8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________ 

FORM 8-K/A

________________________________________________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

July 7, 2016

Date of Report (date of earliest event reported)

__________________________________________________________

salesforce.com, inc.

(Exact name of registrant as specified in its charter)

__________________________________________________________ 

Delaware	001-32224	94-3320693
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

The Landmark @ One Market, Suite 300

San Francisco, CA 94105

(Address of principal executive offices)

Registrant’s telephone number, including area code: (415) 901-7000

N/A

(Former name or former address, if changed since last report)

 ________________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Amendment No. 1

This Form 8-K/A is filed as an amendment (Amendment No. 1) to the Current Report on Form 8-K filed by salesforce.com, inc. on July 11, 2016. Amendment No. 1 is being filed to include the financial statements and financial information required under Item 9.01.

TABLE OF CONTENTS

Item 9.01 Financial Statements and Exhibits

SIGNATURE

EXHIBIT LIST

EXHIBIT 23.1

EXHIBIT 99.1

EXHIBIT 99.2

EXHIBIT 99.3

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The unaudited condensed consolidated financial statements of Demandware, Inc. as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 and the notes related thereto are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.

The audited consolidated financial statements of Demandware, Inc. as of December 31, 2015 and 2014 and for the three years in the period ended December 31, 2015 and the notes related thereto are filed as Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated herein by reference.

(b) Pro Forma Financial Information.

The unaudited pro forma combined financial information of salesforce.com, inc. and Demandware, Inc. for the year ended January 31, 2016 and for the six months ended July 31, 2016 and the notes related thereto are filed as Exhibit 99.3 to this Current Report on Form 8-K/A and are incorporated herein by reference.

(d) Exhibits.

Exhibit Number	Description of Exhibit
23.1	Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm of Demandware, Inc.
99.1	Unaudited condensed consolidated financial statements of Demandware, Inc. as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 and the notes related thereto
99.2	Audited consolidated financial statements of Demandware, Inc. as of December 31, 2015 and 2014 and for the three years in the period ended December 31, 2015 and the notes related thereto
99.3	Unaudited pro forma combined financial information of salesforce.com, inc. and Demandware, Inc. for the year ended January 31, 2016 and for the six months ended July 31, 2016 and the notes related thereto

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated:	September 1, 2016	salesforce.com, inc.
		/S/    MARK J. HAWKINS
		Mark J. Hawkins Executive Vice President and Chief Financial Officer(Principal Financial Officer)

EXHIBIT LIST

Exhibit Number	Description of Exhibit
23.1	Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm of Demandware, Inc.
99.1	Unaudited condensed consolidated financial statements of Demandware, Inc. as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 and the notes related thereto
99.2	Audited consolidated financial statements of Demandware, Inc. as of December 31, 2015 and 2014 and for the three years in the period ended December 31, 2015 and the notes related thereto
99.3	Unaudited pro forma combined financial information of salesforce.com, inc. and Demandware, Inc. for the year ended January 31, 2016 and for the six months ended July 31, 2016 and the notes related thereto

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements on Form S-3 No. 333-209954 and Forms S-8 No. 333-117860, 333-123656, 333-134467, 333-143161, 333-151180, 333-159554, 333-167190, 333-174209, 333-177018, 333-178606, 333-179317, 333-181698, 333-183580, 333-183885, 333-188850, 333-189249, 333-189801, 333-189980, 333-198360, 333-198361, 333-209965, and 333-211510 of salesforce.com, inc., of our report dated February 26, 2016, relating to the financial statements of Demandware, Inc. and subsidiaries as of December 31, 2015 and 2014 and for the three years in the period ended December 31, 2015, appearing in this Current Report on Form 8-K/A of salesforce.com, inc. dated September 1, 2016.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts

September 1, 2016

EX-99.1

Exhibit 99.1

DEMANDWARE, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 and the notes related thereto

INDEX

	Page No.
Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015	2
Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2016
and 2015	3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	4
Notes to Condensed Consolidated Financial Statements	5

DEMANDWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

	June 30, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	125,369		$	114,989
Short-term investments	72,931			82,020
Accounts receivable-net of allowance for doubtful accounts of $2,063 and $1,328 at June 30, 2016 and December 31, 2015, respectively	54,323			60,793
Prepaid expenses and other current assets	15,119			8,424
Total current assets	267,742			266,226
Property and equipment, net	30,443			21,862
Intangible assets, net	21,214			23,805
Goodwill	59,465			59,465
Other assets	6,542			6,040
Total assets	$	385,406		$	377,398
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable	$	5,764		$	2,866
Accrued expenses	37,306			37,287
Deferred revenue	32,892			31,426
Total current liabilities	75,962			71,579
Long-term liabilities:
Deferred revenue	17,775			15,133
Other long-term liabilities	3,553			2,763
Total liabilities	97,290			89,475
Commitments and contingencies (Note 9)
Redeemable noncontrolling interest	0			457
Stockholders equity:
Preferred stock, $0.01 par value per share-10,000 shares authorized	0			0
Common stock, $0.01 par value per share-240,000 shares authorized, 37,031 and 36,224 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively	370			362
Additional paid-in capital	469,008			437,137
Accumulated other comprehensive loss	(744		)	(858		)
Accumulated deficit	(180,518		)	(149,175		)
Total stockholders equity	288,116			287,466
Total liabilities, redeemable noncontrolling interest and stockholders' equity	$	385,406		$	377,398

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DEMANDWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenue:
Subscription	$	60,318		$	44,174		$	117,080		$	87,422
Services and other	12,946			9,684			23,264			16,712
Total revenue	73,264			53,858			140,344			104,134
Cost of revenue:
Subscription	12,989			9,712			24,849			18,585
Services and other	8,726			6,575			17,425			12,745
Total cost of revenue	21,715			16,287			42,274			31,330
Gross profit	51,549			37,571			98,070			72,804
Operating expenses:
Sales and marketing	33,363			29,026			60,267			50,335
Research and development	20,604			16,504			39,679			30,187
General and administrative	17,229			12,191			29,369			23,595
Total operating expenses	71,196			57,721			129,315			104,117
Loss from operations	(19,647		)	(20,150		)	(31,245		)	(31,313		)
Other income:
Interest income	230			92			444			191
Other income	101			90			54			279
Other income, net	331			182			498			470
Loss before income taxes	(19,316		)	(19,968		)	(30,747		)	(30,843		)
Income tax provision (benefit)	445			139			854			(5,456		)
Net loss	(19,761		)	(20,107		)	(31,601		)	(25,387		)
Less: Net loss attributable to noncontrolling interest	(109		)	(86		)	(258		)	(144		)
Less: Redeemable noncontrolling interest adjustments to redemption value	138			0			138			0
Net loss attributable to Demandware common stockholders	$	(19,790	)	$	(20,021	)	$	(31,481	)	$	(25,243	)
Net loss per share attributable to Demandware common stockholders, basic and diluted	$	(0.54	)	$	(0.56	)	$	(0.86	)	$	(0.71	)
Weighted average number of common shares outstanding, basic and diluted	36,710			35,718			36,517			35,540

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DEMANDWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net loss	$	(19,761	)	$	(20,107	)	$	(31,601	)	$	(25,387	)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(184		)	22			75			(318		)
Unrealized gain on marketable securities, net of tax	26			11			75			22
Other comprehensive (loss) income	(158		)	33			150			(296		)
Total comprehensive loss	(19,919		)	(20,074		)	(31,451		)	(25,683		)
Less: Net loss attributable to noncontrolling interest	(109		)	(86		)	(258		)	(144		)
Less: Other comprehensive income (loss) attributable to noncontrolling interest	6			(26		)	36			(16		)
Total comprehensive loss attributable to Demandware	$	(19,816	)	$	(19,962	)	$	(31,229	)	$	(25,523	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DEMANDWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(31,601	)	$	(25,387	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	7,607			5,772
Consulting expense settled with a restricted stock unit award	0			555
Bad debt expense	1,145			571
Stock-based compensation	20,443			16,786
Deferred income taxes	75			(5,977		)
Amortization of premium on marketable securities	164			202
Other non-cash reconciling items	53			60
Changes in operating assets and liabilities:
Accounts receivable	5,356			7,082
Prepaid expenses and other current assets	(6,714		)	(773		)
Accounts payable	2,466			130
Accrued expenses	(190		)	(2,011		)
Deferred revenue	4,089			1,403
Other assets and liabilities	126			3,341
Net cash provided by operating activities	3,019			1,754
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(13,371		)	(13,291		)
Purchase of marketable securities	(38,636		)	(51,131		)
Sale and maturity of marketable securities	47,636			71,486
Acquisition, net of cash acquired	0			(54,733		)
Net cash used in investing activities	(4,371		)	(47,669		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares purchased under Employee Stock Purchase Plan	937			803
Proceeds from exercise of stock options	10,638			4,980
Net cash provided by financing activities	11,575			5,783
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	157			(535		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	10,380			(40,667		)
CASH AND CASH EQUIVALENTS Beginning of period	114,989			158,827
CASH AND CASH EQUIVALENTS End of period	$	125,369		$	118,160
SUPPLEMENTARY INFORMATION:
Income taxes paid	$	739		$	296
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property and equipment included in accounts payable and accrued expenses	$	498		$	710
Reclassification of redeemable noncontrolling interest from temporary equity to liability	373			0

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DEMANDWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND SUMMARY OF BASIS OF PRESENTATION

Company Overview-Demandware, Inc. (the “Company”) provides enterprise-class cloud commerce solutions for retailers and branded manufacturers, including solutions for digital commerce and point of sale, as well as order management and predictive intelligence capabilities. The Company’s Demandware Commerce offering is a combination of the Company’s cloud platform, community and related services that enables customers to establish and execute complex digital commerce strategies. Demandware Commerce facilitates global expansion, omni-channel processes, multi-brand and multi-site rollouts, predictive merchandising and in-store operations. The foundation of the Company’s offering is the Company’s technology platform, the Demandware Commerce Cloud. Through the Company’s highly scalable, secure and open platform, the Company’s customers create seamless brand experiences to reach their consumers across all digital touch points globally, including ecommerce sites, mobile applications, social media channels and in the store.

The Company sells subscriptions to its cloud software and related services through both a direct sales force and indirect channels. The Company’s current customers consist primarily of retailers and branded manufacturers that operate principally in the following vertical markets: apparel and footwear, health and beauty, home and garden, sporting goods, electronics, jewelry and other categories.

The Company conducts its domestic operations through its headquarters in Burlington, Massachusetts and conducts its international operations through its direct and indirect subsidiaries in Germany, the United Kingdom, France, Spain, Sweden, Italy, the Netherlands, Australia, China, Hong Kong, India, Singapore and its joint venture in Japan.

Basis of Presentation and Consolidation-The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”), and on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2015. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods reported and of the Company’s financial condition as of the date of the interim balance sheet. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional information relative to certain estimates or to identify matters that require additional disclosure. Interim results are not necessarily indicative of the results for any other interim period or for the entire year. The consolidated financial statements include the accounts of the Company and those entities in which it has a controlling interest. All intercompany transactions have been eliminated in consolidation. Tomax Corporation’s results of operations have been included in the Company’s consolidated financial statements since January 12, 2015, the date of acquisition (see Note 4, Business Combination, in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2016).

The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2016.

Changes in Presentation-Changes have been made to the prior period presentation in the condensed consolidated statements of cash flows to conform to the current period presentation. Amounts previously classified as changes in other current liabilities are now included in changes in accrued expenses.

Recently Issued Accounting Pronouncements-In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” ("ASU 2014-09"). The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. The guidance will also require that certain contract costs incurred to obtain or fulfill a contract, such as sales commissions, be capitalized as an asset and amortized as revenue is recognized. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations” ("ASU 2016-08"), which amends ASU 2014-09 to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10,

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“Identifying Performance Obligations and Licensing” ("ASU 2016-10"), which amends the standard of ASU 2014-09’s guidance on identifying performance obligations and the implementation guidance on licensing. In May 2016, the FASB issued ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients” ("ASU 2016-12"), which amends certain aspects of ASU 2014-09, including transition, collectability, noncash consideration and the presentation of sales and other similar taxes, to address certain implementation issues and clarify the new revenue standard’s core revenue recognition principles. Adoption of these new revenue accounting standards could affect the timing of both revenue recognition and recognition of contract costs for certain transactions and the presentation of revenue within the financial statements. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring retrospective application of the new standard with cumulative effect recognized as of the date of adoption and disclosure of results under the previous standard. For the Company, the new standard will be effective January 1, 2018. The Company is currently evaluating the impact of adoption and the implementation approach to be used.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) ("ASU 2016-02"). The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” ("ASU 2016-09"), which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” ("ASU 2016-13"), which adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. ASU 2016-13 is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company does not believe that the adoption of ASU 2016-13 will have a material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements -Effective January 1, 2016, the Company adopted ASU No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”). This standard provides guidance on internal use software to clarify how customers in cloud computing arrangements should determine whether the arrangement includes a software license, which would be accounted for under the Accounting Standards Codification No. 350-40, “Internal-Use Software”. The adoption of ASU 2015-05 did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2016, the Company adopted ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). This standard requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 also requires separate presentation on the face of the income statement, or disclosure in the notes, of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amount had been recognized as of the acquisition date. The adoption of ASU 2015-16 did not have a material impact on the Company’s consolidated financial statements.

2. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

The Company calculates basic and diluted net loss per common share by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has excluded all potentially dilutive shares, which include outstanding common stock options, unvested restricted stock and unvested restricted stock units, from the weighted average number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses. The Company’s unvested restricted stock is not considered participating securities under the authoritative guidance since any dividends earned on unvested restricted shares are required to be returned if unvested shares are forfeited. The following common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders because they had an anti-dilutive impact (in thousands):

6

	Three and
	Six Months Ended June 30,
	2016	2015
Options to purchase common stock	1,985	2,431
Unvested restricted stock	1,332	1,692
Unvested restricted stock units	688	0

3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

A summary of the Company’s cash equivalents and short-term investments at June 30, 2016 is as follows (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash Equivalents:
Money market funds	$	102,212	$	0	$	0		$	102,212
Certificates of deposit	1,221		0		0			1,221
	$	103,433	$	0	$	0		$	103,433
Short-Term Investments:
Government agency bonds	$	35,491	$	21	$	0		$	35,512
Corporate bonds	4,353		0		0			4,353
Municipal securities	23,593		6		(1		)	23,598
Certificates of deposit	9,466		2		0			9,468
	$	72,903	$	29	$	(1	)	$	72,931

A summary of the Company’s cash equivalents and short-term investments at December 31, 2015 is as follows (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash Equivalents:
Money market funds	$	101,664	$	0	$	0		$	101,664
Certificates of deposit	1,909		0		0			1,909
	$	103,573	$	0	$	0		$	103,573
Short-Term Investments:
Government agency bonds	$	15,142	$	0	$	(21	)	$	15,121
Corporate bonds	7,403		0		(8		)	7,395
Municipal securities	41,694		6		(19		)	41,681
Certificates of deposit	17,828		0		(5		)	17,823
	$	82,067	$	6	$	(53	)	$	82,020

The contractual maturity dates for the Company’s available-for-sale investments that are classified as short-term investments in the consolidated balance sheets are one year or less from the respective balance sheet dates.

4. DERIVATIVE INSTRUMENTS

The Company conducts business in a number of foreign countries and transacts business in various foreign currencies. Foreign currency exposures typically arise from transactions denominated in a currency other than the functional currency. The Company utilizes foreign currency forward contracts to offset the risks associated with the effect of certain foreign currency exposures. These contracts are entered into so that gains or losses in the Company’s foreign currency exposures are offset by losses or gains on the forward contracts in order to mitigate the risks and volatility associated with the Company’s foreign

7

currency transactions. The Company had the following outstanding foreign currency forward contracts as of June 30, 2016 and December 31, 2015 (in thousands):

	June 30, 2016	December 31, 2015
Currency	Notional Value	Notional Value
Euro	7,000	5,800
British Pounds Sterling	7,000	3,000
Australian Dollar	600	0

The Company has not designated these forward contracts as hedging instruments, and accordingly, the Company recorded the fair value of these contracts at the end of each reporting period in its consolidated balance sheet, with changes in the fair value recorded in earnings as other income in the Company’s consolidated statements of operations.

5. FAIR VALUE MEASUREMENTS

Financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued expenses are carried in the consolidated financial statements at amounts that approximate fair value at June 30, 2016 and December 31, 2015. Fair values are based on market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1-Quoted prices in active markets for identical assets or liabilities.

• Level 2-Other inputs that are observable directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.

• Level 3-Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities.

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The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets at June 30, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements Using
	Amounts at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At June 30, 2016
Assets-Cash Equivalents:
Money market funds	$	102,212	$	102,212	$	0	$	0
Certificates of deposit	1,221		0		1,221		0
Assets-Short-Term Investments:
Government agency bonds	$	35,512	$	0	$	35,512	$	0
Corporate bonds	4,353		0		4,353		0
Municipal securities	23,598		0		23,598		0
Certificates of deposit	9,468		0		9,468		0
Assets-Derivative Instruments:
Foreign currency forward contracts	$	61	$	0	$	61	$	0
At December 31, 2015
Assets-Cash Equivalents:
Money market funds	$	101,664	$	101,664	$	0	$	0
Certificates of deposit	1,909		0		1,909		0
Assets-Short-Term Investments:
Government agency bonds	$	15,121	$	0	$	15,121	$	0
Corporate bonds	7,395		0		7,395		0
Municipal securities	41,681		0		41,681		0
Certificates of deposit	17,823		0		17,823		0
Assets-Derivative Instruments:
Foreign currency forward contracts	$	5	$	0	$	5	$	0

When developing fair value estimates, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases for which market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

The valuation technique used to measure fair value for the Company’s Level 1 and Level 2 assets is a market approach that uses prices and other relevant information generated by market transactions involving identical or comparable assets. There were no Level 3 financial assets or liabilities at June 30, 2016 and December 31, 2015.

9

6. INTANGIBLE ASSETS

Intangible assets as of June 30, 2016 are as follows (in thousands, except term information):

		As of June 30, 2016
	Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology	6.1	$	25,700	$	7,715	$	17,985
Customer relationships	8.1	1,900		510		1,390
Trademarks	2.0	410		304		106
Internal use software	4.7	2,133		400		1,733
Total	6.1	$	30,143	$	8,929	$	21,214

Intangible assets as of December 31, 2015 are as follows (in thousands, except term information):

		As of December 31, 2015
	Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology	6.1	$	25,700	$	5,600	$	20,100
Customer relationships	8.1	1,900		365		1,535
Trademarks	2.0	410		204		206
Internal use software	4.7	2,133		169		1,964
Total	6.1	$	30,143	$	6,338	$	23,805

Amortization expense related to intangible assets was $1.3 million and $2.6 million for the three and six months ended June 30, 2016, respectively. Amortization expense related to intangible assets was $1.2 million and $2.4 million for the three and six months ended June 30, 2015, respectively.

Future estimated amortization expense for intangible assets as of June 30, 2016 is as follows (in thousands):

Remainder of 2016	$	2,579
2017	4,878
2018	4,635
2019	3,936
2020	2,494
Thereafter	2,692
Total	$	21,214

7. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

	June 30, 2016		December 31, 2015
Compensation and other payroll related expenses	$	13,192	$	7,094
Bonuses	6,225		9,918
Commissions	5,676		5,066
Acquisition related contingent compensation	4,025		7,633
Other	8,188		7,576
Total	$	37,306	$	37,287

10

8. NONCONTROLLING INTEREST

On September 30, 2014, the Company signed an agreement (the “JV Agreement”) to establish a joint venture, Demandware K.K., in Japan. The Company contributed approximately $2.5 million to the joint venture in cash in exchange for 75% of its outstanding shares of common stock, and another investor contributed $0.8 million to the joint venture in cash in exchange for the remaining 25% of its outstanding shares of common stock. All shares of the common stock held by the noncontrolling investor are callable by the Company or puttable by the noncontrolling investor during a defined exit period or upon certain contingent events such as a change of control or a deadlock. The redeemable noncontrolling interest was initially classified outside of permanent equity in the Company’s consolidated balance sheet primarily due to the put right available to the redeemable noncontrolling interest holders in the future which may be settled in cash or common stock of the Company. The balance of the redeemable noncontrolling interest was reported at the greater of the initial carrying amount adjusted for the redeemable noncontrolling interest’s share of earnings, or its estimated redemption value.

On May 31, 2016, salesforce.com, inc. agreed to purchase all of the outstanding shares of the Company’s common stock. On June 7, 2016, pursuant to the terms of the JV Agreement, the Company exercised its change of control call option by giving notice to purchase all of the shares of the Demandware K.K. held by the noncontrolling investor immediately prior to the closing of the salesforce.com acquisition. As the redeemable noncontrolling interest became mandatorily redeemable upon the exercise of the call option, the carrying amount of the noncontrolling interest was adjusted to its redemption value and reclassified to accrued expenses.

The changes in the redeemable noncontrolling interest classified as temporary equity in the balance sheet for the six months ended June 30, 2016 are as follows (in thousands):

Balance, December 31, 2015	$	457
Net income attributable to noncontrolling interest	(258		)
Foreign currency translation adjustments	36
Accretion to redemption value	138
Reclassification of redeemable equity to current liabilities	(373		)
Balance, June 30, 2016	$	0

As of June 30, 2016, the redemption value of the noncontrolling interest of $0.4 million was included in the accrued expenses within the Company’s consolidated balance sheet.

9. COMMITMENTS AND CONTINGENCIES

Litigation-In the ordinary course of business, the Company is involved in litigation incidental to its business, certain of which include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that a loss is both probable and reasonably estimable. On a quarterly basis, the Company reviews each of its legal proceedings to determine whether it is probable, reasonably possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated. Significant judgment is required to determine both the likelihood of there being a loss and the estimated amount of a loss. The Company’s management is not aware of any pending legal proceeding or other loss contingency, whether asserted or unasserted, affecting the Company for which it might become liable or the outcome of which management expects to have a material impact on the Company. However, the outcome of legal matters is inherently unpredictable and subject to significant uncertainties.

Operating Lease-On June 6, 2016, the Company entered into a First Amendment (the “Lease Amendment”) to its Lease Agreement, dated May 28, 2010, with Piedmont 5 Wall Street Burlington, LLC for the lease of 31,546 rentable square feet (the “Existing Premise”) at 5 Wall Street, Burlington, Massachusetts. Pursuant to the Lease Amendment, the lease term was extended to July 31, 2029 and additional rental spaces will be added to the Existing Premise as they become available during the extended lease term. The Lease Amendment resulted in an additional lease commitment of $71.3 million as of June 30, 2016. The Lease Amendment also gave the Company an option to extend the lease for one additional 10-year period.

Contingent Compensation Payments Related to Acquisitions-As part of its business acquisitions, the Company agreed to pay certain selling equityholders additional consideration contingent upon the continued employment of certain employees for a specified period of time. These contingent payments are payable in cash or shares of the Company’s common stock at the option of the Company. During the six months ended June 30, 2016, the Company has made a cash payment of $7.5 million. The Company expects to make additional payments totaling $0.6 million during the remainder of 2016 and $10.3 million in 2017, contingent upon the continued employment of certain employees.

11

10. STOCK-BASED AWARDS

Stock Options-The Company’s stock options generally vest over a four-year period and expire 10 years from the date of grant. Upon option exercise, the Company issues shares of common stock.

The following table summarizes information related to stock options outstanding as of June 30, 2016 (in thousands, except per share and term information):

	Shares	Weighted- Average Exercise Price (per Share)		Weighted- Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value
Exercisable-June 30, 2016	1,720,767	$	11.28	4.5	$	109,475
Options vested and expected to vest-June 30, 2016	1,977,686	$	17.14	4.9	$	114,223

Unrecognized compensation expense relating to stock options was $6.8 million at June 30, 2016, which is expected to be recognized over a weighted-average period of approximately two years.

Restricted Stock-The Company’s restricted stock generally vests over a two- or four-year period, and upon vesting, the restrictions lapse and the Company releases shares of common stock. Unrecognized compensation expense relating to restricted stock was $63.3 million at June 30, 2016, which is expected to be recognized over a weighted-average period of approximately three years.

Restricted Stock Units-The Company’s restricted stock units generally vest over a four-year period, and upon vesting, the Company issues shares of common stock. Unrecognized compensation expense relating to restricted stock units was $22.9 million at June 30, 2016, which is expected to be recognized over a weighted-average period of approximately four years.

Employee Stock Purchase Plan-The Employee Stock Purchase Plan (“ESPP”) and its foreign corollaries permit eligible employees to purchase shares of the Company’s common stock through accumulated payroll deductions. 400,000 shares have been allocated for the ESPP. Each offering is a six month period (a “Plan Period”), and the purchase price of the stock is equal to 85% of the lesser of the market value of such shares at the first or last business day of a Plan Period.

Stock-Based Compensation-Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the service period, which is generally the vesting period of the equity grant. For awards with a performance-based measure, the Company accrues stock-based compensation expense if it is probable that the performance condition will be achieved. The Company estimates forfeitures at the time of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Cost of subscription revenue	$	278	$	267	$	554	$	490
Cost of service revenue	955		885		1,917		1,512
Sales and marketing	3,084		2,990		6,097		5,257
Research and development	3,252		3,032		6,841		4,899
General and administration	2,521		2,556		5,034		4,628
Total	$	10,090	$	9,730	$	20,443	$	16,786

Stock-based compensation expense for the three and six months ended June 30, 2016 includes $1.0 million and $2.7 million, respectively, related to stock options, $7.5 million and $15.9 million, respectively, related to restricted stock, $1.4 million and $1.5 million, respectively, related to restricted stock units and $0.2 million and $0.3 million, respectively, related to the ESPP. Stock-based compensation expense for the three and six months ended June 30, 2015 includes $1.8 million and $3.5 million, respectively, related to stock options, $7.8 million and $13.1 million, respectively, related to restricted stock and $0.1 million and $0.2 million, respectively, related to the ESPP.

12

11. INCOME TAXES

The Company’s income tax provision was $0.4 million and $0.9 million and the effective income tax rate was 2.3% and 2.8% for the three and six months ended June 30, 2016, respectively. The income tax provision for the three and six months ended June 30, 2016 is primarily driven by income generated within our foreign subsidiaries that are subject to local income taxes.

