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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 2021
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)
 
Delaware94-3320693
(State or other jurisdiction of
incorporation or organization)		(IRS Employer
Identification No.)
Salesforce Tower
415 Mission Street, 3rd Fl
San Francisco, California 94105
(Address of principal executive offices)
Telephone Number (415) 901-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCRMNew York Stock Exchange
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 every Interactive Data File required to be submitted 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 such files).    Yes  x   No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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☒Accelerated filer☐
Non-accelerated filer☐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 August 25, 2021, there were approximately 979 million shares of the Registrant’s Common Stock outstanding.


1
Table of Contents
INDEX
 
  Page No.
  
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2
Table of Contents
PART I.
ITEM 1. FINANCIAL STATEMENTS
salesforce.com, inc.
Condensed Consolidated Balance Sheets
(in millions)
July 31, 2021January 31, 2021
Assets(unaudited)
Current assets:
Cash and cash equivalents$6,299 $6,195 
Marketable securities3,351 5,771 
Accounts receivable, net 4,074 7,786 
Costs capitalized to obtain revenue contracts, net 1,211 1,146 
Prepaid expenses and other current assets1,321 991 
Total current assets16,256 21,889 
Property and equipment, net2,711 2,459 
Operating lease right-of-use assets, net 3,123 3,204 
Noncurrent costs capitalized to obtain revenue contracts, net 1,820 1,715 
Strategic investments4,105 3,909 
Goodwill48,103 26,318 
Intangible assets acquired through business combinations, net9,746 4,114 
Deferred tax assets and other assets, net 2,794 2,693 
Total assets$88,658 $66,301 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities
$4,274 $4,355 
Operating lease liabilities, current
713 766 
Unearned revenue
11,067 12,607 
Slack Convertible Notes1,339 0 
Total current liabilities17,393 17,728 
Noncurrent debt10,589 2,673 
Noncurrent operating lease liabilities2,878 2,842 
Other noncurrent liabilities 2,278 1,565 
Total liabilities33,138 24,808 
Stockholders’ equity:
Common stock1 1 
Additional paid-in capital48,666 35,601 
Accumulated other comprehensive loss(84)(42)
Retained earnings6,937 5,933 
Total stockholders’ equity55,520 41,493 
Total liabilities and stockholders’ equity$88,658 $66,301 










See accompanying Notes.
3
Table of Contents
salesforce.com, inc.
Condensed Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
2Three Months Ended July 31,Six Months Ended July 31,
 2021202020212020
Revenues:
Subscription and support$5,914 $4,840 $11,450 $9,415 
Professional services and other426 311 853 601 
Total revenues6,340 5,151 12,303 10,016 
Cost of revenues (1)(2):
Subscription and support 1,146 1,013 2,268 1,979 
Professional services and other 467 298 900 586 
Total cost of revenues1,613 1,311 3,168 2,565 
Gross profit4,727 3,840 9,135 7,451 
Operating expenses (1)(2):
Research and development1,020 898 1,971 1,757 
Marketing and sales2,736 2,275 5,280 4,665 
General and administrative639 489 1,198 991 
Total operating expenses4,395 3,662 8,449 7,413 
Income from operations332 178 686 38 
Gains on strategic investments, net526 682 814 874 
Other expense(32)(21)(70)(26)
Income before benefit from (provision for) income taxes826 839 1,430 886 
Benefit from (provision for) income taxes (3)(291)1,786 (426)1,838 
Net income$535 $2,625 $1,004 $2,724 
Basic net income per share$0.57 $2.90 $1.08 $3.02 
Diluted net income per share$0.56 $2.85 $1.06 $2.96 
Shares used in computing basic net income per share933 904 927 901 
Shares used in computing diluted net income per share950 922 945 919 
(1) Amounts include amortization of intangible assets acquired through business combinations, as follows:
 Three Months Ended July 31,Six Months Ended July 31,
 2021202020212020
Cost of revenues$184 $166 $352 $325 
Marketing and sales135 118 255 230 
(2) Amounts include stock-based expense, as follows:
 Three Months Ended July 31,Six Months Ended July 31,
 2021202020212020
Cost of revenues$95 $63 $177 $115 
Research and development197 184 370 350 
Marketing and sales263 253 501 476 
General and administrative85 78 156 141 
(3) During the three months ended July 31, 2020, the Company recorded an approximately $2.0 billion one-time benefit from discrete tax item related to the recognition of deferred tax assets resulting from an intra-entity transfer of intangible property.



