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Cover Page	12 Months Ended
Cover Page	Dec. 31, 2019 shares
Document Information [Line Items]
Document Type	20-F
Amendment Flag	false
Document Period End Date	Dec. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Entity Registrant Name	Sohu.com Ltd
Entity Central Index Key	0001734107
Entity Current Reporting Status	Yes
Current Fiscal Year End Date	--12-31
Document Registration Statement	false
Document Annual Report	true
Document Transition Report	false
Document Shell Company Report	false
Entity Address, Address Line One	Level 18, Sohu.com Media Plaza Block 3, No. 2 Kexueyuan South Road, Haidian District
Entity Address, City or Town	Beijing
Entity Address, Country	CN
Entity Address, Postal Zip Code	100190
Document Accounting Standard	U.S. GAAP
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	false
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding	39,268,698
Entity Voluntary Filers	No
Entity Shell Company	false
Business Contact [Member]
Document Information [Line Items]
Entity Address, Address Line One	Level 18, Sohu.com Media Plaza Block 3, No. 2 Kexueyuan South Road, Haidian District
Entity Address, City or Town	Beijing
Entity Address, Country	CN
Entity Address, Postal Zip Code	100190
Contact Personnel Name	Joanna Lv
ADS [Member]
Document Information [Line Items]
Title of 12(b) Security	American Depositary Shares, each representing one ordinary share, par value US$0.001 per share
Trading Symbol	SOHU
Security Exchange Name	NASDAQ
Common Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Ordinary shares
No Trading Symbol Flag	true
Security Exchange Name	NASDAQ

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
ASSETS
Cash and cash equivalents	$ 305,126	$ 819,485
Restricted cash	8,661	3,539
Short-term investments	1,316,833	1,041,395
Account and financing receivables, net	260,716	264,411
Prepaid and other current assets (including $31,607 and $33,329, respectively, due from a related party as of December 31, 2018 and 2019)	124,332	225,744
Current assests associated with discontinued operations	0	34,324
Total current assets	2,015,668	2,388,898
Fixed assets, net	447,688	504,647
Goodwill	52,923	53,263
Long-term investments, net	94,332	108,356
Intangible assets, net	11,437	24,071
Restricted time deposits	240	244,179
Prepaid non-current assets	1,882	3,107
Other assets	65,620	43,928
Non-current assests associated with discontinued operations	0	398
Total assets	2,689,790	3,370,847
LIABILITIES
Accounts payable (including accounts payable of consolidated variable interest entities ("VIEs") without recourse to the Company of $84,749 and $74,781, respectively, as of December 31, 2018 and 2019)	253,403	286,745
Accrued liabilities (including accrued liabilities of consolidated VIEs without recourse to the Company of $60,555 and $64,874, respectively, as of December 31, 2018 and 2019)	249,810	292,282
Receipts in advance and deferred revenue (including receipts in advance and deferred revenue of consolidated VIEs without recourse to the Company of $43,020 and $47,735, respectively, as of December 31, 2018 and 2019)	118,222	120,404
Accrued salary and benefits (including accrued salary and benefits of consolidated VIEs without recourse to the Company of $7,389 and $7,670, respectively, as of December 31, 2018 and 2019)	110,833	108,011
Tax payables (including tax payables of consolidated VIEs without recourse to the Company of $14,110 and $9,750, respectively, as of December 31, 2018 and 2019)	102,686	93,073
Short-term bank loans (including short-term bank loans of consolidated VIEs without recourse to the Company of nil as of both December 31,2018 and 2019)	114,528	129,677
Other short-term liabilities (including other short-term liabilities of consolidated VIEs without recourse to the Company of $65,352 and $63,439, respectively, as of December 31, 2018 and 2019, and due to a related party of $32,718 and $33,536, respectively, as of December 31, 2018 and 2019.)	149,311	123,921
Current liabilities associated with discontinued operations	0	101,105
Total current liabilities	1,098,793	1,255,218
Long-term accounts payable (including long-term accounts payable of consolidated VIEs without recourse to the Company of nil as of both December 31, 2018 and 2019)	767	752
Long-term bank loans (including long-term bank loans of consolidated VIEs without recourse to the Company of nil as of both December 31, 2018 and 2019)	0	302,323
Long-term tax liabilities (including long-term tax liabilities of consolidated VIEs without recourse to the Company of $13,554 and $13,220, respectively, as of December 31, 2018 and 2019)	181,640	174,339
Deferred tax liabilities (including deferred tax liabilities of consolidated VIEs without recourse to the Company of $2,239 and $1,998, respectively, as of December 31, 2018 and 2019)	95,904	85,264
Other long-term liabilities (including other long-term liabilities of consolidated VIEs without recourse to the Company of nil and $1,130, respectively, as of December 31, 2018 and 2019)	5,769	0
Total long-term liabilities	284,080	562,678
Total liabilities	1,382,873	1,817,896
Commitments and contingencies
SHAREHOLDERS' EQUITY
Ordinary Shares: $0.001 par value per share (75,400 shares authorized; 39,229 shares and 39,269 shares, respectively, issued and outstanding as of December 31, 2018 and 2019)	39	39
Additional paid-in capital	948,201	958,883
Accumulated other comprehensive income	24,351	24,719
Accumulated deficit	(544,137)	(394,801)
Total Sohu.com Limited shareholders' equity	428,454	588,840
Noncontrolling interest	878,463	964,111
Total shareholders' equity	1,306,917	1,552,951
Total liabilities and shareholders' equity	$ 2,689,790	$ 3,370,847

Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands	Dec. 31, 2019	Dec. 31, 2018
Account and financing receivables due from a related party	$ 2,006,000	$ 1,445,000
Prepaid and other current assets due from a related party	33,329,000	31,607,000
Accounts payable	253,403,000	286,745,000
Accrued liabilities	249,810,000	292,282,000
Receipts in advance and deferred revenue	118,222,000	120,404,000
Accrued salary and benefits	110,833,000	108,011,000
Tax payables	102,686,000	93,073,000
Short-term bank loans	114,528,000	129,677,000
Other short-term liabilities	149,311,000	123,921,000
Due to a related party	33,536,000	32,718,000
Long-term accounts payable	767,000	752,000
Long-term bank loans	0	302,323,000
Long-term tax liabilities	181,640,000	174,339,000
Deferred tax liabilities	95,904,000	85,264,000
Other long-term liabilities	$ 5,769,000	$ 0
Ordinary Share, par value (in dollars per share)	$ 0.001	$ 0.001
Ordinary Share, shares authorized (in shares)	75,400	75,400
Ordinary Share, shares issued (in shares)	39,269	39,229
Ordinary Share, shares outstanding (in shares)	39,269	39,229
Variable Interest Entity Primary Beneficiary [Member]
Accounts payable	$ 74,781,000	$ 84,749,000
Accrued liabilities	64,874,000	60,555,000
Receipts in advance and deferred revenue	47,735,000	43,020,000
Accrued salary and benefits	7,670,000	7,389,000
Tax payables	9,750,000	14,110,000
Short-term bank loans	0	0
Other short-term liabilities	63,439,000	65,352,000
Long-term accounts payable	0	0
Long-term bank loans	0	0
Long-term tax liabilities	13,220,000	13,554,000
Deferred tax liabilities	1,998,000	2,239,000
Other long-term liabilities	$ 1,130,000	$ 0