The Company’s income tax provision (benefit) was $0.1 million and ($5.5) million and the effective income tax rate was 0.7% and (17.7)% for the three and six months ended June 30, 2015, respectively. The income tax benefit for the three and six months ended June 30, 2015 included the release of $5.8 million of valuation allowance that resulted from the recognition of the deferred tax liabilities in the Tomax Corporation acquisition, which provided evidence to support the recoverability of the deferred tax asset. This benefit was partially offset by the Company’s provision for foreign income taxes.

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management has determined that it is more likely than not that the Company will not utilize the benefits of federal and state deferred tax assets for financial reporting purposes. Accordingly, the Company has recorded a full valuation allowance against its deferred tax assets for all periods to date with the exception of the deferred tax assets related to its wholly owned foreign entities.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. With few exceptions, all tax years 2004 through 2015 remain subject to examination by federal and most state tax authorities due to the Company’s net operating loss carryforwards. In the Company’s foreign jurisdictions, all tax years remain subject to examination. The Company believes it has adequately reserved for its uncertain tax positions; however, there is no assurance that taxing authorities will not propose adjustments that are more or less than its expected outcome. It is not expected that the amount of unrecognized tax benefits will be recognized in the next twelve months. In addition, the Company does not expect the change in uncertain tax positions to have a material impact on its financial position, results of operations or liquidity.

12. SUBSEQUENT EVENTS

On July 11, 2016, salesforce.com, inc. acquired all of the outstanding shares of common stock of the Company, par value $0.01 per share, at a price of $75.00 per share for an overall transaction value of approximately $2.8 billion (net of cash acquired).

Immediately prior to the closing of the salesforce.com acquisition on July 11, 2016, the Company purchased all of the shares of the Demandware K.K. held by the noncontrolling investor for a total of approximately $1.0 million, which made the Demandware K.K. a wholly owned subsidiary of the Company.

13

EX-99.2

Exhibit 99.2

DEMANDWARE, INC.

FINANCIAL STATEMENTS

DECEMBER 31, 2015

INDEX TO CONSOLIDATED FINACIAL STATEMENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	2
FINANCIAL STATEMENTS
Consolidated Balance Sheets—December 31, 2015 and 2014	3
Consolidated Statements of Operations—For the Years Ended December 31, 2015, 2014 and 2013	4
Consolidated Statements of Comprehensive Loss—For the Years Ended December 31, 2015, 2014 and 2013	5
Consolidated Statements of Stockholders’ Equity—For the Years Ended December 31, 2015, 2014 and 2013	6
Consolidated Statements of Cash Flows—For the Years Ended December 31, 2015, 2014 and 2013	7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Demandware, Inc.

Burlington, Massachusetts

We have audited the accompanying consolidated balance sheets of Demandware, Inc. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Demandware, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts

February 26, 2016

2

DEMANDWARE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	December 31, 2015		December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	114,989	$	158,827
Short-term investments		82,020		84,880
Accounts receivable—net of allowance for doubtful accounts of $1,328 and $525 at    December 31, 2015 and 2014, respectively		60,793		42,441
Prepaid expenses and other current assets		8,424		8,564
Total current assets		266,226		294,712
Property and equipment, net		21,862		14,028
Intangible assets, net		23,805		10,266
Goodwill		59,465		24,379
Other assets		6,040		1,785
Total assets	$	377,398	$	345,170
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND    STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		2,866		3,581
Accrued expenses		37,287		25,153
Deferred revenue		31,426		22,799
Total current liabilities		71,579		51,533
Deferred revenue		15,133		12,168
Other long-term liabilities		2,763		1,424
Total liabilities		89,475		65,125
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests		457		823
Stockholders’ equity:
Preferred stock, $0.01 par value per share—10,000 shares authorized		0		0
Common stock, $0.01 par value per share—240,000 shares authorized; 36,224    and 35,281 shares issued and 36,224 and 35,279 shares outstanding at    December 31, 2015 and 2014, respectively		362		353
Additional paid-in capital		437,137		391,896
Treasury stock, at cost (2 shares at December 31, 2014)		0		(137)
Accumulated other comprehensive loss		(858)		(352)
Accumulated deficit		(149,175)		(112,538)
Total stockholders’ equity		287,466		279,222
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	377,398	$	345,170

The accompanying notes are an integral part of these consolidated financial statements.

3

DEMANDWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year Ended December 31,
	2015		2014		2013
Revenue:
Subscription	$	200,952	$	145,879	$	95,733
Services		36,327		14,674		10,881
Total revenue		237,279		160,553		106,614
Cost of revenue:
Subscription		40,166		26,933		17,157
Services		27,299		15,115		10,860
Total cost of revenue		67,465		42,048		28,017
Gross profit		169,814		118,505		78,597
Operating expenses:
Sales and marketing		100,865		74,432		52,384
Research and development		65,342		34,983		20,787
General and administrative		46,272		36,882		23,337
Total operating expenses		212,479		146,297		96,508
Loss from operations		(42,665)		(27,792)		(17,911)
Other income (expense):
Interest income		437		312		210
Interest expense		0		(108)		(255)
Other income (expense)		395		(1,522)		528
Other income (expense), net		832		(1,318)		483
Loss before income taxes		(41,833)		(29,110)		(17,428)
Income tax (benefit) provision		(4,832)		(2,050)		574
Net loss		(37,001)		(27,060)		(18,002)
Less: Net loss attributable to noncontrolling interest		(364)		(7)		0
Net loss attributable to Demandware	$	(36,637)	$	(27,053)	$	(18,002)
Net loss per share attributable to Demandware, basic and diluted	$	(1.02)	$	(0.78)	$	(0.58)
Weighted average number of common shares outstanding, basic and diluted		35,793		34,806		30,795

The accompanying notes are an integral part of these consolidated financial statements.

4

DEMANDWARE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	Year Ended December 31,
	2015		2014		2013
Net loss	$	(37,001)	$	(27,060)	$	(18,002)
Other comprehensive (loss) income:
Foreign currency translation adjustments		(470)		(405)		93
Unrealized loss on marketable securities, net of tax		(38)		(11)		(12)
Other comprehensive (loss) income		(508)		(416)		81
Total comprehensive loss		(37,509)		(27,476)		(17,921)
Less: Net loss attributable to noncontrolling interest		(364)		(7)		0
Less: Other comprehensive loss attributable to noncontrolling interest		(2)		0		0
Total comprehensive loss attributable to Demandware	$	(37,143)	$	(27,469)	$	(17,921)

The accompanying notes are an integral part of these consolidated financial statements.

5

DEMANDWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share data)

	Common Stock $0.01 par value			Treasury Stock			Additional Paid-In		Accumulated Other Comprehensive			Accumulated	Total Stockholders’
	Shares	Amount		Shares	Amount		Capital		(Loss) Income			Deficit	Equity
BALANCE—December 31, 2012	29,842	$	298	0	$	0	$	170,997	$ (17)			$ (67,483)	$	103,795
Stock-based compensation							14,688						14,688
Exercise of common stock options	1,247	13					7,935						7,948
Vesting of restricted stock	167	2					(2)						0
Issuance of common stock through employee stock    purchase program	15						544						544
Issuance of common stock in connection with public    offering, net of issuance costs of $482	2,997	30					162,604						162,634
Net loss												(18,002)	(18,002)
Other comprehensive income									81				81
BALANCE—December 31, 2013	34,268	343		0	0		356,766		64			(85,485)	271,688
Stock-based compensation							26,348						26,348
Nonemployee stock-based compensation							553						553
Exercise of common stock options	572	6					6,842						6,848
Vesting of restricted stock	414	4					(4)						0
Issuance of common stock through employee stock    purchase program	27						1,391						1,391
Treasury stock activity				2	(137)								(137)
Net loss attributable to Demandware												(27,053)	(27,053)
Other comprehensive loss attributable to Demandware									(416)				(416)
BALANCE—December 31, 2014	35,281	353		2	(137)		391,896		(352)			(112,538)	279,222
Stock-based compensation							36,926						36,926
Nonemployee stock-based compensation							632						632
Exercise of common stock options	368	4					6,245						6,249
Vesting of restricted stock	543	5					(5)						0
Issuance of common stock through employee stock    purchase program	34	0					1,580						1,580
Retirement of treasury stock	(2)	0		(2)	137		(137)						0
Net loss attributable to Demandware												(36,637)	(36,637)
Other comprehensive loss attributable to Demandware									(506)				(506)
BALANCE—December 31, 2015	36,224	$	362	0	$	0	$	437,137	$	(858	)	$ (149,175)	$	287,466

The accompanying notes are an integral part of these consolidated financial statements.

6

DEMANDWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2015				2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$ (37,001)				$ (27,060)			$ (18,002)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		12,729				6,601			4,385
Consulting expense settled with stock awards		632				553			0
Bad debt expense		1,445				671			497
Stock-based compensation		36,720				26,630			14,688
Deferred income taxes		(5,890)				(2,798)			0
Amortization of premium on marketable securities		411				802			564
Write-off of other current asset		0				0			698
Other non-cash reconciling items		524				126			22
Changes in operating assets and liabilities:
Accounts receivable		(10,689)				(13,856)			(9,684)
Prepaid expenses and other current assets		1,646				(4,207)			(973)
Accounts payable		(178)				399			(274)
Accrued expenses		10,392				8,019			8,843
Deferred revenue		6,982				8,045			8,841
Other assets and liabilities		(2,846)				(306)			(558)
Net cash provided by operating activities		14,877				3,619			9,047
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(15,767)				(9,180)			(5,731)
Development of internal use software		(1,927)				0			0
Purchase of marketable securities		(114,312)				(132,750)			(56,921)
Sale and maturity of marketable securities		120,976				84,191			67,464
Acquisition, net of cash acquired		(54,733)				(33,264)			0
Net cash (used in) provided by investing activities		(65,763)				(91,003)			4,812
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from follow-on public offering, net of underwriting discounts and    commissions		0				0			162,634
Proceeds from shares purchased under Employee Stock Purchase Plan		1,580				1,391			544
Proceeds from exercise of stock options		6,249				6,848			7,948
Proceeds from issuance of notes payable		0				0			1,997
Payments of equipment notes		0				(3,345)			(2,757)
Contribution from redeemable noncontrolling interests		0				830			0
Treasury stock repurchase		0				(137)			0
Payments of software financing agreement		0				(766)			(944)
Net cash provided by financing activities		7,829				4,821			169,422
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		(781)				(1,035)			267
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(43,838		)		(83,598)			183,548
CASH AND CASH EQUIVALENTS—Beginning of year		158,827				242,425			58,877
CASH AND CASH EQUIVALENTS—End of year		$	114,989			$	158,827		$	242,425
SUPPLEMENTARY INFORMATION:
Interest paid		$	0			$	101		$	242
Income taxes paid		$	847			$	759		$	297
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property and equipment included in accounts payable and accrued    expenses		$	81			$	669		$	554
Stock based compensation capitalized as internal use software		206				0			0
Software license technical support acquired by assuming directly related liabilities		0				0			561

The accompanying notes are an integral part of these consolidated financial statements.

7

DEMANDWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Company Overview— Demandware, Inc. (the “Company”) provides enterprise-class cloud commerce solutionsfor retailers and branded manufacturers, including solutions for digital commerce and point of sale, as well as order management and predictive intelligence capabilities. The Company’s Demandware Commerce offering is a combination of the Company’s cloud platform, community and related services that enables customers to establish and execute complex digital commerce strategies. Demandware Commerce facilitates global expansion, omni-channel processes, multi-brand and multi-site rollouts, predictive merchandising and in-store operations. The foundation of the Company’s offering is the Company’s technology platform, the Demandware Commerce Cloud. Through the Company’s highly scalable, secure and open platform, the Company’s customers create seamless brand experiences to reach their consumers across all digital touch points globally, including ecommerce sites, mobile applications, social media channels and in the store.

The Company sells subscriptions to its cloud software and related services through both a direct sales force and indirect channels. The Company’s current customers consist primarily of retailers and branded manufacturers that operate principally in the following vertical markets: apparel and footwear, health and beauty, home and garden, sporting goods, general merchandise and other categories.

The Company conducts its domestic operations through its headquarters in Burlington, Massachusetts and conducts its international operations through its direct and indirect subsidiaries in Germany, the United Kingdom, France, Sweden, Italy, the Netherlands, Australia, China, Hong Kong and India and its joint venture in Japan.

Basis of Presentation and Consolidation—The consolidated financial statements include the accounts of the Company and those entities in which it has a controlling interest. All intercompany transactions have been eliminated in consolidation. Tomax Corporation’s results of operations have been included in the Company’s consolidated financial statements since January 12, 2015, the date of acquisition (see Note 4).

Changes in Presentation—Changes have been made to the presentation of other current liabilities within the consolidated balance sheet as these amounts are now included in accrued expenses. Additionally, deferred rent expense in the consolidated statement of cash flows, previously included as an adjustment to reconcile net loss to net cash provided by operating activities, is now presented as a change in operating assets and liabilities in the current year presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, cost of revenue, and expenses during the reporting period. Actual results could differ from those estimates.

Business Combination—The Company allocates the purchase price to the assets acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition with any excess of the purchase price paid over the estimated fair value of net assets acquired recorded as goodwill. The fair value of the assets acquired and liabilities assumed is typically determined by using either estimates of replacement costs or multiple period excess earnings methods. Contingent payments that are dependent upon post-combination services, if any, are considered separate transactions outside of the business combination and therefore included in the post-combination operating results. Transaction costs in connection with the acquisition are recorded as operating expenses.

