EX-99.3 2 d234353dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

Legacy WeWork

Quarterly Report including Condensed Consolidated Financial Statements as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020


Legacy WeWork

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

         Page No.  

Part I - Financial Information

  

Cautionary Note Regarding Forward-Looking Statements

  

Item 1.

  Financial Statements and Supplementary Data   
 

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)

     2  
 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

     4  
 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

     5  
 

Condensed Consolidated Statements of Changes in Convertible Preferred Stock, Noncontrolling Interests and Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

     6  
 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)

     10  
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

     12  
  Supplementary Information      79  
 

Condensed Consolidating Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020

     80  
 

Condensed Consolidating Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

     82  
 

Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)

     86  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      90  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      142  

Part II - Other Information

 

Item 1.

  Legal Proceedings      143  

Item 1A.

  Risk Factors      144  


Part I. Financial Information

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report (this “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to, among other things, the impact of the coronavirus pandemic, including current and newly appearing strains (collectively “COVID-19”) and our response to it, future events and our future business plans, operational and financial metrics (including profitability, liquidity and cash flow), financial condition, results of operations and prospects.

These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or phrases or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry as well as certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in “Risk Factors,” and other cautionary statements included in our Annual Report for the year ended December 31, 2020 and in our Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 10, 2021, in this Quarterly Report and in our other filings with the Securities and Exchange Commission, which you should consider and read carefully.

We operate in a very competitive and rapidly changing environment and have recently undergone significant changes at the executive and board levels and changes in our planned growth trajectory. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report, and our expected future levels of activity and performance, may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. As a result, you should not regard any of these forward-looking statements as a representation or warranty by us or any other person or place undue reliance on any such forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from our expectations. All of our forward-looking statements are qualified by the cautionary statements contained in this section and elsewhere in this Quarterly Report. 

The Company is also supplementing and updating certain risk factors previously disclosed in Part I Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in our Registration Statement on Form S-1, filed with the Securities and Exchange Commission on November 10, 2021. These supplements and updates are included in Part II Item 1A of this Quarterly Report.


Item 1. Financial Statements and Supplementary Data

 

1


LEGACY WEWORK

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

      September 30,      December 31,  

(Amounts in thousands, except share and per share amounts)

   2021      2020  
               

Assets

     

Current assets:

     

Cash and cash equivalents (1)

   $ 477,244    $ 800,535

Accounts receivable and accrued revenue, net of allowance of $77,468 and $107,806 as of September 30, 2021 and December 31, 2020, respectively

     133,695      176,521

Other current assets (including related party amounts of $0 and $780 as of September 30, 2021 and December 31, 2020, respectively)

     402,150      352,172
  

 

 

    

 

 

 

Total current assets

     1,013,089      1,329,228

Property and equipment, net

     5,707,310      6,859,163

Lease right-of-use assets, net

     13,412,306      15,107,880

Restricted cash (1)

     11,275      53,618

Equity method and other investments

     197,942      214,940

Goodwill

     676,932      679,351

Intangible assets, net

     58,257      49,896

Other assets (including related party amounts of $545,180 and $699,478 as of September 30, 2021 and December 31, 2020, respectively)

     878,766      1,062,258
  

 

 

    

 

 

 

Total assets (1)

   $ 21,955,877    $ 25,356,334
  

 

 

    

 

 

 

Liabilities

     

Current liabilities:

     

Accounts payable and accrued expenses (including amounts due to related parties of $76,739 and $14,497 as of September 30, 2021 and December 31, 2020, respectively)

   $ 602,777    $ 723,411

Members’ service retainers

     385,946      358,566

Deferred revenue (including amounts from related parties of $5,771 and $9,717 as of September 30, 2021 and December 31, 2020, respectively)

     134,691      176,004

Current lease obligations (including amounts due to related parties of $22,295 and $10,148 as of September 30, 2021 and December 31, 2020, respectively)

     853,011      847,531

Other current liabilities (including amounts due to related parties of $0 and $900 as of September 30, 2021 and December 31, 2020, respectively)

     437,046      83,755
  

 

 

    

 

 

 

Total current liabilities

     2,413,471      2,189,267

Long-term lease obligations (including amounts due to related parties of $506,746 and $436,074 as of September 30, 2021 and December 31, 2020, respectively)

     18,401,347      20,263,606

Unsecured related party debt

     2,200,000      1,200,000

Convertible related party liabilities, net

     50,482      418,908

Long-term debt, net

     659,379      688,356

Other liabilities

     246,278      221,780
  

 

 

    

 

 

 

Total liabilities (1)

     23,970,957      24,981,917

Commitments and contingencies (Note 16)

     

Convertible preferred stock; 959,370,218 shares authorized as of September 30, 2021, and 499,018,795 and 368,912,507 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

     8,379,182      7,666,098

Redeemable noncontrolling interests

     276,162      380,242
                   

 

2


LEGACY WEWORK

CONDENSED CONSOLIDATED BALANCE SHEETS – (CONTINUED)

(UNAUDITED)

 

      September 30,     December 31,  

(Amounts in thousands, except share and per share amounts)

   2021     2020  
              

Equity

    

Legacy WeWork shareholders’ equity (deficit):

    

Common stock Class A; par value $0.001; 941,647,617 shares authorized as of September 30, 2021, and 176,731,955 and 41,512,605 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

     177     42

Common stock Class B; par value $0.001; 234,910,597 shares authorized as of September 30, 2021 and zero and 129,382,459 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

     —         129

Common stock Class C; par value $0.001; 50,967,800 shares authorized as of September 30, 2021, and 24,132,575 and 25,168,938 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

     24     25

Common stock Class D; par value $0.001; 234,910,597 shares authorized as of September 30, 2021, and zero shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

     —         —    

Additional paid-in capital

     2,776,772     2,188,319

Accumulated other comprehensive income (loss)

     (26,573     (158,810

Accumulated deficit

     (13,427,090     (9,703,490
  

 

 

   

 

 

 

Total Legacy WeWork shareholders’ deficit

     (10,676,690     (7,673,785

Noncontrolling interests

     6,266     1,862
  

 

 

   

 

 

 

Total equity

     (10,670,424     (7,671,923
  

 

 

   

 

 

 

Total liabilities and equity

   $ 21,955,877   $ 25,356,334
  

 

 

   

 

 

 
                  

 

(1)

The Company’s condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). As of September 30, 2021 and December 31, 2020, total assets of consolidated VIEs, after intercompany eliminations, were $2.9 billion and $2.1 billion, respectively, including $100.7 million and $166.6 million of cash and cash equivalents, respectively, and $10.1 million and $10.0 million of restricted cash, respectively. Total liabilities of consolidated VIEs, after intercompany eliminations, were $2.5 billion and $1.7 billion as of September 30, 2021 and December 31, 2020, respectively. Creditors of VIEs do not have recourse against the general credit of the Company, except relating to certain lease guarantees totaling $13.5 million and $14.6 billion as of September 30, 2021 and December 31, 2020, respectively, provided by Legacy WeWork to certain landlords of the VIEs. See Note 5 for additional details.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

                                  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
              

(Amounts in thousands, except share and per share data)

   2021     2020     2021     2020  
                          

Revenue (including related party revenue of $28,496 and $44,906 for the three months and $116,190 and $129,383 for the nine months ended September 30, 2021 and 2020, respectively. See Note 17)

   $ 661,031   $ 810,752   $ 1,852,362   $ 2,749,369
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Location operating expenses—cost of revenue (exclusive of depreciation and amortization of $162,418 and $182,967 for the three months and $508,044 and $534,585 for the nine months ended September 30, 2021 and 2020, respectively, shown separately below)

     752,493     924,363     2,351,305     2,729,165

Pre-opening location expenses

     40,367     60,741     117,206     226,660

Selling, general and administrative expenses(1)

     233,928     387,248     733,430     1,312,349

Restructuring and other related costs

     15,934     18,964     481,979     155,180

Impairment/(gain on sale) of goodwill, intangibles and other assets

     87,541     253,625     629,126     809,584

Depreciation and amortization

     170,816     197,964     535,157     588,120
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses (including related party expenses of $21,209 and $19,772 for the three months and $59,462 and $65,296 for the nine months ended September 30, 2021 and 2020, respectively. See Note 17)

     1,301,079     1,842,905     4,848,203     5,821,058
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (640,048     (1,032,153     (2,995,841     (3,071,689

Interest and other income (expense), net:

        

Income (loss) from equity method and other investments

     5,096     2,526     (19,414     (44,585

Interest expense (including related party expenses of $(103,713) and $(76,498) for the three months and $(288,455) and $(171,530) for the nine months ended September 30, 2021 and 2020, respectively. See Note 9 and Note 17)

     (121,306     (92,956     (339,134     (231,046

Interest income

     5,142     4,151     14,597     12,893

Foreign currency gain (loss)

     (102,859     112,049     (140,784     (37,936

Gain (loss) from change in fair value of related party financial instruments (See Note 9)

     7,462     13,550     (343,360     805,863

Loss on extinguishment of debt

     —         (1,041     —         (77,336
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and other income (expense), net

     (206,465     38,279     (828,095     427,853
  

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax loss

     (846,513     (993,874     (3,823,936     (2,643,836

Income tax benefit (provision)

     2,251     (5,586     (5,031     (21,701
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (844,262     (999,460     (3,828,967     (2,665,537

Net loss attributable to noncontrolling interests:

        

Redeemable noncontrolling interests — mezzanine

     42,130     39,461     106,250     643,224

Noncontrolling interest — equity

     (268     18,736     (883     33,352
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Legacy WeWork

   $ (802,400   $ (941,263   $ (3,723,600   $ (1,988,961
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to Class A and Class B common stockholders (see Note 15):

        

Basic

   $ (4.54   $ (5.51   $ (21.31   $ (11.65
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (4.54   $ (5.51   $ (21.31   $ (11.65
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted

     176,708,911     170,715,288     174,750,082     170,699,512
                                  

 

(1)

Includes cost of revenue in the amount of $28.7 million and $67.1 million for the three months and $61.4 million and $209.6 million for the nine months ended September 30, 2021 and 2020, respectively. Excludes depreciation and amortization of none and none for the three months and none and $0.2 million for the nine months ended September 30, 2021 and 2020, respectively, shown separately below.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

 

                                  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
              

(Amounts in thousands)

   2021     2020     2021     2020  
                          

Net loss

   $ (844,262   $ (999,460   $ (3,828,967   $ (2,665,537

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustments, net of tax of $0 for the three and nine months ended September 30, 2021 and 2020, respectively

     86,424     (75,280     107,007     (8,374

Unrealized (loss) gain on available-for-sale securities, net of tax of $84 and $167 for the three months and $28 and $(829) for the nine months ended September 30, 2021 and 2020, respectively

     (337     (603     (2,600     2,992
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     86,087     (75,883     104,407     (5,382
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (758,175     (1,075,343     (3,724,560     (2,670,919

Net (income) loss attributable to noncontrolling interests

     41,862     58,197     105,367     676,576

Other comprehensive (income) loss attributable to noncontrolling interests

     3,609     (1,809     27,830     (14,113
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to Legacy WeWork

   $ (712,704   $ (1,018,955   $ (3,591,363   $ (2,008,456
  

 

 

   

 

 

   

 

 

   

 

 

 
                                  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK, NONCONTROLLING INTERESTS AND EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

(UNAUDITED)

 

      Convertible      Redeemable  
     Preferred Stock      Noncontrolling  

(Amounts in thousands, except share amounts)

   Shares      Amount      Interests  

Balance—June 30, 2021

     499,018,795    $ 8,379,182    $ 291,901

Issuance of noncontrolling interests

     —          —          30,000

Net income (loss)

     —          —          (42,130

Other comprehensive income (loss), net of tax

     —          —          (3,609
  

 

 

    

 

 

    

 

 

 

Balance—September 30, 2021

     499,018,795    $ 8,379,182    $ 276,162
  

 

 

    

 

 

    

 

 

 
                            

 

      Legacy WeWork Shareholders’ Equity (Deficit)                 

(Amounts in thousands, except
share amounts)

                                     Accumulated                     
   Common Stock      Common Stock      Common Stock      Additional     Other                     
   Class A      Class B      Class C      Paid-In     Comprehensive     Accumulated     Noncontrolling         
   Shares      Amount      Shares      Amount      Shares      Amount      Capital     Income (Loss)     Deficit     Interests      Total  

Balance—June 30, 2021

     176,628,752    $ 177      —        $ —          24,132,575    $ 24    $ 2,775,762   $ (116,269   $ (12,624,690   $ 5,998    $ (9,958,998

Forfeiture of noncontrolling WeWork Partnerships Profits Interest Units in the WeWork Partnership and Common Stock Class C

     —          —          —          —          —          —          —         —         —         —          —    

Issuance of stock for services rendered, net of forfeitures

     —          —          —          —          —          —          1     —         —         —          1

Stock-based compensation

     —          —          —          —          —          —          4,036     —         —         —          4,036

Exercise of stock options

     103,203      —          —          —          —          —          (3,027     —         —         —          (3,027

Cancellation of shares

     —          —          —          —          —          —          —         —         —         —          —    

Exercise of warrants

     —          —          —          —          —          —          —         —         —         —          —    

Net income (loss)

     —          —          —          —          —          —          —         —         (802,400     268      (802,132

Other comprehensive income (loss), net of tax

     —          —          —          —          —          —          —         89,696     —         —          89,696
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance—September 30, 2021

     176,731,955    $ 177      —        $ —        24,132,575    $ 24    $ 2,776,772   $ (26,573   $ (13,427,090   $ 6,266    $ (10,670,424
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
                                                                                                 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK, NONCONTROLLING INTERESTS AND EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

(UNAUDITED)

 

      Convertible      Redeemable  
     Preferred Stock      Noncontrolling  

(Amounts in thousands, except share amounts)

   Shares      Amount      Interests  

Balance—December 31, 2020

     368,912,507    $ 7,666,098    $ 380,242

Issuance of shares in connection with convertible note conversion

     218,369      —          —    

Issuance of noncontrolling interests

     —          —          30,000

Exercise of warrants, net

     129,887,919      713,084      —    

Net income (loss)

     —          —          (106,250

Other comprehensive income (loss), net of tax

     —          —          (27,830
  

 

 

    

 

 

    

 

 

 

Balance—September 30, 2021

     499,018,795    $ 8,379,182    $ 276,162
  

 

 

    

 

 

    

 

 

 

 

      Legacy WeWork Shareholders’ Equity (Deficit)                 

(Amounts in thousands, except
share amounts)

               Accumulated                     
   Common Stock     Common Stock     Common Stock     Additional     Other                     
   Class A     Class B     Class C     Paid-In     Comprehensive     Accumulated     Noncontrolling         
   Shares     Amount     Shares     Amount     Shares     Amount     Capital     Income (Loss)     Deficit     Interests      Total  

Balance—December 31, 2020

     41,512,605   $ 42     129,382,459   $ 129     25,168,938   $ 25   $ 2,188,319   $ (158,810   $ (9,703,490   $ 1,862    $ (7,671,923

Forfeiture of noncontrolling WeWork Partnerships Profits Interest Units in the WeWork Partnership and Common Stock Class C

     —         —         —         —         (1,036,363     (1     1     —         —         —          —    

Issuance of stock for services rendered, net of forfeitures

     —         —         —         —         —         —         (2,142     —         —         —          (2,142

Transfer from Class B to Class A

     129,382,459     129     (129,382,459     (129     —         —         —         —         —         —          —    

Stock-based compensation

     873,142     1     —         —         —         —         163,821     —         —         —          163,822

Exercise of stock options

     5,499,435     5     —         —         —         —         8,683     —         —         —          8,688

Cancellation of shares

     (536,180     (1     —         —         —         —         (10,198     —         —         —          (10,199

Exercise of warrants

     494     1     —         —         —         —         (1     —         —         —          —    

Transaction with principal shareholder

     —         —         —         —         —         —         428,289     —         —         —          428,289

Net income (loss)

     —         —         —         —         —         —         —         —         (3,723,600     883      (3,722,717

Other comprehensive income (loss), net of tax

     —         —         —         —         —         —         —         132,237     —         —          132,237

Other

     —         —         —         —         —         —         —         —         —         3,521      3,521
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance—September 30, 2021

     176,731,955   $ 177     —       $  —         24,132,575   $ 24   $ 2,776,772   $ (26,573   $ (13,427,090   $ 6,266    $ (10,670,424
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
                                                                                           

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK, NONCONTROLLING INTERESTS AND EQUITY

FOR THREE MONTHS ENDED SEPTEMBER 30, 2020

(UNAUDITED)

 

      Convertible      Redeemable  
     Preferred Stock      Noncontrolling  

(Amounts in thousands, except share amounts)

   Shares      Amount      Interests  

Balance—June 30, 2020

     368,881,372    $ 7,665,327    $ 347,900

Issuance of noncontrolling interests

     —          —          99,999

Stock-based compensation

     13,742      771      —    

Acquisition of Noncontrolling interest

     —          —          —    

Exercise of warrants, net

     —          —          —    

Distribution to noncontrolling interests

     —          —          (6,646

Net income (loss)

     —          —          (39,461

Other comprehensive income (loss), net of tax

     —          —          1,809
  

 

 

    

 

 

    

 

 

 

Balance—September 30, 2020

     368,895,114    $ 7,666,098    $ 403,601
  

 

 

    

 

 

    

 

 

 
                            

 

      Legacy WeWork Shareholders’ Equity (Deficit)                

(Amounts in thousands, except
share amounts)

                                                    Accumulated                    
   Common Stock      Common Stock      Common Stock      Additional      Other                    
   Class A      Class B      Class C      Paid-In      Comprehensive     Accumulated     Noncontrolling        
   Shares      Amount      Shares      Amount      Shares      Amount      Capital      Income (Loss)     Deficit     Interests     Total  

Balance—June 30, 2020

     41,365,892    $ 41      129,341,872    $ 129      25,229,393    $ 25    $ 1,825,411    $ 66,012   $ (7,621,830   $ 37,760   $ (5,692,452

Issuance of stock for services rendered, net of forfeitures

     —          —          —          —          —          —          4,126      —         —         991     5,117

Stock-based compensation

     —          —          9,216      —          —          —          8,231      —         —         28     8,259

Exercise of stock options

     5,949      —          6,860      —          —          —          31      —         —         —         31

Settlement of stockholder notes receivable

        —          —          —          —          —          5,527      —         —         —         5,527

Issuance of stock in connection with acquisitions

     129,239      —          —          —          —          —          —          —         —         —         —    

Issuance of noncontrolling interests

     —          —          —          —          —          —          —          —         —         16     16

Deconsolidation of consolidated subsidiaries

     —          —          —          —          —          —          —          —         —         (35,501     (35,501

Transactions with principal shareholder

     —          —          —          —          —          —          21,640      —         —         —         21,640

Net income (loss)

     —          —          —          —          —          —          —          —         (941,263     (18,736     (959,999

Other comprehensive income (loss), net of tax

     —          —          —          —          —          —          —          (77,692     —         —         (77,692
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance—September 30, 2020

     41,501,080    $ 41      129,357,948    $ 129      25,229,393    $ 25    $ 1,864,966    $ (11,680   $ (8,563,093   $ (15,442   $ (6,725,054
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
                                                                                                 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK, NONCONTROLLING INTERESTS AND EQUITY

FOR NINE MONTHS ENDED SEPTEMBER 30, 2020

(UNAUDITED)

 

      Convertible      Redeemable  
     Preferred Stock      Noncontrolling  

(Amounts in thousands, except share amounts)

   Shares      Amount      Interests  

Balance—December 31, 2019

     222,329,647    $ 6,473,604    $ 1,032,080

Issuance of noncontrolling interests

     —          —          100,100

Stock-based compensation

     13,742      1,028      —    

Acquisition of Noncontrolling interest

     34,482,759      280,345      (92,822

Exercise of warrants, net

     112,068,966      911,121      —    

Distribution to noncontrolling interests

     —          —          (6,646

Net income (loss)