Consolidated Statements of Comprehensive Income /(Loss) - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Revenues:
Revenues	$ 1,845,447	$ 1,812,827	$ 1,769,589
Cost of revenues:
Cost of revenues	982,095	982,486	950,268
Gross profit	863,352	830,341	819,321
Operating expenses:
Product development	419,114	441,161	412,173
Sales and marketing	340,840	380,290	390,423
General and administrative	95,773	108,764	119,041
Goodwill impairment and impairment of intangible assets acquired as part of business acquisitions	7,245	16,369	86,882
Total operating expenses	862,972	946,584	1,008,519
Operating profit/(loss)	380	(116,243)	(189,198)
Other income /(expense), net	21,948	64,724	6,697
Interest income (including interest income generated from a related party of $1,157, $1,051 and $1,051, respectively, for 2017, 2018 and 2019)	10,546	24,074	24,138
Interest expense (including interest expense generated from a related party of $724, $519 and $818, respectively, for 2017, 2018 and 2019)	(14,370)	(17,538)	(4,088)
Exchange difference	3,279	9,026	(14,385)
Income /(loss) before income tax expense /(benefit)	21,783	(35,957)	(176,836)
Income tax expense /(benefit)	31,176	(13,433)	272,636
Net loss from continuing operations	(9,393)	(22,524)	(449,472)
Net loss from discontinued operations, net of tax	(33,998)	(44,835)	(20,531)
Net loss	(43,391)	(67,359)	(470,003)
Less: Net income from continuing operations attributable to the noncontrolling interest shareholders	117,177	107,318	91,076
Less: Net loss from discontinued operations attributable to the noncontrolling interest shareholders	(11,232)	(14,595)	(6,553)
Net loss from continuing operations attributable to Sohu.com Limited	(126,570)	(129,842)	(540,548)
Net loss from discontinued operations attributable to Sohu.com Limited	(22,766)	(30,240)	(13,978)
Net loss attributable to Sohu.com Limited	(149,336)	(160,082)	(554,526)
Net loss	(43,391)	(67,359)	(470,003)
Foreign currency translation adjustments	(13,069)	(37,339)	56,250
Change in unrealized gain /(loss) for equity securities with readily determinable fair values	0	0	12,179
Other comprehensive income /(loss)	(13,069)	(37,339)	68,429
Comprehensive loss	(56,460)	(104,698)	(401,574)
Less: Comprehensive income attributable to noncontrolling interest shareholders	93,244	61,376	117,960
Comprehensive loss attributable to Sohu.com Limited	$ (149,704)	$ (166,074)	$ (519,534)
Basic net loss per share attributable to Sohu.com Limited [Abstract]
Continuing operations	$ (3.22)	$ (3.33)	$ (13.91)
Disontinued operations	(0.58)	(0.78)	(0.36)
Net loss per share	$ (3.80)	$ (4.11)	$ (14.27)
Shares used in computing basic net loss per share attributable to Sohu.com Limited	39,249	38,959	38,858
Diluted net loss per share attributable to Sohu.com Limited [Abstract]
Continuing operations diluted	$ (3.25)	$ (3.36)	$ (13.95)
Disontinued operations diluted	(0.58)	(0.77)	(0.35)
Net loss per share	$ (3.83)	$ (4.13)	$ (14.30)
Shares used in computing diluted net loss per share attributable to Sohu.com Limited	39,249	38,959	38,858
Brand advertising [Member]
Revenues:
Revenues	$ 174,861	$ 231,945	$ 314,112
Cost of revenues:
Cost of revenues	126,406	184,473	363,624
Search and search-related advertising [Member]
Revenues:
Revenues	1,072,860	1,022,456	801,199
Cost of revenues:
Cost of revenues	703,144	664,164	412,904
Subtotal of online advertising [Member]
Revenues:
Revenues	1,247,721	1,254,401	1,115,311
Cost of revenues:
Cost of revenues	829,550	848,637	776,528
Online games [Member]
Revenues:
Revenues	440,902	389,788	449,533
Cost of revenues:
Cost of revenues	88,992	60,981	62,775
Others [Member]
Revenues:
Revenues	156,824	168,638	204,745
Cost of revenues:
Cost of revenues	$ 63,553	$ 72,868	$ 110,965

Consolidated Statements of Comprehensive Income /(Loss) (Parenthetical) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cost of revenue from a related party	$ 57,000	$ 237,000	$ 0
Interest income from a related party	1,015,000	1,051,000	1,157,000
Interest expense from a related party	818,000	519,000	724,000
Brand advertising [Member]
Revenues from a related party	174,000	224,000	247,000
Others [Member]
Revenues from a related party	$ 3,796,000	$ 2,187,000	$ 2,000

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities:
Net loss	$ (43,391)	$ (67,359)	$ (470,003)
Net loss from discontinued operations, net of tax	(33,998)	(44,835)	(20,531)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangible assets and purchased video content in prepaid expense	39,547	59,315	140,238
Depreciation	92,888	92,799	82,893
Goodwill impairment and impairment of intangibles via acquisition of businesses	8,015	16,369	86,882
Share-based compensation expense	18,251	2,095	41,468
Impairment of long-term investment	34,119	2,605	5,754
Impairment of other intangible assets and other assets	7,331	10,797	72,259
Investment loss /(gain) from equity investments	(2,960)	(14,045)	1,451
Allowance for doubtful accounts and credit losses	20,345	14,568	8,891
Provision for inventory	2,734	2,547	0
Loss /(gain) from sale of equity investments	0	(134)	523
Change in fair value of financial instruments	(2,327)	(10,857)	(10,447)
Others	(1,995)	(730)	(1,068)
Changes in assets and liabilities:
Account and financing receivables	15,268	(32,833)	(50,418)
Prepaid and other assets	11,262	(26,182)	30,037
Accounts payable	(9,750)	57,492	30,952
Receipts in advance and deferred revenue	(306)	2,514	169
Tax liabilities	14,709	(72,954)	262,726
Deferred tax	8,455	43,798	(82)
Accrued liabilities and other short-term liabilities	(44,944)	(44,037)	(66,131)
Net cash provided by continuing operating activities	201,249	80,603	186,625
Net cash provided by discontinued operating activities	9,341	3,422	1,062
Net cash provided by operating activities	210,590	84,025	187,687
Cash flows from investing activities:
Purchase of fixed assets	(45,277)	(100,989)	(78,711)
Purchase of intangible and other assets	(51,479)	(97,611)	(65,652)
Purchase of long-term investments	(23,777)	(20,613)	(7,680)
Return of funds from a third party	0	5,264	4,928
Collection of financing receivables	226,086	59,967	0
Investment in financing receivables	(257,388)	(98,774)	0
Proceeds from financial instruments	2,763,189	2,957,984	1,219,986
Purchase of financial instruments	(3,046,582)	(3,177,532)	(1,785,012)
Proceeds received from sale of equity investment	0	12,073	0
Other cash proceeds /(payments) related to investing activities	2,816	1,705	(1,408)
Net cash used in continuing investing activities	(432,412)	(458,526)	(713,549)
Net cash used in discontinued investing activities	(10,808)	(718)	(954)
Net cash used in investing activities	(443,220)	(459,244)	(714,503)
Cash flows from financing activities:
Consideration received from Sogou IPO, net of IPO Transaction Expenses	0	0	622,131
Proceeds from long-term bank loan	0	251,738	122,433
Proceeds from short-term bank loan	58,035	74,056	67,785
Exercise of share-based awards in subsidiaries	7	12	494
Repayments of loans from banks	(371,973)	(67,011)	(7,684)
Repurchase of Sogou Pre-IPO Class A Ordinary Shares from noncontrolling shareholders	0	0	(3,190)
Repurchase of Sogou Class A Ordinary Shares from noncontrolling shareholders	(42,016)	0	0
Distribution of Changyou dividend to noncontrolling interest shareholders	(165,817)	(162,461)	0
Other cash proceeds related to financing activities	8,601	0	6
Net cash provided by/(used in) continuing financing activities	(513,163)	96,334	801,975
Net cash provided by /(used in) financing activities	(513,163)	96,334	801,975
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted time deposits	(10,046)	(19,544)	30,226
Reclassification of cash, cash equivalents, restricted cash and restricted time deposits from assets held for sale	0	0	11,684
Net increase /(decrease) in cash, cash equivalents, restricted cash, and restricted time deposits	(755,839)	(298,429)	317,069
Cash, cash equivalents, restricted cash and restricted time deposits at beginning of year	1,069,866	1,368,295	1,051,226
Cash, cash equivalents, restricted cash and restricted time deposits at end of year	314,027	1,069,866	1,368,295
Less: Cash, cash equivalents, restricted cash and restricted time deposits of discontinued operations, end of year	0	2,663	243
Cash, cash equivalents, restricted cash and restricted time deposits of continuing operations, end of year	314,027	1,067,203	1,368,052
Supplemental cash flow disclosures:
Cash paid for income taxes	(31,116)	(53,147)	(43,264)
Cash paid for interest expense	(9,396)	(12,563)	(7,176)
Barter transactions	20,087	28,404	6,110
Supplemental schedule of non-cash investing activity:
Changes in payables and other liabilities related to fixed assets and intangible assets additions	$ (25,977)	$ 30,797	$ 56,486