Derivative Instruments— The Company is exposed to foreign currency exchange rate risk relating to its ongoing business operations. Forward contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk and are intended to offset economic exposures of the Company. The Company does not use derivative financial instruments for trading or speculative purposes. The Company does not designate these forward contracts as hedging instruments and these contracts are carried at fair value with changes in value recorded in operations as other income (expense). Cash flows from these forward contracts are reported in the consolidated statement of cash flows under cash flows from operating activities. See Note 6 for further discussion.

Foreign Currency—The functional currency of the Company’s foreign subsidiaries is 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. Revenue and expenses are translated at the average exchange rate during the period. Translation gains or losses are included as a component of accumulated other comprehensive loss in the accompanying consolidated statements of stockholders’ equity. Transaction gains or losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are

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included in other income (expense) in the accompanying consolidated statements of operations as incurred. For the years ended December 31, 2015, 2014 and 2013, foreign currency transaction (losses) gains of $(0.6) million, $(1.7) million and $0.6 million, respectively, are included in other income (expense) in the accompanying consolidated statements of operations. The foreign currency transaction losses during the years ended December 31, 2015 and 2014 were offset by gains on foreign currency forward contractsof $1.0 million and $0.3 million, respectively. No foreign currency forward contracts were entered into during the year ended December 31, 2013.

Cash Equivalents and Short-Term Investments—The Company considers all highly liquid investments maturing within 90 days from the date of purchase to be the equivalent of cash for the purpose of balance sheet and statement of cash flows presentation. As of December 31, 2015, $101.7 million of the Company’s cash equivalents were invested in money market funds, and $1.9 million in marketable securities. As of December 31, 2014, $140.1 million of the Company’s cash equivalents were invested in money market funds and $2.5 million in marketable securities.

Short-term investments in marketable securities are classified as available-for-sale and mature within 12 months from the date of purchase. The Company’s investments in marketable securities are recorded at fair value, with any unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity until realized or until a determination is made that an other-than-temporary decline in market value has occurred. When the Company determines that an other-than-temporary decline has occurred for debt securities that the Company does not then intend to sell, the Company recognizes the credit loss component of an other-than-temporary impairment in other income (expense) and the remaining portion in other comprehensive loss. The credit loss component is identified as the amount of the present value of cash flows not expected to be received over the remaining term of the security, based on cash flow projections. In determining whether an other-than-temporary impairment exists, the Company considers: (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial condition and near-term prospects of the issuer of the securities; and (iii) the Company’s intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of marketable securities sold is determined based on the specific identification method and any realized gains or losses on the sale of investments are reflected as a component of interest income or expense.

Accounts Receivable—Accounts receivable represent trade receivables from customers when the Company has invoiced for software subscriptions and/or services and it has not yet received payment. The Company maintains an allowance for doubtful accounts for the estimated probable losses on uncollectible accounts receivable, and presents accounts receivable net of this allowance. The allowance is based upon a number of factors including the credit worthiness of customers, the Company’s historical experience with customers, the age of the receivable, insolvency filings and current market and economic conditions. Such factors are reviewed and updated by the Company on a quarterly basis. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Activity within the allowance for doubtful accounts is as follows, (in thousands):

	Years Ended December 31,
	2015		2014		2013
Balance at beginning of year	$	525	$	459	$	0
Charges		1,445		671		497
Write-offs		(642)		(605)		(38)
Balance at end of year	$	1,328	$	525	$	459

Concentrations of Credit Risk and Significant Customers—Financial instruments that potentially expose the Company to concentrations of credit risk include cash, cash equivalents, marketable securities, foreign currency forward contracts and accounts receivable. The Company maintains substantially all of its cash, cash equivalents, marketable securities and foreign currency forward contracts with financial institutions that management believes are of high credit quality. To manage credit risk related to accounts receivable, the Company evaluates the allowances for potential credit losses. To date, losses resulting from uncollected receivables have not exceeded management’s expectations.

As of December 31, 2015 and 2014, no single customer comprised more than 10% of accounts receivable. For the years ended December 31, 2015, 2014 and 2013, no single customer comprised more than 10% of the Company’s revenue.

Property and Equipment—Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over the lesser of the term of the lease or the useful life of the asset. When assets are retired or disposed of, the assets and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is included in the determination of net income or loss. Maintenance and repair expenditures are charged to expense as incurred.

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Research and Development and Internal Use Software—Research and development expenses consist primarily of personnel and related expenses for the Company’s research and development staff, including salaries, benefits, bonuses and stock-based compensation and the cost of certain third party contractor costs. Expenditures for research and development, other than internal use software costs, are expensed as incurred.

The Company capitalizes certain development costs related to upgrades and enhancements to its cloud commerce platform when it is probable the expenditures will result in additional functionality. Such development costs are capitalized when the preliminary project stage is completed and it is probable that the project will be completed and the software will be used to perform the function intended. These capitalized costs include external direct costs of services consumed in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with and who devote time to internal-use software projects. Capitalization of these costs cease once the project is substantially complete and the software is ready for its intended purpose. Post-configuration training and maintenance costs are expensed as incurred. Capitalized internal use software costs are recorded as part of intangible assets and amortized to cost of subscription revenue using a straight-line method over the estimated useful life of the software, generally three to five years, commencing when the software is ready for its intended use.

During the year ended December 31, 2015, $2.1 million of internal use software development costs were capitalized, primarily related to the development of Demandware Store. During the years ended December 31, 2014 and 2013, no internal use software development costs were capitalized. Amortization expense related to internal use software totaled $0.2 million during the year ended December 31, 2015. The net book value of capitalized internal use software at December 31, 2015 was $1.9 million.

Segment and Geographic Information—Operating segments are defined as components of an enterprise for which discrete financial information is available which is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. The CODM views the Company’s operations and manages its business as one operating segment.

Information about the Company’s revenue and long-lived assets in different geographic regions is presented in the tables below (in thousands):

	Year Ended December 31,
		2015		2014		2013
Revenue:
United States		$	152,553	$	99,085	$	63,155
Germany		25,664		22,218		16,521
United Kingdom		24,627		18,328		13,130
All other international		34,435		20,922		13,808
Total revenue		$	237,279	$	160,553	$	106,614
Long-lived assets:
United States		$	20,717	23,214		$	8,814
Germany		387		455		362
United Kingdom		93		429		554
All other international		665		196		60
Total long-lived assets		$	21,862	$	24,294	$	9,790

Goodwill and Purchased Intangible Assets—Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is reviewed for impairment at the reporting unit level annually on November 30^th or more frequently if indicators of impairment are present or if changes in circumstances suggest that impairment may exist. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the Company’s reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired. If the carrying amount of the Company’s reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. No impairment losses have been recognized.

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Purchased intangible assets represent those acquired from business combinations and are deemed to have a definite life. They are amortized over their useful lives, generally ranging from three to ten years. The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. During the years ended December 31, 2015 and 2014, no such impairment indicator was identified.

Revenue Recognition—The Company generates revenue from sales of ecommerce, order management, point of sale and predictive email subscriptions, activation fees and related professional services. Professional services include implementation services, consulting services to support the Company’s customers once they are live on the Company’s solutions, and training, as well as managed services, maintenance and related support services for the Company’s non-subscription customer base.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery to customers has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured. The Company does not recognize revenue in excess of the amounts which it has the right to invoice in an annual subscription year.

In most instances, revenue from new customer acquisition is generated under sales agreements with multiple elements, comprised of subscription fees, related activation fees that allow customers to access the solutions, and professional services. The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within the Company’s control. Subscriptions have standalone value because they are routinely sold separately by the Company.

Other than the Company’s site readiness assessment offering, the Company’s professional services have standalone value because the Company has sold professional services separately or there are third party vendors that routinely provide similar professional services to the Company’s customers on a standalone basis. The Company does not have evidence of standalone value for site readiness assessments because they are not sold on a standalone basis and can only be provided by the Company.

Activation services provide access to the Company’s digital environment through production launch and are billed during the implementation phase and recorded as deferred revenue until a customer’s subscription period has commenced. Activation services do not have standalone value because they are only sold in conjunction with a subscription to the Company’s ecommerce solutions, they are only sold by the Company, a customer could not resell it, and they do not represent the culmination of a separate earnings process.

The Company allocates revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third party evidence (“TPE”), if VSOE is not available, or best estimated selling price (“BESP”), if neither VSOE nor TPE is available. As the Company has been unable to establish VSOE or TPE for certain elements of its arrangements, the Company establishes the BESP for these elements primarily by considering historical sales prices when sold on a standalone basis along with other factors such as gross margin objectives, pricing practices, growth strategy and geographic market conditions.

Subscriptions fees include fees derived from contractually committed minimum levels of gross revenue processed by ecommerce customers on the Company’s cloud digital commerce platform, and fees derived from such customers’ gross revenue processed above the minimum contracted levels. Customers do not have the contractual right to take possession of the Company’s cloud software. The consideration allocated to the subscription for the aggregate minimum subscription fee is recognized on a straight-line basis over the subscription term once a customer’s subscription period has commenced. Should an ecommerce customer exceed the specified minimum levels of gross revenue, fees for customer gross revenue processed in excess of the committed minimum level are billed for the excess processing. The Company recognizes revenue from the fees it receives for its customers’ gross revenue processed in excess of the committed minimum level in the period in which such gross revenue is processed and earned. The Company’s order management and predictive email subscriptions are typically based on a per transaction or volume fee, which is common pricing for those capabilities, for a committed term.

Fees for activation and site readiness assessments without standalone value are recognized ratably over the longer of the life of the agreement or the expected customer life, which is currently estimated to be just over six years. The Company evaluates the length of the amortization period based on its experience with customer contract renewals and consideration of the period over which those customers will benefit from the related offerings.

The consideration allocated to professional services with standalone value is recognized as revenue using the proportional performance method.

Deferred revenue primarily consists of the unearned portion of billed subscription and services fees. Once a customer’s subscription period has commenced, the Company typically invoices customers on a monthly or quarterly basis. In addition, the

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Company generally invoices all or a portion of the first year subscription fees in advance upon customer contract execution as an initiation payment. Initiation payments are included in deferred revenue upon payment.

Reimbursable costs received for out-of-pocket expenses are recorded as revenue and cost of revenue in the consolidated statements of operations. Sales taxes collected from customers and remitted to government authorities are excluded from revenue.

Cost of Revenue—Cost of subscription revenue primarily consists of hosting costs, data communications expenses, depreciation expenses associated with computer equipment, personnel and related costs, including salaries, bonuses, employee benefits and stock compensation, software license fees and amortization expenses associated with purchased intangible assets and capitalized software. In addition, the Company allocates a portion of overhead, such as rent, IT costs, depreciation and employee benefits costs, to cost of revenue based on headcount.

Cost of services revenue primarily consists of personnel and related costs, third party contractors and allocated overhead. The Company’s cost of services revenue is expensed as the costs are incurred.

Impairment of Long-Lived Assets—The Company considers whether indicators of impairment of its long-lived assets are present. If such indicators are present, the Company determines whether the aggregate of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amount, and if so, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. To date, no such impairment has occurred.

Advertising—Advertising costs are charged to operations as incurred and include direct marketing, events, public relations, sales collateral materials and partner programs. Advertising expense was approximately $12.6 million, $8.4 million and $6.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Income Taxes—Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using rates anticipated to be in effect when such temporary differences reverse. A valuation allowance against deferred tax assets is recorded, based upon the available evidence, if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company assesses its income tax positions and records tax benefits based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions for which it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. The unrecognized tax benefits are currently presented as a reduction to the deferred tax assets in the financial statements, unless the uncertainty is expected to be resolved within one year. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.

Stock-Based Compensation—The Company accounts for all stock awards granted to employees and nonemployees using a fair value method. The fair value of restricted stock awards is based on the closing price of the Company’s common stock on the award grant date, and the fair value of stock option awards is determined using the Black-Scholes option pricing model. Compensation expense is then recognized on a straight-line basis over the requisite services period, which is the vesting period of the award. The measurement date for employee awards is the date of the grant, and the measurement date for nonemployee awards is the date the performance or services are completed.

Other Comprehensive (Loss) Income—Other comprehensive (loss) income consists of foreign currency translation adjustments and unrealized gains or losses on marketable securities.

Warranties—The Company includes service level commitments to its customers warranting certain levels of uptime and performance and permitting those customers to receive credits in the event that the Company fails to meet those levels. To date, the Company has not incurred any material costs as a result of such commitments.

Commissions—The Company recognizes commission expense related to subscriptions in the period in which the contract is signed.

Recent Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. The guidance will also require that certain contract costs incurred to obtain or fulfill a contract, such as sales commissions, be capitalized as an asset and amortized as revenue is recognized. Adoption of the new rules could affect the timing of both revenue recognition and recognition of contract costs for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the

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new standard with disclosure of results under old standards. For the Company, the new standard will be effective January 1, 2018. The Company is currently evaluating the impact of adoption and the implementation approach to be used.

In April 2015, FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”). This standard provides guidance on internal use software to clarify how customers in cloud computing arrangements should determine whether the arrangement includes a software license, which would be accounted for under the FASB Accounting Standards Codification (“ASC”) 350-40. ASU 2015-05 is effective for the Company beginning January 1, 2016. The Company does not believe that this will have a material impact on its consolidated financial statements.

