VMware 2012 Annual Report Download - page 89

Table of Contents VMware, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the fair value of the forward contracts are reported in other income (expense), net in the consolidated statements of income. The gains and losses
on VMware’s foreign currency forward contracts generally offset the majority of the gains and losses associated with the underlying foreign-
currency denominated assets and liabilities that VMware hedges.
VMware’s foreign currency forward contracts are generally traded on a monthly basis with a typical contractual term of one month. As of
December 31, 2012 and 2011 , VMware had outstanding forward contracts with a total notional value of $439.8 million and $324.1 million ,
respectively. The fair value of these forward contracts was immaterial as of December 31, 2012 and 2011 and therefore excluded from the fair
value tables above.
G. Property and Equipment, Net
Property and equipment, net, as of December 31, 2012 and 2011 consisted of the following (table in thousands):
Depreciation expense was $130.9 million , $126.3 million and $114.2 million in the years ended December 31, 2012 , 2011 and 2010 ,
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.
Concurrent with the closing of the transaction, VMware entered into an amended and restated ground lease for the new property which
expires in 2046 . VMware will possess the title to the interest and buildings during the duration of the lease. Upon termination of the lease, title
will revert to the lessor. The $73.9 million of buildings and site improvements began depreciating and the $151.1 million of intangible assets
began amortizing from the date they were placed into service through 2046 . 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 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.
As of December 31, 2012 and December 31, 2011 , construction in progress primarily represented buildings and site improvements related
to VMware’s Palo Alto campus expansion that had not yet been placed into service.
H. Accrued Expenses and Other
Accrued expenses and other as of December 31, 2012 and 2011 consisted of the following (table in thousands):
84
December 31,
2012
2011
Equipment and software
$
636,495
$
512,754
Buildings and improvements
438,340
340,596
Furniture and fixtures
67,175
61,023
Construction in progress
97,016
68,707
Total property and equipment
1,239,026
983,080
Accumulated depreciation
(574,357
)
(457,590
)
Total property and equipment, net
$
664,669
$
525,490
December 31,
2012
2011
Salaries, commissions, bonuses, and benefits
$
292,243
$
287,248
Accrued partner liabilities
128,866
124,359
Other
253,637
176,043
Total
$
674,746
$
587,650