Consolidated Statement of Changes in Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income [Member]	Accumulated Deficit [Member]	Noncontrolling Interest [Member]
Beginning balance at Dec. 31, 2016	$ 1,557,795	$ 45	$ 821,867	$ (143,858)	$ 3,220	$ 312,306	$ 564,215
Consideration received from Sogou IPO, net of IPO Transaction Expenses	622,131	0	278,428	0	0	0	343,703
Share-based compensation expense	41,468	0	827	0	0	0	40,641
Settlement/Adjustment of share-based awards in subsidiary	494	0	(2,755)	0	0	0	3,249
Repurchase of Sogou Pre-IPO Class A Ordinary Shares from noncontrolling shareholders	(3,190)	0	0	0	0	0	(3,190)
Purchase of noncontrolling interest	193	0	88	0	0	0	105
Disposal of noncontrolling interest	(80)	0	0	0	0	0	(80)
Net income /(loss) attributable to Sohu.com Limited and noncontrolling interest shareholders	(470,003)	0	0	0	0	(554,526)	84,523
Repurchase of Sogou Class A Ordinary Shares from noncontrolling shareholders	0
Accumulated other comprehensive loss	68,429	0	0	0	34,992	0	33,437
Ending balance at Dec. 31, 2017	1,817,237	45	1,098,455	(143,858)	38,212	(242,220)	1,066,603
Share-based compensation expense	2,095	0	(5,559)	0	0	0	7,654
Settlement/Adjustment of share-based awards in subsidiary	1,811	0	9,839	0	0	0	(8,028)
Distribution of Changyou dividend to noncontrolling interest shareholders	(162,461)	0	0	0	0	0	(162,461)
Disposal of a majority-owned subsidiary	(2,113)	0	0	0	0	0	(2,113)
Liquidation of Sohu.com Inc.	0	(6)	(143,852)	143,858	0	0	0
Net income /(loss) attributable to Sohu.com Limited and noncontrolling interest shareholders	(67,359)	0	0	0	0	(160,082)	92,723
Repurchase of Sogou Class A Ordinary Shares from noncontrolling shareholders	0
Accumulated other comprehensive loss	(37,339)	0	0	0	(5,992)	0	(31,347)
Others	1,080	0	0	0	0	0	1,080
Ending balance at Dec. 31, 2018	1,552,951	39	958,883	0	24,719	(394,801)	964,111
Impact of adoption of new accounting standard	0	0	0	0	(7,501)	7,501	0
Share-based compensation expense	18,251	0	1,045	0	0	0	17,206
Settlement/Adjustment of share-based awards in subsidiary	698	0	2,555	0	0	0	(1,857)
Distribution of Changyou dividend to noncontrolling interest shareholders	(166,507)	0	0	0	0	0	(166,507)
Net income /(loss) attributable to Sohu.com Limited and noncontrolling interest shareholders	(43,391)	0	0	0	0	(149,336)	105,945
Repurchase of Sogou Class A Ordinary Shares from noncontrolling shareholders	(42,016)	0	(14,282)	0	0	0	(27,734)
Accumulated other comprehensive loss	(13,069)	0	0	0	(368)	0	(12,701)
Ending balance at Dec. 31, 2019	$ 1,306,917	$ 39	$ 948,201	$ 0	$ 24,351	$ (544,137)	$ 878,463

The Company and Nature of Operations

12 Months Ended

Dec. 31, 2019

THE COMPANY AND NATURE OF OPERATIONS [Abstract]

The Company and Nature of Operations

1. THE COMPANY AND NATURE OF OPERATIONS

Nature of Operations and Organization

Sohu.com Limited was incorporated in the Cayman Islands on May 30, 2003 as a direct wholly-owned subsidiary of Sohu.com Inc., which was incorporated in Delaware in August 1996 and was the ultimate parent company of the Sohu Group (as defined below) until its dissolution on May 31, 2018. On July 17, 2000, Sohu.com Inc. completed an initial public offering (“IPO”) of shares of its common stock on NASDAQ trading under the symbol “SOHU.” On May 31, 2018, pursuant to a proposal for the dissolution of Sohu.com Inc. and adoption of a plan of complete liquidation and dissolution of Sohu.com Inc. that was approved by the stockholders of Sohu.com Inc. at a special meeting of stockholders held on May 29, 2018, Sohu.com Inc. was dissolved, all outstanding shares of the common stock of Sohu.com Inc. were delisted and cancelled, and American Depositary Shares (“ADSs”) representing all outstanding ordinary shares of Sohu.com Limited were distributed on a share-for-share basis to the stockholders of Sohu.com Inc. On June 1, 2018 Sohu.com Limited’s ADSs began trading on the NASDAQ Global Select Market under the same “SOHU” symbol in place of the common stock of Sohu.com Inc. As a result, Sohu.com Limited replaced Sohu.com Inc. as the top-tier, publicly-traded holding company of the Sohu Group (as defined below). Sohu.com Limited (or its predecessor Sohu.com Inc., as applicable), together with its subsidiaries and consolidated VIEs, are collectively referred to herein as the “Sohu Group,” the “Group” or the “Company.”

The Sohu Group is a leading Chinese online media, search and game service group providing comprehensive online products and services on PCs and mobile devices in China. The Sohu Group, which consists of “Sohu,” which when referred to in this report, unless the context requires otherwise, excludes the businesses and the corresponding subsidiaries and VIEs of Sogou Inc. (“Sogou”) and Changyou.com Limited (“Changyou”), Sogou and Changyou. Sogou and Changyou are the indirect controlled subsidiaries of the Company. Sohu is a leading Chinese language online media content and services provider; Sogou is an innovator in search and a leader in China’s Internet industry; and Changyou is a leading online game developer and operator in China that engages primarily in the development, operation and licensing of online games for PCs and mobile devices. Most of the Sohu Group’s operations are conducted through the Group’s China-based subsidiaries and VIEs.

Sogou completed its IPO on the NYSE in November 2017 trading under the symbol “SOGO.” Changyou completed its IPO on NASDAQ in April 2009, trading under the symbol “CYOU.”

As Sohu.com Limited, or its predecessor Sohu.com Inc., is the controlling shareholder of both Sogou and Changyou, Sohu.com Limited consolidates Sogou and Changyou in its consolidated financial statements, and recognizes noncontrolling interests reflecting economic interests in Sogou and Changyou held by shareholders other than Sohu.com Limited. The consolidated financial statements of Sohu.com Limited represent the continuation of the financial statements of Sohu.com Inc., reflecting the assets and liabilities, accumulated deficit and other equity balances of Sohu.com Inc. immediately before Sohu.com Inc.’s dissolution on May 31, 2018.

Through the operation of Sohu, Sogou and Changyou, the Sohu Group generates online advertising revenues, including brand advertising revenues and search and search-related advertising revenues; online games revenues; and other revenues. Online advertising and online games are the Sohu Group’s core businesses.

