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 April 30, 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)

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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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	¨
	Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨

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 April 30, 2017, there were approximately 712.2 million shares of the Registrant’s Common Stock outstanding.

INDEX

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of April 30, 2017 and January 31, 2017	3
	Consolidated Statements of Operations for the three months ended April 30, 2017 and 2016	4
	Consolidated Statements of Comprehensive Income for the three months ended April 30, 2017 and 2016	5
	Consolidated Statements of Cash Flows for the three months ended April 30, 2017 and 2016	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	50
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	67

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

salesforce.com, inc.

Consolidated Balance Sheets

(in thousands)

	April 30, 2017			January 31, 2017
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,024,904		$	1,606,549
Marketable securities	1,194,646			602,338
Accounts receivable, net	1,439,875			3,196,643
Deferred commissions	297,419			311,770
Prepaid expenses and other current assets	447,647			279,527
Total current assets	5,404,491			5,996,827
Property and equipment, net	1,846,413			1,787,534
Deferred commissions, noncurrent	220,507			227,849
Capitalized software, net	141,685			141,671
Strategic investments	639,191			566,953
Goodwill	7,290,025			7,263,846
Intangible assets acquired through business combinations, net	1,041,384			1,113,374
Other assets, net	475,234			486,869
Total assets	$	17,058,930		$	17,584,923
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities	$	1,459,686		$	1,752,664
Deferred revenue	5,042,652			5,542,802
Convertible 0.25% senior notes, net	1,123,525			0
Total current liabilities	7,625,863			7,295,466
Convertible 0.25% senior notes, net	0			1,116,360
Term loan	497,509			497,221
Loan assumed on 50 Fremont	198,336			198,268
Revolving credit facility	0			196,542
Other noncurrent liabilities	802,734			780,939
Total liabilities	9,124,442			10,084,796
Stockholders’ equity:
Common stock	712			708
Additional paid-in capital	8,398,380			8,040,170
Accumulated other comprehensive income (loss)	9,513			(75,841		)
Accumulated deficit	(474,117		)	(464,910		)
Total stockholders’ equity	7,934,488			7,500,127
Total liabilities and stockholders’ equity	$	17,058,930		$	17,584,923

See accompanying Notes.

3

salesforce.com, inc.

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Three Months Ended April 30,
	2017			2016
Revenues:
Subscription and support	$	2,200,908		$	1,775,493
Professional services and other	186,671			141,110
Total revenues	2,387,579			1,916,603
Cost of revenues (1)(2):
Subscription and support	462,921			351,101
Professional services and other	187,634			145,880
Total cost of revenues	650,555			496,981
Gross profit	1,737,024			1,419,622
Operating expenses (1)(2):
Research and development	376,081			260,970
Marketing and sales	1,109,504			895,860
General and administrative	260,321			210,806
Total operating expenses	1,745,906			1,367,636
Income (loss) from operations	(8,882		)	51,986
Investment income	5,266			8,122
Interest expense	(22,196		)	(22,011		)
Other income (expense) (1)	2,849			(13,806		)
Gains from acquisitions of strategic investments	0			12,864
Income (loss) before benefit from income taxes	(22,963		)	37,155
Benefit from income taxes	13,756			1,604
Net income (loss)	$	(9,207	)	$	38,759
Basic net income (loss) per share	$	(0.01	)	$	0.06
Diluted net income (loss) per share	$	(0.01	)	$	0.06
Shares used in computing basic net income (loss) per share	706,174			677,514
Shares used in computing diluted net income (loss) per share	706,174			686,799

_______________

(1) Amounts include amortization of purchased intangibles from business combinations, as follows:

	Three Months Ended April 30,
	2017		2016
Cost of revenues	$	43,586	$	22,215
Marketing and sales	30,644		15,386
Other non-operating expense	375		706

(2) Amounts include stock-based expense, as follows:

	Three Months Ended April 30,
	2017		2016
Cost of revenues	$	31,510	$	26,634
Research and development	63,915		35,168
Marketing and sales	118,996		95,474
General and administrative	37,148		31,643

See accompanying Notes.

4

salesforce.com, inc.

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

	Three Months Ended April 30,
	2017			2016
Net income (loss)	$	(9,207	)	$	38,759
Other comprehensive income, before tax and net of reclassification adjustments:
Foreign currency translation and other gains (losses)	14,024			10,256
Unrealized gains on marketable securities and strategic investments	71,330			11,084
Other comprehensive income, before tax	85,354			21,340
Tax effect	0			0
Other comprehensive income, net of tax	85,354			21,340
Comprehensive income	$	76,147		$	60,099

See accompanying Notes.