See accompanying Notes.
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salesforce.com, inc.
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(unaudited)
2Three Months Ended July 31,Six Months Ended July 31,
2021202020212020
Net income$535 $2,625 $1,004 $2,724 
Other comprehensive income (loss), net of reclassification adjustments:
Foreign currency translation and other gains (losses)(9)28 (25)5 
Unrealized gains (losses) on marketable securities and privately held debt securities(8)49 (21)24 
Other comprehensive income (loss), before tax(17)77 (46)29 
Tax effect1 (10)4 (4)
Other comprehensive income (loss), net(16)67 (42)25 
Comprehensive income$519 $2,692 $962 $2,749 































See accompanying Notes.
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salesforce.com, inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in millions)
(unaudited)
Three and Six months ended July 31, 2021
 Common StockAdditional
Paid-in
Capital		Accumulated Other Comprehensive LossRetained EarningsTotal
Stockholders’
Equity
 SharesAmount
Balance at January 31, 2021919 $1 $35,601 $(42)$5,933 $41,493 
Common stock issued6 0 67 0 0 67 
Stock-based expense0 0 564 0 0 564 
Other comprehensive loss, net of tax 0 0 0 (26)0 (26)
Net income0 0 0 0 469 469 
Balance at April 30, 2021925 1 36,232 (68)6,402 42,567 
Common stock issued5 0 525 0 0 525 
Shares issued related to the acquisition of Slack46 0 11,269 0 0 11,269 
Stock-based expense2 0 640 0 0 640 
Other comprehensive loss, net of tax0 0 0 (16)0 (16)
Net income0 0 0 0 535 535 
Balance at July 31, 2021978 $1 $48,666 $(84)$6,937 $55,520 
Three and Six months ended July 31, 2020
Common StockAdditional
Paid-in
Capital		Accumulated Other Comprehensive LossRetained EarningsTotal
Stockholders’
Equity
SharesAmount
Balance at January 31, 2020893 $1 $32,116 $(93)$1,861 $33,885 
Common stock issued6 0 119 0 0 119 
Stock-based expense0 0 504 0 0 504 
Other comprehensive loss, net of tax0 0 0 (42)0 (42)
Net income0 0 0 0 99 99 
Balance at April 30, 2020899 1 32,739 (135)1,960 34,565 
Common stock issued9 0 605 0 0 605 
Stock-based expense0 0 578 0 0 578 
Other comprehensive income, net of tax0 0 0 67 0 67 
Net income0 0 0 0 2,625 2,625 
Balance at July 31, 2020908 $1 $33,922 $(68)$4,585 $38,440 















See accompanying Notes.