The principal subsidiaries and VIEs through which the Group conducts its business operations as of December 31, 2019 are described below:


Name of Entity	Date of Incorporation/acquisition	Place of Incorporation/ Acquisition	Effective Interest held
Subsidiaries:
*For Sohu’s Business:*
Sohu.com (Hong Kong) Limited (“Sohu HK”)	Incorporated on April 19, 2000	Hong Kong	100%
Beijing Sohu New Era Information Technology Co., Ltd. (“Sohu Era”)	Incorporated on July 25, 2003	People’s Republic of China	100%
Sohu.com (Search) Limited (“Sohu Search”)	Incorporated on October 28, 2005	Cayman Islands	100%
Beijing Sohu New Media Information Technology Co., Ltd. (“Sohu Media”)	Incorporated on June 19, 2006	People’s Republic of China	100%
Sohu.com (Game) Limited (“Sohu Game”)	Incorporated on February 11, 2008	Cayman Islands	100%
Beijing Sohu New Momentum Information Technology Co., Ltd. (“Sohu New Momentum”)	Incorporated on May 31, 2010	People’s Republic of China	100%
Fox Video Limited (“Sohu Video”)	Incorporated on July 26, 2011	Cayman Islands	100%
Fox Information Technology (Tianjin) Limited (“Video Tianjin”)	Incorporated on November 17, 2011	People’s Republic of China	100%
Sohu Focus Limited (“Sohu Focus”)	Incorporated on July 11, 2013	Cayman Islands	100%
*For Sogou’s Business:*
Sogou Inc. (“Sogou”)	Incorporated on December 23, 2005	Cayman Islands	34%
Sogou (BVI) Limited (“Sogou BVI”)	Incorporated on December 23, 2005	British Virgin Islands	34%
Beijing Sogou Technology Development Co., Ltd. (“Sogou Technology”)	Incorporated on February 8, 2006	People’s Republic of China	34%
Sogou Hong Kong Limited (“Sogou HK”)	Incorporated on December 12, 2007	Hong Kong	34%
Vast Creation Advertising Media Services Limited (“Vast Creation”)	Acquired on November 30, 2011	Hong Kong	34%
Beijing Sogou Network Technology Co., Ltd (“Sogou Network”)	Incorporated on March 29, 2012	People’s Republic of China	34%
Sogou (Shantou) Internet Microcredit Co., Ltd. (“Sogou Microcredit”)	Incorporated on November 22, 2017	People’s Republic of China	34%
Sogou (Hangzhou) Intelligent Technology Co., Ltd. (“Sogou Hangzhou”)	Incorporated on April 28, 2018	People’s Republic of China	34%
Shantou Ying Zhong Bai Fu Financing Guarantee Co., Ltd. (“Sogou Financing Guarantee”)	Incorporated on July 24, 2019	People’s Republic of China	34%
*For Changyou’s Business:*
Changyou.com Limited (“Changyou”)	Incorporated on August 6, 2007	Cayman Islands	67%
Changyou.com (HK) Limited (“Changyou HK”)	Incorporated on August 13, 2007	Hong Kong	67%
Beijing AmazGame Age Internet Technology Co., Ltd. (“AmazGame”)	Incorporated on September 26, 2007	People’s Republic of China	67%
Beijing Changyou Gamespace Software Technology Co., Ltd. (“Gamespace”)	Incorporated on October 29, 2009	People’s Republic of China	67%
Beijing Changyou Chuangxiang Software Technology Co., Ltd. (“Changyou Chuangxiang”)	Incorporated on November 8, 2016	People’s Republic of China	67%
VIEs:
*For Sohu’s Business:*
Beijing Century High-Tech Investment Co., Ltd. (“High Century”)	Incorporated on December 28, 2001	People’s Republic of China	100%
Beijing Heng Da Yi Tong Information Technology Co., Ltd. (“Heng Da Yi Tong”)	Incorporated on February 7, 2002	People’s Republic of China	100%
Beijing Sohu Internet Information Service Co., Ltd. (“Sohu Internet”)	Incorporated on July 31, 2003	People’s Republic of China	100%
Beijing Sohu Donglin Advertising Co., Ltd. (“Donglin”)	Incorporated on May 17, 2010	People’s Republic of China	100%
Tianjin Jinhu Culture Development Co., Ltd (“Tianjin Jinhu”)	Incorporated on November 24, 2011	People’s Republic of China	100%
Beijing Focus Interactive Information Service Co., Ltd. (“Focus Interactive”)	Incorporated on July 15, 2014	People’s Republic of China	100%
*For Sogou’s Business:*
Beijing Sogou Information Service Co., Ltd.(“Sogou Information”)	Incorporated on December 28, 2005	People’s Republic of China	34%
Chengdu Easypay Technology Co., Ltd. (“Chengdu Easypay”)	Incorporated on January 19, 2015	People’s Republic of China	34%
*For Changyou’s Business:*
Beijing Gamease Age Digital Technology Co., Ltd. (“Gamease”)	Incorporated on August 23, 2007	People’s Republic of China	67%
Shanghai ICE Information Technology Co., Ltd. (“Shanghai ICE”)	Acquired on May 28, 2010	People’s Republic of China	67%
Beijing Guanyou Gamespace Digital Technology Co., Ltd. (“Guanyou Gamespace”)	Incorporated on August 5, 2010	People’s Republic of China	67%

Sohu’s Business

Brand Advertising Business

Sohu’s main business is the brand advertising business, which offers to users, over Sohu’s matrices of Chinese language online media, various content, products and services across multiple Internet-enabled devices such as mobile phones, tablets and PCs,. The majority of Sohu’s products and services are provided in China through Sohu Media Portal, Sohu Video and Focus.

•

Sohu Media Portal. Sohu Media Portal is a leading online news and information provider in China. It provides users with access to comprehensive content through the mobile phone application Sohu News APP, the mobile portal m.sohu.com and www.sohu.com for PCs;

•

Sohu Video. Sohu Video is an online video content and service provider in China through the mobile phone application Sohu Video APP and tv.sohu.com for PCs; and

•

Focus. Focus (www.focus.cn) is an online real estate information and services provider in China.

Revenues generated by the brand advertising business are classified as brand advertising revenues in the Sohu Group’s consolidated statements of comprehensive income.

Other Sohu Business

Sohu also engages in the other business, which consists primarily of paid subscription services, interactive broadcasting services, and sub-licensing of purchased video content to third parties. Revenues generated by Sohu from the other business are classified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.

Sogou’s Business

Search and Search-related Business

The search and search-related business consists primarily of search and search-related advertising services offered by Sogou. Search and search-related advertising services enable advertisers’ promotional links to be displayed on Sogou’s search results pages and other Internet properties and third parties’ Internet properties where the links are relevant to the subject and content of searches and such properties. Sogou’s advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’ Internet properties, including Web content, software, and mobile applications. The search and search-related business benefits from Sogou’s collaboration with Tencent Holdings Limited (together with its subsidiaries, “Tencent”), which provides Sogou access to traffic and content generated from products and services provided by Tencent.

Revenues generated by the search and search-related business are classified as search and search-related advertising revenues in the Sohu Group’s consolidated statements of comprehensive income.

Other Sogou Business

Sogou also offers IVAS, primarily with respect to the operation of Web games and mobile games developed by third parties, and offers other products and services, including smart hardware products and online lending and microcredit services. Revenues generated by Sogou from other business are classified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.

Initial Public Offering of Sogou

On November 13, 2017, Sogou completed its IPO on the NYSE, trading under the symbol “SOGO.” Proceeds to Sogou from the IPO were approximately $622.1 million, after deducting underwriting discounts and commissions and offering expenses. Following the completion of Sogou’s IPO, pursuant to the Voting Agreement among Sohu, Tencent, and Sogou (the “Voting Agreement”) that took effect upon the completion of Sogou’s IPO, Sohu has the right to appoint a majority of Sogou’s Board of Directors, and Sohu continues to consolidate Sogou in Sohu’s financial statements and provide for noncontrolling interests reflecting ordinary shares in Sogou held by shareholders other than Sohu. In the fourth quarter of 2017, Sohu recognized a one-time credit to additional paid-in capital of $278.4 million in shareholders’ equity in Sohu’s consolidated balance sheets to reflect the increase in the value of Sohu’s equity in Sogou that resulted from the completion of Sogou’s IPO.