5

salesforce.com, inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended April 30,
	2017			2016
Operating activities:
Net income (loss)	$	(9,207	)	$	38,759
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	185,108			132,772
Amortization of debt discount and issuance costs	7,717			7,185
Gains from acquisitions of strategic investments	0			(12,864		)
Amortization of deferred commissions	106,142			88,514
Expenses related to employee stock plans	251,569			188,919
Changes in assets and liabilities, net of business combinations:
Accounts receivable, net	1,757,507			1,307,312
Deferred commissions	(84,449		)	(63,519		)
Prepaid expenses and other current assets and other assets	(183,411		)	(56,671		)
Accounts payable, accrued expenses and other liabilities	(301,242		)	(286,228		)
Deferred revenue	(500,150		)	(293,117		)
Net cash provided by operating activities	1,229,584			1,051,062
Investing activities:
Business combinations, net of cash acquired	(19,781		)	(1,799		)
Strategic investments, net	(458		)	(22,061		)
Purchases of marketable securities	(698,561		)	(589,336		)
Sales of marketable securities	103,837			222,934
Maturities of marketable securities	3,850			23,285
Capital expenditures	(156,602		)	(83,301		)
Net cash used in investing activities	(767,715		)	(450,278		)
Financing activities:
Proceeds from employee stock plans	159,807			89,141
Principal payments on capital lease obligations	(9,443		)	(49,968		)
Payments on revolving credit facility	(200,000		)	0
Net cash provided by (used in) financing activities	(49,636		)	39,173
Effect of exchange rate changes	6,122			763
Net increase in cash and cash equivalents	418,355			640,720
Cash and cash equivalents, beginning of period	1,606,549			1,158,363
Cash and cash equivalents, end of period	$	2,024,904		$	1,799,083

See accompanying Notes.

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salesforce.com, inc.

Consolidated Statements of Cash Flows

Supplemental Cash Flow Disclosure

(in thousands)

(unaudited)

	Three Months Ended April 30,
	2017		2016
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest	$	6,722	$	23,750
Income taxes, net of tax refunds	$	17,347	$	7,909
Non-cash investing and financing activities:
Fixed assets acquired under capital leases	$	2,471	$	585
Building - leased facility acquired under financing obligation	$	0	$	1,676
Fair value of equity awards assumed	$	0	$	11,449
Fair value of common stock issued as consideration for business combinations	$	6,193	$	278,372
Non-cash equity liability (See Note 9)	$	7,485	$	0

See accompanying Notes.

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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 software, delivered through the cloud, with a focus on customer relationship management, or CRM. The Company introduced its first CRM solution in 2000, and has since expanded its service offerings into new areas and industries with new editions, features and platform capabilities.

The Company's core mission is to empower its customers to connect with their customers in entirely new ways through cloud, mobile, social, Internet of Things (“IoT”) and artificial intelligence technologies.

The Company's 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 its professional cloud services.

Fiscal Year

The Company’s fiscal year ends on January 31. References to fiscal 2018, for example, refer to the fiscal year ending January 31, 2018.

Basis of Presentation

The accompanying consolidated balance sheet as of April 30, 2017 and the consolidated statements of operations, the consolidated statements of comprehensive income and the consolidated statements of cash flows for the three months ended April 30, 2017 and 2016, respectively, are unaudited.

These 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 consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s balance sheet as of April 30, 2017, and its results of operations, including its comprehensive income, and its cash flows for the three months ended April 30, 2017 and 2016. All adjustments are of a normal recurring nature. The results for the three months ended April 30, 2017 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2018.

These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2017, filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2017.

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 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.

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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, who is the chief executive officer, in deciding how to allocate resources and assessing performance. Over the past few years, 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, andthe 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 accounts receivable. In addition, in connection with the Company's 0.25% Senior Notes (as defined in Note 8 "Debt"), 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 its doubtful accounts receivable. 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 April 30, 2017 and January 31, 2017. No single customer accounted for five percent or more of total revenue during the three months ended April 30, 2017 and 2016.

Geographic Locations

As of April 30, 2017 and January 31, 2017, assets located outside the Americas were 13 percent and 12 percent of total assets, respectively. As of April 30, 2017 and January 31, 2017, assets located in the United States were 85 percent and 86 percent of total assets, respectively.

Revenues by geographical region are as follows (in thousands):

	Three Months Ended April 30,
	2017		2016
Americas	$	1,755,358	$	1,413,229
Europe	409,615		327,854
Asia Pacific	222,606		175,520
	$	2,387,579	$	1,916,603

Americas revenue attributed to the United States was approximately 96 percent and 97 percent during the three months ended April 30, 2017 and 2016, respectively. No other country represented more than ten percent of total revenue during the three months ended April 30, 2017 and 2016.

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

9

process mapping, project management, implementation services and other revenue. Other revenue consists primarily of training fees.

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 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 factors. Accordingly, the Company uses its BESP to determine the relative selling price for its subscription services.

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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 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 consolidated statements of operations.

During the three months ended April 30, 2017, the Company deferred $84.4 million of commission expenditures and amortized $106.1 million to sales expense. During the same period a year ago, the Company deferred $63.5 million of commission expenditures and amortized $88.5 million to sales expense. Deferred commissions on the Company's consolidated balance sheets totaled $517.9 million at April 30, 2017 and $539.6 million at January 31, 2017.