     —          —          (643,224

Other comprehensive income (loss), net of tax

     —          —          14,113
  

 

 

    

 

 

    

 

 

 

Balance—September 30, 2020

     368,895,114    $ 7,666,098    $ 403,601
  

 

 

    

 

 

    

 

 

 
                            

 

      Legacy WeWork Shareholders’ Equity (Deficit)                

(Amounts in thousands, except
share amounts)

                                                Accumulated                    
   Common Stock      Common Stock      Common Stock     Additional     Other                    
   Class A      Class B      Class C     Paid-In     Comprehensive     Accumulated     Noncontrolling        
   Shares     Amount      Shares      Amount      Shares     Amount     Capital     Income (Loss)     Deficit     Interests     Total  

Balance—December 31, 2019

     41,304,381   $ 41      129,220,654    $ 129      27,752,323   $ 28   $ 1,879,838   $ (2,611   $ (6,574,322   $ 322,185   $ (4,374,712

Adoption of ASC 326 (Note 2)

     —         —          —          —          —         —         —         —         190     —         190

Forfeiture of noncontrolling WeWork Partnerships Profits Interest Units in the WeWork Partnership and Common Stock Class C

     —         —          —          —          (2,522,930     (3     3     —         —         —         —    

Issuance of stock for services rendered, net of forfeitures

     —         —          —          —          —         —         12,330     —         —         2,858     15,188

Stock-based compensation

     251,324     —          62,048      —          —         —         175,082     —         —         38     175,120

Exercise of stock options

     22,283     —          75,246      —          —         —         156     —         —         —         156

Settlement of stockholder notes receivable (see Note 14)

     (206,147     —          —          —          —         —         16,667     —         —         —         16,667

Issuance of stock in connection with acquisitions

     129,239     —          —          —          —         —         —         —         —         —         —    

Issuance of noncontrolling interests

     —         —          —          —          —         —         —         —         —         544     544

Distributions to noncontrolling interests

     —         —          —          —          —         —         (42,801     —         —         (272,214     (315,015

Deconsolidation of consolidated subsidiaries

     —         —          —          —          —         —         —         —         —         (35,501     (35,501

Acquisition of noncontrolling interest

     —         —          —          —          —         —         (197,949     10,426     —         —         (187,523

Transactions with principal shareholder

     —         —          —          —          —         —         21,640     —         —         —         21,640

Net income (loss)

     —         —          —          —          —         —         —         —         (1,988,961     (33,352     (2,022,313

Other comprehensive income (loss), net of tax

     —         —          —          —          —         —         —         (19,495     —         —         (19,495
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance—September 30, 2020

     41,501,080   $ 41      129,357,948    $ 129      25,229,393   $ 25   $ 1,864,966   $ (11,680   $ (8,563,093   $ (15,442   $ (6,725,054
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                                                                             

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

9


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

      Nine Months Ended
September 30,
 

(Amounts in thousands)

   2021     2020  

Cash Flows from Operating Activities:

    

Net loss

   $ (3,828,967   $ (2,665,537

Adjustments to reconcile net loss to net cash from operating activities:

    

Depreciation and amortization

     535,157     588,120

Impairment of property and equipment

     —         3,541

Impairment/(gain on sale) of goodwill, intangibles and other assets

     629,126     809,584

Non-cash transaction with principal shareholder

     428,289     —    

Loss on extinguishment of debt

     —         77,336

Stock-based compensation expense

     164,023     55,865

Cash paid to settle employee stock awards

     —         (3,141

Issuance of stock for services rendered, net of forfeitures

     (2,272     14,995

Non-cash interest expense

     157,787     119,603

Provision for allowance for doubtful accounts

     20,033     53,549

(Income) loss from equity method and other investments

     19,414     44,585

Distribution of income from equity method and other investments

     3,210     —    

Foreign currency (gain) loss

     140,784     37,936

Change in fair value of financial instruments

     343,360     (805,863

Contingent consideration fair market value adjustment

     —         (122

Changes in operating assets and liabilities:

    

Operating lease right-of-use assets

     1,161,406     646,995

Current and long-term lease obligations

     (1,252,360     724,205

Accounts receivable and accrued revenue

     (10,624     (46,425

Other assets

     (37,506     (48,651

Accounts payable and accrued expenses

     32,961     (92,228

Deferred revenue

     (38,279     61,489

Other liabilities

     (6,377     6,349

Deferred income taxes

     1,720     119
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (1,539,115     (417,696

Cash Flows from Investing Activities:

    

Purchases of property and equipment

     (202,589     (1,252,833

Capitalized software

     (29,433     (18,538

Change in security deposits with landlords

     3,778     (3,094

Proceeds from asset divestitures and sale of investments, net of cash divested

     10,832     1,170,766

Contributions to investments

     (26,704     (93,357
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (244,116     (197,056
                  

 

10


LEGACY WEWORK

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (CONTINUED)

(UNAUDITED)

 

      Nine Months Ended
September 30,
 

(Amounts in thousands)

   2021     2020  

Cash Flows from Financing Activities:

    

Principal payments for property and equipment acquired under finance leases

     (3,397     (2,959

Proceeds from issuance of debt

     —         34,309

Proceeds from unsecured related party debt

     1,000,000     600,000

Proceeds from LC Debt Facility

     698,705     —    

Repayments of debt

     (349,011     (813,140

Repayment of security deposit loan

     (7,942     —    

Debt and equity issuance costs

     —         (11,578

Proceeds from exercise of stock options and warrants

     2,417     149

Proceeds from issuance of noncontrolling interests

     30,000     100,628

Distributions to noncontrolling interests

     —         (317,611

Payments for contingent consideration and holdback of acquisition proceeds

     (2,523     (35,706

Proceeds relating to contingent consideration and holdbacks of disposition proceeds

     12,177     —    

Additions to members’ service retainers

     330,358     305,432

Refunds of members’ service retainers

     (291,828     (455,530
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,418,956     (596,006

Effects of exchange rate changes on cash, cash equivalents and restricted cash

     (1,359     (4,301
  

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     (365,634     (1,215,059

Cash, cash equivalents and restricted cash—Beginning of period

     854,153     2,200,688
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash—End of period

   $ 488,519   $ 985,629
  

 

 

   

 

 

 
                  

 

      September 30,  

(Amounts in thousands)

   2021        2020  

Cash and cash equivalents

   $ 477,244        $ 876,323  

Restricted cash

     11,275        109,306
  

 

 

      

 

 

 

Cash, cash equivalents and restricted cash

   $    488,519      $    985,629
  

 

 

      

 

 

 
                     

 

      Nine Months Ended
September 30,
 

(Amounts in thousands)

   2021        2020  

Supplemental Cash Flow Disclosures:

       

Cash paid during the period for interest (net of capitalized interest of $0 and $2,981 during 2021 and 2020, respectively)

   $    138,029        $ 70,430  

Cash received for operating lease incentives — tenant improvement allowances

     306,413          1,062,704

Cash received for operating lease incentives — broker commissions

     670        15,830
Supplemental Disclosure of Non-cash Investing & Financing Activities:        

Property and equipment included in accounts payable and accrued expenses

     78,795        279,485

Conversion of related party liabilities to into Preferred Stock

     711,786        —    

Creator Awards production services reimbursement obligation payable to SoftBank reclassified to additional paid-in capital

     —            21,641

Distribution of investment to noncontrolling interest holder

     —            6,646
                     

Additional ASC 842 Supplemental Disclosures

 

      Nine Months Ended
September 30,
 

(Amounts in thousands)

   2021      2020  

Cash paid for fixed operating lease costs included in the measurement of lease obligations in operating activities

   $ 1,720,517    $ 1,560,186  

Cash paid for interest relating to finance leases in operating activities

     3,225      3,533

Cash paid for principal relating to finance leases in financing activities

     3,398      2,959

Right-of-use assets obtained in exchange for finance lease obligations

     866      920

Right-of-use assets obtained in exchange for operating lease obligations, net of modifications and terminations

     (1,279,474      177,409
                   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

11


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

Note 1. Organization and Business

WeWork Companies Inc. was founded in 2010. The We Company was incorporated under the laws of the state of Delaware in April 2019 as a direct wholly-owned subsidiary of WeWork Companies Inc. As a result of various legal entity reorganization transactions undertaken in July 2019, The We Company became the holding company of our business, and the then-stockholders of WeWork Companies Inc. became the stockholders of The We Company. WeWork Companies Inc. is the predecessor of the Company for financial reporting purposes. Effective October 14, 2020, The We Company changed its legal name to WeWork Inc.

Effective October 20, 2021, in connection with the BowX Merger Agreement and Business Combination as defined and discussed below, (i) WeWork Inc. changed its legal name to New WeWork Inc.; (ii) New WeWork Inc. merged with and into BowX Merger Subsidiary Corp., a Delaware corporation and a direct wholly owned subsidiary of BowX Acquisition Corp., with New WeWork Inc. surviving the merger; (iii) New WeWork Inc. then merged with and into BowX Merger Subsidiary II, LLC, a Delaware limited liability company and wholly owned subsidiary of BowX Acquisition Corp., with BowX Merger Subsidiary II, LLC surviving the second merger; and (iv) BowX Merger Subsidiary II, LLC changed its legal name to WW Holdco LLC (“Legacy WeWork” or the “Company”). In connection with the Business Combination, BowX Acquisition Corp. changed its name to WeWork Inc. (“PubCo”).

The Company holds an indirect general partner interest and indirect limited partner interests in The We Company Management Holdings L.P. (the “WeWork Partnership”). The WeWork Partnership owns 100% of the equity in WeWork Companies LLC. The Company, through the WeWork Partnership and WeWork Companies LLC, holds all the assets held by WeWork Companies Inc. prior to the legal entity reorganization and is subject to all the liabilities to which WeWork Companies Inc. was subject prior to the legal entity reorganization.

Our core global business offering integrates space, community, services and technology in 764 locations, including 631 Consolidated Locations, around the world as of September 1, 2021. Our membership offerings are designed to accommodate our members’ distinct space needs. We provide our members the optionality to choose from a dedicated desk, a private office or a fully customized floor with the flexibility to choose the type of membership that works for them on a monthly subscription basis, through a multi-year membership agreement or on a pay-as-you-go basis.

The Company’s operations are headquartered in New York.

All references to “we”, “us”, “our”, “WeWork”, “Legacy WeWork” and the “Company” are references to (A) prior to the closing of the Business Combination on October 20, 2021, WeWork Inc. and its subsidiaries on a consolidated basis and (B) after the closing of the Business Combination on October 20, 2021, WeWork Holdco LLC and its subsidiaries on a consolidated basis. All references to “PubCo” are references to (A) prior to the closing of the Business Combination on October 20, 2021, BowX Acquisition Corp. and (B) after the closing of the Business Combination on October 20, 2021, WeWork Inc. (formerly known as BowX Acquisition Corp.). All references to “SBG” are references to SoftBank Group Corp. or a controlled affiliate or subsidiary thereof, but, unless the context otherwise requires, does not include SVF Endurance (Cayman) Limited (“SVFE”) or the SoftBank Vision Fund (AIV M1) L.P. (“SoftBank Vision Fund”).

In October 2019, the Company entered into an agreement with SBG and SoftBank Vision Fund for additional equity and debt financing, as well as a number of changes to the Company’s corporate governance, including changes to the voting rights associated with certain series of the Company’s capital stock (as subsequently amended, the “Master Transaction Agreement”). The changes associated with this October 2019 agreement, and related agreements and amendments entered into subsequent to October 2019, as described throughout these financial statement notes, are collectively referred to as the “SoftBank Transactions.” SBG is a principal stockholder with representation on the Company’s Board of Directors.

 

12


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

BowX Merger Agreement

On March 25, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, PubCo, and BowX Merger Subsidiary Corp., a Delaware corporation and a direct wholly owned subsidiary of PubCo (“Merger Sub”).

As previously disclosed, on October 20, 2021, the transactions contemplated by the Merger Agreement closed and, among other things and upon the terms and subject to the conditions of the Merger Agreement, the following occurred (together with the other agreements and transactions contemplated by the Merger Agreement, the “Business Combination”):

 

   

at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), upon the terms and subject to the conditions of the Merger Agreement and in accordance with the Delaware General Corporation Law, as amended (the “DGCL”), Merger Sub merged with and into the Company, the separate corporate existence of Merger Sub ceased and the Company was the surviving corporation and became a wholly owned subsidiary of PubCo (the “Merger”);

 

   

immediately following the Merger and as part of the same overall transaction as the Merger, the Company merged with and into BowX Merger Subsidiary II, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of PubCo (Merger Sub II and such transaction, the “Second Merger”), with Merger Sub II being the surviving entity of the Second Merger;

 

   

as a result of the Merger, among other things, all outstanding shares of capital stock of the Company (other than shares of Class C common stock of the Company, treasury shares, shares held by stockholders who have perfected and not withdrawn a demand for appraisal rights pursuant to the DGCL and shares of Company stock subject to options, warrants and restricted stock units (“RSUs”)) were cancelled in exchange for the right to receive a number of newly issued shares of Class A common stock, par value $0.0001 per share, of PubCo (“Class A Common Stock”) determined using an exchange ratio (the “Exchange Ratio”) which was determined based on a pre-money enterprise valuation of the Company of approximately $9.0 billion, a $10.00 price per share of Class A Common Stock and the fully diluted equity capitalization of the Company immediately prior to the Closing (which was equal to 0.82619);

 

   

shares of Class C common stock of the Company were cancelled in exchange for the right to receive a number of newly issued shares of Class C common stock, par value $0.0001 per share, of PubCo (“Class C Common Stock”) determined using the Exchange Ratio;

 

   

outstanding options and warrants to purchase Company stock and RSUs were converted into the right to receive options or warrants to purchase shares of Class A Common Stock or restricted stock units representing the right to receive shares of Class A Common Stock, as applicable, on the same terms and conditions that are in effect with respect to such options, warrants or RSUs on the day of Closing, subject to adjustments using the Exchange Ratio, as described below;

 

   

BowX Acquisition Corp. was renamed “WeWork Inc.”; and

 

   

Upon Closing, PubCo received approximately $1.3 billion in gross cash proceeds consisting of approximately $333.0 million from the PubCo trust account, $150.0 million from the previously announced backstop investment by DTZ Worldwide Limited, a parent company to Cushman & Wakefield U.S., Inc. (the “Backstop Investor”), and $800.0 million from the PIPE Investment (as defined below).

Immediately after giving effect to the Business Combination, there were 696,492,801 issued and outstanding shares of Class A Common Stock and 19,938,089 issued and outstanding shares of Class C Common Stock. PubCo’s public units separated into their component securities upon consummation of the Business Combination and, as a result, no longer trade as a separate security and were delisted from the Nasdaq Stock Market LLC (“Nasdaq”). As of the date of the Closing, PubCo’s post-Closing directors

 

13


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

and executive officers and their respective affiliated entities beneficially owned approximately 4.1% of the outstanding shares of Class A Common Stock, which represents approximately 4.0% of the total voting power of our outstanding shares, and no outstanding shares of Class C Common Stock, and the securityholders of PubCo immediately prior to the Closing (which includes Vivek Ranadivé, who is one of PubCo’s post-Closing directors) beneficially owned post-Closing approximately 6.1% of the outstanding shares of Class A Common Stock, which represents approximately 5.9% of the total voting power of our outstanding shares, and no outstanding shares of Class C Common Stock. On October 21, 2021, the shares of Class A Common Stock and the public warrants of PubCo began trading on the New York Stock Exchange.

Certain Related Agreements

Subscription Agreements

On March 25, 2021, concurrently with the execution of the Merger Agreement, PubCo entered into subscription agreements (the “Subscription Agreements”) with certain investors (collectively, the “PIPE Investors”), pursuant to, and on the terms and subject to the conditions of which, the PIPE Investors collectively subscribed for 80,000,000 shares of Class A Common Stock for $10.00 per share, for an aggregate subscription price equal to $800.0 million, (the “PIPE Investment”). The PIPE Investment was consummated substantially concurrently with the Closing.

Backstop Investment

On October 13, 2021, PubCo entered into a backstop subscription agreement (the “Backstop Subscription Agreement”) with DTZ Worldwide (the “Backstop Investor”), pursuant to which, and on the terms and subject to the conditions of which, the Backstop Investor committed to subscribe for the number of shares of Class A Common Stock validly redeemed by the public stockholders of PubCo in connection with the Merger, subject to a cap of 15,000,000 shares of Class A Common Stock (the “Cap”). The purchase price for such shares of Class A Common Stock is equal to $10.00 per share multiplied by the number of shares of Class A Common Stock validly redeemed by the public stockholders of PubCo in connection with the Business Combination subject to the Cap, for an aggregate purchase price of up to $150.0 million (the “Backstop Investment”). The terms of the Backstop Investment substantially conform to the terms of the Subscription Agreements with the PIPE Investors. Substantially concurrently with the Closing, the Backstop Investor subscribed for 15,000,000 shares of Class A Common Stock for $150.0 million. So long as the Backstop Investor continues to hold a specified amount of shares of Class A Common Stock, then the Backstop Investor has the right to designate a board observer to the board of directors of PubCo (the “Board”).

Credit Support Letter (LC)

On March 25, 2021, WeWork Companies LLC, SBG and PubCo entered into a letter agreement (the “Credit Support Letter”) pursuant to which SBG has committed to consent to an extension of the termination date of the Credit Agreement from February 10, 2023 to no later than February 10, 2024 (the “LC Facility Termination Extension”), subject to the terms and conditions set forth therein. Any LC Facility Termination Extension will require the requisite consent of the lenders thereunder.

Credit Support Letter (SSN)

On March 25, 2021, the Company and an affiliate of SBG entered into a letter agreement pursuant to which the Company and an affiliate of SBG have agreed to amend and restate the terms of the Master Senior Secured Notes Note Purchase Agreement that governs the SoftBank Senior Secured Notes (as amended and restated, the “A&R Senior Secured Note Purchase Agreement”) on the earlier of (i) the Closing and (ii) August 12, 2021. The A&R Senior Secured Note Purchase Agreement allows the Company to borrow up to an aggregate principal amount of $550.0 million of senior secured debt in the form of new 7.5% senior secured notes (the “A&R Senior Secured Notes”). It was a condition to the execution of the A&R Senior Secured Note Purchase Agreement that any outstanding SoftBank Senior

 

14


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Secured Notes be redeemed, repurchased or otherwise repaid and canceled at a price of 101% of the principal amount thereof plus accrued and unpaid interest. The A&R Senior Secured Note Purchase Agreement allows the Company to borrow once every 30 days with minimum draws of $50.0 million. The A&R Senior Secured Notes will mature no later than February 12, 2023 or, if earlier, 18 months from the Closing. In August 2021, the Company and SBG agreed to amend and restate the terms of the Master Senior Secured Notes Note Purchase Agreement that governs the SoftBank Senior Secured Notes to extend the draw period from August 12, 2021 to September 30, 2021. In September 2021, the Company and SBG agreed to amend and restate the terms to extend the draw period from September 30, 2021 to October 31, 2021. On October 20, 2021, the Company and SBG entered into the A&R Senior Secured Note Purchase Agreement.

Warrants

On October 20, 2021, PubCo issued to (i) SB WW Holdings (Cayman) Limited (“SBWW”) a warrant (the “SBWW Warrant”) to purchase a number of shares of Class A Common Stock (rounded to the nearest whole share) equal to 35,038,960 multiplied by the Exchange Ratio (which product is equal to 28,948,838 shares of Class A Common Stock), subject to the terms set forth therein, at a price per share equal to $0.01 divided by the Exchange Ratio (rounded to the nearest full cent) (which quotient is equal to a price per share equal to $0.01) and (ii) SVFE a warrant (the “SVFE Warrant” and, together with the SBWW Warrant, the “First Warrants”) to purchase a number of shares of Class A Common Stock (rounded to the nearest whole share) equal to 12,327,444 multiplied by the Exchange Ratio (which product is equal to 10,184,811 shares of Class A Common Stock), subject to the terms set forth therein, at a price per share equal to $0.01 divided by the Exchange Ratio (rounded to the nearest full cent) (which quotient is equal to a price per share equal to $0.01). The First Warrants will expire on the tenth anniversary of the Closing. Although the First Warrants were issued by PubCo, solely for purposes of calculating the Exchange Ratio used in the Business Combination, the First Warrants are treated in the same manner as a hypothetical outstanding warrant to purchase 47,366,404 shares of Company Class A common stock at an exercise price of $0.01 per share.