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salesforce.com, inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
2Three Months Ended July 31,Six Months Ended July 31,
2021202020212020
Operating activities:
Net income$535 $2,625 $1,004 $2,724 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization719 649 1,404 1,307 
Amortization of costs capitalized to obtain revenue contracts, net334 250 648 497 
Stock-based expense640 578 1,204 1,082 
Gains on strategic investments, net(526)(682)(814)(874)
Tax benefit from intra-entity transfer of intangible property0 (2,003)0 (2,003)
Changes in assets and liabilities, net of business combinations:
Accounts receivable, net(812)(349)3,804 2,745 
Costs capitalized to obtain revenue contracts, net(463)(455)(818)(480)
Prepaid expenses and other current assets and other assets(173)(203)(190)(214)
Accounts payable and accrued expenses and other liabilities 805 693 (288)(64)
Operating lease liabilities(200)(209)(416)(412)
Unearned revenue(473)(465)(1,924)(2,020)
Net cash provided by operating activities386 429 3,614 2,288 
Investing activities:
Business combinations, net of cash acquired(14,356)(1,154)(14,781)(1,257)
Purchases of strategic investments(509)(232)(786)(574)
Sales of strategic investments913 51 1,469 652 
Purchases of marketable securities(507)(1,681)(2,316)(2,515)
Sales of marketable securities2,464 207 3,045 544 
Maturities of marketable securities1,154 330 1,652 557 
Capital expenditures(213)(114)(384)(437)
Net cash used in investing activities(11,054)(2,593)(12,101)(3,030)
Financing activities:
Proceeds from issuance of debt, net of issuance costs7,922 0 7,912 0 
Repayments of Slack Convertible Notes, net of capped call proceeds168 0 168 0 
Proceeds from employee stock plans375 466 600 724 
Principal payments on financing obligations (24)(24)(73)(72)
Repayments of debt(1)(1)(2)(2)
Net cash provided by financing activities8,440 441 8,605 650 
Effect of exchange rate changes(17)3 (14)(1)
Net increase (decrease) in cash and cash equivalents(2,245)(1,720)104 (93)
Cash and cash equivalents, beginning of period8,544 5,772 6,195 4,145 
Cash and cash equivalents, end of period$6,299 $4,052 $6,299 $4,052 
See accompanying Notes.
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salesforce.com, inc.
Condensed Consolidated Statements of Cash Flows
Supplemental Cash Flow Disclosure
(in millions)
(unaudited)
 Three Months Ended July 31,Six Months Ended July 31,
 2021202020212020
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest$2 $2 $48 $48 
Income taxes, net of tax refunds$34 $66 $83 $124 
Non-cash investing and financing activities:
Fair value of equity awards assumed$205 $6 $205 $6 
Fair value of common stock issued as consideration for the acquisition of Slack$11,064 $0 $11,064 $0 








































See accompanying Notes.
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salesforce.com, inc.
Notes to Condensed Consolidated Financial Statements
1. Summary of Business and Significant Accounting Policies
Description of Business
Salesforce (the “Company”) is a global leader in customer relationship management ("CRM") technology that brings companies and customers together. With the Customer 360 platform, the Company delivers a single source of truth, connecting customer data across systems, apps and devices to help companies sell, service, market and conduct commerce from anywhere. Since its founding in 1999, Salesforce has pioneered innovations in cloud, mobile, social, analytics and artificial intelligence (“AI”), enabling companies of every size and industry to transform their businesses in the all-digital, work-from-anywhere era.
On July 21, 2021, the Company acquired Slack Technologies, Inc. (“Slack”). Slack is a channel-based messaging platform (see Note 6, “Business Combinations”).
Fiscal Year
The Company’s fiscal year ends on January 31. References to fiscal 2022, for example, refer to the fiscal year ending January 31, 2022.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of July 31, 2021 and the condensed consolidated statements of operations, condensed consolidated statements of comprehensive income, condensed consolidated statements of stockholders' equity and condensed consolidated statements of cash flows for the three and six months ended July 31, 2021 and 2020 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 condensed consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s balance sheet as of July 31, 2021, and its results of operations, including its comprehensive income, stockholders' equity and its cash flows for the three and six months ended July 31, 2021 and 2020. All adjustments are of a normal recurring nature. The results for the three and six months ended July 31, 2021 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2022.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the Company’s condensed consolidated financial statements and notes thereto.