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. 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.

Strategic Investments

The Company holds certain marketable equity and non-marketable debt and equity securities within its strategic investments portfolio. Marketable equity securities are measured using quoted prices in their respective active markets, non-marketable debt securities are recorded at their estimated fair value and the non-marketable equity securities are recorded at cost.

Marketable equity securities and non-marketable debt securities are recorded at fair value with changes in fair value recorded through accumulated other comprehensive income. Equity investments without readily determinable fair values for

11

which the Company does 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. 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 and 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 4 “Fair Value Measurement.”

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 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.

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.

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, 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 its 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 the three months ended April 30, 2017and 2016.

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

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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 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. 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 life. 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 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 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 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, grants 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. Therefore, the Company accounts for them as post-acquisition stock-based expense. The Company recognizes stock-based expense 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, which is generally four years. 

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 statements of operations in the period that includes the enactment date.

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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 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. 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 2018

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2017-01, "Business Combinations (Topic 805) Clarifying the Definition of a Business" ("ASU 2017-01") which amended the existing FASB Accounting Standards Codification. The standard provides additional guidance to assist entities with evaluating

whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for fiscal 2019 with early adoption permitted. The Company early adopted the standard in the first quarter of fiscal 2018 on a prospective basis and does not expect it to have a material impact on the Company's financial statements.

Pending Accounting Pronouncements

In May 2014, the 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, replaces existing revenue recognition guidance with a comprehensive revenue measurement and recognition standard and expanded disclosure

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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 this standard 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 and related disclosures and has not yet determined whether the effect will be material. The Company does not expect the adoption of ASU 2014-09 will have a material impact on its operating cash flows. 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:

• 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;

• 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 commission capitalization policy. The new standard will result in additional types of costs being 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. The Company plans to elect the measurement alternative for equity investments that do not have readily determinable fair values. These investments will be measured at cost, less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which are recorded in net income. The new standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. The Company plans to adopt the new standard in its first quarter of fiscal 2019 and expects the adoption of ASU 2016-01 will impact its strategic investments portfolio. The Company is currently evaluating the impact to its consolidated financial statements and expects it could have a material impact in future periods.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which requires lessees to record most leases on their balance sheets but recognize the expenses on their statements of operations in a manner similar to current accounting rules. 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 on a modified retrospective basis 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 2017 balances were made to conform to the current period presentation in the consolidated balance sheets and consolidated statement of operations. These reclassifications include cost of revenues professional services and other, cost of revenues subscription and support, deferred revenue and deferred revenue, noncurrent.

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2. Investments

Marketable Securities

The Company considers all of 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.

At April 30, 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	$	715,854	$	2,082	$	(924	)	$	717,012
U.S. treasury securities	86,835		194		(326		)	86,703
Mortgage backed obligations	108,409		101		(512		)	107,998
Asset backed securities	215,804		204		(142		)	215,866
Municipal securities	51,221		67		(148		)	51,140
Foreign government obligations	15,935		22		(30		)	15,927
Total marketable securities	$	1,194,058	$	2,670	$	(2,082	)	$	1,194,646

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

The contractual maturities of the investments classified as marketable securities are as follows (in thousands):

	As of
	April 30, 2017		January 31, 2017
Due within 1 year	$	170,315	$	104,631
Due in 1 year through 5 years	1,016,080		494,127
Due in 5 years through 10 years	8,251		3,580
	$	1,194,646	$	602,338

As of April 30, 2017, the following marketable securities were in an unrealized loss position (in thousands):

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	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	$	237,733	$	(924	)	$	1,000	$	0		$	238,733	$	(924	)
U.S. treasury securities	51,327		(326		)	0		0			51,327		(326		)
Mortgage backed obligations	74,863		(507		)	377		(5		)	75,240		(512		)
Asset backed securities	87,303		(135		)	833		(7		)	88,136		(142		)
Municipal securities	32,814		(148		)	0		0			32,814		(148		)
Foreign government obligations	8,242		(30		)	0		0			8,242		(30		)
	$	492,282	$	(2,070	)	$	2,210	$	(12	)	$	494,492	$	(2,082	)

The unrealized losses for each of the fixed rate marketable securities were less than $97,000. 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 April 30, 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):

	Three Months Ended April 30,
	2017			2016
Interest income	$	5,647		$	7,773
Realized gains	159			1,054
Realized losses	(540		)	(705		)
Total investment income	$	5,266		$	8,122

Reclassification adjustments out of accumulated other comprehensive income into net income (loss) were immaterial for the three months ended April 30, 2017 and 2016.

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, non-marketable debt securities are recorded at fair value and non-marketable equity securities are recorded at cost. These investments are presented on the consolidated balance sheets within strategic investments.

As of April 30, 2017, the Company had six investments in marketable equity securities with a fair value of $133.0 million, which included an unrealized gain of $75.6 million. As of January 31, 2017, the Company had six investments in marketable equity securities with a fair value of $41.0 million, which included an unrealized gain of $24.5 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 income.