Sogou’s Share Structure

Sogou’s Ordinary Shares are divided into Sogou Class A Ordinary Shares and Sogou Class B Ordinary Shares. Holders of Sogou Class A Ordinary Shares and holders of Sogou Class B Ordinary Shares have identical rights with the exception of voting and conversion rights. Each Sogou Class A Ordinary Share is entitled to one vote per share and is not convertible. Each Sogou Class B Ordinary Share is entitled to ten votes per share and is convertible at any time into one Sogou Class A Ordinary Share.

As of December 31, 2019, Sogou had a combined total of 388,731,140 Sogou Class A Ordinary Shares and Sogou Class B Ordinary Shares issued and outstanding, consisting of:

(i)	Sohu: 127,200,000 Sogou Class B Ordinary Shares held by Sohu for its own account, and 3,717,250 Sogou Class A Ordinary Shares held by Sohu for the purpose of issuance upon the exercise of outstanding share-based awards and future share-based awards;

(ii)	Tencent: 151,557,875 Sogou Class B Ordinary Shares;

(iii)

Photon: 24,686,863 Sogou Class A Ordinary Shares; and

(iv)	Shareholders other than Sohu, Tencent, and Photon: 81,569,152 Sogou Class A Ordinary Shares, including Sogou Class A Ordinary Shares represented by Sogou ADSs.

The total number of Sogou outstanding shares listed above include 5,520,000 Sogou Class A Ordinary Shares that are outstanding for legal purposes, but have been determined to be Sogou treasury stock for accounting purposes.

Voting Agreement between Sohu, Tencent and Sogou

Pursuant to the Voting Agreement, Sohu and Tencent agreed that, subject to certain exceptions, (1) within three years following the completion of Sogou’s IPO, Sohu will vote all Sogou Class B Ordinary Shares and any Sogou Class A Ordinary Shares held by it and Tencent will vote 45,578,896 of its Sogou Class B Ordinary Shares to elect a Board of Directors consisting of seven directors, four of whom will be appointed by Sohu, two of whom will be appointed by Tencent, and the seventh of whom will be Sogou’s then chief executive officer, and (2) after three years following the completion of Sogou’s IPO, Sohu will be entitled to choose to change the size and composition of Sogou’s Board of Directors, subject to Tencent’s right to appoint at least one director. The effect of these provisions is to give Sohu the power to appoint a majority of Sogou’s Board of Directors, and to give Tencent the power to appoint two directors within three years following the completion of Sogou’s IPO and at least one director after three years after the completion of Sogou’s IPO. The Voting Agreement also provides that, subject to certain conditions, for so long as Sohu and Tencent together hold more than 50% of the total voting power of the Sogou Class A Ordinary Shares and the Sogou Class B Ordinary Shares, Sohu or Tencent may remove and replace any director appointed by it. These provisions of the Voting Agreement are also reflected in Sogou’s Third Amended and Restated Memorandum of Association (“Sogou’s Amended and Restated Memorandum of Association”) and Seventh Amended and Restated Articles of Association (“Sogou’s Amended and Restated Articles of Association”).

Due to the additional voting power of the Sogou Class B Ordinary Shares held by Sohu and Tencent, as of the date of this report Sohu holds approximately 34% of the total of Sogou’s outstanding Class A and Class B Ordinary Shares and controls approximately 44% of the total voting power of the combined total of Sogou’s outstanding Class A and Class B Ordinary Shares; Tencent has an indirect shareholding of approximately 39% of the total of Sogou’s outstanding Class A and Class B Ordinary Shares and controls approximately 52% of the total voting power of the combined total of Sogou’s outstanding Class A and Class B Ordinary Shares; and Sohu and Tencent together have the power to decide all matters that may be brought to a vote of Sogou’s shareholders.

The Voting Agreement and Sogou’s Amended and Restated Articles of Association also specify that for so long as Sohu or Tencent holds not less than 15% of Sogou’s issued shares (calculated on a fully diluted basis), consent from the holder of 15% or more (either or both of Sohu or Tencent, as the case may be) will be required (1) to amend Sogou’s Amended and Restated Memorandum of Association or Amended and Restated Articles of Association, (2) to make material changes in Sogou’s principal lines of business, (3) to issue any additional Sogou Class B Ordinary Shares, (4) to create any new class or series of shares that is pari passu with or senior to the Sogou Class A Ordinary Shares, (5) for Sogou to approve a liquidation, dissolution or winding up of Sogou, or a merger or consolidation resulting in a change in control, or any disposition of all or substantially all of Sogou’s assets, or (6) for Sogou to enter into any transactions with affiliates of Sohu, other than in the ordinary course of business. Of these corporate actions that are subject to consent of Sohu or Tencent (as applicable), shareholder approval is required under the Companies Law of the Cayman Islands for any amendment of Sogou’s Amended and Restated Memorandum of Association or Amended and Restated Articles of Association, any winding-up of Sogou Inc., or any merger or consolidation with a third-party entity. The Voting Agreement and Sogou’s Amended and Restated Articles of Association further provide that if Sogou’s shareholders have voted in favor of any of these actions requiring the approval of Sogou’s shareholders but consent from Sohu or Tencent (as applicable) has not been obtained, then the holders of all classes of Sogou’s shares who have voted against such action will be deemed to have such number of votes as are equal to the aggregate number of votes cast in favor of such actions plus one additional vote. Under these provisions of the Voting Agreement and Sogou’s Amended and Restated Articles of Association, if an action is proposed for which the consent of either Tencent or Sohu is required, the failure to obtain the consent of Tencent or Sohu will have the effect of the proposed action’s not being approved, even if Sogou’s other shareholders approve it.

The Voting Agreement and Sogou’s Amended and Restated Articles of Association also specify that if at any time Sohu alone holds more than 50% of the total voting power of the Sogou Class A Ordinary Shares and the Sogou Class B Ordinary Shares, the voting arrangements with respect to the size and composition of Sogou’s Board of Directors will be automatically suspended until such time within five years after the completion of Sogou’s IPO as Sohu’s voting power again drops to 50% or less, in which case the original voting arrangements will be reinstated, provided that Tencent will only be required to vote the lower of 45,578,896 Sogou Class B Ordinary Shares held by it or such number as would give Sohu combined voting power of 50.1%. If such a suspension continues after the fifth anniversary of the completion of Sogou’s IPO, the voting arrangements with respect to the size and composition of Sogou’s Board of Directors will terminate.

All of the Sogou Class B Ordinary Shares held by Sohu will be converted into Sogou Class A Ordinary Shares if there is a transaction resulting in change of control of Sohu that was not approved by Sohu’s board of directors, if specified competitors of Tencent control Sohu, or if a majority of Sohu’s board of directors consist of nominees of specified competitors of Tencent. The provisions with respect to the size and composition of Sogou’s Board of Directors set out in the Voting Agreement and Sogou’s Amended and Restated Articles of Association will terminate upon occurrence of any such event. Such arrangements will also terminate (1) if Dr. Charles Zhang, the chairman of the board of directors of Sohu and the chief executive officer, both ceases being the chairman of the board of directors of Sohu and ceases being the single largest beneficial owner of Sohu’s outstanding shares; (2) if Sohu transfers 30% or more of the Sogou Class B Ordinary Shares that Sohu held upon the completion of Sogou’s IPO; (3) if Sogou fails to provide irrevocable instructions to the person maintaining Sogou’s register of members to accept instructions from Tencent, under certain circumstances, with respect to the conversion of Sogou Class B Ordinary Shares held by Sohu; (4) or Sogou changes, without Tencent’s consent, the person that maintains Sogou’s register of members; (5) or if Tencent ceases to own any Sogou Class B Ordinary Shares.