Significant estimates and assumptions made by management include the determination of:
•the fair value of assets acquired and liabilities assumed for business combinations;
•the standalone selling price (“SSP”) of performance obligations for revenue contracts with multiple performance obligations;
•the valuation of privately-held strategic investments, including impairments;
•the recognition, measurement and valuation of current and deferred income taxes and uncertain tax positions;
•the average period of benefit associated with costs capitalized to obtain revenue contracts;
•the useful lives of intangible assets; and
•the fair value of certain stock awards issued.
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, which forms the basis for making judgments about the carrying values of assets and liabilities.
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Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Segments
The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and assess 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, and operates in multiple countries, the Company’s business operates in one operating segment because most of the Company's service offerings operate on the Customer 360 Platform and are deployed in a nearly identical manner, and the Company’s CODM evaluates the Company’s financial information and resources, and assesses the performance of these resources, on a consolidated basis.
Concentrations of Credit Risk, Significant Customers and Investments
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. The Company’s investment portfolio consists primarily of investment-grade securities, and per the Company’s policy, limits the amount of credit exposure to any one issuer. The Company monitors and manages the overall exposure of its cash balances to individual financial institutions on an ongoing basis. The Company does not require collateral for accounts receivable. The Company maintains an allowance for its doubtful accounts receivable due to estimated credit losses. This allowance is based upon historical loss patterns, the number of days that billings are past due, an evaluation of the potential risk of loss associated with delinquent accounts and current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss patterns. The Company records the allowance against bad debt expense through the condensed consolidated statements of operations, included in general and administrative expense, up to the amount of revenues recognized to date. Any incremental allowance is recorded as an offset to unearned revenue on the condensed consolidated balance sheets. Receivables are written off and charged against the recorded allowance when the Company has exhausted collection efforts without success.
No single customer accounted for more than five percent of accounts receivable at July 31, 2021 and January 31, 2021. No single customer accounted for five percent or more of total revenue during the six months ended July 31, 2021 and 2020. As of July 31, 2021 and January 31, 2021, assets located outside the Americas were 12 percent and 15 percent of total assets, respectively. As of July 31, 2021 and January 31, 2021, assets located in the United States were 87 percent and 82 percent of total assets, respectively.
The Company is also exposed to concentrations of risk in its strategic investment portfolio, including within specific industries, as the Company primarily invests in enterprise cloud companies, technology startups and system integrators. These companies in many aspects are digitally transforming their respective industries and helping the Company expand its ecosystem and support other corporate initiatives. As these industries continue to mature and technologies change, the Company’s investment strategy and corresponding investment opportunities have expanded to include investments in late stage companies and companies concurrently with their initial public offerings (“IPO”), both of which typically result in larger individual capital investments. The Company’s strategy includes using proceeds from realized gains recognized on the sales of the Company’s existing strategic investments to, in part, fund these new strategic investments.
As of July 31, 2021, the Company held one publicly traded investment with a carrying value that was greater than 10 percent of its strategic investment portfolio and one privately held investment with a carrying value that was individually greater than 15 percent of its strategic investment portfolio. As of January 31, 2021, the Company held three investments that were individually greater than five percent of its strategic investment portfolio, of which two were publicly traded and one was privately held.
Revenue Recognition
The Company derives its revenues from two sources: subscription and support revenues, and professional services and other revenues. Subscription and support revenues include subscription fees from customers accessing the Company’s enterprise cloud computing services (collectively, “Cloud Services”), software license revenues from the sales of term and perpetual licenses, and support revenue from the sales of support and updates beyond the basic subscription fees or related to the sales of software licenses. Professional services and other revenue includes professional and advisory services for process mapping, project management and implementation services, and training services.
Revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. If the consideration promised in a
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contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur.
The Company determines the amount of revenue to be recognized through the application of the following steps:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when or as the Company satisfies the performance obligations.
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 comprised of fees that provide customers with access to Cloud Services, software licenses and related support and updates during the term of the arrangement.