The First Warrants issued to SBWW and SVFE were an inducement to obtain SBWW’s and SVFE’s, and their respective affiliates’, support in effectuating the automatic conversion of Company preferred stock on a one-to-one basis to Company common stock.

At the Exchange Ratio, the SBWW Warrant enables SBWW to purchase 28,948,838 shares of Class A Common Stock. Assuming a price of $10 per share, the SBWW Warrant has an estimated fair value of approximately $289.5 million. At the Exchange Ratio, the SVFE Warrant enables SVFE to purchase 10,184,811 shares of Class A Common Stock. Assuming a price of $10 per share, the SBWW Warrant has an estimated fair value of approximately $101.8 million.

Additionally, concurrently with and contingent upon the LC Facility Termination Extension, PubCo will issue to SBG or its designees one or more warrants (collectively, the “LC Warrant”) to purchase a number of shares of Class A Common Stock (rounded to the nearest whole share) equal to 14,431,991 multiplied by the Exchange Ratio, subject to the terms set forth therein, at a price per share equal to $0.01 divided by the Exchange Ratio (rounded to the nearest full cent). The LC Warrant would expire on the tenth anniversary of the date of issuance.

Additionally, as a result of and upon the Closing, in accordance with the applicable terms of the warrants to purchase Class A common stock of the Company and the warrants to purchase Series H-3 preferred stock of the Company and/or Series H-4 preferred stock of the Company (collectively, the “Company Warrants”), the Company Warrants were converted into the right to receive a warrant to purchase shares of Class A Common Stock upon the same terms and conditions as are in effect with respect to such Company Warrants immediately prior to the effective time of the Merger (the “Converted Company Warrants”) except that (i) such Converted Company Warrants relate to that whole number of shares of Class A Common Stock (rounded down to the nearest whole share) equal to the number of shares of Company capital stock subject to such Company Warrants, multiplied by the Exchange Ratio, and (ii) the exercise price per share for each such Converted Company Warrants is equal to the exercise price per share of such Company Warrants in effect immediately prior to the effective time of the Merger, divided by the Exchange Ratio (the exercise price per share, as so determined, being rounded up to the nearest full cent).

 

15


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Additionally, outstanding warrants to purchase an aggregate of 23,873,333 shares of Class A Common Stock, comprising 16,100,000 public warrants and 7,773,333 private placement warrants, that were outstanding and held by equityholders of PubCo prior to the Closing will become exercisable in accordance with the terms of the warrant agreement governing those securities. Such warrants will become exercisable 30 days after the completion of the Business Combination. To the extent such warrants are exercised, additional shares of Class A Common Stock will be issued, which will result in dilution to the holders of Class A Common Stock and increase the number of shares eligible for resale in the public market.

Amended and Restated Registration Rights Agreement

On October 20, 2021, in connection with the consummation of the Business Combination and as contemplated by the Merger Agreement, PubCo entered into the Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with BowX Sponsor, LLC (the “Sponsor”), certain stockholders of PubCo and certain stockholders of the Company. Pursuant to the Registration Rights Agreement, PubCo agreed to register for resale, pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), certain shares of Class A Common Stock and other equity securities of PubCo that are held by the parties thereto from time to time. In certain circumstances, various parties to the Registration Rights Agreement can collectively demand up to nine underwritten offerings and are entitled to piggyback registration rights, in each case subject to certain limitations set forth in the Registration Rights Agreement.

Stockholders Agreement

On October 20, 2021, in connection with the consummation of the Business Combination and as contemplated by the Merger Agreement, PubCo entered into the Stockholders Agreement (the “Stockholders Agreement”) with the Sponsor, SBWW, SVFE and Benchmark Capital Partners VII (AIV), L.P. Pursuant to the Stockholders Agreement, so long as each such holder of Class A Common Stock continues to hold a specified amount of Class A Common Stock, then each such holder has the right to designate for nomination by the Board the number of candidates for election to the Board specified in the Stockholders Agreement. The Stockholders Agreement also provides that (i) so long as certain Insight Partners investors continue to hold a specified amount of Class A Common Stock, then Insight Partners has the right to designate a director and (ii) so long as certain Starwood Capital investors continue to hold a specified amount of Class A Common Stock, then Starwood Capital has the right to designate a board observer.

Indemnification Agreements

On October 20, 2021, PubCo entered into separate indemnification agreements with its directors and executive officers. These agreements, among other things, require PubCo to indemnify its directors and executive officers for certain liabilities and expenses, including attorneys’ fees, judgments, fines, and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of its directors or executive officers or any other company or enterprise to which the person provides services at its request.

WeWork Partnership

On October 20, 2021, in connection with the consummation of the Business Combination and as contemplated by the Merger Agreement, the partnership agreement for the WeWork Partnership (the “LPA”) was amended at the Closing to implement mechanical changes to reflect the conversion of shares of capital stock of Legacy WeWork to shares of Class A Common Stock of PubCo (including the

 

16


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

conversion of shares of Legacy WeWork Class C Common Stock into shares of Class C Common Stock of PubCo). Specifically, the number of outstanding partnership interests (including all WeWork Partnerships Profits Interest Units) was adjusted to equal the number of shares of the corresponding class of common stock of PubCo (which, in the case of the WeWork Partnerships Profits Interest Units, is the Class C Common Stock of PubCo), taking into account the Exchange Ratio in the Merger. The distribution threshold and catch-up base amount for the WeWork Partnerships Profits Interest Units were also equitably adjusted to maintain the pre-Business Combination economics of the WeWork Partnerships Profits Interest Units. The distribution threshold for Adam Neumann’s WeWork Partnerships Profits Interest Units was also adjusted downward based on closing date pricing of the Business Combination.

Following the Business Combination, vested WeWork Partnerships Profits Interest Units can, at the election of the holder of the WeWork Partnerships Profits Interest Units, be (a) converted into WeWork Partnership Class A Common Units or (b) exchanged (along with the corresponding shares of PubCo Class C Common Stock) for (at PubCo’s election) shares of Class A Common Stock or cash of an equivalent value, assuming that the trading price of a share of Class A Common Stock exceeds the per-unit distribution threshold for these WeWork Partnerships Profits Interest Units (which generally represents the liquidation value of a share of WeWork Class A Common Stock on the date such WeWork Partnerships Profits Interest Units were granted). The exchange value takes into account, among other things, the value of a share of Class A Common Stock and the catch-up base amount of the WeWork Partnerships Profits Interest Units being exchanged. A catch-up base amount is similar to an option exercise price and represents, for each WeWork Partnerships Profits Interest Unit exchanged, the value of a share of common stock that the holder of WeWork Partnerships Profits Interest Units will not receive upon exchange. A higher value and a lower catch-up base amount each generally will result in more shares of Class A Common Stock being issued to the exchanging holder (except the number of shares of Class A Common Stock issuable upon exchange of each WeWork Partnerships Profits Interest Unit can never be greater than one). On October 21, 2021, Adam Neumann elected to convert his WeWork Partnerships Profits Interest Units into WeWork Partnership Class A Common Units.

2021 Equity Incentive Plan

On October 20, 2021, in connection with the consummation of the Business Combination and as contemplated by the Merger Agreement, the adoption and approval of the WeWork Inc. 2021 Equity Incentive Plan (the “Equity Incentive Plan”) was ratified by the Board. The Equity Incentive Plan is designed to provide an additional incentive to persons whose contributions are essential to the success of the business and to attract and retain competent and dedicated persons whose efforts will result in long-term profitability. The Equity Incentive Plan is administered by the Board or an authorized committee thereof comprised of non-employee directors (the “plan administrator”). The purpose of the Equity Incentive Plan is to assist eligible employees in acquiring a stock ownership interest in the Company, to align such employees’ interests with those of our stockholders, and to encourage such employees to remain in the employment of the Company.

The Equity Incentive Plan provides that the number of shares of Class A Common Stock initially reserved for issuance thereunder shall be equal to 5% of the Aggregate Fully Diluted Company Capital Stock (as defined in the Merger Agreement) as of the Closing, subject to adjustment as provided by Section 5 of the Equity Incentive Plan (the “Equity Incentive Plan Share Reserve”). The Equity Incentive Plan Share Reserve is equal to 39,657,781 shares.

2021 Employee Stock Purchase Plan

On October 20, 2021, in connection with the consummation of the Business Combination and as contemplated by the Merger Agreement, the adoption and approval of the WeWork Inc. 2021 Employee Stock Purchase Plan (the “ESPP”) was ratified by the Board. The ESPP is designed to allow eligible employees of the Company to purchase shares of Class A Common Stock with their accumulated payroll deductions. The ESPP is administered by the Board or an authorized committee thereof comprised of non-employee directors (the “ESPP administrator”). The ESPP is divided into two components: the “423 Component” and the “Non-423 Component.” The 423 Component is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). The Non-423 Component is not intended to qualify under Section 423 of the Code and may generally be used to grant stock options to certain non-U.S. employees and other employees designated by the ESPP administrator. The purpose of the ESPP is to assist eligible employees in acquiring a stock ownership interest in the Company, to align such employees’ interests with those of our stockholders, and to encourage such employees to remain in the employment of the Company. The equity offers under the ESPP are intended to assist the Company in recruiting and retaining highly qualified employees.

 

17


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The ESPP provides that the number of shares of Class A Common Stock initially reserved for issuance thereunder shall be equal to 1% of the Aggregate Fully Diluted Company Capital Stock as of the Closing, subject to adjustment as provided by Section 16 of the ESPP (the “ESPP Share Reserve”). The ESPP Share Reserve is equal to 7,931,556 shares.

The foregoing description is not complete and is supplemented by the 8-K/A and the Current Reports on Form 8-K filed by PubCo on September 29, 2021, October 18, 2021 and October 26, 2021, for the Merger Agreement, the Subscription Agreements, the Backstop Subscription Agreement, the Credit Support Letter, the A&R Senior Secured Note Purchase Agreement, the First Warrants, the Registration Rights Agreement, the Stockholders Agreement, the form of indemnification agreement, the LPA, the Equity Incentive Plan and the ESPP and the transactions contemplated thereby.

Note 2. Summary of Significant Accounting Policies

Basis of Quarterly Presentation and Principles of Consolidation — The accompanying unaudited condensed consolidated financial statements and notes to the condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are considered necessary for the fair presentation of the financial position of the Company at September 30, 2021 and the results of operations for the interim periods presented. The operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020, included in Legacy WeWork’s Annual Report for the year ended December 31, 2020.

Other than the changes described below, no material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Summary of Significant Accounting Policies, in its Annual report issued on March 19, 2021, for the year ended December 31, 2020.

The Company operates as a single operating segment. See Note 18 for further discussion on the Company’s segment reporting.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and VIEs for which the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.

The Company is required to consolidate entities deemed to be VIEs in which the Company is the primary beneficiary. The Company is considered to be the primary beneficiary of a VIE when the Company has (i) the power to direct the 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.

JapanCo, WeCap Manager, WeCap Holdings Partnership and LatamCo (each as defined and discussed in Note 5) are the Company’s only consolidated VIEs as of September 30, 2021. In March 2020, in connection with the sale of the property held by the 424 Fifth Venture (the “424 Fifth Venture Transaction”), redemption payments were made to the noncontrolling interest holders in the 424 Fifth

 

18


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Venture and the 424 Fifth Venture became a wholly owned subsidiary of the Company and is no longer a VIE. In April 2020, in connection with the SoftBank Transactions, the Company completed the acquisition of the noncontrolling interest in PacificCo (as defined in Note 5) and PacificCo became a wholly owned subsidiary of the Company and is no longer a VIE. In September 2020, the Company transferred its variable interest and control over the Creator Fund to an affiliate of SBG and the Creator Fund was deconsolidated from the Company’s financial statements. In October 2020, the Company restructured its ownership interests in ChinaCo (as defined in Note 5) such that the Company is no longer the primary beneficiary of ChinaCo and as a result, beginning on October 2, 2020, ChinaCo was deconsolidated (the “ChinaCo Deconsolidation”) and the Company’s remaining ordinary share investment represents an unconsolidated VIE that is accounted for as an equity method investment. In September 2021, LatamCo (as defined in Note 5) entered into an agreement with an affiliate of SBG for the sale of a 71.0% interest in LatamCo and became a consolidated VIE. See Note 5 for further discussion of these transactions. See Note 6 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 in the condensed consolidated statements of comprehensive loss, 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 that have redemption features within the Company’s control are classified within permanent equity and are described further below.

The redemption value of the WeWork Partnerships Profits Interest Units (as discussed in Note 14) that were awarded to former members of management are measured based upon the aggregate redemption value and takes into account the proportion of employee services rendered under the WeWork Partnerships Profits Interest Units vesting provisions. The redemption value will vary from period to period based upon the fair value of the Company, whereby the intrinsic value (per-unit fair value of the Company is greater than the per-unit distribution threshold) will be reflected as noncontrolling interests in the equity section of the condensed consolidated balance sheets with a corresponding entry to additional paid-in-capital. The intrinsic value of the WeWork Partnership Profits Interests will be remeasured each period until the WeWork Partnerships Profits Interests are converted to shares or cash. On October 21, 2021, in connection with the transactions discussed in Note 1, Adam Neumann elected to convert his WeWork Partnerships Profits Interest Units into WeWork Partnership Class A Common Units.

The Company’s other 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.

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.

Estimates inherent in the current financial reporting process inevitably involve assumptions about future events. Actual results could differ from those estimates. Since December 2019, a novel strain of coronavirus, referred to as the COVID-19 virus, has spread to countries in which we operate. COVID-19 has become a global pandemic. Authorities in jurisdictions where our locations are located have at times issued stay-at-home orders, restrictions on certain activities such as travel and on the types of businesses that may continue to operate. As the pandemic has adversely affected and may continue to

 

19


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

adversely affect our revenues and expenditures, the extent and duration of these restrictions and overall macroeconomic impact of the pandemic will have an effect on estimates used in the preparation of financial statements. This includes the net operating income assumptions in our long-lived asset impairment testing, the ultimate collectability of accounts receivable due to the effects of COVID-19 on the financial position of our members, the timing of capital expenditures and fair value measurement changes for assets and liabilities that the Company measures at fair value.

Our liquidity forecasts are based upon continued execution of the Company’s operational restructuring program and also includes management’s best estimate of the impact that the outbreak of COVID-19, including the Delta or other variants, may continue to have on our business and our liquidity needs; however, the extent to which our future results and liquidity needs are further affected by the continued impact of COVID-19 will largely depend on the continued duration of closures, and delays in location openings, the success of ongoing vaccination efforts, the effect on demand for our memberships, any permanent shifts in working from home, how quickly we can resume normal operations and our ongoing lease negotiations with our landlords, among others. We believe continued execution of our operational restructuring program and our current liquidity position will be sufficient to help us mitigate the continued near-term uncertainty associated with COVID-19, however our assessment assumes a recovery in our revenues and occupancy beginning in the second half of 2021 with a gradual return toward pre-COVID levels. If revenues continue to decline during 2021 and/or we do not experience a recovery consistent with our projected timing, additional capital sources may be required, the timing and source of which are uncertain. There is no assurance we will be successful in securing the additional capital infusions if needed.

Restricted Cash - Restricted cash consists primarily of amounts provided to banks to secure letters of credit issued under certain of the Company’s credit agreements as required by various leases. Transfers between restricted and unrestricted cash accounts are not reported within the statements of cash flows. Only restricted cash receipts or payments from restricted cash directly to third parties are reported in the statements of cash flows as either an operating, investing or financing activity, depending on the nature of the transaction.

Allowance for Doubtful Accounts — The Company adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) on January 1, 2020. In accordance with the revised guidance, management determines an allowance that reflects its best estimate of the accounts receivable due from members, related parties, landlords and others that it expects will not be collected. Management considers many factors in considering its reserve with respect to these accounts receivable, including historical data, experience, creditworthiness, income trends, as well as current and forward looking conditions. Recorded liabilities associated with members’ service retainers are also considered when estimating the allowance for doubtful accounts as we have the contractual right to apply members’ service retainers to outstanding receivables.

Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction of bad debt expense when received. As of September 30, 2021 and December 31, 2020, the Company recorded $77.5 million and $107.8 million, respectively, as an allowance for doubtful accounts on accounts receivable and accrued revenue.

Income Taxes — The Company calculates its quarterly income tax provision pursuant to Accounting Standard Codification (“ASC”) 740-270, Income Taxes — Interim Reporting, which provides that a Company cannot recognize a tax benefit in its annual effective tax rate for any jurisdiction with a pre-tax book loss and full valuation allowance (“excluded jurisdictions”). For the three and nine months ended September 30, 2021, the Company recorded an income tax (benefit) provision of $(2.3) million and $5.0 million, respectively, resulting in effective tax rates of (0.27)% and 0.13%, respectively. For the three and nine months ended September 30, 2020, the Company recorded an income tax provision of $5.6 million and $21.7 million, respectively, resulting in effective tax rates of 0.56% and 0.82%, respectively.

 

20


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The Company analyzed its various tax positions and did not identify any material uncertain tax positions for the three and nine months ended September 30, 2021 and 2020.

The Company files U.S. federal, U.S. state and foreign income tax returns. Depending on the statute of limitation of the specific jurisdictions in which we operate, three to ten years of the Company’s income tax returns remain subject to examination. Globally, the Company is involved in various tax matters, and various annual filings in certain jurisdictions are under examination.

Stock-Based Compensation — Stock-based compensation expense attributable to equity awards granted to employees and non-employees is measured at the grant date based on the fair value of the award. For employee awards, the expense is recognized on a straight-line basis over the requisite service period for awards that actually vest, which is generally the period from the grant date to the end of the vesting period. For non-employee awards, the expense for awards that actually vest is recognized based on when the goods or services are provided.

The Company generally estimates the fair value of stock option awards granted using the Black-Scholes-Merton option-pricing formula (the “Black-Scholes Model”) and a single option award approach. This model requires various significant judgmental assumptions in order to derive a final fair value determination for each type of award, including the expected term, expected volatility, expected dividend yield, risk-free interest rate, and fair value of the Company’s stock on the date of grant. The expected option term for options granted is calculated using the “simplified method.” This election was made based on the lack of sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The simplified method defines the expected term as the average of the contractual term and the vesting period. Estimated volatility is based on similar entities whose stock prices are publicly traded. The Company uses the historical volatilities of similar entities due to the lack of sufficient historical data for the Company’s common stock price. Dividend yields are based on the Company’s history and expected future actions. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award. All grants of stock options generally have an exercise price equal to or greater than the fair market value of the Company’s common stock on the date of grant.

In situations where the exercise price of a stock option is greater than the fair market value of the Company’s common stock on the date of grant, the Company estimates the fair value of stock option awards granted using the binomial model. The binomial model incorporates assumptions regarding anticipated employee exercise behavior, expected stock price volatility, dividend yield and risk-free interest rate. Anticipated employee exercise behavior and expected post-vesting cancellations over the contractual term used in the binomial model are primarily based on historical exercise patterns. These historical exercise patterns indicate that exercise behavior between employee groups is not significantly different. For our expected stock price volatility assumption, the Company weights historical volatility and implied volatility and uses daily observations for historical volatility, while our implied volatility assumptions are based on actively traded options related to our common stock. The expected term is derived from the binomial model, based on assumptions incorporated into the binomial model as described above.

