Table of Contents WEWORK COMPANIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2018 impaired. The quantitative impairment test is prepared at the reporting unit level. In performing the impairment test, management compares the estimated fair values of the applicable reporting units to their aggregate carrying values, including goodwill. If the carrying amounts of a reporting unit including goodwill were to exceed the fair value of the reporting unit, an impairment loss is recognized within our consolidated statements of operations in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The process of evaluating goodwill for impairment requires judgments and assumptions to be made to determine the fair value of the reporting unit, including discounted cash flow calculations, assumptions market participants would make in valuing each reporting unit and the level of the Company’s own share price. Intangible Assets, net—The Company capitalizes purchased software and computer software development costs for internal use when the amounts have a useful life or contractual term greater than twelve months. Purchased software consists of software products and licenses which are amortized over the lesser of their estimated useful life or the contractual term. Internally developed software costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external direct costs of the development are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of substantially all testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable that the expenditure will result in additional functionality. Internal use software is amortized on a straight-line basis over its estimated useful life, generally three years. Maintenance and training costs are expensed as incurred. Acquired intangible assets are carried at cost and finite-lived intangible asset are amortized on a straight-line basis over their estimated useful lives. We determine the appropriate useful life of our intangible assets by measuring the expected cash flows of acquired assets. The useful life of the Company’s finite-lived intangible assets range from one to ten years. The Company tests goodwill and indefinite-lived intangible asset balances for impairment annually in the fourth quarter of each year as of October 1, or more frequently if circumstances indicate that the value of goodwill may be impaired. Management has concluded there was no goodwill or indefinite-lived intangible asset impairment during the years ended December 31, 2016, 2017 and 2018. Impairment of Long-Lived Assets—Long-lived assets, including property and equipment, capitalized software, and other finite-lived intangible assets, are evaluated for recoverability when events or changes in circumstances indicate that the asset may have been impaired. In evaluating an asset for recoverability, the Company considers the future cash flows expected to result from the continued use of the asset and the eventual disposition of the asset. If the sum of the expected future cash flows, on an undiscounted basis, is less than the carrying amount of the asset, an impairment loss equal to the excess of the carrying amount over the fair value of the asset is recognized. During the years ended December 31, 2017 and 2018, the Company recorded $6.8 million and $29.6 million, respectively, in impairment charges and property and equipment write-offs relating to excess, obsolete, or slow- moving inventory of furniture and equipment, early termination of leases and dead deals. The impairment expense is included as a component of growth and new market development expenses in the accompanying consolidated statements of operations. There were no impairment charges recognized for the year ended December 31, 2016. Deferred Financing Costs—Deferred financing costs consist of fees and costs incurred to obtain financing. Such costs are capitalized and amortized as interest expense using the effective interest method, over the term of the related loan. As of December 31, 2016, 2017, and 2018, the Company recorded $3.8 million, $6.2 million and $10.7 million, respectively, of deferred financing costs, net of accumulated amortization, in other assets in the accompanying consolidated balance sheets related to the Company’s credit agreements (see Note 23). As of December 31, 2018, the Company has also recorded $16.2 million of unamortized deferred financing costs as a reduction to the long-term debt, net discussed in Note 12. For the years ended December 31, 2016, 2017 and 2018, the Company recognized $0.8 million, $1.2 million and $3.2 million, respectively, in interest expense, relating to the amortization of deferred financing costs. F-15