Cloud Services allow customers to use the Company's multi-tenant software without taking possession of the software. Revenue is generally recognized ratably over the contract term.
With the May 2018 acquisition of MuleSoft, Inc. (“MuleSoft”) and the August 2019 acquisition of Tableau Software, Inc. (“Tableau”), subscription and support revenues also include revenues associated with term-based on-premises software licenses that provide the customer with a right to use the software as it exists when made available. Revenues from distinct software licenses are generally recognized at the point in time when the software is made available to the customer. In cases where the Company allocates revenue to software support and updates revenue, the allocated revenue is recognized as the support and updates are provided, which is generally ratably over the contract term.
The Company typically invoices its customers annually. Typical payment terms provide that customers pay within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable and in unearned revenue or revenue, depending on whether transfer of control to customers has occurred.
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, on a proportional performance basis for fixed price contracts or ratably over the contract term for subscription professional services contracts. Other revenues consist primarily of training revenues recognized as such services are performed.
Significant Judgments - Contracts with Multiple Performance Obligations
The Company enters into contracts with its customers that may include promises to transfer multiple Cloud Services, software licenses, premium support and professional services. A performance obligation is a promise in a contract with a customer to transfer products or services that are concluded to be distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.
Cloud Services, software licenses, and support and updates services are generally concluded to be distinct because such offerings are often sold separately. In determining whether professional services are distinct, 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 start date and the contractual dependence of the service on the customer’s satisfaction with the professional services work. To date, the Company has concluded that professional services included in contracts with multiple performance obligations are distinct.
The Company allocates the transaction price to each performance obligation on a relative SSP basis. The SSP is the price at which the Company would sell a promised product or service separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation.
The Company determines SSP 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, the Company's go-to-market strategy, historical and current sales and contract prices. In instances where the Company does not sell or price a product or service separately, the Company determines relative fair value using information that may include market conditions or other observable inputs. As the Company’s go-to-market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes to SSP.
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In certain cases, the Company is able to establish SSP based on observable prices of products or services sold or priced separately in comparable circumstances to similar customers. The Company uses a single amount to estimate SSP when indicated by the distribution of its observable prices.
Alternatively, the Company uses a range of amounts to estimate SSP when the pricing practices or distribution of the observable prices is highly variable. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customer size and geography.
Costs Capitalized to Obtain Revenue Contracts
The Company capitalizes incremental costs of obtaining non-cancelable Cloud Services subscription, ongoing Cloud Services support and license support and updates revenue contracts. For contracts with on-premises software licenses where revenue is recognized upfront when the software is made available to the customer, costs allocable to those licenses are expensed as they are incurred. Capitalized amounts consist primarily of sales commissions paid to the Company’s direct sales force. Capitalized amounts also include (1) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired, (2) commissions paid to employees upon renewals of subscription and support contracts, (3) the associated payroll taxes and fringe benefit costs associated with the payments to the Company’s employees, and (4) to a lesser extent, success fees paid to partners in emerging markets where the Company has a limited presence.
Costs capitalized related to new revenue contracts are amortized on a straight-line basis over four years, which is longer than the typical initial contract period, but reflects the estimated average period of benefit, including expected contract renewals. In arriving at this average period of benefit, the Company evaluated both qualitative and quantitative factors which included the estimated life cycles of its offerings and its customer attrition. Additionally, the Company amortizes capitalized costs for renewals and success fees paid to partners over two years.
The capitalized amounts are recoverable through future revenue streams under all non-cancelable customer contracts. The Company periodically evaluates whether there have been any changes in its business, the market conditions in which it operates or other events which would indicate that its amortization period should be changed or if there are potential indicators of impairment.
Amortization of capitalized costs to obtain revenue contracts is included in marketing and sales expense in the accompanying condensed consolidated statements of operations.