The Company estimated the fair value of the WeWork Partnerships Profits Interest Units awards in connection with the modification of the original stock options using the Hull-White model and a binomial lattice model in order to apply appropriate weight and consideration of the associated distribution threshold and catch-up base amount. The Hull-White model requires similar judgmental assumptions as the Black-Scholes Model used for valuing the Company’s options.

During the periods in which the Company was privately held and there was no public market for our stock, the fair value of the Company’s equity is approved by the Company’s Board of Directors or the Compensation Committee thereof as of the date stock-based awards are granted. In estimating the fair value of our stock, the Company uses a third-party valuation specialist and considers factors it believes are material to the valuation process, including but not limited to, the price at which recent equity was issued by the Company to independent third parties or transacted between third parties, actual and projected financial results, risks, prospects, economic and market conditions, and estimates of weighted average cost of capital. The Company believes the combination of these factors provides an appropriate estimate of the expected fair value of the Company and reflects the best estimate of the fair value of the Company’s common stock at each grant date.

 

21


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The Company has elected to recognize forfeitures of stock-based compensation awards as they occur. For awards subject to performance conditions, no compensation cost will be recognized before the performance condition is probable of being achieved. Recognition of any compensation expense relating to stock grants that vest contingent on an initial public offering or “Acquisition” (as defined in the 2015 Plan detailed in Note 14) will be deferred until consummation of such initial public offering or Acquisition.

Fair Value Measurements — The Company applies fair value accounting for all financial assets and liabilities and certain non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring and nonrecurring basis. Assets and liabilities measured at fair value every reporting period include investments in cash equivalents, available-for-sale debt securities, certain embedded derivatives requiring bifurcation, certain warrants issued classified as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and contingent consideration liabilities relating to business combinations. Other assets and liabilities are subject to fair value measurements only in certain circumstances, including purchase accounting applied to assets and liabilities acquired in a business combination, impaired cost and equity method investments and long-lived assets that are written down to fair value when they are impaired.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company assumes the highest and best use of non-financial assets by market participants and the market-based risk measurements or assumptions that market participants would use in pricing assets or liabilities, such as inherent risk, transfer restrictions and credit risk. Assets and liabilities are classified using a fair value hierarchy, which prioritizes the inputs used to measure fair value according to three levels, and bases the categorization of fair value measurements within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Inputs that reflect quoted prices for identical assets or liabilities in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the assets or liabilities or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Unobservable inputs that the Company incorporates in its valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

See Note 11 for additional discussion on the Company’s fair value measurements.

Recently Adopted Accounting Pronouncements

In April 2020, the FASB issued interpretive guidance in response to questions it received about how to account for the concessions many lessors are providing or are expecting to provide to lessees in response to the operational and financial challenges lessees are facing as a result of the COVID-19 pandemic. The question-and-answer document states entities can elect not to evaluate whether a concession provided by a lessor to a lessee in response to the COVID-19 pandemic is a lease modification. An entity that elects not to evaluate whether a concession is a modification can then elect to account for the concession as if it were contemplated in the existing contract. Entities may make these elections for any lessor-provided COVID-19-related relief (e.g., deferral of lease payments, cash payments, reduction of future lease payments) that does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

 

22


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The Company has elected to treat short-term COVID-19 related concessions or deferrals provided to our members whose contracts qualify as a lease in accordance with ASC 842, Leases (“ASC 842”) as if it were contemplated in the existing contract and member concessions and deferrals that are expected to extend greater than 12 months or change the other terms of member leases are treated as modifications. The Company elected to treat short-term COVID-19 related rent concessions received from our landlords as variable lease expense and short-term lease deferrals as if there is no change in the contract. COVID-19 related concessions and deferrals that are expected to extend greater than 12 months or change the other terms in the lease are treated as modifications and a full re-valuation of the right-of-use asset and liability is performed.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies accounting for income taxes by removing certain exceptions from the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. The Company adopted ASU 2019-12 as of January 1, 2021, which did not have a material impact on its condensed consolidated financial statements.

Note 3. Restructuring, Impairments and Gains on Sale

In September 2019, the Company initiated an operational restructuring program that included a change in executive leadership and plans for cost reductions that aim to improve the Company’s operating performance. Throughout 2020, the Company has made significant progress towards it operational restructuring goals including divesting or winding down various non-core operations not directly related to our core space-as-a-service offering, significant reductions in costs associated with selling, general and administrative expenses. During the nine months ended September 30, 2021, the Company successfully terminated leases associated with a total of 78 previously open locations and 3 pre-open locations. Management is continuing to evaluate our real estate portfolio in connection with its ongoing restructuring efforts and expects to exit additional leases.

During 2021, the Company anticipates there will be additional restructuring and related costs consisting primarily of lease termination charges, other exit costs and costs related to ceased use buildings and one-time employee termination benefits, as the Company is still in the process of finalizing its operational restructuring plans.

Restructuring and other related costs totaled $15.9 million and $19.0 million during the three months ended September 30, 2021 and 2020, respectively, and $482.0 million and $155.2 million during the nine months ended September 30, 2021 and 2020, respectively. The details of these net charges are as follows:

 

      Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
                          

(Amounts in thousands)

   2021     2020     2021     2020  
                          

One-time employee terminations (1)

   $ 3,758   $ 19,122   $ 548,860   $ 172,154

Ceased use buildings

     33,378     —         99,123     —    

Gains on lease terminations, net

     (31,373     (4,529     (211,368     (36,215

Other, net

     10,171     4,371     45,364     19,242
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 15,934   $ 18,964   $ 481,979   $ 155,181
  

 

 

   

 

 

   

 

 

   

 

 

 
                                  

 

(1)

In connection with the Settlement Agreement, as described in Note 17, SBG purchased 30,139,971 shares of Class B Common Stock of the Company from We Holdings LLC, which is Adam Neumann’s affiliated investment vehicle, for a price per share of $19.19, representing an aggregate purchase price of approximately $578.4 million. The Company recorded $428.3 million of restructuring and other related costs in its consolidated statement of operations for the nine months ended

 

23


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

  September 30, 2021, which represents the excess between the amount paid from a principal shareholder of the Company to We Holding LLC and the fair value of the stock purchased. Also, in connection with the Settlement Agreement the WeWork Partnerships Profits Interest Units held by Adam Neumann in the WeWork Partnership became fully vested and were amended to have a catch-up base amount of $0. The per unit distribution thresholds for the WeWork Partnerships Profits Interest Units were also amended to initially be $10.00 and may be subject to upward adjustment based on a third party valuation of fair market value and may be subject to downward adjustment based on closing date pricing if a de-SPAC or initial public offering were to occur. Legacy WeWork has received a third party valuation of fair market value of the WeWork Partnerships Profits Interest Units, which confirmed that no upward adjustment is needed to be $10.00 per unit distribution threshold. As a result of this modification, the Company recorded $102.0 million of restructuring and other related costs in its consolidated statement of operations for the nine months ended September 30, 2021.

As of September 30, 2021, net restructuring liabilities totaled approximately $60.2 million, including $60.8 million in accounts payable and accrued expenses, $7.8 million in other liabilities, net of $8.4 million in receivables from landlords in connection with lease terminations, included in other current assets in the consolidated balance sheet. A reconciliation of the beginning and ending restructuring liability balances is as follows:

 

(Amounts in thousands)

   One-time
Employee
Benefits
    Legal
Settlement
Benefits (1)
    Other     Total
Restructuring
Costs
 

Restructuring liability balance — December 31, 2020

   $ 16,119   $ —     $ 12,756   $ 28,875

Restructuring and other related costs expensed during the period

     18,589     530,271     (66,881     481,979

Cash payments of restructuring liabilities, net (2)

     (28,933     —         (309,457     (338,390

Non-cash impact — primarily asset and liability write-offs and stock-based compensation

     (2,054     (530,271     420,108     (112,217
  

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring liability balance — September 30, 2021

   $ 3,721   $ —     $ 56,526   $ 60,247
  

 

 

   

 

 

   

 

 

   

 

 

 
                                  

 

(1)

For further details on the costs in connection with the Settlement Agreement recorded in restructuring and other related costs for the nine months ended September 30, 2021, see footnote 1 to the preceding table.    

(2)

Includes cash payments received from the landlord for terminated leases of $18.0 million for the nine months ended September 30, 2021.

In connection with the operational restructuring program and related changes in the Company’s leasing plans and planned or completed disposition or wind down of certain non-core operations and projects, the Company has also recorded various other non-routine write-offs, impairments and gains on sale of goodwill, intangibles and various other long-lived assets.

During the three and nine months ended September 30, 2021, the Company also performed its quarterly impairment assessment for long-lived assets. As a result of the COVID-19 pandemic and the resulting declines in revenue and operating income experienced by certain locations as of September 30, 2021, we identified certain assets whose carrying value was now deemed to have been partially impaired. We evaluated our estimates and assumptions related to our locations’ future revenue and cash flows, and performed a comprehensive review of our locations’ long-lived assets for impairment, including both property and equipment and operating lease right-of-use assets, at an individual location level. Key assumptions used in estimating the fair value of our location assets in connection with our impairment analyses are revenue growth, lease costs, market rental rates, changes in local real estate markets in which we operate, inflation, and the overall economics of the real estate industry. Our assumptions account for the estimated impact of the COVID-19 pandemic. As a result, during the three and nine months ended September 30, 2021, the Company recorded none and $31.5 million, respectively, in impairments, primarily as a result of decreases in projected cash flows primarily attributable to the impact of COVID-19.

 

24


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Non-routine gains and impairment charges totaled $87.5 million and $629.1 million during the three and nine months ended September 30, 2021, respectively, and are included on a net basis as impairment/(gain on sale) of goodwill, intangibles and other assets in the accompanying condensed consolidated statements of operations. The details of these net charges are as follows:

 

      Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
                           

(Amounts in thousands)

   2021      2020     2021     2020  
                           

Impairment of assets held for sale

   $ —      $ 268   $ —     $ 120,273

Impairment and write-off of long-lived assets associated with restructuring

     87,541      155,961     598,481     579,024

Impairment of long-lived assets primarily associated with COVID-19

     —          104,324     31,461     166,637

Gain on sale of assets

     —          (6,928     (816     (56,350
  

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 87,541    $ 253,625   $ 629,126   $ 809,584
  

 

 

    

 

 

   

 

 

   

 

 

 
                                   

The table above excludes certain routine impairment charges for property and equipment write-offs relating to excess, obsolete, or slow-moving inventory of furniture and equipment, early termination of leases and cancellation of other deals or projects occurring in the ordinary course of business totaling none and $0.7 million, respectively, during the three months ended September 30, 2021 and 2020, and totaling $0.03 million and $3.5 million, respectively, during the nine months ended September 30, 2021 and 2020, respectively, included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

In connection with the Company’s operational restructuring program, the Company has divested or wound down certain non-core operations not directly related to its space-as-a-service during the nine months ended September 30, 2020.

In January 2020, the Company sold Teem for total cash consideration of $50.5 million. The Company recorded a gain on the sale of $37.2 million, included in the impairment/(gain on sale) of goodwill, intangibles and other assets in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2020.

In March 2020, the Company sold Managed by Q for total cash consideration of $28.1 million. Of the total consideration, $2.5 million was heldback at closing and is included as a disposition proceeds holdback receivable within other current assets on the accompanying condensed consolidated balance sheet as of September 30, 2020. As of September 30, 2021, $2.2 million of the holdback was released and $0.3 million included as a disposition proceeds holdback receivable within other current assets on the accompanying condensed consolidated balance sheet. The Company recorded a gain on the sale in the amount of none and $8.9 million, included in the impairment/(gain on sale) of goodwill, intangibles and other assets in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020, respectively. The gain on sale in 2020 was recognized after a $20.7 million impairment of intangible assets and a $145.0 million impairment of goodwill associated with Managed by Q that was recorded during the year ended December 31, 2019.

In March 2020, the Company also sold 91% of the equity of Meetup for total cash consideration of $9.5 million and the remaining 9% was retained by the Company. Upon closing, Meetup was deconsolidated and the Company’s 9% interest in the equity of Meetup is reflected within equity method and other investments on the accompanying condensed consolidated balance sheet as of September 30, 2020. Prior to the sale, the Company recorded an impairment loss of none and $26.1 million, on the assets held for sale, included in the impairment/(gain on sale) of goodwill, intangibles and other assets in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020, respectively.

In March 2020, the Company completed the sale of the real estate investment held by the 424 Fifth Venture and recognized an impairment loss on the assets sold totaling none and $53.7 million, included in impairment/(gain on sale) of goodwill, intangibles and other assets on the accompanying condensed consolidated statements of operations during the three and nine months ended September 30, 2020, respectively. Of the total consideration, $15.0 million was heldback at closing of which $10.0 million was received as of September 30, 2021. See Note 5 for further details.

 

25


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

In May 2020, the Company sold SpaceIQ for a total cash consideration of $9.6 million. Prior to the sale, the Company recorded an impairment loss of of none and $23.1 million, respectively, on the assets held for sale, included in the impairment/(gain on sale) of goodwill, intangibles and other assets in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020, respectively.

In July 2020, the Company sold certain non-core corporate equipment for total cash consideration of $45.9 million. Prior to the sale, the Company recorded an impairment loss of none and $14.3 million, respectively, on the assets held for sale, included in the impairment/(gain on sale) of goodwill, intangibles and other assets in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020, respectively.

In August 2020, the Company sold Flatiron LLC, Designation Labs LLC, SecureSet Academy LLC, Flatiron School UK Limited and Flatiron School Australia Pty Ltd (collectively “Flatiron”) for total cash consideration of $28.5 million. Prior to the sale, the Company recorded an impairment loss of $0.3 million and $3.0 million, during the three and nine months ended September 30, 2020 respectively, and also recorded a gain on sale of $6.0 million during the three and nine months ended September 30, 2020 each included in impairment/(gain on sale) of goodwill, intangibles and other assets in the accompanying condensed consolidated statements of operations.

There were no dispositions or intangible asset or goodwill impairments during the three and nine months ended September 30, 2021.

Note 4. Other Current Assets

Other current assets consists of the following:

 

      September 30,      December 31,  

(Amounts in thousands)

   2021      2020  
               

Net receivable for value added tax (“VAT”)

   $ 134,478    $ 107,104

Prepaid member referral fees and deferred sales incentive compensation (Note 12)

     46,382      31,617

Prepaid lease cost

     43,606      61,232

Straight-line revenue receivable

     34,548      35,418

Prepaid software

     30,502      19,981

Deposits held by landlords

     23,091      25,574

Disposition proceeds holdback amounts receivable (Note 3 and 5)

     5,323      17,500

Deposits on property and equipment

     3,375      3,161

Other prepaid expenses and current assets

     80,845      50,585
  

 

 

    

 

 

 

Total other current assets

   $ 402,150    $ 352,172
  

 

 

    

 

 

 
                   

Note 5. Consolidated VIEs and Noncontrolling Interests

ARK/WPI Combination

WeWork Capital Advisors LLC (formerly known as “ARK Capital Advisors LLC”, the “WeCap Manager”) is a majority-owned subsidiary of the Company and its controlled affiliates. The WeCap Manager is also owned in part by Rhône Group L.L.C. and its affiliates (other than the WeCap Manager) (“Rhône” and, together with the Company, the “Sponsor Group”), a global alternative asset management firm with assets under management across its private equity and real estate platforms.

 

26


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

In August 2019, the Company reorganized its real estate acquisition platform (such platform, following the ARK/WPI combination described herein, and inclusive of the investment vehicles sponsored, co-sponsored, managed, or co-managed by the WeCap Manager and Sponsor Group, “WeCap Investment Group”). Through this reorganization (the “ARK/WPI combination”), the Company acquired from Rhône a controlling financial interest in the WeCap Manager, the management company for the WeCap Investment Group in exchange for a 20% noncontrolling interest in the WeCap Manager. The WeCap Manager is the surviving entity resulting from the merger of the legacy entity that previously managed WeWork Property Investors LP, including its parallel and related vehicles (collectively the “WPI Fund”), which was indirectly owned 50% by us and 50% by affiliates of Rhône and was unconsolidated prior to the ARK/WPI combination, and the wholly owned and consolidated legacy entity that previously managed the ARK Master Fund LP (the “ARK Master Fund”) including its parallel and related vehicles. Following the ARK/WPI combination, the Company consolidates the WeCap Manager. The portion of consolidated equity attributable to Rhône’s interest in the WeCap Manager is reflected as a noncontrolling interest in the equity section of the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020.

Through its 80% equity ownership interest, the Company is entitled to a corresponding share of the income earned by the WeCap Manager, primarily in the form of customary management fees, subject to provisions of the governing documents of the WeCap Manager relating to funding of losses incurred by the WeCap Manager. During the three and nine months ended September 30, 2021, the WeCap Manager recognized $3.7 million and $10.7 million, respectively, in management fee income, classified as other revenue as a component of the total revenue on the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2020, the WeCap Manager recognized $5.1 million and $14.4 million, respectively, in management fee income.

The post-reorganization WeCap Investment Group also includes the Company’s general partner interests in WeWork Caesar Member LLC (“Waller Creek”) DSQ, WPI Fund and ARK Master Fund (each as defined in Note 6), which are held through a limited partnership created as part of the ARK/WPI combination (the “WeCap Holdings Partnership”) in which Rhône also participates to the extent provided by the governing documents of the WeCap Holdings Partnership. The Company consolidates the WeCap Holdings Partnership. Net carried interest distributions earned in respect of the WeCap Investment Group from its investments are distributable to the Company and Rhône, indirectly through the WeCap Holdings Partnership, based on percentages that vary by the WeCap Investment Group vehicle and range from a 50% to 85% share to the Company of total net carried interest distributions received by the WeCap Holdings Partnership (after a profit participation allocation to certain personnel associated with the WeCap Manager). The portion of consolidated equity attributable to Rhône’s interest in the WeCap Holdings Partnership is reflected as a noncontrolling interest in the equity section of the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020.

Primarily because our investments through the WeCap Holdings Partnership in the underlying real estate acquisition vehicles generally represent a small percentage of the total capital invested by third parties, and the terms on which we have agreed to provide services and act as general partner are consistent with the market for similar arrangements, the underlying real estate acquisition vehicles managed by the WeCap Manager are generally not consolidated in our financial statements (subject to certain exceptions based on the specific facts of the particular vehicle). The Company accounts for its share of the underlying real estate acquisition vehicles as unconsolidated investments under the equity method of accounting. See Note 6 for additional details regarding the holdings of WeCap Holdings Partnership.

 

27


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

424 Fifth Venture

In February 2019, a consolidated subsidiary of the Company (the “424 Fifth Venture”) closed on the acquisition of a $852.8 million real estate investment located in New York City (the “424 Fifth Property”). The acquisition of real estate by the 424 Fifth Venture was accounted for as an asset acquisition and the purchase price was allocated among the assets purchased, including land of $356.5 million and building of $496.3 million. As of December 31, 2019, the real estate was under development and as a result was included within the Company’s construction in progress balance within the property and equipment table detailed in Note 5.

Just prior to the redemption of the noncontrolling interest holders in March 2020 described below, the consolidated 424 Fifth Venture was owned 17.2% by the Company, 44.8% by the WPI Fund and 38.0% by another investor. Prior to redemption, the portion of consolidated equity attributable to the interest of the 424 Fifth Venture’s other investors was reflected as noncontrolling interests within the equity section of the accompanying consolidated balance sheet as of December 31, 2019. Upon completion of the redemption of the noncontrolling interest holders in March 2020, the 424 Fifth Venture became a wholly owned subsidiary of the Company.

In March 2020, the 424 Fifth Property was sold by the 424 Fifth Venture to an unrelated third party for a gross purchase price of approximately $978.1 million. Included in the sale was $356.5 million in land and $653.8 million in construction in progress associated with the investment. The $930.2 million in net cash proceeds received at closing were net of closing costs and holdbacks. Of the total consideration, $15.0 million was heldback at closing, of which $10.0 million was received as of March 31, 2021. The Company recognized an impairment loss on the assets sold totaling none and $53.7 million, included in impairment/(gain on sale) of goodwill, intangibles and other assets on the accompanying condensed consolidated statements of operations during the three and nine months ended September 30, 2020, respectively.