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 fair value for debt securities with fair value changes recorded through accumulated other comprehensive income and at cost for non-marketable equity securities. The non-marketable debt and equity securities are 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. The estimated fair value is based on quantitative and qualitative factors including, but not limited to, subsequent financing activities by the investee and projected discounted cash flows. Fair value is not estimated for non-marketable equity securities if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment.

As of April 30, 2017 and January 31, 2017, the carrying value of the Company’s non-marketable debt and equity securities was $506.2 million and $526.0 million, respectively. The estimated fair value of the non-marketable debt and equity

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securities was approximately $709.8 million and $758.3 million as of April 30, 2017 and January 31, 2017, respectively.

The carrying value of the Company’s strategic investments is impacted by various events such as entering into new investments, dispositions due to acquisitions, fair market value adjustments or initial public offerings. The cash inflows from exits and cash outflows from new investments are disclosed as strategic investments within the investing activities section of the statement of cash flows and any gains or losses are recorded within the operating activities of the statements of cash flows for each of the respective fiscal quarter periods. 

3. Derivatives

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 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 April 30, 2017 and January 31, 2017, 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 are presented below (in thousands):

	As of
	April 30, 2017		January 31, 2017
Notional amount of foreign currency derivative contracts	$	1,341,321	$	1,280,953
Fair value of foreign currency derivative contracts	$	8,551	$	10,205

The fair value of the Company’s outstanding derivative instruments not designated as hedging instruments

are summarized below (in thousands):

		Fair Value of Derivative Instruments
		As of
	Balance Sheet Location	April 30, 2017			January 31, 2017
Derivative Assets
Foreign currency derivative contracts	Prepaid expenses and other current assets	$	12,590		$	13,238
Derivative Liabilities
Foreign currency derivative contracts	Accounts payable, accrued expenses and other liabilities	$	(4,039	)	$	(3,033	)

The effect of the derivative instruments not designated as hedging instruments on the consolidated statements of operations during the three months ended April 30, 2017 and 2016, respectively, are summarized below (in thousands):

		Three Months Ended   April 30,
	Location	2017		2016
Foreign currency derivative contracts	Other income (expense)	$	15,410	$	(1,442	)

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4. Fair Value Measurement

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.

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 following table presents information about the Company’s assets and liabilities that are measured at fair value as of April 30, 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 April 30, 2017
Cash equivalents (1):
Time deposits	$	0	$	214,921	$	0	$	214,921
Money market mutual funds	1,087,984		0		0		1,087,984
Marketable securities:
Corporate notes and obligations	0		717,012		0		717,012
U.S. treasury securities	0		86,703		0		86,703
Mortgage backed obligations	0		107,998		0		107,998
Asset backed securities	0		215,866		0		215,866
Municipal securities	0		51,140		0		51,140
Foreign government obligations	0		15,927		0		15,927
Foreign currency derivative contracts (2)	0		12,590		0		12,590
Total assets	$	1,087,984	$	1,422,157	$	0	$	2,510,141
Liabilities:
Foreign currency derivative contracts (3)	$	0	$	4,039	$	0	$	4,039
Total liabilities	$	0	$	4,039	$	0	$	4,039

_____________ 

(1)Included in “cash and cash equivalents” in the accompanying consolidated balance sheet as of April 30, 2017, in addition to $722.0 million of cash.

(2)Included in “prepaid expenses and other current assets” in the accompanying consolidated balance sheet as of April 30, 2017.

(3)Included in “accounts payable, accrued expenses and other liabilities” in the consolidated balance sheet as of April 30, 2017.

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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 accompanying consolidated balance sheet as of January 31, 2017.

5. Property and Equipment

Property and Equipment

Property and equipment, net consisted of the following (in thousands):

	As of
	April 30, 2017			January 31, 2017
Land	$	183,888		$	183,888
Buildings and building improvements	621,950			621,377
Computers, equipment and software	1,503,140			1,440,986
Furniture and fixtures	122,435			112,564
Leasehold improvements	696,902			627,069
	3,128,315			2,985,884
Less accumulated depreciation and amortization	(1,281,902		)	(1,198,350		)
	$	1,846,413		$	1,787,534

Depreciation and amortization expense totaled $88.1 million and $75.6 million during the three months ended April 30, 2017 and 2016, respectively.

Computers, equipment and software at April 30, 2017 and January 31, 2017 included a total of $731.7 million and $729.0 million acquired under capital lease agreements, respectively. Accumulated amortization relating to computers, equipment and software under capital leases totaled $409.0 million and $386.9 million, respectively, at April 30, 2017 and January 31, 2017. Amortization of assets under capital leases is included in depreciation and amortization expense.

