and $64.6 million during the three months ended October 31, 2015 and 2014, respectively, and totaled $226.6 million and $181.7 million during the nine months ended October 31, 2015 and 2014, respectively.
Computers, equipment and software at October 31, 2015 and January 31, 2015 included a total of $743.3 million and $734.7 million acquired under capital lease agreements, respectively. Accumulated amortization relating to computers, equipment and software under capital leases totaled $285.4 million and $206.7 million, respectively, at October 31, 2015 and January 31, 2015. Amortization of assets under capital leases is included in depreciation and amortization expense.

20


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 during the three months ended October 31, 2015 and previously received a nonrefundable deposit in the amount of $30.0 million during the three months ended April 30, 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.
In December 2012, 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. The space rented is for the total office space available in the building. As a result of the Company’s involvement during the building's construction, the Company is considered for accounting purposes to be the owner of the building. As of October 31, 2015, the Company had capitalized $175.9 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 $11.9 million and $194.4 million, respectively. The financing obligation carrying value also includes $25.0 million of tenant improvement obligations and approximately $5.7 million of imputed interest. The total expected financing obligation associated with this lease upon completion of the construction of the building, inclusive of the amounts currently recorded, is $335.5 million, including interest (see Note 10 “Commitments” for future commitment details). The obligation will be settled through monthly lease payments to the landlord in phases as the office space becomes ready for occupancy. To the extent that operating expenses for 350 Mission are material, the Company, as the deemed accounting owner, will record the operating expenses. In April 2015, the building was placed into service and depreciation commenced.
There was no impairment of long-lived assets during the three and nine months ended October 31, 2015 and 2014, respectively.
4. Business Combinations
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. As of October 31, 2015, the Company occupied approximately 567,000 square feet. 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

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.

21


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 condensed consolidated statements of operations and condensed 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 condensed 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. The Company expects to finalize the depreciable life of the building as soon as practicable, but not later than one year from the acquisition date.
Other Business Combinations
During the nine months ended October 31, 2015, 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 condensed consolidated financial statements from the respective dates of acquisition. 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 $66.4 million of goodwill. Some of the goodwill balance associated with these transactions is deductible for U.S. income tax purposes. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.
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.
Goodwill consisted of the following (in thousands):
Balance as of January 31, 2015
$
3,782,660

Other business combinations
66,394

Balance as of October 31, 2015
$
3,849,054



22


5. Debt
Convertible Senior Notes
  
Par Value Outstanding
 
Equity
Component Recorded at Issuance
 
Liability Component of Par Value as of
(In thousands)
October 31,
2015
 
January 31,
2015
0.25% Convertible Senior Notes due April 1, 2018
$
1,150,000

 
$
122,421

(1)
$
1,088,910

 
$
1,070,692

___________ 
(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”, or the “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
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;
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.
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.

23


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 their 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 temporary stockholders’ equity and stockholders’ equity.
The 0.25% Senior Notes consisted of the following (in thousands):
 
 
As of
 
October 31,
2015
 
January 31,
2015
Liability component :
 
 
 
Principal:
 
 
 
0.25% Senior Notes (1)
$
1,150,000

 
$
1,150,000

Less: debt discount, net
 
 
 
0.25% Senior Notes (2)
(61,090
)
 
(79,308
)
Net carrying amount
$
1,088,910

 
$
1,070,692

(1)The effective interest rate of the 0.25% Senior Notes is 2.53%. The interest rate is based on the interest rates of similar liabilities at the time of issuance that did not have an associated convertible feature.
(2)Included in the condensed 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.
The total estimated fair value of the Company’s 0.25% Senior Notes at October 31, 2015 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 third quarter of fiscal 2016.
Based on the closing price of the Company’s common stock of $77.71 on October 30, 2015, the if-converted value of the 0.25% Senior Notes exceeded their principal amount by approximately $195.1 million. Based on the terms of the 0.25% Senior Notes, the Senior Notes were not convertible for the three months ended October 31, 2015.
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 “0.25% Note Hedges”).
 
(in thousands, except for shares)
Date
 
Purchase
 
Shares
0.25% Note Hedges
March 2013
 
$
153,800

 
17,308,880

The 0.25% Note Hedges cover shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 0.25% Senior Notes, also subject to adjustment, and are exercisable upon conversion of the Notes. The 0.25% Note Hedges will expire upon the maturity of the 0.25% Senior Notes. The 0.25% Note Hedges are intended to reduce the potential economic dilution upon conversion of the 0.25% Senior Notes in the event that the market value per share of the Company’s common stock, as measured under the 0.25% Senior Notes, at the time of exercise is greater than the conversion price of the 0.25% Senior Notes. The 0.25% Note Hedges are separate transactions and are not part of the terms of the 0.25% Senior Notes. Holders of the 0.25% Senior Notes will not have any rights with respect to the 0.25% Note Hedges. The 0.25% Note Hedges do not impact earnings per share.