The underlying debt facility that secured the 424 Fifth Property since acquisition was extinguished upon the sale (see Note 10 for further details). In March 2020, in connection with the sale of the 424 Fifth Property, the Company also made a payment of $128.0 million to the 424 Fifth Venture and the 424 Fifth Venture made redemption payments to the noncontrolling interest holders totaling $315.0 million including a return of capital of $272.2 million and a return on their capital of $42.8 million.

The sale and debt extinguishment also resulted in the termination in March 2020 of the Company’s original development management agreements over the property, its 20 year master lease of the property, its $1.2 billion lease guaranty, various loan guarantees, various loan covenant requirements and various partnership guarantees and indemnities entered into in connection with the original acquisition.

Upon the sale of the property, a wholly owned subsidiary of the Company entered into an escrow and construction agreement with the buyer for approximately $0.2 billion to finalize the core and shell infrastructure work of the property. These funds were held in escrow upon closing of the sale and are available to pay construction costs, contingencies and cost overruns. The $0.2 billion is expected to be earned by the Company over 12-18 months as the development is completed. During the three and nine months ended September 30, 2021, the Company recognized approximately $29.8 million and $52.7 million in revenue related to this development agreement, included as a component of other revenues. During the three and nine months ended September 30, 2020, the Company recognized approximately $25.6 million and $36.6 million, respectively. At closing, WeWork Companies LLC provided the buyer a guaranty of completion for the core and shell construction work of the property and the Company is obligated for any overruns if the amounts in escrow are not sufficient to cover the required construction costs.

 

28


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Creator Fund

During 2018, the Company launched a fund (the “Creator Fund”) that previously made investments in recipients of WeWork’s “Creator Awards” and other investments through use of a venture capital strategy. A wholly-owned subsidiary of the Company was the managing member of the Creator Fund. As of September 17, 2020, the Creator Fund had received contributions from SoftBank Group Capital Limited totaling $72.4 million, representing 99.99% of the interest of the Creator Fund. No contributions were received during the three and nine months ended September 30, 2021.

In September 2020, the Company agreed to transfer its rights as managing member and all of its other rights, titles, interests, obligations and commitments in respect of the Creator Fund to an affiliate of SBG. Accordingly, the Company no longer has a variable interest in the Creator Fund and is no longer the primary beneficiary and the Company has deconsolidated the net assets of the Creator Fund and removed the carrying amount of the noncontrolling interest from the consolidated balance sheet as of December 31, 2020. As substantially all of the net assets of the Creator Fund were previously allocated to the noncontrolling interests, no gain or loss was recognized on deconsolidation of the Creator Fund. In connection with this transaction, the parties also agreed that WeWork would not be required to reimburse SBG for the $21.6 million Creator Awards production services reimbursement obligation payable to an affiliate of SBG as of December 31, 2019, as described in Note 17. As SBG is a principal shareholder of the Company, the forgiveness of this obligation was accounted for as a capital contribution and reclassified from liabilities to additional paid-in-capital during the year ended December 31, 2020.

ChinaCo

During 2017 and 2018, a consolidated subsidiary of the Company (“ChinaCo”) sold to investors $500.0 million of Series A Preferred Stock at a price of $10.00 per share and a liquidation preference of $10.00 per share and $500.0 million of Series B Preferred Stock at a price of $18.319 per share and a liquidation preference of $18.319 per share. The portion of consolidated equity attributable to ChinaCo’s Series A and B Preferred shareholders were reflected as redeemable noncontrolling interests, within the mezzanine section of the accompanying consolidated balance sheet as of December 31, 2019. As of December 31, 2019, ChinaCo had also issued a total of 45,757,777 Class A Ordinary Shares in connection with an acquisition of naked Hub Holdings Ltd. (“naked Hub”) that occurred during 2018 and an additional 2,000,000 Class A Ordinary Shares to a consultant as described in Note 9. The portion of consolidated equity attributable to ChinaCo’s Class A Ordinary shareholders were reflected as noncontrolling interests, within the equity section of the accompanying consolidated balance sheet as of December 31, 2019.

Pursuant to the terms of the shareholders’ agreement of ChinaCo, as long as certain investors remain shareholders of ChinaCo, ChinaCo will be the exclusive operator of the Company’s businesses in the “Greater China” territory, defined in the agreement to include China, Hong Kong, Taiwan and Macau.

In August 2020, a wholly owned subsidiary of Legacy WeWork made a short-term loan to ChinaCo totaling $25.0 million (the “ChinaCo Loan”). In connection with ChinaCo’s 2018 acquisition of naked Hub, as of December 31, 2019, ChinaCo also had a $191.1 million obligation to reimburse a wholly owned subsidiary of Legacy WeWork for Legacy WeWork shares issued to the sellers of naked Hub (the “Parent Note”). As ChinaCo was consolidated as of December 31, 2019, the Parent Note was eliminated against the Company’s receivables in the Company’s consolidated financial statements.

In September 2020, the shareholders of ChinaCo and an affiliate of TrustBridge Partners (“TBP”), also an existing shareholder of ChinaCo, executed a restructuring and Series A subscription agreement (the “ChinaCo Agreement”). Pursuant to the ChinaCo Agreement, TBP agreed to subscribe for a new series of ChinaCo shares for $100.0 million in total gross proceeds to ChinaCo, received in connection with the initial investment closing on October 2, 2020 (the “Initial Investment Closing”) and an additional $100.0 million in gross proceeds to ChinaCo, with such additional shares issued and proceeds to be received at the earlier of 1 year following the Initial Investment Closing or such earlier date as determined

 

29


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

by the ChinaCo board, to the extent such funds are necessary to support the operations of ChinaCo (the “Second Investment Closing”). The ChinaCo Agreement also included the restructuring of the ownership interests of all other preferred and ordinary shareholders’ interests into new ordinary shares of ChinaCo and the conversion of the $191.1 million Parent Note and certain other net intercompany payables totaling approximately $42.0 million, payable by ChinaCo to various wholly owned subsidiaries of Legacy WeWork into new ordinary shares of ChinaCo such that subsequent to the Initial Investment Closing in October 2020, and as of December 31, 2020, WeWork held 21.6% of the total shares issued by ChinaCo. On September 29, 2021, TBP provided $100.0 million to ChinaCo, effectuating the Second Investment Closing. The Company’s remaining interest was diluted down to 19.7% in connection with the Second Investment Closing. Prior to the Second Investment Closing TBP held a total of 50.5% of the total shares issued by ChinaCo subsequent to the Initial Investment Closing. As of September 30, 2021, and following the Second Investment Closing, TBP holds 55.0% of the total shares. TBP’s shares are preferred shares which have a liquidation preference totaling $100.0 million and $200.0 million as of the Initial Investment Closing and the Second Investment Closing, respectively.

Upon Initial Investment Closing on October 2, 2020, ChinaCo received the $100.0 million in gross proceeds from TBP and a portion of those proceeds were used to repay WeWork $25.0 million for the ChinaCo Loan. In addition, pursuant to the terms of the ChinaCo Agreement, the rights of the ChinaCo shareholders were also amended such that upon the Initial Investment Closing, WeWork no longer retained the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a result, WeWork was no longer the primary beneficiary of ChinaCo and ChinaCo was deconsolidated from the Company’s consolidated financial statements on October 2, 2020 (the “ChinaCo Deconsolidation”). The Company’s remaining 21.6% ordinary share investment was valued at $26.3 million upon deconsolidation and will be accounted for as an equity method investment as the Company has retained rights that allow it to exercise significant influence over ChinaCo as a related party.

During the fourth quarter of 2020, the Company recorded a loss on the ChinaCo Deconsolidation of $153.0 million included in impairment/(gain on sale) of goodwill, intangibles and other assets in the consolidated statement of operations calculated based on the difference between (i) the $26.3 million fair value of the Company’s retained equity method investment in ChinaCo plus the carrying amount of the noncontrolling interest in ChinaCo as of the date of the ChinaCo Deconsolidation, which was in a negative deficit position of $(22.6) million and (ii) the carrying value of ChinaCo’s net assets just prior to the ChinaCo Deconsolidation of $156.7 million.

The remeasurement loss recognized on deconsolidation primarily relates to the remeasurement of our retained equity method investment in ChinaCo, recorded at fair value upon deconsolidation, in comparison to the carrying value of the net intercompany receivables that were converted into equity in ChinaCo in conjunction with the ChinaCo restructuring that ultimately resulted in the ChinaCo Deconsolidation.

The net assets of ChinaCo that were deconsolidated on October 2, 2020, included a total of $344.3 million of goodwill related to ChinaCo’s 2018 acquisition of naked Hub. As this goodwill was integrated into the Company’s single reporting unit, upon deconsolidation of a portion of the reporting unit, the Company’s total goodwill was reallocated among the Company and ChinaCo on a relative fair value basis with $315.6 million of ChinaCo’s goodwill retained by the Company with a corresponding increase to additional paid-in capital and $28.7 million of ChinaCo’s goodwill was deconsolidated.    

See Note 17 for details regarding various related party fees payable by ChinaCo to the Company subsequent to the ChinaCo Deconsolidation.

 

30


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

ChinaCo contributed the following to the Company’s consolidated results of operations prior to its deconsolidation on October 2, 2020, in each case excluding amounts that eliminate in consolidation:

 

      Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
                            

(Amounts in thousands)

   2021      2020     2021      2020  
                            

Revenue

   $ —      $ 69,340   $ —      $ 206,261

Location operating expenses

     —          87,097     —          266,318

Restructuring and other related costs

     —          (47,642     —          (18,660

Impairments/(gain on sale) of goodwill, intangibles and other assets

     —          78,441     —          450,312

Depreciation and amortization

     —          10,862     —          39,208

Total Expenses

     —          149,527     —          819,527

Pre-tax loss

     —          (58,437     —          (598,727

Net loss

     —          (66,221     —          (609,820

Net (loss) income attributable to Legacy WeWork

     —          (32,733     —          (62,997
                                    

JapanCo

During 2017, a consolidated subsidiary of the Company (“JapanCo”) entered into an agreement with an affiliate of SBG for the sale of a 50.0% membership interest in JapanCo for an aggregate contribution of $500.0 million which will be funded over a period of time. As of December 31, 2018, JapanCo had received contributions totaling $300.0 million and during the year ended December 31, 2019, an additional $100.0 million was received. Pursuant to the terms of the agreement an additional $100.0 million was required to be contributed and was received during the third quarter of 2020. The portion of consolidated equity attributable to the outside investors’ interests in JapanCo are reflected as redeemable noncontrolling interests, within the mezzanine section of the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020. As long as the investors remain shareholders of JapanCo, JapanCo will be the exclusive operator of the Company’s WeWork branded space-as-a-service businesses in Japan. After July 13, 2024 and, prior to that date, in the event of default on the contributions to be made, the Company may elect to purchase, at fair value, all JapanCo membership interests held, other than any interests issued in connection with an equity incentive plan. The Company may elect to pay the buyout consideration in either cash, WeWork shares or a combination thereof.

PacificCo

During 2017, a consolidated subsidiary of the Company (“PacificCo”) sold $500.0 million of Series A-1 Preferred Stock at a price of $10.00 per share and a liquidation preference of $10.00 per share to an affiliate of SBG. PacificCo is the operator of the Company’s businesses in selected markets in Asia other than those included in the Greater China and Japan territories described above, including but not limited to Singapore, Korea, the Philippines, Malaysia, Thailand, Vietnam and Indonesia.

The initial closing occurred on October 30, 2017 and all of the PacificCo Series A-1 Preferred Stock was issued at that time, however the Company received contributions totaling $200.0 million at the initial closing and an additional $100.0 million during the year ended December 31, 2018. Pursuant to the terms of the agreement an additional $100.0 million was required to be contributed in each of 2019 and 2020. The Company received $100.0 million in August 2019 and the remaining $100.0 million scheduled to be received in 2020 was canceled effective upon our entry into a definitive agreement providing for the completion of the PacificCo Roll-up (as defined below) in connection with the SoftBank Transactions in March 2020.

In October 2019, in connection with the SoftBank Transactions, the Company, SBG and SoftBank Vision Fund agreed to use reasonable best efforts to negotiate and finalize the final forms for the exchange of all interests held by affiliates of SBG in PacificCo for 34,482,759 shares of the Company’s Series H-1 or H-2 Convertible Preferred Stock with a liquidation preference of $11.60 per share (the “PacificCo Roll-up”). On March 31, 2020, the Company signed the definitive agreements for the PacificCo Roll-up and in April 2020, the Company closed the PacificCo Roll-up and issued 34,482,759 shares of the Company’s Series H-1 Convertible Preferred Stock. Upon completion of the PacificCo Roll-up in April 2020, PacificCo became a wholly owned subsidiary of the Company and is no longer a VIE.

 

31


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The 34,482,759 shares of Series H-1 Convertible Preferred Stock issued in connection with the PacificCo Roll-up had a fair value of $8.13 per share upon issuance to a affiliates of SBG in April 2020. As the share exchange represents an increase in the Company’s ownership of PacificCo while control of PacificCo was retained, the carrying amount of the noncontrolling interest was adjusted to reflect the change in the Company’s ownership interest in PacificCo and the Company accounted for the share exchange as an equity transaction with no gain or loss recognized on the acquisition of the noncontrolling interests.    

Just prior to the PacificCo Roll-up, the PacificCo noncontrolling interest had a carrying value on the Company’s balance sheet of $92.8 million, including $10.4 million in accumulated other comprehensive income previously allocated to the noncontrolling interest holders. Upon consummation of the PacificCo Roll-up, the noncontrolling interest was reduced by the entire $92.8 million carrying value and the $10.4 million of accumulated other comprehensive income was allocated to the Company to adjust for the change in ownership of PacificCo through a corresponding charge to additional paid-in capital. The difference between the $280.3 million fair value of the Series H-1 Convertible Preferred Stock issued as consideration and the $92.8 million carrying value of the noncontrolling interest was reflected as a charge to additional paid-in capital totaling $187.5 million.

LatamCo

During September 2021, a consolidated subsidiary of the Company (“LatamCo”) entered into an agreement with an affiliate of SBG for the sale of 71.0% interest (with up to 49.9% voting power) in LatamCo for an aggregate contribution of $80.0 million which will be funded through equity and secured promissory notes. As of September 30, 2021, LatamCo received contributions totaling $30.0 million and the remaining $50.0 million was received in October 2021. The portion of consolidated equity attributable to the outside investors’ interests in LatamCo are reflected as redeemable noncontrolling interest within the mezzanine section of the accompanying condensed consolidated balance sheet as of September 30, 2021. Upon formation of LatamCo, the Company contributed its businesses in Argentina, Mexico, Brazil, Colombia and Chile (collectively, the “Greater Latin American territory”), committed to fund $12.5 million, and remains as guarantor on certain lease obligations.

Pursuant to the terms of the agreement, the Company may be liable up to $26.5 million, for cost related to the termination of certain leases within the first 12 months of the agreement.     

Pursuant to the terms of the agreement, an additional $60.0 million may be received by LatamCo from the exercise of SoftBank Latin America’s (“SBLA”) call options during the first and second year of operations. Further, SBLA maintains sell-out rights based on the performance of LatamCo, exercisable between September 1, 2025 and August 31, 2026, and the Company holds subsequent buy-out rights exercisable between September 1, 2027 and August 31, 2028. The stock associated with SBLA’s sell-out rights is not currently redeemable and thus has been recorded based on the fair value at the time of issuance. Subsequent adjustment of the amount presented in mezzanine equity to its redemption amount is unnecessary given it is not probable that the instrument will become redeemable. If redemption becomes probable, the units will be recorded at redemption value.

Provided that certain investors remain shareholders of LatamCo, LatamCo will be the exclusive operator of the Company’s businesses in the Greater Latin American territory.

Consolidated Variable Interest Entities

As of September 30, 2021, JapanCo, WeCap Manager, WeCap Holdings Partnership, and LatamCo are the Company’s only consolidated VIEs. As of December 31, 2020, JapanCo, WeCap Manager, and WeCap Holdings Partnership are the Company’s only consolidated VIEs. The Company is considered to be the primary beneficiary as we have the power to direct the activities of the VIEs that most significantly

 

32


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

impact the VIEs’ economic performance and the right to receive benefits that could potentially be significant to the VIEs. As a result, these entities remain consolidated subsidiaries of the Company and the interests owned by the other investors and the net income or loss and comprehensive income or loss attributable to the other investors are reflected as redeemable noncontrolling interests and noncontrolling interests on our condensed consolidated balance sheets, statements of operations and statements of comprehensive loss, respectively.

The following table includes selected condensed consolidated financial information as of September 30, 2021 and December 31, 2020 of our consolidated VIEs, as included in our condensed consolidated financial statements, as of the periods they were considered VIEs and in each case, after intercompany eliminations.

 

      September 30, 2021      December 31, 2020  
                           

(Amounts in thousands)

   Asia JVs(1)     Other VIEs(2)      Asia JVs(1)     Other VIEs(2)  
                           

Consolidated VIE balance sheets information:

         

Cash and cash equivalents

   $ 71,706   $ 28,948    $ 161,411   $ 5,194

Property and equipment, net

     397,156     290,393      445,599     —    

Restricted cash

     10,143     —          10,000     —    

Total assets

     1,903,203     983,031      2,096,389     13,834

Long-term debt, net

     (12     —          30,638     —    

Total liabilities

     1,620,725     877,981      1,693,267     573

Redeemable stock issued by VIEs

     500,000     30,000      500,000     —    

Total net assets(3)

     (217,522     75,050      (96,878     13,261
                                   

The following tables include selected condensed consolidated financial information for the three and nine months ended September 30, 2021 and 2020 of our consolidated VIEs, as included in our condensed consolidated financial statements, for the periods they were considered VIEs and in each case, after intercompany eliminations.

 

      September 30, 2021     September 30, 2020  
                          

(Amounts in thousands)

    Asia JVs(1)      Other VIEs(2)      Asia JVs(1)      Other VIEs(2)  
                          

Consolidated VIE statements of operations information:

 

Net income (loss) for the three months ended

   $ (33,345   $ (11,828   $ (121,703   $ 2,475

Net income (loss) for the nine months ended

   $ (97,454   $ (11,544   $ (721,300   $ (9,202
                                  

 

      Nine Months Ended
September 30, 2021
    Nine Months Ended
September 30, 2020
 
                          

(Amounts in thousands)

    Asia JVs(1)      Other VIEs(2)      Asia JVs(1)      Other VIEs(2)  
                          

Consolidated VIE statements of operations information:

 

Net cash provided by (used in) operating activities

   $ (62,791   $ (11,413   $ (16,249   $ 2,549

Net cash used in investing activities

     (14,812     (860     (229,064     (573

Net cash provided by (used in) financing activities

     (2,172     31,794     70,754     (1,994
                                  

 

(1)

The “Asia JVs” include ChinaCo, JapanCo and PacificCo as of and for the periods that each represented a consolidated VIE. The ChinaCo Deconsolidation occurred on October 2, 2020 and as a result, ChinaCo results and balances are not included above for the period subsequent to deconsolidation. The PacificCo Roll-up occurred on April 17, 2020 and as a result, PacificCo results and balances are not included above for the period subsequent to April 17, 2020. The consent of an affiliate of SoftBank Group Capital Limited is required for any dividends to be distributed by JapanCo. As a result, any net assets of JapanCo would be considered restricted net assets to the Company as of September 30, 2021. The net assets of the Asia JVs include preferred stock issued to affiliates of SBG and other investors with aggregate liquidation preferences totaling $0.5 billion and $0.5 billion as of September 30, 2021 and December 31, 2020, respectively, which preferred stock is redeemable upon the occurrence of an event that is not solely within the control of the Company. The initial issuance price of such redeemable preferred stock equals the liquidation preference for each share issued as of September 30, 2021 and December 31, 2020, respectively. After reducing the net assets of each Asia JV by the liquidation preference associated with such redeemable preferred stock, the remaining net assets of each Asia JV is negative.