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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 350 Mission. 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 April 30, 2017, the Company had capitalized $178.8 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 $19.7 million and $200.1 million, respectively. As of January 31, 2017, the Company had capitalized $178.8 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 $19.6 million and $200.7 million, respectively. The total expected financing obligation in the form of minimum lease payments inclusive of the amounts currently recorded is $317.0 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 in 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

During the three months ended April 30, 2017, the Company acquired Sequence, Inc. for an aggregate of $26.0 million in cash and equity, net of cash acquired, and has included the financial results of the company in its consolidated financial statements from the date of acquisition. The costs associated with this acquisition were not material. The Company accounted for this acquisition as a business combination. In allocating the purchase consideration based on estimated fair values, the Company recorded $2.7 million of intangible assets and $23.0 million of goodwill. The goodwill balance associated with this business combination 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.

7. Intangible Assets Acquired Through Business Combinations and Goodwill

Intangible assets acquired through business combinations

Intangible assets acquired through business combinations are as follows (in thousands):

	Intangible Assets, Gross						Accumulated Amortization									Intangible Assets, Net				Weighted Average Useful Life
	Jan 31, 2017		Additions		Apr 30, 2017		Jan 31, 2017			Expense			Apr 30, 2017			Jan 31, 2017		Apr 30, 2017
Acquired developed technology	$	1,092,161	$	0	$	1,092,161	$	(577,929	)	$	(43,216	)	$	(621,145	)	$	514,232	$	471,016	3.4
Customer relationships	843,614		2,690		846,304		(254,035		)	(30,144		)	(284,179		)	589,579		562,125		5.1
Trade name and trademark	45,950		0		45,950		(41,349		)	(510		)	(41,859		)	4,601		4,091		2.1
Territory rights and other	15,786		0		15,786		(12,256		)	(434		)	(12,690		)	3,530		3,096		7.8
50 Fremont lease intangibles	7,713		0		7,713		(6,281		)	(376		)	(6,657		)	1,432		1,056		2.3
Total	$	2,005,224	$	2,690	$	2,007,914	$	(891,850	)	$	(74,680	)	$	(966,530	)	$	1,113,374	$	1,041,384	4.3

Amortization of intangible assets of $74.7 million and unfavorable lease liabilities, which are not reflected in the table above, resulting from business combinations for the three months ended April 30, 2017 and 2016 were $74.6 million and $38.3 million, respectively.

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The expected future amortization expense for intangible assets as of April 30, 2017 is as follows (in thousands):

Fiscal Period:
Remaining nine months of Fiscal 2018	$	213,808
Fiscal 2019	266,345
Fiscal 2020	225,150
Fiscal 2021	169,592
Fiscal 2022	111,464
Thereafter	55,025
Total amortization expense	$	1,041,384

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.

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, 2017	$	7,263,846
Other acquisitions	22,982
Adjustments of acquisition date fair values, including the effect of foreign currency translation
Other business combinations and adjustments	3,197
Balance as of April 30, 2017	$	7,290,025

8. Debt

Convertible Senior Notes

	Par Value Outstanding		Equity Component Recorded at Issuance			Liability Component of Par Value as of
(in thousands)						April 30, 2017		January 31, 2017
0.25% Convertible Senior Notes due April 1, 2018	$	1,150,000	$	122,421	(1)	$	1,123,525	$	1,116,360

___________ 

(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 “Notes”) due April 1, 2018, unless earlier purchased by the Company or converted and are therefore classified as current on the consolidated balance sheet as of April 30, 2017 as they are due within one year. 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

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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 (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 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 stockholders’ equity.

The 0.25% Senior Notes consisted of the following (in thousands):

	As of
	April 30, 2017			January 31, 2017
Liability component:
Principal (1)	$	1,150,000		$	1,150,000
Less: debt discount, net (2)	(23,608		)	(29,954		)
Less: debt issuance cost	(2,867		)	(3,686		)
Net carrying amount	$	1,123,525		$	1,116,360

(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 consolidated balance sheets within Convertible 0.25% Senior Notes (which is classified as a current liability as of April 30, 2017 and a noncurrent liability as of January 31, 2017) 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 April 30, 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 first quarter of fiscal 2018.

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Based on the closing price of the Company’s common stock of $86.12 on April 30, 2017, the if-converted value of the 0.25% Senior Notes exceeded their principal amount by approximately $340.6 million. Based on the terms of the 0.25% Senior Notes, the Senior Notes were not convertible for the three months ended April 30, 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 (“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.

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 (“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 (“Term Loan Credit Agreement”) with Bank of America, N.A. and certain other institutional lenders for a $500.0 million term loan facility (“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.

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 purpose 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

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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 April 30, 2017.

The weighted average interest rate on the Term Loan was 2.0% for the three months ended April 30, 2017. Accrued interest on the Term Loan was $0.4 million as of April 30, 2017. As of April 30, 2017, the noncurrent outstanding principal portion was $500.0 million.

Revolving Credit Facility

In July 2016, the Company entered into an Amended and Restated Credit Agreement (“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 (“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 on undrawn amounts 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. 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 April 30, 2017.