In September 2015, FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). This standard requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 also requires separate presentation on the face of the income statement, or disclosure in the notes, of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amount had been recognized as of the acquisition date. ASU 2015-16 is effective for the Company beginning January 1, 2016. The Company does not believe that this will have a material impact on its consolidated financial statements.

In November 2015, FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). This standard requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. It may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company adopted ASU 2015-17 effective December 31, 2015 on a prospective basis. Adoption of ASU 2015-17 resulted in an immaterial reclassification of the Company’s net current deferred tax asset to net non-current deferred tax asset in the Company’s consolidated balance sheet as of December 31, 2015. No prior periods were retrospectively adjusted.

3. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

The Company calculates basic and diluted net loss per common share by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has excluded all potentially dilutive shares, which include outstanding common stock options and unvested restricted stock, from the weighted average number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses. The Company’s unvested restricted stock awards are not considered participating securities under the authoritative guidance since any dividends earned on unvested restricted shares are required to be returned if unvested shares are forfeited. The following common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders because they had an anti-dilutive impact (in thousands):

	Year Ended December 31,
	2015		2014		2013
Options to purchase common stock		2,363		2,586		3,652
Nonvested restricted stock		1,481		1,194		880

4. BUSINESS COMBINATION

2015 Acquisition

On January 12, 2015, the Company acquired 100% of the equity of Tomax Corporation (“Tomax”), an enterprise software company that provides an integrated solution for retail point of sale and store operations, for total cash consideration of approximately $60.0 million. The Company is obligated to pay additional consideration of up to $15.0 million, payable in cash or shares of the Company’s common stock at the option of the Company, to the former Tomax equityholders on the first and second anniversary of the date of acquisition, contingent upon the continued employment of certain key employees of Tomax. The Company recognized contingent compensation expense of $7.2 million during the year ended December 31, 2015 related to this consideration. As of December 31, 2015, the entire $7.2 million accrued contingent compensation balance was included in accrued expenses on the consolidated balance sheet. In January 2016, the Company made a payment of approximately $7.5 million in cash to the former Tomax equityholders as conditions for its release have been fulfilled.

For the years ended December 31, 2015 and 2014, the Company incurred transaction related costs in connection with the acquisition of $0.3 million and $0.9 million, respectively, which are included in general and administrative expenses.

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Under the acquisition method of accounting, the Company allocated the purchase price to the identifiable assets and liabilities based on their estimated fair value, which was determined by management using the information available as of the date of the acquisition. The allocation of the Tomax purchase consideration to the assets acquired and liabilities assumed was as follows (in thousands):

Cash and cash equivalents	$	5,267
Short-term investments		4,251
Accounts receivable		9,470
Property and equipment		987
Developed technology		14,700
Customer relationships		1,300
Trademarks		400
Goodwill		35,086
Accounts payable and accrued expenses		(2,426)
Deferred revenue		(4,610)
Deferred tax liabilities		(6,211)
Other assets / liabilities, net		1,786
Total purchase consideration	$	60,000

Methodologies used in valuing the intangible assets include, but are not limited to, relief from royalty for trademarks and multiple period excess earnings method for developed technology and customer relationships. The excess of the purchase price over the total net identifiable assets has been recorded as goodwill, which includes synergies expected from the expanded service capabilities and the value of the assembled work force. For federal income tax purposes, the transaction is treated as a stock acquisition. The goodwill resulting from this transaction is not deductible for tax purposes.

The fair value estimates for the assets acquired and liabilities assumed in the initial purchase price allocation were based upon preliminary calculations and valuations that were subject to change as the Company obtained additional information during the measurement period. After the acquisition date, the Company finalized certain tax returns and obtained additional information about facts and circumstances that existed as of the date of the acquisition, which resulted in a $0.6 million reduction of goodwill with a corresponding offset to certain tax related assets and liabilities. As of December 31, 2015, the Company completed its valuation of the assets acquired and liabilities assumed in connection with the Tomax acquisition.

Tomax’s results of operations are included in the Company’s consolidated operating results since the acquisition date. The following unaudited pro forma results of operations have been presented as if the Tomax transaction occurred on January 1, 2014 (in thousands, except per share data):

	2015		2014
Revenue	$	238,604	$	184,364
Net loss		(42,585)		(31,409)
Net loss attributable to Demandware		(42,221)		(31,402)
Net loss per share, basic and diluted	$	(1.18)	$	(0.90)

This information is based on historical results of operations, adjusted for the allocations of purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what the Company’s results would have been had it operated the businesses since January 1, 2014. The supplemental pro forma net loss for the year ended December 31, 2014 was adjusted to include $6.1 million of income tax benefit resulting from the release of valuation allowance that was primarily incurred in the first quarter of 2015 and $1.2 million of acquisition related costs that were primarily incurred in the second half of 2014.

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2014 Acquisitions

On October 9, 2014, the Company acquired 100% of the equity of CQuotient, Inc. (“CQuotient”), a cloud personalization provider, for cash consideration of approximately $21.5 million. Additional consideration of up to $3.4 million, payable in cash or shares of the Company’s common stock at the option of the Company, is payable to certain employees in 2 to 3 years after the acquisition date contingent upon their continued employment. For the years ended December 31, 2015 and 2014, the Company recognized contingent compensation expense of $1.2 million and $0.3 million, respectively, related to this consideration. As of December 31, 2015, $0.4 million of the accrued contingent compensation balance was included in accrued expenses and $1.1 million was included in other long-term liabilities on the consolidated balance sheet. As of December 31, 2014, the entire $0.3 million accrued contingent compensation balance was included in other long-term liabilities on the consolidated balance sheet.

On January 22, 2014, the Company acquired 100% of the equity of Mainstreet Commerce LC (“Mainstreet”), a provider of cloud-based distributed order management solutions, for total cash consideration of $19.4 million, of which $7.0 million was held in escrow and was released ratably in quarterly payments through January 2016. The amount in escrow is reserved for payments to key Mainstreet employees for post-combination employment services, and therefore is recorded as a prepayment in the Company’s consolidated balance sheet, and is recognized in the Company’s post-combination financial statements as contingent compensation expense over the employment period. For the years ended December 31, 2015 and 2014, the Company has recognized contingent compensation expense of $3.5 million and $3.3 million, respectively, related to this consideration.

For the year ended December 31, 2014, the Company incurred transaction related costs in connection with these acquisitions of $0.5 million, which were included in general and administrative expenses.

Under the acquisition method of accounting, the Company allocated the purchase price of the acquisitions to the identifiable assets and liabilities based on their estimated fair value, which was determined by management using the information available as of the date of the acquisition. The allocation of the purchase consideration to the assets acquired and liabilities assumed in these acquisitions was as follows (in thousands):

	CQuotient		Mainstreet
Cash	$	353	$	261
Accounts receivable		343		511
Developed technology		8,500		2,500
Customer relationships		300		300
Trademarks		0		10
Deferred revenue		(366)		0
Deferred tax liabilities		(3,020)		0
Goodwill		15,413		8,966
Other assets / liabilities, net		(42)		(151)
Total purchase consideration	$	21,481	$	12,397

Methodologies used in valuing the intangible assets include, but are not limited to, relief from royalty for trademarks, replacement cost method for customer relationships and multiple period excess earnings method for developed technology. The excess of the purchase price over the total net identifiable assets has been recorded as goodwill, which includes synergies expected from the expanded service capabilities and the value of the assembled work force in accordance with GAAP.

For federal income tax purposes, the CQuotient transaction is treated as a stock acquisition. The goodwill resulting from this transaction is not deductible for tax purposes. For federal income tax purposes, the Mainstreet transaction is treated as an asset acquisition. The goodwill resulting from this transaction is deductible for tax purposes.

The results of operations of CQuotient and Mainstreet are included in the Company’s consolidated operating results since the respective acquisition date. The Company has not furnished pro forma financial information related to these acquisitions because they are not material, individually or in the aggregate, to the Company’s consolidated results of operations.

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5. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

A summary of the Company’s cash equivalents and short-term investments at December 31, 2015 is as follows (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash Equivalents:
Money market funds	$	101,664	$	0	$	0	$	101,664
Certificates of deposit		1,909		0		0		1,909
	$	103,573	$	0	$	0	$	103,573
Short-Term Investments:
U.S. government agency bonds	$	15,142	$	0	$	(21)	$	15,121
Corporate bonds		7,403		0		(8)		7,395
Municipal securities		41,694		6		(19)		41,681
Certificates of deposit		17,828		0		(5)		17,823
	$	82,067	$	6	$	(53)	$	82,020

A summary of the Company’s cash equivalents and short-term investments at December 31, 2014 is as follows (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash Equivalents:
Money market funds	$	140,107	$	0	$	0	$	140,107
Certificates of deposit		498		0		0		498
Municipal securities		2,015		0		0		2,015
	$	142,620	$	0	$	0	$	142,620
Short-Term Investments:
U.S. government agency bonds	$	21,304	$	1	$	(2)	$	21,303
Corporate bonds		6,895		0		(3)		6,892
Municipal securities		29,383		2		(7)		29,378
Certificates of deposit		27,307		0		0		27,307
	$	84,889	$	3	$	(12)	$	84,880

The contractual maturity dates for the Company’s available-for-sale investments that are classified as short-term investments in the consolidated balance sheets are one year or less from the respective balance sheet dates.

6. DERIVATIVE INSTRUMENTS

The Company conducts business in a number of foreign countries and transacts business in various foreign currencies. Foreign currency exposures typically arise from transactions denominated in a currency other than the functional currency. The Company utilizes foreign currency forward contracts to offset the risks associated with the effect of certain foreign currency exposures. These contracts are entered into so that increases or decreases in the Company’s foreign currency exposures are offset by gains or losses on the forward contracts in order to mitigate the risks and volatility associated with the Company’s foreign currency transactions. The Company had the following outstanding foreign currency forward contracts as of December 31, 2015 and 2014 (in thousands):

	December 31, 2015		December 31, 2014
Currency	Notional Value		Notional Value
Euro		5,800		6,500
British Pounds Sterling		3,000		3,000

The Company has not designated these forward contracts as hedging instruments and accordingly, the Company recorded the fair value of these contracts at the end of each reporting period in its consolidated balance sheet, with changes in the fair value recorded in earnings as other income (expense) in the Company’s consolidated statements of operations.

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7. FAIR VALUE MEASUREMENTS

Financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued expenses are carried in the consolidated financial statements at amounts that approximate fair value at December 31, 2015 and 2014. Fair values are based on market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Other inputs that are observable directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.

• Level 3—Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets at December 31, 2015 and 2014 (in thousands):

			Fair Value Measurements Using
	Amounts at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At December 31, 2015
Assets—Cash Equivalents:
Money market funds	$	101,664	$	101,664	$	0	$	0
Certificates of deposit		1,909		0		1,909		0
Assets—Short-Term Investments:
U.S. government agency bonds	$	15,121	$	0	$	15,121	$	0
Corporate bonds		7,395		0		7,395		0
Municipal securities		41,681		0		41,681		0
Certificates of deposit		17,823		0		17,823		0
Assets—Derivative Instruments:
Foreign currency forward contracts	$	5	$	0	$	5	$	0
At December 31, 2014
Assets—Cash Equivalents:
Money market funds	$	140,107	$	140,107	$	0	$	0
Certificates of deposit		498		0		498		0
Municipal securities		2,015		0		2,015		0
Assets—Short-Term Investments:
U.S. government agency bonds	$	21,303	$	0	$	21,303	$	0
Corporate bonds		6,892		0		6,892		0
Municipal securities		29,378		0		29,378		0
Certificates of deposit		27,307		0		27,307		0
Assets—Derivative Instruments:
Foreign currency forward contracts	$	69	$	0	$	69	$	0

When developing fair value estimates, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including yield curves, volatilities, credit

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ratings and currency rates. In certain cases for which market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

The valuation technique used to measure fair value for the Company’s Level 1 and Level 2 assets is a market approach that uses prices and other relevant information generated by market transactions involving identical or comparable assets. There were no Level 3 financial assets or liabilities at December 31, 2015 and 2014.

8. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2015 and 2014 consist of the following (in thousands):

	December 31,
	2015		2014
Computer equipment	$	35,427	$	24,700
Purchased software		7,227		6,742
Office furniture		2,958		1,352
Leasehold improvements		2,989		1,078
Property and equipment—at cost		48,601		33,872
Less: accumulated depreciation		(26,739)		(19,844)
Property and equipment—net	$	21,862	$	14,028

Depreciation expense for the years ended December 31, 2015, 2014 and 2013, was $7.6 million, $5.3 million and $4.4 million, respectively.