During the six months ended July 31, 2021, the Company capitalized $818 million of costs to obtain revenue contracts and amortized $648 million to marketing and sales expense. During the six months ended July 31, 2020, the Company capitalized $480 million of costs to obtain revenue contracts and amortized $497 million to marketing and sales expense. Costs capitalized to obtain a revenue contract, net, on the Company's condensed consolidated balance sheets totaled $3.0 billion as of July 31, 2021 and $2.9 billion as of January 31, 2021. There were no impairments of costs to obtain revenue contracts for the three and six months ended July 31, 2021 and 2020, respectively.
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
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 condensed consolidated balance sheets. Securities are classified as available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as a separate component on the condensed consolidated statements of comprehensive income until realized. 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. Securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of the excess, if any, is caused by expected credit losses. Expected credit losses on securities are recognized in other expense, net on the condensed consolidated statements of operations, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive loss in stockholders' equity. For the purposes of computing realized and unrealized gains and losses, the cost of securities sold is based on the specific-identification method. Interest on securities classified as available for sale is included as a component of investment income within other expense.
Strategic Investments
The Company holds strategic investments in privately held debt and equity securities and publicly held equity securities in which the Company does not have a controlling interest.
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Privately held equity securities where the Company does not have a controlling financial interest in but does exercise significant influence over the investee are accounted for under the equity method. Privately held equity securities not accounted for under the equity method are recorded at cost and adjusted for observable transactions for same or similar investments of the same issuer (referred to as the measurement alternative) or impairment. All gains and losses on privately held equity securities, realized and unrealized, are recorded through gains on strategic investments, net on the condensed consolidated statements of operations. Privately held debt securities are recorded at fair value with changes in fair value recorded through accumulated other comprehensive loss on the condensed consolidated balance sheet.
Valuations of privately held securities are inherently complex and require judgment due to the lack of readily available market data. The carrying value is not adjusted for the Company's privately held equity securities if there are no observable price changes in a same or similar security from the same issuer or if there are no identified events or changes in circumstances that may indicate impairment, as discussed below. In determining the estimated fair value of its strategic investments in privately held companies, the Company utilizes the most recent data available to the Company. The Company assesses its privately held debt and equity securities in its strategic investment portfolio at least quarterly for impairment. The Company’s impairment analysis encompasses an assessment of both qualitative and quantitative factors, including the investee's financial metrics, market acceptance of the investee's product or technology and the rate at which the investee is using its cash. If the investment is considered impaired, the Company recognizes an impairment through the condensed consolidated statements of operations and establishes a new carrying value for the investment.
Publicly held equity securities are measured at fair value with changes recorded through gains on strategic investments, net on the condensed consolidated statements of operations.
Fair Value Measurement
The Company measures its cash and cash equivalents, marketable securities, publicly held equity securities, and foreign currency derivative contracts at fair value. In addition, the Company measures certain of its strategic investments, including its privately held debt securities and privately held equity securities for which there has been an observable price change in a same or similar security, at fair value on a nonrecurring basis. The additional disclosures regarding the Company’s fair value measurements are included in Note 4 “Fair Value Measurement.”
Derivative Financial Instruments
The Company enters into foreign currency derivative contracts with financial institutions to reduce foreign exchange risk associated primarily with intercompany receivables and payables. The Company uses forward currency derivative contracts, which are not designated as hedging instruments, to minimize the Company’s exposure to balances primarily denominated in the Euro, British Pound Sterling, Canadian Dollar, Australian Dollar, Brazilian Real, and Japanese Yen. The Company’s derivative financial instruments program is not designated for trading or speculative purposes. The Company generally enters into master netting arrangements with the financial institutions with which it contracts for such derivatives, which permit net settlement of transactions with the same counterparty, thereby reducing risk of credit-related losses from a financial institutions' nonperformance. 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. The notional amount of foreign currency derivative contracts as of July 31, 2021 and January 31, 2021 was $4.7 billion and $5.3 billion, respectively.