 

33


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

(2)

For the three and nine months ended September 30, 2020, “Other VIEs” includes all other consolidated VIEs, other than the Asia JVs discussed separately in (1) and include WeWork Waller Creek, WeCap Manager and WeCap Holdings Partnership, 424 Fifth Venture and the Creator Fund in the periods prior to any disposal or deconsolidation as discussed above. For the three and nine months ended September 30, 2021, “Other VIEs” includes WeCap Manager, WeCap Holdings Partnership, and LatamCo.

(3)

Total net assets represents total assets less total liabilities and redeemable stock issued by VIEs after the total assets and total liabilities have both been reduced to remove amounts that eliminate in consolidation.

The assets of consolidated VIEs will be used first to settle obligations of the VIE. Remaining assets may then be distributed to the VIEs’ owners, including the Company, subject to the liquidation preferences of certain noncontrolling interest holders and any other preferential distribution provisions contained within the operating agreements of the relevant VIEs. Other than the restrictions relating to the Company’s Asia JVs a discussed in (1) above and LatamCo third-party approval for the distribution of available net assets is not required for the Company’s Other VIEs as of September 30, 2021. See Note 16 for a discussion of additional restrictions on the net assets of WeWork Companies LLC.

Note 6. Equity Method and Other Investments

The Company’s investments consist of the following:

 

            September 30, 2021     December 31,
2020
 
                                 
(Amounts in thousands, except percentages)    Carrying      Cost      Percentage     Carrying  
                                 

Investee

  

Investment Type

   Value      Basis      Ownership     Value  
                                 

Investments held by WeCap Holdings Partnership(1)

   Equity method investments / Note receivable    $ 70,694    $ 74,147      Various     $ 61,688

WPI Fund(2)

   Equity method investment      89,864      52,805      8     63,301

IndiaCo(3)

   Investment in convertible notes      33,556      105,248      N/A       49,849

ChinaCo(4)

   Equity method investment      —          29,323      19.7     29,323

Other(5)

   Various      3,828      4,066      Various       10,779
     

 

 

    

 

 

      

 

 

 

Total equity method and other investments

   $ 197,942    $ 265,589      $ 214,940
  

 

 

    

 

 

      

 

 

 
                                         

 

(1)

As discussed in Note 5, subsequent to the August 2019 reorganization of the WeCap Investment Group real estate acquisition platform, the following investments are owned through the WeCap Holdings Partnership in which Rhône has a 20% equity interest:

 

   

“DSQ” — a venture in which WeCap Holdings Partnership owns a 10% equity interest. DSQ owns a commercial real estate portfolio located in London, United Kingdom. The investment balance as of September 30, 2021 also includes a note receivable with an outstanding balance of $42.5 million that accrues interest at a rate of 5.77% and matures in April 2028.

 

   

“WPI Fund” — a real estate investment fund in which WeCap Holdings Partnership holds the 0.5% general partner interest. The WPI Fund’s focus is acquiring, developing and managing office assets with current or expected vacancy suitable for WeWork occupancy, currently primarily focusing on opportunities in North America and Europe.

 

   

“ARK Master Fund” — an investment fund in which WeCap Holdings Partnership holds the general partner and a limited partner interest totaling 2% of the fund’s invested capital. ARK Master Fund invests in real estate and real estate-related investments that it expects could benefit from the Company’s occupancy or involvement or the involvement of the limited partners of the ARK Master Fund.

 

(2)

In addition to the general partner interest in the WPI Fund held by WeCap Holdings Partnership described above, a wholly owned subsidiary of the WeCap Investment Group also owns an 8% limited partner interest in the WPI Fund.

(3)

In June 2020, the Company entered into an agreement with WeWork India Management Private Limited (“IndiaCo”), an affiliate of Embassy Property Developments Private Limited (“Embassy”), to subscribe for new convertible debentures to be issued by IndiaCo in an aggregate principal amount of $100.0 million (the “2020 Debentures”). During June 2020, $85.0 million of the principal had been funded, with the remaining $15.0 million to be funded over time based on milestones achieved by IndiaCo. The remaining $15.0 million was funded in April 2021. The 2020 Debentures earn interest at a coupon rate of 12.5% per annum for the 18-month period beginning in June 2020 which then gets reduced to 0.001% per annum and have a maximum term of 10 years. The 2020 Debentures are convertible into equity at the Company’s option after 18 months from June 2020 or upon mutual agreement between the Company, IndiaCo, and Embassy. The Company’s investment balance as of September 30, 2021 also includes an aggregate principal amount of approximately $5.5 million in other convertible debentures issued by IndiaCo that earn interest at a coupon rate of 0.001% per annum and have a maximum term of ten years. During the three months ended September 30, 2021 and 2020, the Company recorded a credit loss valuation allowance on its

 

34


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

  investments in IndiaCo totaling $1.6 million and $4.7 million, respectively, included in income (loss) from equity method and other investments. During the nine months ended September 30, 2021 and 2020, the Company recorded a credit loss valuation allowance on its investments in IndiaCo totaling $16.8 million and $43.4 million, respectively. As of September 30, 2021 and December 31, 2020, the Company had recorded a liability of none and $7.9 million respectively, included in other current liabilities, relating to the fair value of the credit loss on the forward contract associated with the obligation on the $15.0 million unfunded commitment associated with the 2020 Debentures (the “IndiaCo Forward Liability”) with such credit loss also included in income (loss) from equity method and other investments during the three and nine months ended September 30, 2021. During the three months ended September 30, 2021 and 2020, the Company recorded $(0.3) million and $(0.6) million, respectively, in unrealized gain (loss) on available-for-sale securities included in other comprehensive income, net of tax. During the nine months ended September 30, 2021 and 2020, the Company also recorded $(2.6) million and $3.0 million, respectively, in unrealized gain (loss) on available-for-sale securities included in other comprehensive income, net of tax.

IndiaCo constructs and operates workspace locations in India using WeWork’s branding, advice and sales model. Per the terms of an agreement the Company will also receive a management fee from IndiaCo. The Company recorded $1.3 million and $0.7 million of management fee income from IndiaCo during the three months ended September 30, 2021 and 2020, respectively, and recorded $5.0 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively. Management fee income is included within service revenue as a component of total revenue in the accompanying condensed consolidated statements of operations.

 

(4)

In October 2020, the Company deconsolidated ChinaCo and its retained 21.6% ordinary share equity method investment was recorded at a fair value of $26.3 million plus capitalized legal cost for a total initial cost basis and carrying value as of December 31, 2020 of $29.3 million. Pursuant to ASC 323-10-35-20, the Company discontinued applying the equity method on the ChinaCo investment when the carrying amount was reduced to zero in the first quarter of 2021. The Company will resume application of the equity method if, during the period the equity method was suspended, the Company’s share of unrecognized net income exceeds the Company’s share of unrecognized net losses. The Company’s remaining interest was diluted down to 19.7% in connection with the Second Investment Closing on September 29, 2021. See Note 5 for additional details regarding the ChinaCo Deconsolidation and see Note 17 for details regarding various related party fees payable by ChinaCo to the Company subsequent to the ChinaCo Deconsolidation.

 

(5)

The Company holds various other investments as of September 30, 2021 and December 31, 2020. On June 30, 2021, the Company sold its 5.7% interest in Sound Ventures II, LLC for total consideration of $6.1 million. During the nine months ended September 30, 2021, the Company recorded a loss on the sale of $4.1 million, included in income (loss) from equity method and other investments in the condensed consolidated statements of operations. See Note 17 for details regarding the remaining profit-sharing arrangement between the Company and SB Fast Holdings (Cayman) Limited (“Buyer”) as part of the Creator Fund sale in 2020. The Buyer assumed the Company’s remaining capital commitments of $1.9 million.

As of September 30, 2021, the WPI Fund, IndiaCo, ARK Master Fund, ChinaCo and certain other entities in which the Company has invested are unconsolidated VIEs. In all cases, the Company is not the primary beneficiary, as the Company does not have both the power to direct the activities of the entity that most significantly impact the entity’s economic performance and exposure to benefits or losses that could potentially be significant to the VIE. None of the debt held by these investments is recourse to the Company, except the $3.5 million in lease guarantees provided to landlords of ChinaCo as described in Note 17. The Company’s maximum loss is limited to the amount of our net investment in these VIEs, the $3.5 million in ChinaCo lease guarantees and the unfunded commitments discussed below.

For the three months ended September 30, 2021 and 2020, the Company recorded approximately $5.1 million and $2.5 million, respectively, for its share of gain/(loss) related to its equity method and other investments included in income (loss) from equity method and other investments. For the nine months ended September 30, 2021 and 2020, the Company recorded $(19.4) million and $(44.6) million, respectively, for its share of loss related to equity method and other investments included in income (loss) from equity method and other investments in the condensed consolidated statements of operations.

As of September 30, 2021 and December 31, 2020, the Company had recorded a credit loss valuation allowance on its available-for-sale debt securities totaling $60.7 million and $43.9 million, respectively. As of September 30, 2021 and December 31, 2020, the Company had recorded unrealized gain (loss) on its available-for-sale debt securities totaling $1.8 million and $4.4 million, respectively, included as a component of accumulated other comprehensive income.

For the nine months ended September 30, 2021 and 2020, the Company contributed a total of $26.7 million and $93.4 million, respectively, to its investments and received distributions from its investments totaling $3.2 million and $43.8 million, respectively. As of September 30, 2021, the Company had a total of $33.3 million in unfunded capital commitments to its investments; however, if requested, in each case, the Company may elect to contribute additional amounts in the future.

 

35


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Note 7. Other Assets

Other non-current assets consists of the following:

 

      September 30,      December 31,  

(Amounts in thousands)

   2021      2020  

Deferred financing costs, net — SoftBank Senior Unsecured Notes Warrant (1)

   $ 408,210    $ 488,312

Deferred financing costs, net — 2020 LC Facility Warrant issued to SBG (1)

     128,839      199,832

Deferred financing costs, net — Other SoftBank Debt Financing Costs paid or payable to SBG (1)

     8,131      11,334

Deferred financing costs, net — Other SoftBank Debt Financing Costs paid or payable to third parties (1)

     3,980      5,440

Other deferred financing costs, net

     8,727      64

Security deposits with landlords

     244,123      274,822

Other security deposits

     3,142      3,271

Straight-line revenue receivable

     47,554      46,313

Deferred income tax assets, net

     —          1,377

Other long-term prepaid expenses and other assets

     26,060      31,493
  

 

 

    

 

 

 

Total other assets

   $ 878,766    $ 1,062,258
  

 

 

    

 

 

 
                   

 

(1)

See Note 9 for details. Amounts are net of accumulated amortization totaling $325.7 million and $169.7 million as of September 30, 2021 and December 31, 2020, respectively.

Note 8. Other Current Liabilities

Other current liabilities consists of the following:

 

      September 30,      December 31,  

(Amounts in thousands)

   2021      2020  

2021 LC Debt Facility (See Note 16)

   $ 349,694    $ —  

Refunds payable to former members

     37,859      35,761

Current portion of long-term debt (See Note 10)

     32,520      13,114

Current portion of acquisition holdbacks

     —          1,593

IndiaCo Forward Liability (See Note 6)

     —          7,907

Other current liabilities

     16,973      25,380
  

 

 

    

 

 

 

Total other current liabilities

   $ 437,046    $ 83,755
  

 

 

    

 

 

 
                   

 

36


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Note 9. Convertible Related Party Liabilities and SoftBank Debt Financing

Convertible related party liabilities, net consist of the following:

 

(Amounts in thousands)

   September 30,
2021
    December 31,
2020
 

SoftBank Debt Financing Warrant Liability:

    

SoftBank Senior Unsecured Notes Warrant liability capitalized as deferred financing cost at issuance

   $ 568,877   $ 568,877

Plus: Cumulative (gain)/loss from change in fair value of related party financial instruments

     (59,767     (288,674

Less: Senior Unsecured Notes Warrant liability deferred financing cost adjustment

     (934     (934

Less: Exercise of warrants into Series H-3 Convertible Preferred Stock

     (474,521     —    
  

 

 

   

 

 

 

Total SoftBank Senior Unsecured Notes Warrant Liability, at fair value

     33,655     279,269

2020 LC Facility Warrant liability capitalized as deferred financing cost at issuance

     284,440     284,440

Plus: Cumulative (gain)/loss from change in fair value of related party financial instruments

     (29,882     (144,335

Less: 2020 LC Facility Warrant liability deferred financing cost adjustment

     (466     (466

Less: Exercise of warrants into Series H-3 Convertible Preferred Stock

     (237,265     —    
  

 

 

   

 

 

 

Total LC Facility Warrant Liability, at fair value

     16,827     139,639
  

 

 

   

 

 

 

Total SoftBank Debt Financing Warrant Liability, at fair value

     50,482     418,908
  

 

 

   

 

 

 

Total convertible related party liabilities, net

   $ 50,482   $ 418,908
  

 

 

   

 

 

 
                  

SoftBank Debt Financing—In October 2019, in connection with the SoftBank Transactions, the Company entered into an agreement with SBG for additional financing (the “SoftBank Debt Financing”). The agreement included a commitment from SBG for the provision of (i) $1.1 billion in senior secured debt in the form of senior secured notes or a first lien term loan facility (“SoftBank Senior Secured Debt”), (ii) $2.2 billion in 5.0% senior unsecured notes (the “SoftBank Senior Unsecured Notes”) with associated warrants issued to SoftBank Group Corp. (“SoftBank Obligor”) to purchase 86,591,946 shares of the Company’s Series H-3 Convertible Preferred Stock or Series H-4 Convertible Preferred Stock at an exercise price of $0.01 per share and (iii) credit support for a $1.75 billion letter of credit facility (the “2020 LC Facility”) with associated warrants issued to SoftBank Obligor to purchase 43,295,973 shares of the Company’s Series H-3 Convertible Preferred Stock or Series H-4 Convertible Preferred Stock at an exercise price of $0.01 per share. See Note 16 for additional details regarding the 2020 LC Facility.

SoftBank Senior Secured Debt

The funding of the $1.1 billion of SoftBank Senior Secured Debt originally contemplated per the Master Transaction Agreement was contingent on the completion of the 2020 Tender Offer (as defined in Note 14), and the 2020 Tender Offer was not completed, therefore the SoftBank Senior Secured Debt was also considered terminated in April 2020. See Note 14 for additional details regarding the 2020 Tender Offer. During the three and nine months ended September 30, 2020, the Company expensed none and $5.9 million, respectively, of financing costs previously deferred in connection with the SoftBank Senior Secured Debt included within selling, general and administrative expenses on the accompanying condensed consolidated statements of operations.

In August 2020, the Company, WW Co-Obligor Inc., and StarBright WW LP, an affiliate of SBG (the “Note Purchaser”), entered into a new senior secured note purchase agreement for up to an aggregate principal amount of $1.1 billion of senior secured debt in the form of 12.50% senior secured notes (the “SoftBank Senior Secured Notes”). The agreement allows the Company to borrow once every 30 days up to the

 

37


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

maximum remaining capacity with minimum draws of $50.0 million. The SoftBank Senior Secured Notes will mature 4 years from the first draw. The Company had the ability to draw for 6 months starting from the date of the senior secured note purchase agreement, and the Company extended this draw period for an additional 6 months by delivery of an extension notice to the Note Purchaser in January 2021 pursuant to the terms of the agreement. As of September 30, 2021 and December 31, 2020, no draw notices had been delivered pursuant to the senior secured note purchase agreement.

Amended and Restated Senior Secured Notes

In March 2021, the Company and an affiliate of SBG entered into a letter agreement pursuant to which the Company and an affiliate of SBG agreed to amend and restate the terms of the Master Senior Secured Notes Note Purchase Agreement that governs the SoftBank Senior Secured Notes (as amended and restated, the “A&R Senior Secured Note Purchase Agreement”) on the earlier of (i) the Closing and (ii) August 12, 2021. The A&R Senior Secured Note Purchase Agreement allows the Company to borrow up to an aggregate principal amount of $550.0 million of senior secured debt in the form of new 7.5% senior secured notes (the “A&R Senior Secured Notes”). It was a condition to the execution of the A&R Senior Secured Note Purchase Agreement that any outstanding SoftBank Senior Secured Notes be redeemed, repurchased or otherwise repaid and canceled at a price of 101% of the principal amount thereof plus accrued and unpaid interest. The A&R Senior Secured Note Purchase Agreement allows the Company to borrow once every 30 days with minimum draws of $50.0 million. The A&R Senior Secured Notes will mature no later than February 12, 2023 or, if earlier, 18 months from the Closing. In August 2021, the Company and SBG agreed to amend and restate the terms of the Master Senior Secured Notes Note Purchase Agreement that governs the SoftBank Senior Secured Notes to extend the draw period from August 12, 2021 to September 30, 2021. In September 2021, the Company and SBG agreed to amend and restate the terms to further extend the draw period from September 30, 2021 to the earlier of October 31, 2021 or closing of the de-SPAC transaction.

SoftBank Senior Unsecured Notes

To formalize SBG’s October 2019 commitment to provide WeWork Companies LLC with up to $2.2 billion of unsecured debt, on December 27, 2019, WeWork Companies LLC, WW Co-Obligor Inc., a wholly owned subsidiary of WeWork Companies LLC and a co-obligor under our Senior Notes (defined in Note 14), and the Note Purchaser, entered into a master senior unsecured note purchase agreement (as amended from time to time and as supplemented by that certain waiver dated as of July 7, 2020, the “Master Note Purchase Agreement”).

Pursuant to the terms of the Master Note Purchase Agreement, WeWork Companies LLC may deliver from time to time to the Note Purchaser draw notices and accordingly sell to the Note Purchaser SoftBank Senior Unsecured Notes up to an aggregate original principal amount of $2.2 billion. A draw notice pursuant to the Master Note Purchase Agreement may be delivered only if WeWork Companies LLC’s net liquidity is, or prior to the applicable closing is reasonably expected to be, less than $750.0 million, and the amount under each draw shall not be greater than the lesser of (a) $250.0 million and (b) the remaining commitment (defined as the original principal amount of $2.2 billion less notes issued) and shall not be greater than an amount sufficient to cause, or reasonably expected to cause, the net liquidity of WeWork Companies LLC to be equal to $750.0 million after giving effect to receipt of proceeds from the issuance of the applicable SoftBank Senior Unsecured Notes.

As of September 30, 2021, the Company had delivered draw notices in respect of $2.2 billion under the Master Note Purchase Agreement and an aggregate principal amount of $2.2 billion of SoftBank Senior Unsecured Notes were issued to the Note Purchaser and reflected as unsecured related party debt on the condensed consolidated balance sheet as of September 30, 2021. As of December 31, 2020, the Company had delivered draw notices in respect of $1.2 billion under the Master Note Purchase Agreement and an aggregate principal amount of $1.2 billion of SoftBank Senior Unsecured Notes were issued to the Note Purchaser and reflected as unsecured related party debt on the condensed consolidated balance sheet as of December 31, 2020.

 

38


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Following the delivery of a draw notice, the Note Purchaser may notify WeWork Companies LLC that it intends to engage an investment bank or investment banks to offer and sell the applicable SoftBank Senior Unsecured Notes or any portion thereof to third-party investors in a private placement. Solely with respect to the first $200.0 million in draws (the “Initial Notes”), the Note Purchaser waived this syndication right and no action has been taken on the remainder of the draws.

The SoftBank Senior Unsecured Notes have a stated interest rate of 5.0%. However because the associated warrants obligate the Company to issue shares in the future, the implied interest rate upon closing, assuming the full commitment is drawn, was approximately 11.69%. The SoftBank Senior Unsecured Notes will mature in July 2025.