9. GOODWILL AND INTANGIBLE ASSETS

Goodwill—Changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 are as follows (in thousands):

Balance, December 31, 2013	$	0
Acquisition of Mainstreet and CQuotient		24,379
Balance, December 31, 2014	$	24,379
Acquisition of Tomax		35,086
Balance, December 31, 2015	$	59,465

Intangible Assets—Intangible assets as of December 31, 2015 and 2014 are as follows (in thousands, except term information):

			As of December 31, 2015
	Weighted Average Life (Years)		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology		6.1	$	25,700	$	5,600	$	20,100
Customer relationships		8.1		1,900		365		1,535
Trademarks		2.0		410		204		206
Internal use software		4.7		2,133		169		1,964
Total		6.1	$	30,143	$	6,338	$	23,805

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			As of December 31, 2014
	Weighted Average Life (Years)		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Developed technology		5.0	$	11,000	$	1,242	$	9,758
Customer relationships		4.0		600		92		508
Trademarks		1.0		10		10		0
Total		4.9	$	11,610	$	1,344	$	10,266

Amortization expense related to developed technology was $4.4 million and $1.2 million for the years ended December 31, 2015 and 2014, respectively, and was included in the cost of subscription revenue in the accompanying consolidated statements of operations. Amortization expense related to customer relationships and trademarks was $0.5 million and $0.1 million for the years ended December 31, 2015 and 2014, respectively, and was included in operating expenses in the accompanying consolidated statements of operations. Amortization expense related to internal use software was $0.2 million for the year ended December 31, 2015 and was included in the cost of subscription revenue in the accompanying consolidated statements of operations.

Future estimated amortization expense for the intangible assets as of December 31, 2015 is as follows (in thousands):

2016	$	5,170
2017		4,878
2018		4,635
2019		3,936
2020		2,494
Thereafter		2,692
Total	$	23,805

10. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

	December 31,
	2015		2014
Compensation and other payroll related expenses	$	7,094	$	3,871
Bonuses		9,918		8,412
Commissions		5,066		7,176
Acquisition related contingent compensation		7,633		0
Other		7,576		5,694
Total	$	37,287	$	25,153

11. NONCONTROLLING INTEREST

On September 30, 2014, the Company signed an agreement to establish a joint venture, Demandware K.K., in Japan. During the year ended December 31, 2014, the Company contributed approximately $2.5 million to the joint venture in cash in exchange for 75% of its outstanding shares of common stock, and another investor contributed $0.8 million to the joint venture in cash in exchange for the remaining 25% of its outstanding shares of common stock. No contribution was made to the joint venture during the year ended December 31, 2015.

All shares of the common stock held by the noncontrolling investor are callable by the Company or puttable by the noncontrolling investor upon certain contingent events such as a change of control or a deadlock. Should the call or put options be exercised, the redemption value would be determined based on a prescribed formula derived from (i) the relative revenues of Demandware K.K. and the Company and (ii) the Company’s average market capitalization over a pre-defined period (“Formula Redemption Price”). Certain call or put options contingent upon a change of control may be settled at the Company’s discretion with

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Company stock or cash. During an exit period commencing on January 1, 2018 through January 1, 2020, all shares of the common stock held by the noncontrolling investor are callable by the Company or puttable by the noncontrolling investor. If the Company call option is exercised on or before July 1, 2018, the redemption value would be the greater of the Formula Redemption Price or three times the capital investment the noncontrolling investor has made in Demandware K.K. If the Company call option is exercised after July 1, 2018 or if the the noncontrolling investor put option is exercised at any time during the exit period, the redemption value would equal the Formula Redemption Price.

The redeemable noncontrolling interests in Demandware K.K. are classified outside of permanent equity in the Company’s consolidated balance sheet primarily due to the put right available to the redeemable noncontrolling interest holders in the future which may be settled in cash or common stock of the Company. The balance of the redeemable noncontrolling interests is reported at the greater of the initial carrying amount adjusted for the redeemable noncontrolling interests’ share of earnings, or its estimated redemption value. The resulting changes in the estimated redemption amount (increases or decreases) are recorded with corresponding adjustments against additional paid-in capital.

The changes in the redeemable noncontrolling interests classified as temporary equity in the balance sheet for the years ended December 31, 2015 and 2014 are as follows (in thousands):

Balance, December 31, 2013	$	0
Contribution from noncontrolling interests		830
Net loss attributable to noncontrolling interests		(7)
Balance, December 31, 2014	$	823
Less: Net loss attributable to noncontrolling interest		(364)
Less: Other comprehensive loss attributable to noncontrolling interest		(2)
Balance, December 31, 2015	$	457

12. COMMITMENTS AND CONTINGENCIES

Operating Leases—The Company has several operating leases for its office space that expire on various dates through 2026. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent and rent concessions. During the years ended December 31, 2015, 2014 and 2013, rent expense was $5.6 million, $3.4 million and $2.6 million, respectively.

The Company’s obligation for lease payments is as follows at December 31, 2015 (in thousands):

Years Ending December 31,
2016	$	6,425
2017		6,520
2018		6,183
2019		5,718
2020		3,577
Thereafter		8,413
Total minimum lease payments	$	36,836

Co-location Services—The Company has agreements with third parties to provide co-location services for hosting operations, which typically have a term of 24 months and expire by December 2018. The agreements require payment of a minimum amount per month for a fixed period of time in return for which the co-location service provider provides certain guarantees of network availability.

The Company recorded co-location service expenses of $6.6 million, $5.3 million, and $3.2 million during the years ended December 31, 2015, 2014 and 2013, respectively. Future minimum payments as of December 31, 2015 under these arrangements are $3.9 million in 2016 and $2.1 million in 2017.

Legal Proceedings—The Company has received both direct claims from non-practicing entities claiming infringement of patents owned by them and indemnification requests from customers that have received letters from or been sued by such entities. Many of those underlying claims have not yet been resolved, and the extent, if any, of the Company’s indemnification obligations has not been determined. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. In addition,

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some of the patents at issue are the subject of pending legal proceedings between the patent owners and one or more leading digital commerce companies, and the outcome of those proceedings could affect the extent to which the patent owners seek to prosecute claims against the Company or its customers. The Company’s business could be materially adversely affected by any significant disputes between the Company and its customers as to intellectual property litigation to which the Company might become a party or for which the Company may be required to provide indemnification. Adverse results in these matters may include awards of substantial monetary damages, costly licensing agreements, or orders preventing the Company from offering certain features, functionalities, products, or services, and may also cause the Company to change its business practices, and require development of non-infringing products or technologies, which could result in a loss of revenues and otherwise harm the Company’s business. As of December 31, 2015, the Company has not made an accrual related to these matters.

The Company records a liability when it believes that a loss is both probable and reasonably estimable. On a quarterly basis, the Company reviews each of its legal proceedings to determine whether it is probable, reasonably possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated. Significant judgment is required to determine both the likelihood of there being a loss and the estimated amount of such loss. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. The Company expenses legal fees in the period in which they are incurred.

In all of the Company’s outstanding legal matters for which it has not made an accrual, the Company is unable to estimate a range of reasonably possible loss due to various factors, including, among others, the early stage and uncertain outcome of the pending lawsuits to which the Company is not a party; and the significant factual issues to be resolved regarding the extent, if any, of the Company’s indemnification obligations. Given the significant uncertainties involved in these matters, the Company cannot predict the timing or extent of their impact, if any, on its business, consolidated financial position, results of operations or cash flows, particularly in any fiscal quarter in which it may accrue a related liability.

13. STOCK-BASED COMPENSATION

The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013 (in thousands):

	Year Ended December 31,
	2015		2014		2013
Cost of subscription revenue	$	985	$	701	$	391
Cost of service revenue		3,175		1,967		1,179
Sales and marketing		11,254		7,474		4,296
Research and development		11,867		7,513		3,574
General and administrative		9,439		8,975		5,248
	$	36,720	$	26,630	$	14,688

Stock-based compensation cost for the years ended December 31, 2015, 2014 and 2013 includes $7.0 million, $6.4 million and $6.1 million, respectively, related to stock options, and $0.5 million, $0.4 million and 0.2 million, respectively, related to the Company’s Employee Stock Purchase Plan (“ESPP”). The remaining expense for each period relates to restricted stock.

As of December 31, 2015, the Company had two stock-based compensation plans, the 2004 Stock Option and Grant Plan (the “2004 Plan”), and the 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the grant of incentive stock options to the Company’s employees and the grant of non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants. Upon the effectiveness of the 2012 Plan, the Company ceased granting awards under the 2004 Plan. However, the 2004 Plan continues to govern the terms and conditions of the outstanding awards previously granted thereunder.

Under the 2012 Plan, the Company may issue up to 8,126,768 shares of common stock pursuant to stock options and stock awards, which include shares of common stock reserved for issuance under the 2004 Plan that remained available for issuance immediately prior to the inception of the 2012 Plan. As of December 31, 2015, the Company has authorized 240,000,000 shares of common stock and 3,887,916 shares of common stock remain available under the 2012 Stock Incentive Plan.

Stock Options—Under the 2012 Plan, stock options may be granted at an exercise price not less than the fair market value of the Company’s common stock on the date of grant. Substantially all stock options currently outstanding under both plans vest over a period of four years.

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The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options awards and determine the related compensation expense. The fair value of the stock options granted was calculated using the following key assumptions:

	Year Ended December 31,
	2015			2014			2013
Risk-free interest rate		1.5	%		1.8	%		2.1	%
Expected dividend yield		0	%		0	%		0	%
Expected term (in years)		6.1			6.1			6.1
Weighted average expected volatility		47.7	%		49.2	%		50.4	%

The risk-free interest rate assumption was based on the U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted-average expected life of options granted reflects the application of the simplified method, which represents the average of the contractual term of the options and the weighted-average vesting period for all option tranches. The simplified method has been used since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due to a limited period of the Company’s life. The Company bases the majority of its estimate of expected volatility using volatility data from comparable public companies in similar industries and markets because there is currently limited public market history for the Company’s common stock, and therefore, a lack of market-based company-specific historical and implied volatility information.

The summary of stock option activity for the year ended December 31, 2015 is as follows (in thousands, except per share and term information):

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding—December 31, 2014		2,586	$	16.18
Granted		180		59.93
Forfeited		(34)		33.96
Expired or cancelled		(1)		2.36
Exercised		(368)		17.00
Outstanding—December 31, 2015		2,363	$	19.13		5.55	$	85,408
Exercisable—December 31, 2015		1,945	$	11.84		4.96	$	82,843
Options vested and expected to vest—December 31, 2015		2,343	$	18.80		5.52	$	85,352

The following table summarizes information relating to stock options granted and exercised (in thousands, except per share data):

	Year Ended December 31,
	2015		2014		2013
Weighted average grant date fair value per share	$	28.13	$	31.79	$	16.87
Aggregate intrinsic value of options exercised		16,659		29,363		42,099
Cash proceeds received upon exercise of options		6,249		6,848		7,948

The aggregate intrinsic value represents the difference between the fair value at exercise and the exercise price paid by the employee.

As of December 31, 2015, total compensation cost not yet recognized related to stock option awards was $9.3 million, which is expected to be recognized over a weighted-average period of 2.4 years.

Restricted Stock Awards—The Company’s restricted stock awards generally vest over a two- or four-year period and upon vesting, the restrictions on the shares are released. The fair value of the restricted stock awards is measured based upon the market price of the

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underlying common stock as of the date of grant. The Company also issued certain restricted stock awards with vesting solely dependent on the achievement of specified performance targets.

The summary of restricted stock awards activity is as follows (in thousands, except per share data):

	Number of Shares		Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2014		1,194	$	51.40
Granted		951		60.95
Vested		(526)		49.92
Forfeited		(138)		52.80
Nonvested at December 31, 2015		1,481		57.88

The following table summarizes information relating to restricted stock granted and vested (in thousands, except per share data):

	Year Ended December 31,
	2015		2014		2013
Weighted average grant date fair value per share	$	60.95	$	66.18	$	33.13
Total fair value of restricted stock vested		30,382		25,801		6,418

Total compensation cost not yet recognized related to restricted stock awards was $68.3 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Employee Stock Purchase Plan—The ESPP permits eligible employees to purchase up to an aggregate of 400,000 shares of the Company’s common stock through accumulated payroll deductions. Each offering is a six month period (a “Plan Period”), and the purchase price of the stock is equal to 85% of the lesser of the market value of such shares at the first or last business day of a Plan Period. During the years ended December 31, 2015, 2014 and 2013, employee contributions were accumulated to purchase 33,689, 27,088 and 14,934 shares, respectively, at weighted average prices per share of $46.91, $51.34 and $36.47, respectively. The fair value of the ESPP shares purchased is estimated on the Plan Period commencement date using a Black-Scholes pricing model with the expense recognized over the expected life, which is the Plan Period. The weighted average fair value per share of ESPP shares purchased during the years ended December 31, 2015, 2014 and 2013 was $13.54, $16.43 and $9.62, respectively. At December 31, 2015, 324,289 shares remain available for future issuance under the ESPP.

14. INCOME TAXES

The provision for income taxes for the years ended December 31, 2015, 2014 and 2013 consists of the following (in thousands):

	December 31,
	2015		2014		2013
(Loss) income before income taxes:
Domestic	$	(43,616)	$	(31,431)	$	(19,062)
International		1,783		2,321		1,634
	$	(41,833)	$	(29,110)	$	(17,428)

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	December 31,
	2015		2014		2013
Current income tax provision:
Federal	$	2	$	0	$	0
State		63		72		52
Foreign		993		776		457
Total current income tax provision		1,058		848		509
Deferred income tax (benefit) provision:
Federal		(5,068)		(2,795)		0
State		(765)		(3)		0
Foreign		(57)		(100)		65
Total deferred income tax (benefit) provision		(5,890)		(2,898)		65
Total income tax (benefit) provision	$	(4,832)	$	(2,050)	$	574

The 2015 income tax benefit includes the release of $6.1 million of valuation allowance that resulted from the recognition of the deferred tax liabilities in the Tomax acquisition, which provided evidence to support the recoverability of the deferred tax asset.