Outstanding foreign currency derivative contracts are recorded at fair value on the condensed consolidated balance sheets. Unrealized gains or losses due to changes in the fair value of these derivative contracts, as well as realized gains or losses from their net settlement, are recognized as other expense consistent with the offsetting gains or losses resulting from the remeasurement or settlement of the underlying foreign currency denominated receivables and payables.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. 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 fixtures5 years
Leasehold improvements
Shorter of the estimated lease term or 10 years
Buildings and building improvements
10 to 40 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.
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Leases
The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and noncurrent operating lease liabilities on the Company’s condensed consolidated balance sheets. Assets recognized from finance leases (also referred to as ROU assets) are included in property and equipment, accrued expenses and other liabilities and other noncurrent liabilities, respectively, on the Company’s condensed consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term. The corresponding lease liabilities represent its obligation to make lease payments arising from the lease. The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less for any asset classes.
Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement, net of any future tenant incentives. The Company has lease agreements which contain both lease and non-lease components, which it has elected to combine for all asset classes. As such, minimum lease payments include fixed payments for non-lease components within a lease agreement, but exclude variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period. The Company’s lease terms may include options to extend or terminate the lease. Periods beyond the noncancellable term of the lease are included in the measurement of the lease liability when it is reasonably certain that the Company will exercise the associated extension option or waive the termination option. The Company reassesses the lease term if and when a significant event or change in circumstances occurs within the control of the Company. As most of the Company’s leases do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. The Company's incremental borrowing rate is an estimate of the interest rate the Company would have to pay to borrow on a collateralized basis with similar terms and payments, in the economic environment where the leased asset is located.
The lease ROU asset is recognized based on the lease liability, adjusted for any rent payments or initial direct costs incurred or tenant incentives received prior to commencement.
Lease expenses for minimum lease payments for operating leases are recognized on a straight-line basis over the lease term. Amortization expense of finance lease ROU assets is recognized on a straight-line basis over the lease term, and interest expense for finance lease liabilities is recognized based on the incremental borrowing rate. Expense for variable lease payments are recognized as incurred.
On the lease commencement date, the Company also 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 included in property and equipment, net and are amortized over the lease term to operating expense.
The Company has entered into subleases or has made decisions and taken actions to exit and sublease certain unoccupied leased office space. Similar to other long-lived assets discussed below, management tests ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For leased assets, such circumstances would include the decision to leave a leased facility prior to the end of the minimum lease term or subleases for which estimated cash flow do not fully cover the costs of the associated lease.
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. Management tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
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 comparing 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 were no material impairments of intangible assets, long-lived assets or goodwill during the three and six months ended July 31, 2021 and 2020.
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Business Combinations
The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions, tax-related valuation allowances and pre-acquisition contingencies are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations.
In the event the Company acquires an entity with which the Company has a preexisting relationship, the Company will generally recognize a gain or loss to settle that relationship as of the acquisition date within operating income on the condensed 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 recorded within net gains or (losses) on strategic investments in the condensed consolidated statements of operations.
Stock-Based Expense
Stock-based expense is measured based on grant date at fair value using the Black-Scholes option pricing model for stock options and the grant date closing stock price for restricted stock awards. The Company recognizes stock-based expense related to stock options and restricted stock awards on a straight-line basis, net of estimated forfeitures, over the requisite service period of the awards, which is generally the vesting term of four years. The estimated forfeiture rate applied is based on historical forfeiture rates.
Stock-based expense related to the Company’s Amended and Restated 2004 Employee Stock Purchase Plan (“ESPP” or “2004 Employee Stock Purchase Plan”) is measured based on grant date at fair value using the Black-Scholes option pricing model. The Company recognizes stock-based expense related to shares issued pursuant to the 2004 Employee Stock Purchase Plan on a straight-line basis over the offering period, which is 12 months. The ESPP allows employees to purchase shares of the Company's common stock at a 15 percent discount from the lower of the Company’s stock price on (i) the first day of the offering period or on (ii) the last day of the purchase period and also allows employees to reduce their percentage election once during a six-month purchase period (December 15 and June 15 of each fiscal year), but not increase that election until the next one-year offering period. The ESPP also includes a reset provision for the purchase price if the stock price on the purchase date is less than the stock price on the offering date.