24


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.
Revolving Credit Facility
In October 2014, the Company entered into an agreement (the “Credit Agreement”) with Wells Fargo, N.A. and certain other institutional lenders that provides for a $650.0 million unsecured revolving credit facility that matures in October 2019 (the “Credit Facility”). Immediately upon closing, the Company borrowed $300.0 million under the Credit Facility. The Borrowings under the Credit Facility bear interest, at the Company’s option at either a base rate, as defined in the Credit Agreement, plus a margin of 0.00% to 0.75% or LIBOR plus a margin of 1.00% to 1.75%. The Company is obligated to pay ongoing commitment fees at a rate between 0.125% and 0.25%. Such interest rate margins and commitment fees are based on the Company’s consolidated leverage ratio for the preceding four fiscal quarter periods. Interest and the commitment fees are payable in arrears quarterly. The Company may use amounts borrowed under the Credit Facility for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions. Subject to certain conditions stated in the Credit Agreement, the Company may borrow amounts under the Credit Facility at any time during the term of the Credit Agreement. The Company may also prepay borrowings under the Credit Agreement, in whole or in part, at any time without premium or penalty, subject to certain conditions, and amounts repaid or prepaid may be reborrowed.
The Credit Agreement contains certain customary affirmative and negative covenants, including a consolidated leverage ratio covenant, a consolidated interest coverage ratio covenant, a limit on the Company’s ability to incur additional indebtedness, dispose of assets, make certain acquisition transactions, pay dividends or distributions, and certain other restrictions on the Company’s activities each defined specifically in the Credit Agreement. The Company was in compliance with the Credit Agreement’s covenants as of October 31, 2015.
In March 2015, the Company paid down $300.0 million of outstanding borrowings under the Credit Facility. There are currently no outstanding borrowings held under the Credit Facility as of October 31, 2015.
The weighted average interest rate on borrowings under the Credit Facility was 1.6% for the period beginning in October 2014 and ended March 31, 2015. The Company continues to pay a fee of 0.15% 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 three and nine months ended October 31, 2015, total interest expense recognized was $1.9 million and $5.4 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 October 31, 2015.
Interest Expense on Convertible Senior Notes, Revolving Credit Facility and Loan Secured by 50 Fremont
The following table sets forth total interest expense recognized related to the 0.25% Senior Notes, the Credit Facility and the Loan prior to capitalization of interest (in thousands):
 
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Contractual interest expense
$
2,843

 
$
2,190

 
$
9,036

 
$
7,777

Amortization of debt issuance costs
1,027

 
1,132

 
3,077

 
3,490

Amortization of debt discount
6,148

 
8,637

 
18,317

 
28,837

 
$
10,018

 
$
11,959

 
$
30,430

 
$
40,104


25


6. Other Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 
 
As of
 
October 31,
2015
 
January 31,
2015
Deferred income taxes, net
$
42,605

 
$
35,528

Prepaid income taxes
23,167

 
21,514

Customer contract asset
3,572

 
16,620

Other taxes receivable
32,187

 
27,540

Prepaid expenses and other current assets
210,378

 
179,352

 
$
311,909

 
$
280,554

Customer contract asset reflects future billings of amounts that are contractually committed by ExactTarget’s existing customers as of the acquisition date in July 2013 that will be billed in the next 12 months. As the Company bills these customers this balance will reduce and accounts receivable will increase.
Capitalized Software, net
Capitalized software consisted of the following (in thousands):
 
 
As of
 
October 31,
2015
 
January 31,
2015
Capitalized internal-use software development costs, net of accumulated amortization of $172,728 and $136,314, respectively
$
114,058

 
$
96,617

Acquired developed technology, net of accumulated amortization of $459,215 and $392,736, respectively
282,955

 
336,781

 
$
397,013

 
$
433,398

Capitalized internal-use software amortization expense totaled $12.9 million and $9.5 million for the three months ended October 31, 2015 and 2014, respectively, and totaled $36.4 million and $26.2 million for the nine months ended October 31, 2015 and 2014, respectively. Acquired developed technology amortization expense totaled $22.1 million and $22.5 million for the three months ended October 31, 2015 and 2014, respectively, and totaled $66.5 million and $75.9 million for the nine months ended October 31, 2015 and 2014, respectively.
The Company capitalized $1.3 million and $1.5 million of stock-based expenses related to capitalized internal-use software development during the three months ended October 31, 2015 and 2014, respectively, and $4.4 million and $3.6 million for the nine months ended October 31, 2015 and 2014, respectively.