The differences in total provision for income taxes that would result from applying the 34% federal statutory rate to loss before income taxes and the reported provision for income taxes are as follows:

	December 31,
	2015			2014			2013
U.S. Federal tax expense at statutory rates		34	%		34	%		34	%
State income taxes, net of federal tax benefit		4	%		2	%		0.5	%
Foreign rate differential		1	%		1	%		0.5	%
Permanent differences		(3)	%		6	%		(4)	%
Stock-based compensation		(6)	%		(6)	%		(3)	%
Uncertain tax provisions		(1)	%		(1)	%		(1)	%
Valuation allowance		(17)	%		(29)	%		(30)	%
		12	%		7	%		(3)	%

Components of the net deferred tax assets as of December 31, 2015 and 2014 are as follows (in thousands):

	December 31,
	2015		2014
Operating loss carryforwards	$	24,087	$	17,804
Capitalized research and development and intangible assets		(2,618)		4,226
Accrued expenses		11,286		7,411
Research and development credits		4,597		3,738
Deferred revenue		3,739		1,578
Stock compensation		5,922		5,367
Depreciation		38		167
Other		(24)		24
Total deferred tax assets		47,027		40,315
Valuation allowance for deferred tax assets		(47,539)		(40,493)
Net deferred tax liability	$	(512)	$	(178)

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The Company has historically incurred operating losses, and given the cumulative losses and limited history of profits, the Company has recorded a full valuation allowance against its deferred tax assets for all periods to date with the exception of the deferred tax asset related to its wholly owned foreign entities.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2015, the Company has not made a provision for U.S. or additional foreign withholding taxes of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

During the year ended December 31, 2015, the valuation allowance increased by $7.0 million due to the increase in deferred tax asset associated with the net operating loss, research and development costs, accrued expenses and the full valuation allowance against these assets. During the year ended December 31, 2014, the valuation allowance increased by $9.4 million due to the increase in deferred tax asset associated with the research and development costs and accrued expenses and the full valuation allowance against these assets.

At December 31, 2015, the Company had federal and state net operating loss carryforwards of approximately $170.8 million and $63.5 million, respectively. At December 31, 2015, the Company also had federal and state research and development tax credit carryforwards of $4.9 million and $3.3 million, respectively. The net operating loss carryforwards and tax credits expire at various dates through 2035. Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of the Company’s domestic net operating loss and tax credit carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.

As a result of certain realization requirements of share-based payment accounting guidance, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2015 and 2014 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $41.9 million if and when such deferred tax assets are ultimately realized. The Company uses the ordering pursuant to ASC 740, “Income Taxes” when determining when excess tax benefits have been realized.

The following table indicates the changes to the Company’s unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013 (in thousands):

	2015		2014		2013
Beginning balance	$	1,506	$	1,418	$	1,061
Decrease related to current tax year		(22)		(409)		0
Increase related to current tax year		376		497		357
Ending balance	$	1,860	$	1,506	$	1,418

Accrued interest and penalties included in the liability for unrecognized tax benefits was immaterial. The Company expects none of the unrecognized tax benefits will change within the next 12 months related to expired statutes or settlement with the taxing authorities. Under the Company’s accounting policies, the unrecognized tax benefits disclosed above are presented in the financial statements as a reduction to a deferred tax asset.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. With few exceptions, all tax years 2004 through 2015 remain subject to examination by federal and most state tax authorities due to the Company’s net operating loss carryforwards. In the Company’s foreign jurisdictions, all tax years remain subject to examination.

15. EMPLOYEE BENEFITS

The Company has a 401(k) defined contribution plan (the “401(k) Plan”) that covers substantially all domestic employees of the Company. The 401(k) Plan allows employees to contribute gross salary through payroll deductions up to the legally mandated limit. During the year ended December 31, 2015, one of the Company’s domestic subsidiaries provided its employees with a matching contribution. Effective January 1, 2016, the Company will provide a matching contribution to all qualified domestic employees. The Company also contributes to various retirement plans for its employees outside the United States. The Company contributed $0.5 million, $0.2 million and $0.1 million to its various retirement plans for the years ended December 31, 2015, 2014 and 2013, respectively.

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16. SELECTED QUARTERLY INFORMATION (UNAUDITED)

The following table sets forth certain unaudited quarterly results of operations of the Company for the years ended December 31, 2015 and 2014. In the opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements and all recurring adjustments necessary have been included in the amounts stated below to present fairly the quarterly information when read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The quarterly operating results are not necessarily indicative of future results of operations.

	2015
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Revenue	$	50,276	$	53,858	$	57,582	$	75,563
Gross profit		35,233		37,571		40,686		56,324
(Loss) income from operations		(11,163)		(20,150)		(11,731)		379
(Loss) income before income taxes		(10,875)		(19,968)		(11,654)		664
Net (loss) income		(5,280)		(20,107)		(12,037)		423
Net loss attributable to noncontrolling interest		(58)		(86)		(118)		(102)
Net loss (income) attributable to Demandware		(5,222)		(20,021)		(11,919)		525
Basic (net loss) earnings per share attributable to Demandware	$	(0.15)	$	(0.56)	$	(0.33)	$	0.01
Diluted (net loss) earnings per share attributable to Demandware	$	(0.15)	$	(0.56)	$	(0.33)	$	0.01

	2014
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Revenue	$	32,574	$	36,746	$	38,731	$	52,502
Gross profit		23,666		26,741		27,946		40,152
Loss from operations		(8,100)		(8,364)		(5,147)		(6,181)
Loss before income taxes		(8,098)		(8,297)		(6,150)		(6,565)
Net loss		(8,363)		(8,524)		(6,349)		(3,824)
Net loss attributable to noncontrolling interest		0		0		0		(7)
Net loss attributable to Demandware		(8,363)		(8,524)		(6,349)		(3,817)
Basic net loss per share attributable to Demandware	$	(0.24)	$	(0.25)	$	(0.18)	$	(0.11)
Diluted net loss per share attributable to Demandware	$	(0.24)	$	(0.25)	$	(0.18)	$	(0.11)

26

EX-99.3

Exhibit 99.3

salesforce.com, inc.

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following unaudited pro forma combined financial information are based on the historical financial statements of salesforce.com, inc. (the “Company”) and Demandware, Inc. (“Demandware”) after giving effect to the Company’s acquisition of Demandware on July 11, 2016 and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma combined financial information.

The unaudited pro forma combined statements of operations for the six months ended July 31, 2016, and year ended January 31, 2016, are presented as if the acquisition of Demandware had occurred on February 1, 2015 and were carried forward through each of the aforementioned periods presented.

A pro forma balance sheet as of July 31, 2016 is not required as the Company’s balance sheet as of July 31, 2016 included in the Form 10-Q for the quarter ending July 31, 2016 reflects the impact of the acquisition.

The preliminary allocation of the purchase consideration used in the unaudited pro forma combined financial information is based upon preliminary estimates. These preliminary estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuations of the tangible assets, liabilities assumed, identifiable intangible assets and related income tax impacts in connection with the acquisition of Demandware.

The unaudited pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The unaudited pro forma combined financial information does not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies.

The unaudited pro forma combined financial information should be read in conjunction with the historical consolidated financial statements and accompanying notes of the Company included in the Annual Report on Form 10-K for the fiscal year ended January 31, 2016 and the Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2016 and of Demandware’s financial statements included in this Form 8-K/A for the year ended December 31, 2015 and the six months ended June 30, 2016.

salesforce.com, inc.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the Six Months Ended July 31, 2016

	Historical
	Six Months Ended
	July 31, 2016			June 30, 2016			Pro Forma Adjustments (Note 4)
	salesforce.com			Demandware (Note 1)							Pro Forma Combined
(in thousands, except per share data)
Revenues:
Subscription and support	$	3,661,573		$	117,080		$	(60,531	)	(A)(G)(I)	$	3,718,122
Professional services and other	291,648			23,264			(1,643		)	(I)	313,269
Total revenues	3,953,221			140,344			(62,174		)		4,031,391
Cost of revenues:
Subscription and support	696,771			24,849			12,411			(B)(C)(E)(G)(I)	734,031
Professional services and other	325,789			17,425			(1,635		)	(B)(G)(I)	341,579
Total cost of revenues	1,022,560			42,274			10,776				1,075,610
Gross profit	2,930,661			98,070			(72,950		)		2,955,781
Operating expenses:
Research and development	552,476			39,679			(4,677		)	(B)(G)(I)	587,478
Marketing and sales	1,830,791			60,267			37,878			(B)(C)(G)(I)	1,928,936
General and administrative	462,857			29,369			(28,433		)	(B)(D)(E)(G)(H)(I)	463,793
Total operating expenses	2,846,124			129,315			4,768				2,980,207
Income (loss) from operations	84,537			(31,245		)	(77,718		)		(24,426		)
Investment income	20,038			444			0				20,482
Interest expense	(42,719		)	0			(5,042		)	(F)(I)	(47,761		)
Other income (expense)	(13,282		)	54			(272		)	(I)	(13,500		)
Gain on sales of strategic investments	12,864			0			0				12,864
Income (loss) before benefit from (provision for) income taxes	61,438			(30,747		)	(83,032		)		(52,341		)
Benefit from (provision for) income taxes	206,943			(854		)	(264,691		)	(J)	(58,602		)
Net income (loss)	$	268,381		$	(31,601	)	$	(347,723	)		$	(110,943	)
Less: Net loss attributable to noncontrolling interest	0			(258		)	258				0
Less: Redeemable noncontrolling interest adjustment to redemption value	0			138			$	(138	)		0
Net income (loss) attributable to Company	$	268,381		$	(31,481	)	$	(347,843	)		$	(110,943	)
Basic net income (loss) per share	$	0.40		$	(0.86	)					$	(0.16	)
Diluted net income (loss) per share	$	0.39		$	(0.86	)					$	(0.16	)
Shares used in computing basic net income (loss) per share	678,929			36,517							678,929
Shares used in computing diluted net income (loss) per share	691,714			36,517							691,714
Amounts include amortization of purchased intangibles from business combinations, as follows (C)(I):
Cost of revenues	$	47,759		$	2,346		$	14,529			$	64,634
Marketing and sales	38,537			245			42,462				81,244
Other non-operating expense	1,348			0			0				1,348
Amounts include stock-based expenses, as follows (B)(I):
Cost of revenues	$	50,129		$	2,471		$	541			$	53,141
Research and development	73,792			6,841			(1,835		)		78,798
Marketing and sales	181,797			6,097			(375		)		187,519
General and administrative	65,511			5,034			(2,425		)		68,120

1

salesforce.com, inc.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the Year Ended January 31, 2016

	Historical
	Year Ended
	January 31, 2016			December 31, 2015			Pro Forma Adjustments (Note 4)
	salesforce.com			Demandware (Note 1)							Pro Forma Combined
(in thousands, except per share data)
Revenues:
Subscription and support	$	6,205,599		$	200,952		$	(90,960	)	(A)(G)	$	6,315,591
Professional services and other	461,617			36,327			0				497,944
Total revenues	6,667,216			237,279			(90,960		)		6,813,535
Cost of revenues:
Subscription and support	1,188,967			40,166			39,306			(B)(C)(E)(G)	1,268,439
Professional services and other	465,581			27,299			2,182			(B)(G)	495,062
Total cost of revenues	1,654,548			67,465			41,488				1,763,501
Gross profit	5,012,668			169,814			(132,448		)		5,050,034
Operating expenses:
Research and development	946,300			65,342			1,471			(B)(G)	1,013,113
Marketing and sales	3,239,824			100,865			106,475			(B)(C)(G)	3,447,164
General and administrative	748,238			46,272			(8,414		)	(B)(E)(G)(H)	786,096
Operating lease termination resulting from purchase of 50 Fremont	(36,617		)	0			0				(36,617		)
Total operating expenses	4,897,745			212,479			99,532				5,209,756
Income (loss) from operations	114,923			(42,665		)	(231,980		)		(159,722		)
Investment income	15,341			437			0				15,778
Interest expense	(72,485		)	0			(10,000		)	(F)	(82,485		)
Other income (expense)	(15,292		)	395			0				(14,897		)
Gain on sales of land and building improvements	21,792			0			0				21,792
Income (loss) before benefit from (provision for) income taxes	64,279			(41,833		)	(241,980		)		(219,534		)
Benefit from (provision for) income taxes	(111,705		)	4,832			12,961			(J)	(93,912		)
Net loss	$	(47,426	)	$	(37,001	)	$	(229,019	)		$	(313,446	)
Less: Net loss attributable to noncontrolling interest	0			(364		)	364				0
Net loss attributable to Company	$	(47,426	)	$	(36,637	)	$	(229,383	)		$	(313,446	)
Basic net loss per share	$	(0.07	)	$	(1.02	)					$	(0.47	)
Diluted net loss per share	$	(0.07	)	$	(1.02	)					$	(0.47	)
Shares used in computing basic net loss per share	661,647			35,793							661,647
Shares used in computing diluted net loss per share	661,647			35,793							661,647
Amounts include amortization of purchased intangibles from business combinations, as follows (C):
Cost of revenues	$	80,918		$	4,527		$	35,973			$	121,418
Marketing and sales	77,152			467			102,030				179,649
Other non-operating expense	3,636			0			0				3,636
Amounts include stock-based expenses, as follows (B):
Cost of revenues	$	69,443		$	4,160		$	4,266			$	77,869
Research and development	129,434			11,867			1,792				143,093
Marketing and sales	289,152			11,254			4,746				305,152
General and administrative	105,599			9,439			(2,599		)		112,439

2

salesforce.com, inc.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

1. BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma combined statements of operations for the six months ended July 31, 2016, and for the year ended January 31, 2016, are based on the historical financial statements of salesforce.com, inc. (the “Company”) and Demandware, Inc. (“Demandware”) after giving effect to the Company’s acquisition of Demandware on July 11, 2016 and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma combined financial information.