In February 2017, the Company paid down the remaining $200.0 million of outstanding borrowings under the Credit Facility. There were no outstanding borrowings under the Credit Facility as of April 30, 2017. The Company continues to pay a commitment 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 (“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 months ended April 30, 2017 and 2016, total interest expense recognized was $1.9 million and $1.9 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 April 30, 2017.

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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 0.25% Senior Notes, the Term Loan, the Credit Facility and the Loan prior to capitalization of interest (in thousands):

	Three Months Ended April 30,
	2017		2016
Contractual interest expense	$	5,682	$	2,814
Amortization of debt issuance costs	1,332		1,028
Amortization of debt discount	6,383		6,226
	$	13,397	$	10,068

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
	April 30, 2017		January 31, 2017
Prepaid income taxes	$	69,134	$	26,932
Other taxes receivable	33,687		34,177
Prepaid expenses and other current assets	344,826		218,418
	$	447,647	$	279,527

Capitalized Software, net

Capitalized software, net at April 30, 2017 and January 31, 2017 was $141.7 million and $141.7 million, respectively. Accumulated amortization relating to capitalized software, net totaled $268.9 million and $250.9 million, respectively, at April 30, 2017 and January 31, 2017.

Capitalized internal-use software amortization expense totaled $18.0 million and $15.0 million for the three months ended April 30, 2017 and 2016, respectively.

The Company capitalized $1.9 million and $1.8 million of stock-based expenses related to capitalized internal-use software development for the three months ended April 30, 2017 and 2016, respectively.

Other Assets, net

Other assets consisted of the following (in thousands):

	As of
	April 30, 2017		January 31, 2017
Deferred income taxes, noncurrent, net	$	29,312	$	28,939
Long-term deposits	23,874		23,597
Domain names and patents, net of accumulated amortization of $46,211 and $41,783, respectively	34,784		39,213
Customer contract asset (1)	255,387		281,733
Other	131,877		113,387
	$	475,234	$	486,869

(1) Customer contract asset reflects future billings of amounts that are contractually committed by our acquired companies' existing customers as of the acquisition date.

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Domain names and patents amortization expense for the three months ended April 30, 2017 and 2016 was $4.4 million and $3.2 million, respectively.

Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities consisted of the following (in thousands):

	As of
	April 30, 2017		January 31, 2017
Accounts payable	$	128,065	$	115,257
Accrued compensation	434,899		730,390
Non-cash equity liability (1)	60,870		68,355
Accrued other liabilities	562,848		521,405
Accrued income and other taxes payable	192,434		239,699
Accrued professional costs	38,098		38,254
Accrued rent	22,777		19,710
Financing obligation - leased facility, current	19,695		19,594
	$	1,459,686	$	1,752,664

(1) Non-cash equity liability represents the purchase price of shares issued to non-executive employees, for those 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.

Other Noncurrent Liabilities

Other noncurrent liabilities consisted of the following (in thousands):

	As of
	April 30, 2017		January 31, 2017
Deferred income taxes and income taxes payable	$	106,303	$	99,378
Financing obligation - leased facility	200,129		200,711
Long-term lease liabilities and other	496,302		480,850
	$	802,734	$	780,939

10. Stockholders’ Equity

The Company maintains the following stock plans: the ESPP, the 2013 Equity Incentive Plan and the 2014 Inducement Equity Incentive Plan (“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.

As of April 30, 2017, $115.6 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 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.

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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 April 30,
Stock Options	2017			2016
Volatility	31.4		%	32.1		%
Estimated life	3.5 years			3.5 years
Risk-free interest rate	1.4 - 1.5		%	0.9 - 1.0		%
Weighted-average fair value per share of grants	$	20.63		$	17.35

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 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 2016, the Company granted a performance-based restricted stock unit award to the Chairman of the Board and Chief Executive Officer and during fiscal 2017, the Company granted performance-based restricted stock unit awards to certain executive officers, including the Chairman of the Board and Chief Executive Officer. The performance-based restricted stock unit awards are subject to vesting based on a performance-based condition and a service-based condition. At the end of the three year service period, based on the Company's share price performance, these performance-based restricted stock units will vest in a percentage of the target number of shares between 0 and 200%, depending on the extent the performance condition is achieved.

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, 2017	16,531,822		30,353,076		$	59.88
Increase in shares authorized:
2013 Equity Incentive Plan	8,988		0		0.00
2014 Inducement Plan	9,548		0		0.00
Assumed equity plans	0		0		0.00
Options granted under all plans	(444,826	)	444,826		82.42
Restricted stock activity	(1,230,547	)	0		0.00
Stock grants to board and advisory board members	(59,093	)	0		0.00
Exercised	0		(2,625,463	)	35.07
Plan shares expired	(22,273	)	0		0.00
Canceled	333,141		(333,141	)	69.73
Balance as of April 30, 2017	15,126,760		27,839,298		$	62.46	$	658,584
Vested or expected to vest			25,491,175		$	61.66	$	623,557
Exercisable as of April 30, 2017			11,178,853		$	54.14	$	357,546

The total intrinsic value of the options exercised during the three months ended April 30, 2017 and 2016 was $124.7 million and $28.6 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 5.07 years.

