VMware 2009 Annual Report Download - page 89

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Table of Contents
VMWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In the first quarter of 2009, the Company occupied the completed portions of the Washington data center facility and construction was
completed on the Company’s headquarters facilities. The related costs for each were transferred from construction in progress to the appropriate
asset categories. As of December 31, 2008, construction was still in process on these facilities.
Depreciation expense was $102.3 million, $89.5 million and $41.9 million in the years ended December 31, 2009, 2008 and 2007,
respectively.
In conjunction with the completion of portions of its Washington data center facility, VMware increased the estimated useful lives of
certain fixed assets from 3 to 5 years during the second quarter of 2009. This change in estimate was prospectively applied beginning on April 1,
2009. In the year ended December 31, 2009, this change in estimate reduced depreciation expense by $10.7 million. After considering the tax
effect on the reduction in depreciation expense, there was a $0.02 impact on basic and diluted earnings per share in the year ended December 31,
2009. In the second quarter of 2008, VMware increased the estimated useful lives of computers and other related equipment from 2 years to 3
years to match the length of the related warranty contracts. In the year ended December 31, 2008, these changes in estimates reduced
depreciation expense by $10.4 million and increased both basic and diluted earnings per share by $0.02, from what would have been reported
otherwise in the year ended December 31, 2008. VMware reviewed and revised the useful lives of these fixed assets in 2009 and 2008 after
considering (i) the estimated future benefits the Company expects to receive from those assets, (ii) the pattern of consumption of those benefits
and (iii) the information available regarding those benefits.
In August 2007, VMware used a portion of the net IPO proceeds to purchase its new headquarters facilities from EMC for $132.6 million.
F. Accrued Expenses
Accrued expenses as of December 31, 2009 and 2008 consist of the following (table in thousands):
Accrued partner liabilities relate to rebates and marketing development fund accruals for channel partners, x86 system vendors, and system
integrators, as well as accrued royalties.
G. Note Payable to EMC
In April 2007, VMware declared an $800.0 million dividend to EMC paid in the form of a note payable. This dividend was given
retroactive effect as of December 31, 2006. The dividend was first applied against retained earnings until that was reduced to zero, than applied
against additional paid-
in capital until that was reduced to zero, with the remainder then allocated as a further reduction of retained earnings. The
note matures in April 2012, with interest payable quarterly in arrears commencing June 30, 2007. The interest rate resets quarterly and bears an
interest rate of the 90-day LIBOR plus 55 basis points. The weighted-average rate for the years ended December 31, 2009, 2008 and 2007 was
1.45%, 4.14% and 4.22%, respectively. In the years ended
86
December 31,
2009
2008
Salaries, commissions, bonuses, and benefits
$
174,207
$
105,529
Accrued partner liabilities
77,264
52,914
Other
72,590
53,076
Total
$
324,061
$
211,519