Table of Contents WEWORK COMPANIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2019 (UNAUDITED) activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. The Creator Fund, WeWork Waller Creek, ChinaCo, JapanCo, PacificCo and 424 Fifth Venture (each as defined and discussed in Note 7) are the Company’s only consolidated VIEs as of June 30, 2019. See Note 11 for discussion of the Company’s non-consolidated VIEs. A noncontrolling interest in a consolidated subsidiary represents the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. Noncontrolling interests are presented as a separate component of equity in the condensed consolidated balance sheets and the presentation of net income is modified to present earnings and other comprehensive income attributed to controlling and noncontrolling interests. The Company’s convertible preferred stock and noncontrolling interests that are redeemable upon the occurrence of an event that is not solely within the control of the Company are classified outside of permanent equity. As it is not probable that amounts will become redeemable, no remeasurement is required. The Company will continue to monitor the probability of redemption. The Company’s noncontrolling interests represent substantive profit-sharing arrangements and profits and losses are attributed to the controlling and noncontrolling interests using the hypothetical-liquidation-at-book-value method. Unaudited Pro Forma Balance Sheet Information—In connection with a qualifying initial public offering, as described in Note 18, (i) all outstanding convertible preferred stock other than the Junior Preferred Stock will automatically convert into shares of Class A common stock, (ii) all shares of Junior Preferred Stock will automatically convert into shares of Class B common stock (iii) the Convertible Note and the Amended 2018 warrant, both as defined in Note 13 would have automatically converted into shares of Class A common stock, if not earlier converted in July 2019 as discussed in Note 25 and (iv) the convertible note discussed in Note 18 will automatically ultimately convert to Class A common stock. The unaudited pro forma balance sheet information gives effect to the conversion of the convertible preferred stock, the convertible notes and the warrant as of June 30, 2019. Additionally, as described in Note 20, we granted restricted stock units (“RSUs”) and stock options to employees which included both service-based and performance conditions to vest in the underlying common stock. Certain of the stock options, also include additional market-based conditions. The performance condition is satisfied on either: (i) a change in control event, such as a sale of all or substantially all of our assets or a merger involving the sale of a majority of the outstanding shares of our voting capital stock, or (ii) the effective date of our registration statement in connection with a qualifying initial public offering. We expect to record stock-based compensation expense related to the vesting of RSUs and stock options on the effective date of our initial public offering. Accordingly, the unaudited pro forma balance sheet information at June 30, 2019 gives effect to stock-based compensation expense of approximately $55.3 million associated with these RSUs and stock options, for which the portion of the service period had been rendered as of June 30, 2019 but for which vesting is also contingent upon our initial public offering. This pro forma adjustment related to stock-based compensation expense of approximately $55.3 million has been reflected as an increase to additional paid-in capital and accumulated deficit. Use of Estimates—The preparation of the condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Reclassifications—Certain reclassifications have been made to prior years’ financial information to conform to the current year presentation. Restricted Cash—Restricted cash consists primarily of amounts provided to banks to secure letters of credit issued under the Company’s amended and restated credit agreements as required by various leases. F-76