Under the Voting Agreement, Sohu and Tencent are subject to certain restrictions on transfer of their Sogou Class A and Class B Ordinary Shares. In particular, a transfer of Sogou Class B Ordinary Shares by either Sohu or Tencent, respectively, to any person or entity that is not a direct or indirect wholly-owned subsidiary of Sohu or Tencent, respectively, will cause such Sogou Class B Ordinary Shares to be converted into Sogou Class A Ordinary Shares.

Voting Agreement between Sohu, Photon and Sogou Management

Sohu may be deemed to have beneficial ownership attributable to shared voting power of Sogou Class A Ordinary Shares beneficially owned by Photon Group Limited (“Photon”), an investment vehicle of the Company’s Chairman and Chief Executive Officer Charles Zhang, Sogou’s chief executive officer Xiaochuan Wang, and certain other members of the Sogou management, as a result of a voting agreement by and among Sohu, Photon, Mr. Wang and the other members of Sogou management, pursuant to which Photon, Mr. Wang, and the other members of Sogou Management have agreed to vote their Sogou Class A Ordinary Shares (not including shares acquired by Mr. Wang in the public market following Sogou’s IPO) to elect Sohu’s designees to Sogou’s Board of Directors.

Changyou’s Business

Changyou’s business lines consist of the online game business and the platform channel business, which consists primarily of online advertising and mobile game distribution services. Before ceasing its operations in August 2019, Changyou also operated a cinema advertising business, which consisted primarily of the acquisition from operators of movie theaters, and the sale to advertisers, of pre-film advertising slots.

Online Game Business

Changyou’s online game business offers PC games and mobile games to game players. All of Changyou’s games are operated under the item-based revenue model, meaning that game players can play the games for free, but may choose to pay for virtual items, which are non-physical items that game players can purchase and use within a game, such as gems, pets, fashion items, magic medicine, riding animals, hierograms, skill books and fireworks. Revenues derived from the operation of online games are classified as online game revenues in the Sohu Group’s consolidated statements of comprehensive income.

PC Games

PC games are interactive online games that are accessed and played simultaneously by hundreds of thousands of game players through personal computers and require that local client-end game access software be installed on the computers used. Changyou’s dominant game is Tian Long Ba Bu (“TLBB”), a PC based client-end game. For the year ended December 31, 2019, revenues from TLBB were $215.2 million, accounting for approximately 49% of Changyou’s online game revenues, approximately 47% of Changyou’s total revenues and approximately 12% of the Sohu Group’s total revenues.

Mobile Games

Mobile games are played on mobile devices and require an Internet connection. In the second quarter of 2017, Changyou launched a mobile game, Legacy TLBB (“Legacy TLBB Mobile”), which is operated by Tencent under license from Changyou. For the year ended December 31, 2019, revenues from Legacy TLBB Mobile were $101.1 million, accounting for approximately 23% of Changyou’s online game revenues, approximately 22% of Changyou’s total revenues, and approximately 5% of the Sohu Group’s total revenues.

Platform Channel Business

Changyou’s platform channel business consists primarily of the operation of the 17173.com Website. Prior to RaidCall’s ceasing operations in March 2019 and the sale of MoboTap Inc. (“MoboTap”) in March 2018, Changyou’s platform channel business also included RaidCall and MoboTap.

17173.com Website

The 17173.com Website provides news, electronic forums, online videos, mobile game distribution services, and other online game information services to game players. All revenues generated by the 17173.com Website are classified as brand advertising revenues.

RaidCall

Prior to ceasing operations in March 2019, RaidCall provided online music and entertainment services, primarily in Taiwan. IVAS revenues that were generated by RaidCall are classified as other revenues in the Sohu Group’s consolidated statements of comprehensive income.

Cinema Advertising Business (Discontinued)

Prior to ceasing its operations in August 2019, Changyou also operated a cinema advertising business, which consisted primarily of the acquisition from operators of movie theaters, and the sale to advertisers, of pre-film advertising slots. Revenues that were generated by Changyou’s cinema advertising business are reflected as discontinued operations in the Sohu Group’s consolidated statements of comprehensive income.

Changyou’s Share Structure

Changyou’s Ordinary Shares are divided into Changyou Class A Ordinary Shares and Changyou Class B Ordinary Shares. Holders of Changyou Class A Ordinary Shares and holders of Changyou Class B Ordinary Shares have identical rights with the exception of voting and conversion rights. Each Changyou Class A Ordinary Share is entitled to one vote per share and is not convertible. Each Changyou Class B Ordinary Share is entitled to ten votes per share and is convertible at any time into one Changyou Class A Ordinary Share.

As of December 31, 2019, Changyou had a combined total of 107,263,420 Changyou Class A and Class B Ordinary Shares issued and outstanding, consisting of:

(i)	Sohu: 1,500,000 Changyou Class A Ordinary Shares and 70,250,000 Changyou Class B Ordinary Shares; and

(ii)	Public shareholders: 35,513,420 Changyou Class A Ordinary Shares represented by Changyou’s ADSs.

As of December 31, 2019, Sohu held approximately 67% of the combined total of Changyou’s outstanding ordinary shares, and controlled approximately 95% of the total voting power in Changyou. As a result of the completion of Sohu’s acquisition, by way of a merger (the “Changyou Merger”), of the noncontrolling interests in Changyou on April 17, 2020, as of the date of this report, Sohu holds 100% of the combined total of Changyou’s outstanding ordinary shares and 100% of the total voting power in Changyou. As Changyou’s controlling shareholder, Sohu consolidates Changyou in its consolidated financial statements and, prior to the completion of the Changyou Merger on April 17, 2020, also provided for noncontrolling interests reflecting ordinary shares in Changyou held by shareholders other than the Company (“Changyou noncontrolling shareholders”).

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Summary of Significant Accounting Policies

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Standards

The consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”) to reflect the financial position and results of operations of the Sohu Group.

Discontinued operations

A component of a reporting entity or a group of components of a reporting entity that are disposed of or meet the criteria to be classified as held for sale should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or (2) has a major impact on an entity’s financial results and operations. In the statement of financial position, the assets and liabilities of the discontinued operation are presented separately in the asset and liability sections, respectively, of the statement of financial position and prior periods are presented on a comparative basis. In the consolidated statements of comprehensive income, results from discontinued operations are reported separately from the income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows for discontinued operations are presented separately in the consolidated statements of cash flows. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations.

Use of Estimates

The preparation of these financial statements requires the Sohu Group to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Group evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Group’s most significant estimates and judgments, and those that the Group believes are the most critical to fully understanding and evaluating its consolidated financial statements.

Basis of Consolidation and Recognition of Noncontrolling Interest

The Sohu Group’s consolidated financial statements include the accounts of the Company and its subsidiaries and consolidated VIEs. All intra-Group transactions are eliminated.

VIE Consolidation

The Sohu Group’s VIEs are wholly or partially owned by certain employees of the Group as nominee shareholders. For consolidated VIEs, management made evaluations of the relationships between the Sohu Group and the VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Group controls the shareholders’ voting interests in these VIEs. As a result of such evaluation, management concluded that the Sohu Group is the primary beneficiary of its consolidated VIEs.

Noncontrolling Interest Recognition

Noncontrolling interests are recognized to reflect the portion of the equity of subsidiaries and VIEs which is not attributable, directly or indirectly, to the controlling shareholders. Currently, the noncontrolling interests in the Sohu Group’s consolidated financial statements primarily consist of noncontrolling interests for Sogou and Changyou.