SoftBank Debt Financing Costs due to SBG

The warrants issued to SoftBank Obligor in December 2019 to purchase 86,591,946 shares of the Company’s Series H-3 Convertible Preferred Stock or Series H-4 Convertible Preferred Stock at an exercise price of $0.01 per share, issued in connection with the SoftBank Senior Unsecured Notes (the “SoftBank Senior Unsecured Notes Warrant”), were valued at $33.7 million and $279.3 million as of September 30, 2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021, the Company recognized a gain of $5.0 million and $59.8 million, respectively, resulting from changes in fair value of the SoftBank Senior Unsecured Notes Warrant liability, included in gain (loss) from change in fair value of related party financial instruments on the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2020, the Company recognized a gain of $9.0 million and $279.5 million, respectively, resulting from changes in fair value of the SoftBank Senior Unsecured Notes Warrant liability, included in gain (loss) from change in fair value of related party financial instruments on the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2021, none and 86,591,946, respectively, H-3 shares were issued in connection with the SoftBank Unsecured Notes Warrant and in exchange the Company received none and $0.9 million, respectively. During the three and nine months ended September 30, 2021 and 2020, no H-4 shares were issued in connection with the SoftBank Unsecured Notes Warrant.

The SoftBank Senior Unsecured Notes Warrant of $568.9 million was capitalized at issuance as a deferred financing cost and included, net of accumulated amortization, as a component of other assets on the accompanying condensed consolidated balance sheets as September 30, 2021 and December 31, 2020. This asset will be amortized into interest expense over the five year life of the SoftBank Senior Unsecured Notes. During the three and nine months ended September 30, 2021, the Company recorded $26.6 million and $79.8 million, respectively, of interest expense associated with the amortization of this deferred financing cost. During the three and nine months ended September 30, 2020, the Company recorded $26.6 million and $53.3 million, respectively, of interest expense associated with the amortization of this deferred financing cost.

The warrants issued to SoftBank Obligor in December 2019 to purchase 43,295,973 shares of the Company’s Series H-3 Convertible Preferred Stock or Series H-4 Convertible Preferred Stock at an exercise price of $0.01 per share, issued in connection with the agreement by SoftBank Obligor to provide credit support for the 2020 LC Facility (“the 2020 LC Facility Warrant”), were valued at $16.8 million and $139.6 million as of September 30, 2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021, the Company recognized a gain of $2.5 million and $29.9 million, respectively, resulting from changes in fair value of the 2020 LC Facility Warrant, included in gain (loss) from change in fair value of related party financial instruments on the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2020, the Company recognized a gain of $4.5 million and $139.7 million, respectively, resulting from changes in fair value of the 2020 LC Facility Warrant, included in gain (loss) from change in fair value of related party financial instruments on the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2021, none and 43,295,973, respectively, H-3 shares were issued in connection with the 2020 LC Facility Warrant and in exchange the Company received none and $0.4 million, respectively. During the three and nine months ended September 30, 2021, no H-4 shares were issued in connection with the 2020 LC Facility Warrant. During the three and nine months ended September 30, 2020, no H-3 or H-4 shares were issued in connection with the 2020 LC Facility Warrant.

 

39


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The 2020 LC Facility Warrant of $284.4 million was capitalized at issuance as a deferred financing cost and included, net of accumulated amortization, as a component of other assets on the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020. This asset will be amortized into interest expense from February 10, 2020 through the February 10, 2023 termination date of the 2020 LC Facility. During the three and nine months ended September 30, 2021, the Company recorded $23.7 million and $71.1 million, respectively, of interest expense associated with the amortization of this deferred financing cost. During the three and nine months ended September 30, 2020, the Company recorded $23.7 million and $60.5 million, respectively, of interest expense associated with the amortization of this deferred financing cost.

Other than customary adjustments for recapitalizations and other reorganizations, the warrants associated with the SoftBank Senior Unsecured Notes Warrant and the 2020 LC Facility Warrant, (collectively the “Penny Warrants” or the “SoftBank Debt Financing Warrant Liability”) were subject to anti-dilution protection for any increase in the Company’s capital stock outstanding prior to December 27, 2020. As a result SoftBank Obligor was entitled to an additional 6,121,239 number of warrants that were also outstanding as of December 31, 2020. The Penny Warrants became exercisable on April 1, 2020 and expire on December 27, 2024. In August 2021, the Penny Warrants were transferred to a wholly-owned subsidiary of SBG. Upon contract signing, the Company recorded an ASC 480 liability representing the fair value of the Penny Warrants. The measurement of the Penny Warrants is considered to be a Level 3 fair value measurement, as it was determined using observable and unobservable inputs. As of September 30, 2021 and December 31, 2020, the SoftBank Debt Financing Warrant Liability totaled $50.5 million and $418.9 million, respectively and was included as a component of the convertible related party liabilities, net on the accompanying condensed consolidated balance sheets.

The Company also agreed to reimburse SBG for all fees and expenses incurred in connection with the SoftBank Transactions in an aggregate amount up to $50.0 million of which none were paid during the nine months ended September 30, 2021, $35.5 million was paid the year ended December 31, 2020, and the remaining $14.5 million was included as a component of accounts payable and accrued expenses on the accompanying condensed consolidated balance sheet as of September 30, 2021. The Company allocated $20.0 million of the total costs as deferred financing costs included, net of accumulated amortization within other assets on the condensed consolidated balance sheet which will be amortized into interest expense over the life of the debt facility to which it was allocated. During the three and nine months ended September 30, 2021 the Company recorded $1.1 million and $3.3 million, respectively, of interest expense associated with the amortization of these deferred financing costs. During the three and nine months ended September 30, 2020, the Company recorded $1.1 million and $2.6 million, respectively, of interest expense associated with the amortization of these deferred financing costs and $5.0 million of these costs were written off and were allocated to the terminated SoftBank Senior Secured Debt noted above. The Company allocated $15.0 million as equity issuance costs associated with the 2019 Warrant (as defined below), recorded as a reduction of the Series H-1 Preferred Share balance on the consolidated balance sheet during the fourth quarter of 2019. The remaining $15.0 million was expensed as a transaction cost during the fourth quarter of 2019 as it related to various other components of the SoftBank Transactions which did not qualify for capitalization.

SoftBank Debt Financing Costs due to Third Parties

As of September 30, 2021 and December 31, 2020 the Company had capitalized a total of $4.0 million and $5.4 million, respectively, in net debt issuance costs paid or payable to third parties associated with the SoftBank Debt Financing which will be amortized over a three to five year period. Such costs were capitalized as deferred financing costs and included as a component of other assets, net of accumulated amortization, on the accompanying condensed consolidated balance sheet. During the three and nine months ended September 30, 2021, the Company recorded $0.6 million and $1.8 million, respectively, of interest expense relating to the amortization of these costs. During the three and nine months ended September 30, 2020, the Company recorded $0.6 million and $1.4 million, respectively, of interest expense relating to the amortization of these costs.

 

40


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

2019 Warrant—In January 2019, in conjunction with the Amended 2018 Warrant, discussed below, the Company entered into a warrant with SB WW Holdings (Cayman) Limited (“SBWW”), pursuant to which the Company agreed to issue shares of the Company’s capital stock (the “2019 Warrant”). Under the terms of the original 2019 Warrant, in exchange for the issuance of the Company’s capital stock, SBWW was to make a payment of $1.5 billion on April 3, 2020. The right of SBWW to receive shares of the Company’s capital stock was to be automatically exercised on April 3, 2020 at a per-share price of $110.00. During the year ended December 31, 2019, the Company recognized an additional capital contribution of $219.7 million and an equal off-setting amount within additional paid-in capital representing the fair value of the 2019 Warrant and modification of the 2018 Warrant (discussed below) prior to being drawn. The measurement of the 2019 Warrant is considered to be a Level 3 fair value measurement, as it was determined using observable and unobservable inputs.

In October 2019, in accordance with the SoftBank Transactions, the 2019 Warrant was amended to accelerate SBG’s obligation for payment of $1.5 billion from April 3, 2020 to October 30, 2019, and the exercise price was amended from $110.00 per share to $11.60 per share for a new security in the form of Series H-1 or H-2 Convertible Preferred Stock. The Company received the $1.5 billion on October 30, 2019, and issued 17,241,379 shares of Series H-1 Convertible Preferred Stock on November 4, 2019. Upon issuance, the shares of Series H-1 Convertible Preferred Stock were recorded at $200.0 million less issuance costs of $38.6 million. Upon the draw, the Company reclassified $219.7 million of the equity asset that was established upon entering into the arrangement in January 2019 from its consolidated balance sheet. During the nine months ended September 30, 2020, the Company recognized a gain of $386.6 million resulting from changes in fair value of the 2019 Warrant, included in gain (loss) from change in fair value of related party financial instruments on the accompanying condensed consolidated statements of operations. The remaining 112,068,966 shares of Series H-1 Convertible Preferred Stock were issued in April 2020. Upon issuance, the shares of Series H-1 Convertible Preferred Stock were recorded at $911.1 million, equal to the fair value of the 2019 Warrant on the date of issuance of the shares.

Note 10. Long-Term Debt, Net

Long-term debt, net consists of the following:

 

(Amounts in thousands, except percentages)

   Maturity
Year
     Interest
Rate
    September 30,
2021
    December 31,
2020
 

Senior Notes:

         

Outstanding principal balance

     2025        7.875%     $ 669,000   $ 669,000

Less: Unamortized debt issuance costs

          (9,621     (11,363
       

 

 

   

 

 

 

Total Senior Notes, net

          659,379     657,637
       

 

 

   

 

 

 

Other Loans:

         

Outstanding principal balance

     2021 - 2022        2.5% - 3.0%       32,520     43,833

Less: Current portion of Other Loans (See Note 8)

          (32,520     (13,114
       

 

 

   

 

 

 

Total non-current portion Other Loans, net

          —         30,719
       

 

 

   

 

 

 

Total long-term debt, net

        $ 659,379   $ 688,356
       

 

 

   

 

 

 
                                   

 

41


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Senior Notes — In April 2018, the Company issued $702.0 million in aggregate principal amount of unsecured senior notes due 2025 (the “Senior Notes”) at a 7.875% interest rate in a private offering pursuant to Rule 144A and Regulation S under the Securities Act. The Company’s gross proceeds of $702.0 million from the issuance of the Senior Notes, were recorded net of debt issuance costs of $17.4 million. The debt issuance costs are deferred and will be amortized into interest expense over the term of the Senior Notes using the effective interest method. Interest on the Senior Notes accrues and is payable in cash semi-annually in arrears on May 1 and November 1 of each year. The Company may redeem the Senior Notes, in whole or in part, at any time prior to maturity, subject to certain make-whole premiums. The Senior Notes mature on May 1, 2025 at 100% of par.

No Senior Notes were repurchased during the three and nine months ended September 30, 2021 and 2020. As of September 30, 2021, $669.0 million in aggregate principal amount remains outstanding.

Upon the occurrence of certain change of control triggering events, the Company may be required to repurchase the Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest through the date of repurchase. The Senior Notes contain certain restrictive covenants that limit the Company’s ability to create certain liens, to enter into certain affiliated transactions and to consolidate or merge with, or convey, transfer or lease all or substantially all of its assets, subject to important qualifications and exceptions.

The Senior Notes (i) rank equally in right of payment with the SoftBank Senior Unsecured Notes, any payment obligations under the 2020 LC Facility and any existing and future senior indebtedness of the Company, (ii) are senior in right of payment to any existing and future subordinated obligations of the Company, and (iii) are effectively subordinated to all secured indebtedness of the Company (including obligations under the 2020 LC Facility discussed in Note 16) to the extent of the value of the collateral securing such indebtedness, and are structurally subordinated to all liabilities of any subsidiary that does not guarantee the Senior Notes.

The Senior Notes are unconditionally guaranteed on a senior basis by each of our subsidiaries that guarantees obligations under the Company’s 2020 LC Facility or certain other indebtedness of the Company as a guarantor. As of September 30, 2021, each restricted subsidiary that guaranteed obligations under the 2020 LC Facility discussed in Note 16 also guaranteed the Senior Notes.

Subsequent to the July 2019 legal entity reorganization, WeWork Companies LLC is the obligor of its Senior Notes, which is also fully and unconditionally guaranteed by Legacy WeWork. Legacy WeWork and the other subsidiaries that sit above WeWork Companies LLC in our legal structure are holding companies that conduct substantially all of their business operations through WeWork Companies LLC. As of September 30, 2021, based on the covenants and other restrictions of the Senior Notes, WeWork Companies LLC is restricted in its ability to transfer funds by loans, advances or dividends to Legacy WeWork and as a result all of the net assets of WeWork Companies LLC are considered restricted net assets of Legacy WeWork. See the Supplementary Information — Consolidating Balance Sheet, for additional details regarding the net assets of WeWork Companies LLC.

The indenture that governs the Senior Notes also restricts us from incurring indebtedness or liens or making certain investments or distributions, subject to a number of exceptions. Certain of these exceptions included in the indenture that governs our Senior Notes are subject to us having Minimum Liquidity (as defined in the indenture that governs our Senior Notes). For incurrences in 2019, Minimum Liquidity was required to be 0.7 times Total Indebtedness (as defined in the indenture that governs our Senior Notes) and for incurrences in 2020, Minimum Liquidity was required to be 0.3 times Total Indebtedness. Beginning on January 1, 2021, there is no longer a Minimum Liquidity requirement. Certain of these exceptions included in the indenture that governs our Senior Notes are subject to us having Minimum Growth-Adjusted EBITDA (as defined in the indenture that governs our Senior Notes) for the most recent four consecutive fiscal quarters. For incurrences in fiscal years ending December 31, 2019, 2020, 2021 and 2022-2025, the Minimum Growth-Adjusted EBITDA required for the immediately

 

42


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

preceding four consecutive fiscal quarters is $200.0 million, $500.0 million, $1.0 billion and $2.0 billion, respectively. For the four quarters ended September 30, 2021, the Company’s Minimum Growth-Adjusted EBITDA, as calculated in accordance with the indenture, was less than the $1.0 billion requirement effective as of January 1, 2021. As a result, the Company will be restricted in its ability to incur certain new indebtedness in 2021 that was not already executed or committed to as of December 31, 2019, until such Minimum Growth-Adjusted EBITDA increases above the threshold required. The restrictions of the Senior Notes do not impact our ability to access the unfunded commitments pursuant to the SoftBank Senior Unsecured Notes and the SoftBank Senior Secured Notes.

During the three and nine months ended September 30, 2021, the Company recorded interest expense of $13.2 million and $39.6 million, respectively, and amortization of deferred financing costs recorded as interest expense of $0.6 million and $1.8 million related to the Senior Notes, respectively. During the three and nine months ended September 30, 2020, the Company recorded interest expense of $13.2 million and $39.5 million, respectively, and amortization of deferred financing costs recorded as interest expense of $0.5 million and $1.6 million related to the Senior Notes, respectively.

424 Fifth Venture Loans — On February 8, 2019, the 424 Fifth Venture entered into three loans (collectively, the “424 Venture Loans”) relating to the 424 Fifth Property and development project with availability totaling $900 million. In March 2020, the 424 Fifth Property was sold and a portion of the sale proceeds were utilized to repay the principal and interest outstanding on the 424 Venture Loans in full. The Company accounted for this repayment as a debt extinguishment in accordance with ASC 470, Debt and recorded a loss of none and $71.6 million, respectively, included within loss on extinguishment of debt on the condensed consolidated statements of operations for the three and nine months ended September 30, 2020. The loss on extinguishment represents the difference between the $756.6 million in cash paid, including a prepayment penalty and various other closing costs totaling $56.1 million and the net carrying amount of the debt and unamortized debt issuance costs immediately prior to the extinguishment of $685.0 million. This extinguishment was not considered to be a troubled debt restructuring.

During 2020, for the period prior to extinguishment, the weighted average interest rate on the 424 Fifth Venture Loans was 7.8% and $10.4 million of interest expense was originally included within the Company’s construction in progress balance as a component of property and equipment, immediately prior to the sale, as the 424 Fifth Property was under development and not ready for its intended use before it was sold.

The 424 Fifth Venture Loans were secured only by the assets and equity of the 424 Fifth Venture, and were recourse to the Company in certain limited circumstances, and the Company had provided certain customary performance guarantees standard for real estate and construction financing.

Other Loans — As of September 30, 2021 and December 31, 2020, the Company had various other loans (the “Other Loans”) with outstanding principal amounts of $32.5 million and $43.8 million, respectively, and interest rates ranging from 2.5% to 3.0% and 2.5% to 3.0%, respectively. During the three months ended September 30, 2021, and September 30, 2020, the Company recorded interest expense of $0.2 million and $0.3 million, respectively, related to these Other Loans. During the nine months ended September 30, 2021, and September 30, 2020, the Company recorded interest expense of $0.8 million and $2.3 million, respectively, related to these Other Loans. During the three and nine months ended September 30, 2021, the Company repaid $0.6 million and $3.2 million of principal, respectively, and recorded no loss on extinguishment of debt in connection with the prepayment of principal of Other Loans. The Company repaid $52.0 million of principal and recorded a $1.0 million loss on extinguishment of debt in connection with the prepayment of principal of Other Loans during the three and nine months ended September 30, 2020.

 

43


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Principal Maturities — Combined aggregate principal payments for current and long-term debt as of September 30, 2021 are as follows:

 

(Amounts in thousands)

   Total  

Remainder of 2021

   $ 4,937

2022

     27,583

2023

     —    

2024

     —    

2025

     669,000

2026 and beyond

     —    
  

 

 

 

Total minimum payments

   $ 701,520
  

 

 

 
          

Note 11. Fair Value Measurements

Recurring Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following:

 

      September 30, 2021  
        

(Amounts in thousands)

   Level 1      Level 2      Level 3      Total  
                             

Assets:

           

Cash equivalents — money market funds and time deposits

   $ 103,398    $ —      $ —      $ 103,398

Other investments — available-for-sale convertible notes

     —          —          33,556      33,556
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 103,398    $ —      $ 33,556    $ 136,954
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Convertible related party liabilities — SoftBank Senior Unsecured Notes Warrant

   $ —      $ —      $ 33,655    $ 33,655

Convertible related party liabilities — 2020 LC Facility Warrant

     —          —          16,827      16,827
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value

   $ —      $ —      $ 50,482    $ 50,482
  

 

 

    

 

 

    

 

 

    

 

 

 
                                     

 

      December 31, 2020  
        

(Amounts in thousands)

   Level 1      Level 2      Level 3      Total  
                             

Assets:

           

Cash equivalents — money market funds and time deposits

   $ 330,049    $ —      $ —      $ 330,049

Other investments — available-for-sale convertible notes

     —          —          49,849      49,849
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 330,049    $    $ 49,849    $ 379,898
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Other current liabilities — IndiaCo Forward Contract Liability

   $ —      $ —      $ 7,907    $ 7,907

Convertible related party liabilities — SoftBank Senior Unsecured Notes Warrant

     —          —          279,269      279,269

Convertible related party liabilities — 2020 LC Facility Warrant

     —          —          139,639      139,639
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value

   $ —      $ —      $ 426,815    $ 426,815
  

 

 

    

 

 

    

 

 

    

 

 

 
                                     

 

44


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The tables below provide a summary of the changes in assets and liabilities recorded at fair value and classified as Level 3:

 

      Nine Months Ended
September 30,
   

Year Ended

December 31,

 

(Amounts in thousands)

   2021     2020  
              

Assets:

    

Balance at beginning of period

   $ 49,849   $ 5,541

Purchases

     15,000     85,000

Credit loss valuation allowance included in income (loss) from equity method and other investments

     (16,827     (43,857

Reclassification of forward contract liability to credit valuation allowance upon funding of commitment

     (8,499     —    

Unrealized (loss) gain on available-for-sale securities included in other comprehensive income

     (2,600     4,369

Accrued interest income

     8,754     5,840

Accrued interest collected

     (11,365     (2,678

Foreign currency translation (losses) gain included in other comprehensive income

     (756     3,810

Foreign currency gain (loss) included in net income

     —         (8,176
  

 

 

   

 

 

 

Balance at end of period

   $ 33,556   $ 49,849
  

 

 

   

 

 

 
                  

 

 

   Nine Months Ended September 30, 2021  

(Amounts in thousands)

   Balance at
Beginning of
Period
     Additions      Settlements     Change in
Fair Value (1)
     Foreign Currency
Translation Gains
(Losses) Included
in Other
Comprehensive
Income
     Balance at
End of Period
 
                                          

Liabilities:

                

IndiaCo Forward Contract Liability

   $ 7,907    $ —      $ (8,499   $ 592    $ —      $ —  

SoftBank Senior Unsecured Notes Warrant

     279,269      —          (474,521     228,907      —          33,655

2020 LC Facility Warrant

     139,639      —          (237,265     114,453      —          16,827
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 426,815    $ —      $ (720,285   $ 343,952    $ —      $ 50,482
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
                                                      

 

(1)

During the nine months ended September 30, 2021, $0.6 million of the change in fair value was included as a loss within income (loss) from equity method and other investments on the accompanying condensed consolidated statements of operations and $343.4 million was included as a loss from change in fair value of related party financial instruments on the accompanying condensed consolidated statements of operations.

