Salesforce.com 2008 Annual Report Download - page 67

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Table of Contents
salesforce.com, inc.
Notes to Consolidated Financial Statements—(Continued)
reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In
accordance with the provisions of FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, the Company has elected to defer
implementation of SFAS 157 as it relates to its non-financial assets and non-financial liabilities until February 1, 2009. The Company is evaluating the
impact, if any, this standard will have. In October 2008, the FASB issued FSB SFAS 157-3, Determining the Fair Value of a Financial Asset when the Market
for that Asset is Not Active ("FSB 157-3"), to clarify how an entity would determine fair value in an inactive market. The Company implemented FSB 157-3
in October 2008.
In accordance with SFAS 157, the Company measures its cash equivalents, marketable securities and foreign currency derivative contracts at fair value.
A majority of the Company's cash equivalents and its marketable securities are classified within Level 1 or Level 2, which are described below. This is
because the Company's cash equivalents and marketable securities are valued using quoted market prices or alternative pricing sources and models utilizing
market observable inputs.
A portion of the Company's money market mutual funds are classified within Level 3, described below, because they are invested in The Reserve
Primary Fund ("The Reserve Fund"). At January 31, 2009 the Company's investment portfolio included $19.5 million invested in The Reserve Fund with an
estimated fair value of $18.3 million. During the year ended January 31, 2009, the Company recorded a $1.2 million loss related to this decline in fair value
that is considered other-than-temporary. This loss is included in interest, net on the consolidated statements of operations. Therefore, the Company has
recorded the aforementioned other-than-temporary loss. Additionally, the Company reclassified its investment from cash and cash equivalents to marketable
securities on the Company's consolidated balance sheet as of January 31, 2009. Subsequent to January 31, 2009 the Company recovered $6.1 million of its
investment as a result of a partial redemption from The Reserve Fund.
On February 26, 2009, The Reserve Fund announced its decision to initially set aside $3.5 billion in a special reserve under the plan of liquidation, to
cover potential liabilities for damages and associated expenses related to lawsuits and regulatory actions against the fund. The special reserve may be
increased or decreased as further information becomes available. As a result, pursuant to the liquidation plan, interim distributions will continue to be made up
to 91.72 percent, unless The Reserve Fund determines a need to increase the special reserve. Amounts in the special reserve will be distributed to shareholders
once claims, if any are successful, and the related expenses have been paid or set aside for payment. The determination of the total redemption to the
Company is subject to the distribution available to all investors of the fund. While the Company believes it has the right to recovery of its entire remaining
investment, the Company cannot predict the ultimate amount the Company will receive.
The Company's foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market
observable data of similar instruments in inactive markets.
SFAS 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2. Include other inputs that are directly or indirectly observable in the marketplace.
Level 3. Unobservable inputs which are supported by little or no market activity.
The Company conducted its fair value assessment of The Reserve Fund using Level 3 inputs. Management has reviewed the Reserve's underlying
securities portfolio which is substantially comprised of discount notes,
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