The historical consolidated financial statements have been adjusted in the unaudited pro forma combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma combined statements of operations, expected to have a continuing impact on the combined results following the business combination.

The Company accounts for business combinations pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). In accordance with ASC 805, the Company uses its best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed and the related income tax impacts as of the acquisition date. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed.

The fair values assigned to Demandware’s tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of these assets acquired and liabilities assumed are considered preliminary and are based on the information that was available as of the date of the acquisition. The preliminary estimated fair values of assets acquired and liabilities assumed, including current and noncurrent income taxes payable and deferred taxes, and identifiable intangible assets may be subject to change as additional information is received and certain tax returns finalized. Thus the provisional measurements of fair value are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

The unaudited pro forma financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on February 1, 2015. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma combined financial information does not reflect any operating efficiencies or cost savings that the Company may achieve.

The unaudited pro forma combined financial information should be read in conjunction with the Company’s historical consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended January 31, 2016 and Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2016 and Demandware’s historical consolidated financial statements and accompanying notes included in the Form 8-K/A for the year ended December 31, 2015 and the six months ended June 30, 2016.

Accounting Periods Presented

Demandware’s historical fiscal year ends on December 31 and, for purposes of the unaudited pro forma combined financial information, its historical results have been aligned to more closely conform to the Company’s January 31 fiscal year end as explained below.

The unaudited pro forma combined statements of operations of the Company and Demandware for the six months ended July 31, 2016 and year ended January 31, 2016 are presented as if the Demandware acquisition had taken place on February 1, 2015. Due to different fiscal period ends, the pro forma statement of operations for the six months ended July 31, 2016 combines the historical results of the Company for the six months ended July 31, 2016 and the historical results of Demandware for the six months ended June 30, 2016. The pro forma statement of operations for the year ended January 31, 2016, due to different fiscal period ends, combines the historical results of the Company for the year ended January 31, 2016 and the historical results of Demandware for the year ended December 31, 2015.

3

A pro forma combined balance sheet as of July 31, 2016 is not required as the Company’s balance sheet as of July 31, 2016 included in the Company's Form 10-Q for the period ended July 31, 2016 reflects the effect of the acquisition.

Reclassifications

No reclassifications were required to the presentation of Demandware’s historical financial statements in order to conform to the Company’s presentation.

2. ACQUISITION OF DEMANDWARE, INC.

On July 11, 2016, the Company acquired for cash the outstanding stock of Demandware, an industry-leading provider of enterprise cloud commerce solutions in the digital commerce market. The Company acquired Demandware to, among other things, expand the Company's position in customer relationship management and to pursue the digital commerce market segment with the new Salesforce Commerce Cloud. The Company has included the financial results of Demandware in the consolidated financial statements from the date of the acquisition. The transaction costs associated with the acquisition were $15.5 million and are recorded in General and administrative expense. The preliminary acquisition date fair value of the consideration transferred for Demandware was approximately $2.9 billion, including the proceeds from the term loan of $500.0 million (see Note 3), which consisted of the following (in thousands):

	Fair Value
Cash	$	2,920,336
Fair value of stock options and restricted stock awards assumed	9,344
Total	$	2,929,680

The preliminary estimated fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. The share conversion ratio of 0.9545 was applied to convert Demandware’s outstanding equity awards for Demandware’s common stock into equity awards for shares of the Company’s common stock.

The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

	Fair Value
Cash and cash equivalents	$	139,259
Marketable securities	37,230
Accounts receivable	56,982
Other current assets	13,631
Customer contract asset, current and noncurrent	716,056
Intangible assets	800,287
Property and equipment	29,463
Other noncurrent assets	4,579
Goodwill	1,884,886
Accounts payable, accrued expenses and other liabilities	(52,595		)
Deferred revenue, current and noncurrent	(22,709		)
Customer contract liability, current and noncurrent	(393,911		)
Other liabilities, noncurrent	(11,967		)
Deferred tax liability	(271,511		)
Net assets acquired	$	2,929,680

The excess of preliminary purchase consideration over the preliminary fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The preliminary fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The deferred tax liability established was primarily a result of the difference in the book basis and tax basis related to the identifiable intangible assets. The preliminary estimated fair values of assets acquired and liabilities assumed, including current and noncurrent income taxes payable and deferred taxes, customer contract assets and liabilities and identifiable intangible assets may be subject to change as additional information is received and certain tax returns are finalized. Thus, the provisional measurements of fair value set

4

forth above are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

The following table sets forth the components of identifiable intangible assets acquired (in thousands) and their preliminary estimated useful lives as of the date of acquisition:

	Fair Value		Useful Life
Developed technology	$	240,760	2 to 6 years
Customer relationships	547,370		3 to 6 years
Other purchased intangible assets	12,157		1 to 10 years
Total intangible assets subject to amortization	$	800,287

Developed technology represents the preliminary estimated fair value of Demandware’s e-commerce technology. Customer relationships represent the preliminary estimated fair values of the underlying relationships with Demandware customers. The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities when integrating Demandware’s e-commerce technology with the Company’s other offerings. The majority of the goodwill balance is not deductible for U.S. income tax purposes.

The Company assumed unvested options and restricted stock with a preliminary estimated fair value of $135.2 million. Of the total consideration, $9.3 million was preliminarily allocated to the purchase consideration and $125.9 million was preliminarily allocated to future services and will be expensed over the remaining service periods on a straight-line basis.

3. DEBT

Term Loan

In July 2016, the Company entered into a credit agreement (the “Term Loan Credit Agreement”) with Bank of America, N.A. and certain other institutional lenders for a $500.0 million term loan facility (the “Term Loan”) that matures on July 11, 2019. The Term Loan will bear interest, at the Company’s option, at either a base rate plus a spread of 0.00% to 0.75% or an adjusted LIBOR rate plus a spread of 1.00% to 1.75%, in each case with such spread being determined based on the Company’s consolidated leverage ratio for the preceding four fiscal quarter period.

In July 2016, the Company borrowed the full $500.0 million under the Term Loan. All of the net proceeds of the Term Loan were for the purposes of partially funding the acquisition of Demandware.

Interest is due and payable in arrears quarterly for loans bearing interest at a rate based on the base rate and at the end of an interest period in the case of loans bearing interest at the adjusted LIBOR rate.

All outstanding amounts under the Term Loan Credit Agreement will be due and payable on July 11, 2019. The Company may prepay the Term Loan, in whole or in part, at any time without premium or penalty, subject to certain conditions, and amounts repaid or prepaid may not be reborrowed. The Company’s obligations under the Term Loan Credit Agreement are required to be guaranteed by certain of its subsidiaries meeting certain thresholds set forth in the Term Loan Credit Agreement.

The Term Loan Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends or make distributions and repurchase stock. The Company is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio. The Term Loan Credit Agreement includes customary events of default. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Term Loan Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts. The occurrence of an event of default could result in the acceleration of obligations under the Term Loan Credit Agreement. The Company was in compliance with the Term Loan Credit Agreement’s covenants as of July 31, 2016.

The weighted average interest rate on the Term Loan was 2.0% as of July 31, 2016. Accrued interest on the Term Loan was $0.6 million as of July 31, 2016. As of July 31, 2016, the noncurrent outstanding portion was $500.0 million.

5

4. PRO FORMA ADJUSTMENTS

The following pro forma adjustments are included in the Company’s unaudited pro forma combined financial information:

(A) To record a reduction in revenues related to the estimated fair value of the acquired deferred revenue and the customer liability. The difference between the preliminary fair values of acquired deferred revenues, representing amounts equivalent to the estimated costs plus an appropriate profit margin to fulfill the obligations assumed, and the historical carrying amounts of Demandware’s deferred revenues results in a discount to the recorded deferred revenue and is therefore subsequently recognized as a reduction to revenues.

		Six Months Ended July 31, 2016			Fiscal Year Ended January 31, 2016
in thousands
Subscription and support		$	(52,396	)	$	(89,930	)
	Total reduction to revenue	$	(52,396	)	$	(89,930	)

(B) To record the estimated stock-based expense related to the unvested portion of Demandware stock options and restricted stock-based awards assumed in connection with the acquisition using the straight-line amortization method over the remaining vesting periods.

		Six Months Ended July 31, 2016
in thousands		Demandware Historical Stock-based expense		Stock-based expense Based Upon Preliminary Fair Values		Increase (decrease) in Stock-based expense
Cost of revenues:
Subscription and support		$	554	$	1,144	$	590
Professional services and other		1,917		2,401		484
Research and development		6,841		5,768		(1,073		)
Marketing and sales		6,097		6,632		535
General and administrative		5,034		2,992		(2,042		)
	Total stock-based expense	$	20,443	$	18,937	$	(1,506	)

		Fiscal Year Ended January 31, 2016
in thousands		Demandware Historical Stock-based expense		Stock-based expense Based Upon Preliminary Fair Values		Increase (decrease) in Stock-based expense
Cost of revenues:
Subscription and support		$	985	$	2,947	$	1,962
Professional services and other		3,175		5,479		2,304
Research and development		11,867		13,659		1,792
Marketing and sales		11,254		16,000		4,746
General and administrative		9,439		6,840		(2,599		)
	Total stock-based expense	$	36,720	$	44,925	$	8,205

6

(C) To record the estimated amortization expense related to the intangible assets acquired in connection with the Company’s acquisition of Demandware.

		Six Months Ended July 31, 2016
in thousands		Demandware Historical Amortization Expense		Amortization Expense Based Upon Preliminary Fair Values		Increase in Amortization Expense
Cost of revenues:
Subscription and support		$	2,346	$	20,250	$	17,904
Marketing and sales		245		51,248		51,003
	Amortization expense	$	2,591	$	71,498	$	68,907

		Fiscal Year Ended January 31, 2016
in thousands		Demandware Historical Amortization Expense		Amortization Expense Based Upon Preliminary Fair Values		Increase in Amortization Expense
Cost of revenues:
Subscription and support		$	4,527	$	40,500	$	35,973
Marketing and sales		467		102,497		102,030
	Amortization expense	$	4,994	$	142,997	$	138,003

(D) To eliminate acquisition related transaction costs of $4.3 million and $15.5 million that were incurred by Demandware and the Company in the six months ended June 30, 2016 and July 31, 2016, respectively.

(E) To record the decrease in depreciation expense as a result of adjusting Demandware's property, plant and equipment, net to fair value.

		Six Months Ended			Year Ended
in thousands		July 31, 2016			January 31, 2016
Cost of revenues:
Subscription and support		$	755		$	1,511
General and administrative		(2,872		)	(5,745		)
	Decrease in Depreciation expense	$	(2,117	)	$	(4,234	)

(F) To record interest expense associated with the issuance of the Term Loan to finance a portion of the purchase consideration exchanged using the effective interest rate at the time of acquisition.

in thousands	Par Value		Effective Annual Interest Rate		Increase in Interest Expense for Six Months Ended July 31, 2016		Increase in Interest Expense for Fiscal Year Ended January 31, 2016
Three-year term loan	$	500,000	2.00	%	$	5,000	$	10,000

(G) To eliminate revenues, corresponding expenses and other operating expenses between the Company and Demandware for the periods presented.

(H) To record the amortization of the favorable lease contract asset established upon purchase accounting. The asset represents the difference between the fair value and minimum lease obligations under outstanding leases acquired from Demandware.

7

in thousands	Six Months Ended July 31, 2016		Fiscal Year Ended January 31, 2016
Amortization of favorable lease contract	$	40	$	80

(I) To eliminate Demandware's results included in the Company’s results for the period from the acquisition date of July 11, 2016 to July 31, 2016.

(J) The following table presents pro forma income tax adjustments to the periods presented. An adjustment was recorded to exclude the partial release of the Company's valuation allowance recorded in the Company's second quarter ended July 31, 2016 from the pro forma statement of operations for the six months ended July 2016, as this was a material nonrecurring credit that resulted directly from the acquisition of Demandware. Other income tax adjustments were made to reflect the tax impact associated with the pro forma condensed combined statement of operations.

in thousands	Six Months Ended July 31, 2016			Fiscal Year Ended January 31, 2016
Tax adjustment to exclude the benefit related to valuation allowance change	$	(265,673	)	$	0
Other proforma income tax adjustments	982			12,961
Pro forma adjustment to (increase) decrease (provision) benefit from income taxes	$	(264,691	)	$	12,961

5. PRO FORMA EARNINGS (LOSS) PER SHARE

The pro forma basic and diluted earnings (loss) per share amounts presented in the unaudited pro forma combined statements of operations are based upon the weighted average number of the Company’s common shares outstanding. Our acquisition of Demandware had no effect to our basic weighted average common shares outstanding calculations for the unaudited pro forma combined statements of operations periods presented.

8