26


Other Assets, net
Other assets consisted of the following (in thousands):
 
As of
 
October 31,
2015
 
January 31,
2015
Deferred income taxes, noncurrent, net
$
7,236

 
$
9,275

Long-term deposits
20,126

 
19,715

Purchased intangible assets, net of accumulated amortization of $191,807 and $130,968, respectively
277,898

 
329,971

Acquired intellectual property, net of accumulated amortization of $20,837 and $15,695, respectively
12,167

 
15,879

Customer contract asset
115

 
1,447

Other
79,185

 
76,259

 
$
396,727

 
$
452,546

Purchased intangible assets amortization expense for the three months ended October 31, 2015 and 2014 was $20.1 million and $14.9 million, respectively and for the nine months ended October 31, 2015 and 2014 was $60.8 million and $44.9 million, respectively. Acquired intellectual property amortization expense for the three months ended October 31, 2015 and 2014 was $1.7 million and $1.2 million, respectively and for the nine months ended October 31, 2015 and 2014 was $5.1 million and $3.6 million, respectively.

27


Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable, accrued expenses and other liabilities consisted of the following (in thousands):
 
 
As of
 
October 31,
2015
 
January 31,
2015
Accounts payable
$
88,755

 
$
95,537

Accrued compensation
415,958

 
457,102

Accrued other liabilities
424,004

 
321,032

Accrued income and other taxes payable
154,020

 
184,844

Accrued professional costs
31,234

 
16,889

Customer liability, current (1)
10,315

 
13,084

Accrued rent
13,477

 
14,847

Financing obligation, building in progress-leased facility, current
11,930

 
0

 
$
1,149,693

 
$
1,103,335

(1) Customer liability reflects the legal obligation to provide future services that are contractually committed to ExactTarget’s existing customers but unbilled as of the acquisition date in July 2013. As these services are invoiced, this balance will decrease and deferred revenue will increase.
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following (in thousands):
 
 
As of
 
October 31,
2015
 
January 31,
2015
Deferred income taxes and income taxes payable
$
113,801

 
$
94,396

Customer liability, noncurrent
81

 
1,026

Financing obligation, building in progress-leased facility
194,350

 
125,289

Long-term lease liabilities and other
569,816

 
701,612

 
$
878,048

 
$
922,323

7. 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. Offerings under the ESPP commenced in December 2011.
As of October 31, 2015, $74.4 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.
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 2013, options issued had a term of five years. After July 2013, options issued have a term of seven years.

28


Stock activity excluding the ESPP is as follows:
 
 
 
Options Outstanding
 
Shares
Available for
Grant
 
Outstanding
Stock
Options
 
Weighted-
Average
Exercise Price
 
Aggregate
Intrinsic Value
Balance as of January 31, 2015
30,789,538

 
29,458,361

 
$
44.36

 
 
Increase in shares authorized:
 
 
 
 
 
 
 
2013 Equity Incentive Plan
38,833,915

 
0

 
0.00

 
 
2014 Inducement Equity Incentive Plan
222,281

 
0

 
0.00

 
 
Options granted under all plans
(1,243,913
)
 
1,243,913

 
70.06

 
 
Restricted stock activity
(1,717,493
)
 
0

 
0.00

 
 
Stock grants to board and advisory board members
(147,305
)
 
0

 
0.00

 
 
Exercised
0

 
(7,139,738
)
 
34.67

 
 
Plan shares expired
(1,533,380
)
 
0

 
0.00

 
 
Canceled
1,623,954

 
(1,623,954
)
 
46.33

 
 
Balance as of October 31, 2015
66,827,597

 
21,938,582

 
$
48.82

 
$
633,719,094

Vested or expected to vest
 
 
20,636,830

 
$
48.30

 
$
606,931,261

Exercisable as of October 31, 2015
 
 
7,999,144

 
$
37.53

 
$
321,427,698

The total intrinsic value of the options exercised during the nine months ended October 31, 2015 and 2014 was $251.3 million and $202.0 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 4.5 years.
As of October 31, 2015, options to purchase 7,999,144 shares were vested at a weighted average exercise price of $37.53 per share and had a remaining weighted-average contractual life of approximately 2.9 years. The total intrinsic value of these vested options as of October 31, 2015 was $321.4 million.
The following table summarizes information about stock options outstanding as of October 31, 2015:
 
 
 
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 $29.38
 
3,115,316

 
2.3
 
$
24.20

 
2,756,842

 
$
24.42

$29.67 to $39.09
 
4,239,789

 
2.1
 
37.94

 
2,856,120

 
37.86

$40.19 to $52.14
 
567,287

 
4.3
 
43.27

 
212,321

 
43.57

$52.30
 
4,107,344

 
5.1
 
52.30

 
1,693,467

 
52.30

$53.60 to $57.79
 
1,572,567

 
5.6
 
55.24

 
424,396

 
55.15

$59.34
 
6,561,546

 
6.1
 
59.34