 

                                                                                                                 

 

   Year Ended December 31, 2020  

(Amounts in thousands)

   Balance at
Beginning of
Period
     Additions      Settlements     Change in
Fair Value (1)
    Foreign Currency
Translation Gains
(Losses) Included
in Other
Comprehensive
Income
    Balance at
End of Period
 
                                        

Liabilities:

              

Contingent consideration payable in stock

   $ 445    $ —      $ (319   $ (122   $ (4   $ —  

IndiaCo Forward Contract Liability

     —          9,507      —         (1,600     —         7,907

2019 Warrant

     1,297,758      —          (911,120     (386,638     —         —    

SoftBank Senior Unsecured Notes Warrant

     568,877      —          (934     (288,674     —         279,269

2020 LC Facility Warrant

     284,440      —          (466     (144,335     —         139,639
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,151,520    $ 9,507    $ (912,839   $ (821,369   $ (4   $ 426,815
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
                                                    

 

(1)

During the year ended December 31, 2020, $0.1 million of the change in fair value was included as a reduction of selling, general and administrative expenses, $1.6 million was included as a gain within income (loss) from equity method and other investments on the accompanying condensed consolidated statements of operations and $819.6 million was included as a gain from change in fair value of related party financial instruments on the accompanying condensed consolidated statements of operations.

 

45


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

During the three and nine months ended September 30, 2021, there were $1.6 million and $16.8 million, respectively, of unrealized losses included in income (loss) from equity method and other investments, relating to Level 3 assets held as of September 30, 2021. During the year ended December 31, 2020, there were $43.9 million of unrealized losses included in income (losses) from equity method and other investments, relating to Level 3 assets held as of December 31, 2020. The Company does not intend to sell its investments in available-for-sale convertible notes and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

During the three and nine months ended September 30, 2021, there were none and $(0.6) million, respectively, of unrealized losses included as a loss within income (loss) from equity method and other investments and $7.5 million and $(343.4) million, respectively, of unrealized gains (losses) included as gain (loss) from change in fair value of related party financial instruments relating to Level 3 liabilities held as of September 30, 2021.

During the year ended December 31, 2020, there were $0.1 million of unrealized gains included as a reduction in selling, general and administrative, $1.6 million included as a gain within income (loss) from equity method and other investments and $433.0 million of unrealized gains included as gain (loss) from change in fair value of related party financial instruments relating to Level 3 liabilities held as of December 31, 2020.

The valuation techniques and significant unobservable inputs used in the recurring fair value measurements categorized within Level 3 of the fair value hierarchy are as follows:

 

 

   September 30, 2021  
        
     Fair Value
(in thousands)
     Valuation
Technique
     Significant
Unobservable

Inputs
     Range (Weighted
Average)
 
                             

Level 3 Assets:

           

Other investments — available-for-sale convertible notes

   $ 33,556     
Discounted cash
flow
 
 
     Price per share      $ 2.15  

Level 3 Liabilities:

           

Convertible related party liabilities

   $ 50,482     
Discounted cash
flow
 
 
    
Preferred share fair
values
 
 
   $ 8.26  
                                     

 

 

   December 31, 2020  
        
     Fair Value
(in thousands)
     Valuation
Technique
     Significant
Unobservable

Inputs
     Range (Weighted
Average)
 
                             

Level 3 Assets:

           

Other investments — available-for-sale convertible notes

   $ 49,849     

Discounted cash
flow/Market
approach
 
 
 
     Price per share      $ 2.97  

Level 3 Liabilities:

           

IndiaCo Forward Contract Liability

   $ 7,907     
Discounted cash
flow
 
 
     Price per share      $ 2.97  

Convertible related party liabilities

   $ 418,908     
Discounted cash
flow
 
 
    
Preferred share fair
values
 
 
   $ 3.09  
                                     

 

46


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Due to the inherent uncertainty in the valuation process, the estimate of fair value of the Company’s assets and liabilities may differ from values that would have been used had a ready market for the securities existed.

Nonrecurring Fair Value Measurements

Non-financial assets and liabilities measured at fair value in the condensed consolidated financial statements on a nonrecurring basis consist of certain investments, goodwill, intangibles and other long-lived assets on which impairment adjustments were required to be recorded during the period and assets and related liabilities held for sale which, if applicable, are measured at the lower of their carrying value or fair value less any costs to sell.

As discussed in Note 5, on October 2, 2020, ChinaCo was deconsolidated. The Company’s remaining 21.6% ordinary share investment was valued at $26.3 million upon deconsolidation and will be accounted for as an equity method investment. The initial fair value of the Company’s retained investment in ChinaCo was determined using a combination of the market approach and the implied value of ChinaCo based on the TBP investment and a discounted cash flow valuation model that incorporated level 3 unobservable inputs relevant to the valuation of the Company’s retained ordinary shares versus the preferred shares acquired by TBP.

As of September 30, 2021 and December 31, 2020, there were no assets or related liabilities held for sale included on the accompanying condensed consolidated balance sheet. During the three and nine months ended September 30, 2021, no impairment charges were recorded related to assets and liabilities previously classified as held for sale. During the three and nine months ended September 30, 2020, the Company recorded an impairment charge of none and $17.0 million, respectively, related to assets and liabilities previously classified as held for sale determined to be Level 2 within the fair value hierarchy based primarily on respective contracts of sale.

The Company also recorded impairment charges and other write-offs of certain other long-lived assets, impairing such assets to a carrying value of zero, for impairment charges totaling $67.3 million and $498.0 million during the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2021, the Company also recorded impairment charges totaling $20.3 million and $132.0 million, respectively, relating to right-of-use assets and property and equipment with an as adjusted remaining carrying value totaling $1.4 billion as of September 30, 2021, valued based on level 3 inputs representing market rent data for the market the right-of-use assets are located in.

Other Fair Value Disclosures

The estimated fair value of the Company’s accounts receivable, accounts payable, and accrued expenses approximate their carrying values due to their short maturity periods. As of September 30, 2021, the estimated fair value of the Company’s Senior Notes, excluding unamortized debt issuance costs, was approximately $680.0 million based on recent trading activity (Level 1). For the remainder of the Company’s long-term debt, the carrying value approximated the fair value as of September 30, 2021.

 

47


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Note 12. Revenue Recognition

Disaggregation of Revenue

The following table provides disaggregated detail of the Company’s revenue by major source for the three and nine months ended September 30, 2021 and 2020:

 

      Three Months Ended
September 30,
     Nine Months Ended
September 30,
 

(Amounts in thousands)

   2021      2020      2021      2020  

ASC 606 membership and service revenue

   $ 411,024    $ 521,643    $ 1,112,226    $ 2,004,947

ASC 842 rental and service revenue

     216,036      212,275      659,262      515,992
  

 

 

    

 

 

    

 

 

    

 

 

 

Total membership and service revenue

     627,060      733,918      1,771,488      2,520,939

Other revenue

     33,971      76,834      80,874      228,430
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 661,031    $ 810,752    $ 1,852,362    $ 2,749,369
  

 

 

    

 

 

    

 

 

    

 

 

 
                                     

Contract Balances

The following table provides information about contract assets and deferred revenue from contracts with customers recognized in accordance with ASC 606:

 

      September 30,     December 31,  

(Amounts in thousands)

   2021     2020  

Contract assets (included in accounts receivable and accrued revenue, net)

   $ 21,131   $ 36,284

Contract assets (included in other current assets)

   $ 10,347   $ 13,111

Contract assets (included in other assets)

   $ 17,071   $ 22,300

Deferred revenue

   $ (48,183   $ (74,645
                  

Revenue recognized in accordance with ASC 606 during the nine months ended September 30, 2021, which was included in deferred revenue as of January 1, 2021, was $36.0 million. Revenue recognized during the nine months ended September 30, 2020, which was included in deferred revenue as of January 1, 2020, was $85.8 million.

Assets Recognized from the Costs to Obtain a Contract with a Customer

As of September 30, 2021 and December 31, 2020, the Company had $46.4 million and $31.6 million, respectively, of prepaid member referral fees and sales incentive compensation included in other current assets and had 20.1 million and 18.0 million, respectively, of prepaid member referral fees and sales incentive compensation included in other assets on the accompanying condensed consolidated balance sheets. During the three months ended September 30, 2021 and 2020, the Company recognized $18.0 million and $21.4 million, respectively, of amortization of capitalized contract costs. During the nine months ended September 30, 2021 and 2020, the Company recognized $46.2 million and $76.0 million, respectively, of amortization of capitalized contract costs. The amortization of these costs is included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Remaining Performance Obligations

The aggregate amount of the transaction price allocated to the Company’s remaining performance obligations that represent contracted customer revenues that have not yet been recognized as revenue as of September 30, 2021, that will be recognized as revenue in future periods over the life of the customer contracts, in accordance with ASC 606, was approximately $2 billion. Over half of the remaining performance obligation as of September 30, 2021 is scheduled to be recognized as revenue within the next twelve months, with the remaining to be recognized over the remaining life of the customer contracts, the longest of which extends through 2034.

 

48


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

Approximate future minimum lease cash flows to be received over the next five years and thereafter for non-cancelable membership agreements accounted for as leases in accordance with ASC 842 in effect at September 30, 2021 are as follows:

 

(Amounts in thousands)

   ASC 842
Revenue
 

2021

   $ 185,521

2022

     583,375

2023

     365,488

2024

     197,849

2025

     89,895

2026 and beyond

     47,564
  

 

 

 

Total

   $ 1,469,692
  

 

 

 
          

The combination of the remaining performance obligation to be recognized as revenue under ASC 606 plus the remaining future minimum lease cash flows of the Company’s member contracts that qualify as leases is comparable to what the Company has historically referred to as “Committed Revenue Backlog”, which totaled approximately $3 billion and $3 billion as of September 30, 2021 and December 31, 2020, respectively. The Company has excluded from these amounts contracts with variable consideration where revenue is recognized using the right to invoice practical expedient.

Note 13. Leasing Arrangements

The real estate operating lease cost incurred before a location opens for member operations is recorded in pre-opening location expenses on the accompanying condensed consolidated statements of operations. Once a location opens for member operations, the entire real estate operating lease cost is included in location operating expenses on the accompanying condensed consolidated statements of operations. Real estate operating lease cost for the Company’s corporate offices and relating to other offerings not directly related to our space-as-a-service offering, for the periods subsequent to acquisition and prior to disposal or wind down, are included in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations. In connection with the restructuring described in Note 3, the Company has decided to strategically close certain locations and terminate certain leases. Any lease termination payments or other remaining lease costs under these leases, where a previously opened location has been closed in preparation for executing a lease termination and/or where a termination agreement has been reached with the landlord, are included in restructuring and other related costs on the accompanying condensed consolidated statements of operations. Other lease terminations, not associated with the restructuring described in Note 3, are classified consistent with the original classification of the lease cost prior to termination. Real estate operating lease cost incurred during the period in which a workspace location has been closed for member operations and all members have been relocated to a new workspace location, before management’s decision to enter negotiations to terminate a lease is recorded in pre-opening location expenses on the accompanying consolidated statements of operations.

“Lease cost contractually paid or payable” for each period presented below represents cash payments due for base and contingent rent, common area maintenance amounts and real estate taxes payable under the Company’s lease agreements, recorded on an accrual basis of accounting, regardless of the timing of when such amounts were actually paid.

 

49


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

The non-cash adjustment to record lease cost “free rent” periods and lease cost escalation clauses on a straight-line basis over the term of the lease beginning on the date of initial possession is presented as “Non-cash GAAP straight-line lease cost” below. Non-cash GAAP straight-line lease cost also includes the amortization of any capitalized initial direct costs associated with obtaining a lease.

The tenant improvement allowances and broker commissions received or receivable by the Company for negotiating the Company’s leases are amortized on a straight-line basis over the lease term, as a reduction to the total operating lease cost and are presented as “amortization of lease incentives” below.

“Early termination fees and related (gain)/loss” for each period presented below includes payments due as a result of lease terminations, recorded on a straight-line basis over any remaining lease period as well as any gain or loss recognized on termination. When a lease is terminated, the lease liability and right of use asset is derecognized and any difference is recognized as a gain or loss on termination.

During the nine months ended September 30, 2021, the Company terminated leases associated with a total of 78 previously open locations and 3 pre-open locations. Management is continuing to evaluate our real estate portfolio in connection with its ongoing restructuring efforts and expects to exit additional leases.

During the nine months ended September 30, 2021, the Company has also successfully amended over 200 leases for a combination of partial terminations to reduce our leased space, rent reductions, rent deferrals, offsets for tenant improvement allowances and other strategic changes. These amendments and full and partial lease terminations have resulted in an estimated reduction of approximately $3.8 billion in total future undiscounted fixed minimum lease cost payments that were scheduled to be paid over the life of the original executed lease agreements, including changes to the obligations of ChinaCo which occurred during the period it was consolidated.

The components of total real estate operating lease cost for leases recorded under ASC 842 are as follows:

 

      Three Months Ended September 30, 2021  
     Reported in:        

(Amounts in thousands)

   Location
Operating
Expenses
    Pre-opening
Location
Expenses
    Selling,
General and
Administrative
Expenses
    Restructuring
and Other
Related Costs
    Total  

Lease cost contractually paid or payable for the period

   $ 607,739   $ 17,878   $ 9,912   $ 30,369   $ 665,898

Non-cash GAAP straight-line lease cost

     67,688     26,179     357     3,560     97,784

Amortization of lease incentives

     (68,534     (4,787     (821     (4,417     (78,559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate operating lease cost

   $ 606,893   $ 39,270   $ 9,448   $ 29,512   $ 685,123
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Early termination fees and related (gain)/loss

   $ —     $ —     $ (40   $ (31,373   $ (31,413
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                          

 

      Nine Months Ended September 30, 2021  
     Reported in:        

(Amounts in thousands)

   Location
Operating
Expenses
    Pre-opening
Location
Expenses
    Selling,
General and
Administrative
Expenses
    Restructuring
and Other
Related Costs
    Total  

Lease cost contractually paid or payable for the period

   $ 1,907,773   $ 73,823   $ 30,046   $ 117,855   $ 2,129,497

Non-cash GAAP straight-line lease cost

     198,971     51,713     1,259     5,581     257,524

Amortization of lease incentives

     (210,935     (14,945     (2,615     (14,912     (243,407
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate operating lease cost

   $ 1,895,809   $ 110,591   $ 28,690   $ 108,524   $ 2,143,614
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Early termination fees and related (gain)/loss

   $ —     $ —     $ (40   $ (211,368   $ (211,408
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                          

 

50


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

      Three Months Ended September 30, 2020  
     Reported in:        

(Amounts in thousands)

   Location
Operating
Expenses
    Pre-opening
Location
Expenses
    Selling,
General and
Administrative
Expenses
    Restructuring
and Other
Related Costs
    Total  

Lease cost contractually paid or payable for the period

   $ 711,651   $ 32,106   $ 13,687   $ 14   $ 757,458

Non-cash GAAP straight-line lease cost

     87,589     34,688     5,565     —         127,842

Amortization of lease incentives

     (77,660     (8,934     (1,463     —         (88,057
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate operating lease cost

   $ 721,580   $ 57,860   $ 17,789   $ 14   $ 797,243
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Early termination fees and related (gain)/loss

   $ —     $ —     $ —     $ (4,529   $ (4,529
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                          

 

      Nine Months Ended September 30, 2020  
     Reported in:        

(Amounts in thousands)

   Location
Operating
Expenses
    Pre-opening
Location
Expenses
    Selling,
General and
Administrative
Expenses
    Restructuring
and Other
Related Costs
    Total  

Lease cost contractually paid or payable for the period

   $ 1,978,419   $ 101,175   $ 48,266   $ 390   $ 2,128,250

Non-cash GAAP straight-line lease cost

     316,490     146,814     17,712     —         481,016

Amortization of lease incentives

     (221,143     (32,496     (4,790     120     (258,309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate operating lease cost

   $ 2,073,766   $ 215,493   $ 61,188   $ 510   $ 2,350,957
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Early termination fees and related (gain)/loss

   $ —     $ —     $ —     $ (36,215   $ (36,215
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                          

The Company’s total ASC 842 operating lease costs include both fixed and variable components as follows:

 

                                                                                                                       
      Three Months Ended September 30, 2021  
     Reported in:         

(Amounts in thousands)

   Location
Operating
Expenses
     Pre-opening
Location
Expenses
     Selling,
General and
Administrative
Expenses
     Restructuring
and Other
Related Costs
     Total  

Fixed real estate lease costs

   $ 497,078    $ 34,752    $ 8,468    $ 26,500    $ 566,798

Fixed equipment and other lease costs

     259      6      3      1      269
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed lease costs

   $ 497,337    $ 34,758    $ 8,471    $ 26,501    $ 567,067
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Variable real estate lease costs

   $ 109,815    $ 4,518    $ 980    $ 3,012    $ 118,325

Variable equipment and other lease costs

     1,261      14      161      510      1,946
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total variable lease costs

   $ 111,076    $ 4,532    $ 1,141    $ 3,522    $ 120,271
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                              

 

51


LEGACY WEWORK

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(UNAUDITED)

 

      Nine Months Ended September 30, 2021  
     Reported in:         

(Amounts in thousands)

   Location
Operating
Expenses
     Pre-opening
Location
Expenses
    Selling,
General and
Administrative
Expenses
     Restructuring
and Other
Related Costs
     Total  

Fixed real estate lease costs

   $ 1,554,976    $ 96,065   $ 25,627    $ 96,330    $ 1,772,998

Fixed equipment and other lease costs

     918      13     11      19      961
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total fixed lease costs

   $ 1,555,894    $ 96,078   $ 25,638    $ 96,349    $ 1,773,959
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Variable real estate lease costs

   $ 340,833    $ 14,526   $ 3,063    $ 12,194    $ 370,616

Variable equipment and other lease costs

     1,940      (18     233      1,350      3,505
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total variable lease costs

   $ 342,773    $ 14,508   $ 3,296    $ 13,544    $ 374,121
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
                                             

 

      Three Months Ended September 30, 2020  
     Reported in:         

(Amounts in thousands)

   Location
Operating
Expenses
     Pre-opening
Location
Expenses
     Selling,
General and
Administrative
Expenses
     Restructuring
and Other
Related Costs
     Total  

Fixed real estate lease costs

   $ 606,993    $ 55,019    $ 15,174    $ 12    $ 677,198

Fixed equipment and other lease costs

     509      —          7      —          516
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed lease costs

   $ 607,502    $ 55,019    $ 15,181    $ 12    $ 677,714
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Variable real estate lease costs

   $ 114,587    $ 2,841    $ 2,615    $ 2    $ 120,045

Variable equipment and other lease costs

     825      10      27      —          862
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total variable lease costs

   $ 115,412    $ 2,851    $ 2,642    $ 2    $ 120,907