Noncontrolling Interest for Sogou

Prior to the completion of Sogou’s IPO in November 2017, the Company controlled the election of a majority of the Board of Directors of Sogou pursuant to a shareholders’ agreement that expired upon the completion of the IPO. Following the completion of Sogou’s IPO, pursuant to the Voting Agreement and Sogou’s Amended and Restated Articles of Association, the Company still has the right to appoint a majority of Sogou’s Board of Directors.

As Sogou’s controlling shareholder, the Company consolidates Sogou in its consolidated financial statements, and recognizes noncontrolling interest reflecting economic interests in Sogou held by shareholders other than it (the “Sogou noncontrolling shareholders”). Sogou’s net income /(loss) attributable to the Sogou noncontrolling shareholders is recorded as noncontrolling interest in its consolidated statements of comprehensive income.

Noncontrolling Interest Recognition before Sogou’s IPO

Based on the principles of allocation of Sogou’s profit and loss set forth below, Sogou’s cumulative results of operations attributable to the Sogou noncontrolling shareholders, along with changes in shareholders’ equity/(deficit) and adjustments for share-based compensation expense in relation to those share-based awards that were unvested and vested but not yet settled and the Sogou noncontrolling shareholders’ investments in Sogou Series A Preferred Shares outstanding before Sogou’s IPO (“Sogou Pre-IPO Series A Preferred Shares”) and Sogou Series B Preferred Shares outstanding before Sogou’s IPO (“Sogou Pre-IPO Series B Preferred Shares”) (together, the “Sogou Pre-IPO Preferred Shares”) and Sogou ordinary shares outstanding before Sogou’s IPO (“Sogou Pre-IPO Class A Ordinary Shares” and “Sogou Pre-IPO Class B Ordinary Shares, as applicable) were accounted for as a noncontrolling interest classified as permanent equity in the Sohu Group’s consolidated balance sheets, as Sohu Group had the power to reject a redemption requested by the noncontrolling shareholders. These treatments were based on the terms governing investment, and on the terms of the classes of Sogou shares held, by the noncontrolling shareholders in Sogou before Sogou’s IPO.

Principles of Allocation of Sogou’s Profit and Loss - By virtue of the terms of the Sogou Pre-IPO Preferred Shares, Pre-IPO Class A Ordinary Shares, and Pre-IPO Class B Ordinary Shares, Sogou’s losses were allocated in the following order before Sogou’s IPO:

(i) net losses were allocated to holders of the Sogou Pre-IPO Class A Ordinary Shares and the holder of the Sogou Pre-IPO Class B Ordinary Shares until their basis in Sogou decreased to zero;

(ii) additional net losses were allocated to holders of the Sogou Pre-IPO Series A Preferred Shares until their basis in Sogou decreased to zero;

(iii) additional net losses were allocated to the holder of the Sogou Pre-IPO Series B Preferred Shares until its basis in Sogou decreased to zero; and

(iv) further net losses were allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.

Net income from Sogou was allocated in the following order before Sogou’s IPO:

(i) net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou until their basis in Sogou increased to zero;

(ii) additional net income was allocated to the holder of the Sogou Pre-IPO Series B Preferred Shares to bring its basis back;

(iii) additional net income was allocated to holders of the Sogou Pre-IPO Series A Preferred Shares to bring their basis back;

(iv) further net income was allocated to holders of the Sogou Pre-IPO Class A Ordinary Shares and the holder of the Sogou Pre-IPO Class B Ordinary Shares to bring their basis back; and

(v) further net income was allocated between Sohu and noncontrolling shareholders based on their shareholding percentage in Sogou.

Noncontrolling Interest Recognition after Sogou’s IPO

Sogou’s cumulative results of operations attributable to the Sogou noncontrolling shareholders, based on their share of the economic interest in Sogou, along with changes in shareholders’ equity and adjustment for share-based compensation expense in relation to share-based awards that are unvested and vested but not yet settled and adjustment for changes in the Sohu Group’s ownership percentage in Sogou, are recorded as noncontrolling interest in the Sohu Group’s consolidated balance sheets.

Noncontrolling Interest for Changyou

As Changyou’s controlling shareholder, Sohu consolidates Changyou in its consolidated financial statements and, prior to the completion of the Changyou Merger on April 17, 2020, also recognizes noncontrolling interest reflecting the economic interest in Changyou held by Changyou noncontrolling shareholders. Changyou’s net income /(loss) attributable to the Changyou noncontrolling shareholders is recorded as noncontrolling interest in the Sohu Group’s consolidated statements of comprehensive income, based on the noncontrolling shareholders’ share of the economic interest in Changyou. Changyou’s cumulative results of operations attributable to the Changyou noncontrolling shareholders, along with changes in shareholders’ equity, adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in the Company’s ownership in Changyou, are recorded as noncontrolling interest in the Sohu Group’s consolidated balance sheets.

Segment Reporting

The Sohu Group’s segments are business units that offer different services and are reviewed separately by the chief operating decision maker (the “CODM”), or the decision-making group, in deciding how to allocate resources and in assessing performance. The Group’s CODM is the Company’s Chief Executive Officer.

Revenue Recognition

Impact of Adoption of ASC 606

On January 1, 2018, the Sohu Group adopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018. The adoption of ASC 606 did not have a material impact on the Company’s accumulated deficit as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior-period amounts are not adjusted and continue to be reported in accordance with the Group’s historic accounting under ASC 605.

Under ASC 605, advertising-for-advertising barter transactions for which the fair value of the advertising services was not determinable were recorded at the carrying amount of the advertising surrendered, since the Group did not settle such barter transactions with the counterparties in cash. As ASC 605 has been superseded by ASC 606 on this subject, advertising-for-advertising barter transactions are to be recorded at the fair value of the advertising received by reference to the fair value of advertising services provided to other customers.

Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services. The recognition of revenues involves certain management judgments, including estimated lives of virtual items purchased by game players, the estimation of the fair value of an advertising-for-advertising barter transaction, allocation of upfront license fees for licensed-out games between license and post-sale services, and volume sales rebates. The Group does not believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Group’s revenues could be different for any period if management made different judgments or utilized different estimates.

The following table presents the Group’s revenues disaggregated by products and services:


	Year Ended December 31, 2017 (in thousands)
	Sohu		Sogou		Changyou		Total
Brand advertising:
Sohu Media Portal	$	152,015		0		0		152,015
Sohu Video		79,756		0		0		79,756
Focus		57,245		0		0		57,245
17173.com Website		0		0		25,096		25,096
Search and search related advertising		0		801,199		0		801,199
Online games:
PC games		0		0		239,149		239,149
Mobile games		0		0		208,355		208,355
Other games		0		0		2,029		2,029
Others		83,758		106,807		14,180		204,745

Total	$	372,774		908,006		488,809		1,769,589


	Year Ended December 31, 2018 (in thousands)
	Sohu		Sogou		Changyou		Total
Brand advertising:
Sohu Media Portal	$	127,348		0		0		127,348
Sohu Video		53,756		0		0		53,756
Focus		31,144		0		0		31,144
17173.com Website		0		0		19,697		19,697
Search and search related advertising		0		1,022,456		0		1,022,456
Online games:
PC games		0		0		236,743		236,743
Mobile games		0		0		151,737		151,737
Other games		0		0		1,308		1,308
Others		61,975		100,589		6,074		168,638

Total	$	274,223		1,123,045		415,559		1,812,827


	Year Ended December 31, 2019 (in thousands)
	Sohu		Sogou		Changyou		Total
Brand advertising:
Sohu Media Portal	$	94,497		0		0		94,497
Sohu Video		34,529		0		0		34,529
Focus		32,120		0		0		32,120
17173.com Website		0		0		13,715		13,715
Search and search related advertising		0		1,072,860		0		1,072,860
Online games:
PC games		0		0		267,752		267,752
Mobile games		0		0		172,718		172,718
Other games		0		0		432		432
Others		57,080		98,981		763		156,824

Total	$	218,226		1,171,841		455,380		1,845,447

As noted above, in accordance with the modified retrospective method upon adoption of ASC 606, amounts for 2017 were not adjusted.