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As of April 30, 2017, options to purchase 11,178,853 shares were vested at a weighted average exercise price of $54.14 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 April 30, 2017 was $357.5 million.

During the three months ended April 30, 2017, the Company recognized stock-based expense related to our equity plans for employees and non-employee directors of $251.6 million. As of April 30, 2017, the aggregate stock compensation remaining to be amortized to costs and expenses was approximately $2.4 billion. The Company will amortize this stock compensation balance as follows: $769.4 million during the remaining nine months of fiscal 2018; $772.2 million during fiscal 2019; $554.5 million during fiscal 2020; $270.4 million during fiscal 2021; $20.3 million during fiscal 2022 and $25.2 million thereafter. The expected amortization reflects only outstanding stock awards as of April 30, 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 2.2 years.

The following table summarizes information about stock options outstanding as of April 30, 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 $52.30	7,021,653	4.2	$	35.82	5,253,639	$	40.03
$53.60 to $58.86	911,285	4.1	55.56		464,392	55.68
$59.34	5,510,998	4.5	59.34		3,114,503	59.34
$59.37 to $75.01	1,933,555	5.6	69.18		450,412	68.63
$75.57	6,003,861	6.5	75.57		0	0.00
$76.48 to $80.62	623,673	6.0	78.47		65,282	76.90
$80.99 to $83.79	5,834,273	5.6	81.13		1,830,625	80.99
	27,839,298	5.2	$	62.46	11,178,853	$	54.14

Restricted stock activity is as follows:

	Restricted Stock Outstanding
	Outstanding		Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Balance as of January 31, 2017	27,453,498		$	0.001
Granted - restricted stock units and awards	1,104,864		0.001
Canceled	(514,119	)	0.001
Vested and converted to shares	(2,017,260	)	0.001
Balance as of April 30, 2017	26,026,983		$	0.001	$	2,241,444
Expected to vest	21,896,527				$	1,885,729

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 four years.

The weighted-average grant date fair value of the restricted stock issued for the three months ended April 30, 2017 and 2016 was $82.23 and $69.29, respectively.

Common Stock

The following number of shares of common stock were reserved and available for future issuance at April 30, 2017:

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Options outstanding	27,839,298
Restricted stock awards and units and performance stock units outstanding	26,026,983
Stock available for future grant:
2013 Equity Incentive Plan	14,639,050
2014 Inducement Plan	405,304
Amended and Restated 2004 Employee Stock Purchase Plan	3,663,369
Acquired equity plans	82,406
Convertible Senior Notes	17,308,880
Warrants	17,308,880
	107,274,170

11. Income Taxes

Effective Tax Rate

The Company computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year to date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. For the three months ended April 30, 2017, the Company reported a tax benefit of $13.8 million on a pretax loss of $23.0 million, which resulted in an effective tax rate of 60 percent. In computing the estimated annual effective tax rate, the Company expects pretax income for the full year and projects tax expense primarily related to profitable jurisdictions outside the United States.

The Company regularly assesses the realizability of the deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some or all of the Company's 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. 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 annual taxable income continues.

For the three months ended April 30, 2016, the Company reported a tax benefit of $1.6 million on a pretax income of $37.2 million, which resulted in a negative effective tax rate of 4 percent. The Company recorded a net tax benefit due to income taxes in profitable jurisdictions outside of the United States offset by a discrete tax benefit from a partial release of the valuation allowance in connection with certain acquisitions. The net deferred tax liability from the acquisitions provided a source of additional 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.

Tax Benefits Related to Stock-Based Compensation

The income tax benefit related to stock-based compensation was $68.3 million and $51.4 million for the three months ended April 30, 2017 and 2016, 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, France and Germany. In March 2017, the Company received the final notice of proposed adjustments primarily related to transfer pricing issues from the Internal Revenue Service. Accordingly, the Company re-assessed and adjusted its reserves, which resulted in a net immaterial impact to the tax provision due to its valuation allowance. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As 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. Generally, any adjustments resulting from the U.S. audits should not have a significant impact to the Company's tax provision due to its valuation allowance. In addition, the Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits up to approximately $8.6 million may occur in the next 12 months, as the applicable statutes of limitations lapse.

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12. Earnings 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 the three months ended April 30, 2017 is the same as basic loss per share as there is a net loss in the period and inclusion of potentially issuable shares is anti-dilutive.

A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is as follows (in thousands):

	Three Months Ended April 30,
	2017			2016
Numerator:
Net income (loss)	$	(9,207	)	$	38,759
Denominator:
Weighted-average shares outstanding for basic earnings (loss) per share	706,174			677,514
Effect of dilutive securities:
Convertible senior notes	0			945
Employee stock awards	0			8,340
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share	706,174			686,799

The weighted-average number of shares outstanding used in the computation of 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):

	Three Months Ended April 30,
	2017	2016
Employee stock awards	25,599	21,321
Convertible senior notes	17,309	0
Warrants	17,309	17,309

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13. Commitments

Letters of Credit

As of April 30, 2017, the Company had a total of $83.9 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.