Stock-based expense related to performance share grants, which are awarded to executive officers and other members of senior management and vest, if at all, based on the Company’s performance over a three-year period relative to the Nasdaq 100. Performance share grants are measured based on grant date at fair value using a Monte Carlo simulation model and expensed on a straight-line basis, net of estimated forfeitures, 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, based on the closing stock price on grant date, 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 condensed consolidated statements of operations in the period that includes the enactment date.
The Company’s tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, solely based on its technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income tax provision.
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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. 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. 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. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component on the condensed consolidated statements of comprehensive income. Foreign currency transaction gains and losses are included in other income in the condensed consolidated statements of operations for the period.
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 condensed consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
New Accounting Pronouncement Adopted in Fiscal 2022
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which modifies and eliminates certain exceptions to the general principles of ASC 740, Income Taxes. ASU 2019-12 was adopted in the first quarter of fiscal 2022. The prospective adoption of ASU 2019-12 was not material.
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2. Revenues
Disaggregation of Revenue
Subscription and Support Revenue by the Company's Service Offerings
Subscription and support revenues consisted of the following (in millions):
 Three Months Ended July 31,Six Months Ended July 31,
 2021202020212020
Sales $1,477 $1,279 $2,865 $2,524 
Service 1,600 1,303 3,106 2,555 
Platform and Other1,882 1,512 3,629 2,876 
Marketing and Commerce955 746 1,850 1,460 
$5,914 $4,840 $11,450 $9,415 
Total Revenue by Geographic Locations
Revenues by geographical region consisted of the following (in millions):
 Three Months Ended July 31,Six Months Ended July 31,
 2021202020212020
Americas$4,312 $3,596 $8,406 $6,966 
Europe1,416 1,070 2,718 2,104 
Asia Pacific612 485 1,179 946 
$6,340 $5,151 $12,303 $10,016 
Revenues by geography are determined based on the region of the Company's contracting entity, which may be different than the region of the customer. Americas revenue attributed to the United States was approximately 94 percent during the three and six months ended July 31, 2021 and 96 percent during the three and six months ended July 31, 2020. No other country represented more than ten percent of total revenue during the three and six months ended July 31, 2021 and 2020.
Contract Balances
Contract Assets
As described in Note 1, subscription and support revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract. License revenue is recognized at the point in time when the licenses are delivered. The Company records a contract asset when revenue recognized on a contract exceeds the billings. The Company's standard billing terms are annual in advance. Contract assets were $647 million as of July 31, 2021 as compared to $477 million as of January 31, 2021, and are included in prepaid expenses and other current assets and deferred tax assets and other assets, net on the condensed consolidated balance sheets. Impairments of contract assets were immaterial during the three and six months ended July 31, 2021 and 2020.
Unearned Revenue
Unearned revenue represents amounts that have been invoiced in advance of revenue recognition and is recognized as revenue when transfer of control to customers has occurred or services have been provided. The unearned revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. The Company generally invoices customers in annual installments. The unearned 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.
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The change in unearned revenue was as follows (in millions):
Three Months Ended July 31,Six Months Ended July 31,
2021202020212020
Unearned revenue, beginning of period$11,158 $9,112 $12,607 $10,662 
Billings and other (1)5,771 4,632 10,209 7,937 
Contribution from contract asset96 54 170 59 
Revenue recognized over time(5,948)(4,847)(11,559)(9,491)
Revenue recognized at a point in time(392)(304)(744)(525)
Unearned revenue from business combinations382 64 384 69 
Unearned revenue, end of period$11,067 $8,711 $11,067 $