Online Advertising Revenues

Online advertising revenues include revenues from brand advertising services as well as search and search-related advertising services. Certain customers may receive sales rebates, which are accounted for as variable consideration. The Group estimates annual the expected revenue volume from each agent with reference to its historical results. Sales rebates will reduce revenues recognized. The Group recognizes revenue for the amount of fees it receives from its advertisers, after deducting sales rebates and net of value-added tax (“VAT”). The Group believes that there will not be significant changes to its estimates of variable consideration.

Brand Advertising Revenues

Revenue Recognition of Multiple Performance Obligations

The Group’s contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates revenues to each performance obligation based on its relative standalone selling price. The Group generally determines the standalone selling price of each distinct performance obligation based on the prices charged to customers when sold on a standalone basis. Where a standalone selling price is not directly observable, the Group generally estimates the selling price based on the prices at which performance obligations of a similar nature and geography are charged to customers. Most of such contracts have all performance obligations completed within the same quarter.

Pricing Model

Through mobile devices and PCs , the Group provides advertisement placements to its advertisers on different Internet platforms and in different formats, which include banners, links, logos, buttons, full screen, pre-roll, mid-roll, post-roll video screens, pause video screens, loading page ads, news feed ads, in-feed video infomercial ads and other formats.

Currently the Group has three main types of pricing models, consisting of the Fixed Price model, the Cost Per Impression (“CPM”) model and the Cost Per Click (“CPC”) model.

(i) Fixed Price model

Under the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. Given that the advertisers benefit from displayed advertisements evenly over the period the advertisements are displayed, the Group recognizes revenue on a straight-line basis over the period of display, provided all revenue recognition criteria have been met.

(ii) CPM model

Under the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the advertiser. A qualifying display is defined as the appearance of an advertisement, where the advertisement meets criteria specified in the contract. Given that the fees are priced consistently throughout the contract and the unit prices are fixed in accordance with the Group’s pricing practices for similar advertisers, the Group recognizes revenue based on the fixed unit prices and the number of qualifying displays upon their occurrence, provided all revenue recognition criteria have been met.

(iii) CPC model

Under the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser and the unit price for each click is auction-based. The Group charges advertisers on a per-click basis, when the users click on the advertisements. Given that the fees are priced consistently throughout the contract and the unit prices are fixed in accordance with the Group’s pricing practices for similar advertisers, the Group recognizes revenue based on qualifying clicks and unit price upon the occurrence of the clicks, provided all revenue recognition criteria have been met.

Search and Search-related Advertising Revenues

Search and search-related services consist primarily of search and search-related advertising services offered by Sogou.

Pay-for-click Services

Pay for click services enable advertisers’ promotional links to be displayed on Sogou search result pages and other Internet properties and third parties’ Internet properties where the links are relevant to the subject and content of searches and such properties. For pay-for-click services, Sogou introduces Internet users to its advertisers through auction-based systems and charges advertisers on a per-click basis when the users click on the displayed links. The performance obligation of pay-for-click services is satisfied at the point in time when users click on the displayed links, and revenue for pay-for-click services is recognized on a per-click basis.

Other Online Advertising Services

Other online advertising services mainly consist of displaying advertisers’ promotional links on Sogou’s Internet properties. For time-based advertising services, Sogou’s performance obligation is satisfied over time when the advertising links are displayed over the contract periods, and therefore revenue is normally recognized on a straight-line basis over the contracted display period. For performance-based advertising services, for example, advertisers are charged based on the times that users download from the displayed links, Sogou’s performance obligation is satisfied at the point in time when the promised performance is completed, and the revenue is recognized upon the completion of the promised performance.

Sogou’s online advertising services expand distribution of advertisers’ promotional links and advertisements by leveraging traffic on third parties’ Internet properties, including Web content, software, and mobile applications. Sogou is the principal in such arrangement because its promise to advertisers is to provide the advertising services itself rather than to arrange for the advertising services to be provided by third parties on their Internet properties. Payments made to operators of third-party Internet properties are included in the traffic acquisition costs.

Online Game Revenues

Changyou’s online game revenues are generated primarily from its self-operated and licensed-out PC games and mobile games. Prior to the sale of the MoboTap business in 2018, Changyou also generated a small amount of revenues from online card and board games. All of Changyou’s games are operated under the item-based revenue model, where the basic game play functions are free of charge and players are charged for purchases of in-game virtual items, including those with a predetermined expiration time and perpetual virtual items.

Changyou is the principal of its self-operated games. Changyou hosts the games on its own servers and is responsible for the sale and marketing of the games as well as customer service. Accordingly, revenues are recorded gross of revenue sharing-payments to third-party developers and/or mobile APP stores, but net of VAT and discounts to game card distributors where applicable. Changyou obtains revenues from the sale of in-game virtual items. Revenues are recognized over time for virtual items with estimated lives and upon use for items that are consumed immediately. If different assumptions were used in deriving the estimated lives of the virtual items, the timing of the recording of the revenues would be impacted.

PC Games

Proceeds from Changyou’s self-operated PC games are collected from players and third-party game card distributors through sales of Changyou’s game points on its online payment platform and prepaid game cards.

Changyou’s self-operated PC games are either developed in house or licensed from third-party developers. For licensed PC games, Changyou remits a pre-agreed percentage of the proceeds to the third-party developers, and keeps the balance, pursuant to revenue-sharing agreements. Such revenue-sharing amounts paid to third-party developers are recorded in Changyou’s cost of revenues.

Mobile Games

Self-operated Mobile Games

For self-operated mobile games, Changyou sells game points to its game players via third-party mobile APP stores. The mobile APP stores in turn pay Changyou proceeds after deducting their share of pre-agreed revenue-sharing amounts.

Changyou’s self-operated mobile games are either developed in house or licensed from or jointly developed with third-party developers. For licensed and jointly-developed mobile games, Changyou remits a pre-agreed percentage of the proceeds to the third-party developers, and keeps the balance, pursuant to revenue-sharing agreements. Such revenue-sharing amounts paid to mobile application stores and third-party developers are included in Changyou’s cost of revenues.

Licensed Out Mobile Games

Changyou also authorizes third parties to operate its mobile games. Licensed out games include mobile games developed in house, such as Changyou’s mobile game Legacy TLBB Mobile, and mobile games jointly developed with third-party developers. Changyou receives monthly revenue-based royalty payments from the third-party licensee operators. Changyou receives additional up-front license fees from certain third-party licensee operators who are entitled to an exclusive right to operate Changyou’s games in specified geographic areas. Since Changyou is obligated to provide post-sale services (“PCS”), the initial license fees are allocated between the license and PCS based on relative standalone selling prices. The amount allocated to the license is recognized as revenue upon the commencement of the license period, given that Changyou’s intellectual property rights subject to the license are considered to be functional and the licensee has the right to use such intellectual property rights as they exist at the point when the license is granted, and the amount allocated to PCS is recognized as revenue ratably over the license period. Monthly revenue-based royalty payments are recognized when the relevant services are delivered, provided that collectability is reasonably assured. Changyou views the third-party licensee operators as Changyou’s customers and recognizes revenues on a net basis, as Changyou does not have the primary responsibility for fulfillment and acceptability of the game services. Changyou remits to the third-party developers a pre-agreed percentage of revenues and keeps the balance pursuant to revenue-sharing agreements. Such revenue-sharing amounts paid to third-party developers are included in Changyou’s cost of revenues or product development expenses.

Other Revenues

Sohu

Other revenues attributable to Sohu consist primarily of revenues from paid subscription services, interactive broadcasting services, and sub-licensing of purchased video content to third parties.

Sogou

Other revenues attributable to Sogou are IVAS revenues, which are mainly from the operation of Web games and mobile games developed by third parties, and revenues from other products and services, including smart hardware products and online lending and microcredit services. