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Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Based on intangible assets recorded as of December 31, 2011 and assuming no subsequent additions or impairment of underlying assets, the
remaining estimated annual amortization expense is expected to be as follows (table in thousands):
G. Property and Equipment, Net
Property and equipment, net, as of December 31, 2011 and 2010 consisted of the following (table in thousands):
Depreciation expense was $126.3 million , $114.2 million and $102.3 million in the years ended December 31, 2011 , 2010 and 2009 ,
respectively.
In the year ended December 31, 2011 , VMware purchased all of the right, title and interest in a ground lease covering the property and
improvements located adjacent to VMware’s existing Palo Alto, California campus for $225.0 million . Based upon the respective fair values,
$73.9 million
of the purchase price was recorded to property and equipment, net on the consolidated balance sheet representing the estimated fair
value of the buildings and site improvements. The remaining $151.1 million of the $225.0 million purchase price was for the fair value of the
ground lease and the right to develop additional square footage on the parcel. The long-term portion of $146.8 million
was recorded to intangible
assets, net with the remainder recorded to other current assets, on the consolidated balance sheet. As of December 31, 2011 , construction in
progress was primarily buildings and site improvements related to VMware's campus expansion that had not been placed into service.
Concurrent with the closing of the transaction, VMware entered into an amended and restated ground lease for the new property with the
Board of Trustees of the Leland Stanford Junior University (“Stanford”), the lessor of both the new property and VMware’s existing campus.
VMware will possess the title to the interest and buildings during the duration of the lease. Upon termination of the lease, all title will revert to
Stanford. The $73.9 million
of buildings and site improvements will be depreciated from the date they are placed into service through the term of
the amended and restated ground lease. The $151.1 million of intangible assets will amortize through 2046 . At the closing, VMware also
entered into an amendment to the ground lease for its existing campus so that the terms of both leases will be 34 years and 11 months from the
closing of the purchase agreement.
Annual rent payments to Stanford for the new property will initially be approximately $6.8 million , and will increase by 3% annually.
VMware is also responsible for paying all taxes, insurance and other expenses necessary to operate the parcel. Additional rent of approximately
$1.1 million per year will become payable in connection with the effectiveness of a right to construct further improvements on the parcel, which
is currently expected to begin no earlier than the first quarter of 2014 . Such additional rent would subsequently increase by 2% annually.
78
2012
$
75,253
2013
58,194
2014
50,690
2015
41,128
2016
26,350
Thereafter
155,760
Total
$
407,375
December 31,
2011
2010
Equipment and software
$
512,754
$
438,384
Buildings and improvements
340,596
270,786
Furniture and fixtures
61,023
52,613
Construction in progress
68,707
3,082
Total property and equipment
983,080
764,865
Accumulated depreciation
(457,590
)
(345,800
)
Total property and equipment, net
$
525,490
$
419,065