As of April 30, 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:
Remaining nine months of fiscal 2018	$	109,813		$	371,925	$	16,115
Fiscal 2019	115,825			440,751		21,881
Fiscal 2020	201,614			359,333		22,325
Fiscal 2021	71			275,691		22,770
Fiscal 2022	37			245,409		23,214
Thereafter	3			1,210,331		210,713
Total minimum lease payments	427,363			$	2,903,440	$	317,018
Less: amount representing interest	(39,267		)
Present value of capital lease obligations	$	388,096

______________ 

(1) Total Financing Obligation - Leased Facility noted above represents the total obligation on the lease agreement including amounts allocated to interest noted in Note 5 “Property and Equipment.” As of April 30, 2017, $219.8 million of the total $317.0 million above was recorded to Financing obligation - leased facility, of which the current portion is included in "Accounts payable, accrued expenses and other liabilities" and the noncurrent 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.

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 Company paid $96.0 million in connection with this agreement during the three months ended April 30, 2017. The agreement further provides that the Company will pay an additional $108.0 million in fiscal 2019 and $126.0 million in fiscal 2020.

14. 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.

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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.

15. 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 $2.0 million for the three months ended April 30, 2017.

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 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. The value of the subscriptions pursuant to the reseller agreement, as amended, was approximately $39.6 million for the three months ended April 30, 2017.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“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 and cash flows; 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 domestic and foreign government regulations, including those related to the provision of services on the Internet, those addressing data privacy and 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.

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 2000, and we have since expanded our service offerings 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 Customer Success Platform - including 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 - provides 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;

• extend go-to-market capabilities;

• reduce customer attrition; and

• encourage the development of third-party applications on our cloud computing platforms.

Salesforce is also committed to a sustainable, low-carbon future, advancing equality and fostering employee success. We try to integrate social good into everything we do. All of these goals align with our long-term growth strategy and financial and operational priorities.

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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; our ability to maintain a balanced portfolio of products and customers, 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 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 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 IoT. 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 remain focused on improving operating margins 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 as of April 30, 2017. While it is difficult to predict, we expect our attrition rate to remain consistent as we continue to expand our enterprise business and invest in customer success and related programs.

We expect marketing and sales costs, which were 46 percent for the three months ended April 30, 2017 and 2016, 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 continue to build greater brand awareness.

Fiscal Year

Our fiscal year ends on January 31. References to fiscal 2018, for example, refer to the fiscal year ending January 31, 2018.

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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 our 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, andour 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 the three months ended April 30, 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 the three months ended April 30, 2017 and 2016.

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 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 Note 1“Summary of Business and Significant Accounting Policies.”

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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 cloud service offerings. Subscription and support revenues consisted of the following (in millions):

	Three Months Ended April 30,
	2017		2016		Variance- Percent
Sales Cloud	$	829.6	$	724.6	14%
Service Cloud	651.2		540.1		21%
Salesforce Platform and Other	431.1		325.9		32%
Marketing and Commerce Cloud	289.0		184.9		56%
Total	$	2,200.9	$	1,775.5

Subscription and support revenues from the Analytics Cloud, Community Cloud, IoT Cloud, and Salesforce Quip were not significant for the three months ended April 30, 2017. 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 depending on the primary service offering purchased.

As required under U.S. GAAP, we recorded deferred revenue related to acquired contracts from Demandware at fair value on the date of acquisition. 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 $289.0 million subscription and support revenue for Marketing and Commerce Cloud for the three months ended April 30, 2017, approximately $45.8 million 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 14 percent of our total subscription and support revenues for the three months ended April 30, 2017 and 13 percent of our total subscription and support revenues for the three months ended April 30, 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, not according to the customer’s business requirements and usage. In addition, as we introduce new features and functions within 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 service offering for comparability. Accordingly, comparisons of revenue performance by core 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 and Commerce 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. 

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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 the value of all subscription and support related invoices, excluding Demandware related invoices, were issued with annual terms during the three months ended April 30, 2017 and 2016. 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 toward 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.

Unbilled Deferred Revenue, an Operational Measure

The deferred revenue balance on our consolidated balance sheets 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 below. 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.

The sequential quarterly changes in accounts receivable and the related deferred revenue and operating cash flow during the first quarter of our fiscal year are not necessarily indicative of the billing activity that occurs for the following quarters as displayed below (in thousands, except unbilled deferred revenue):

	April 30, 2017
Fiscal 2018
Accounts receivable, net	$	1,439,875
Deferred revenue	5,042,652
Operating cash flow (1)	1,229,584
Unbilled deferred revenue	9.6bn

	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 (2)	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	9.0 bn		8.6 bn		8.0 bn		7.6 bn

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	January 31, 2016	October 31, 2015	July 31, 2015	April 30, 2015
Fiscal 2016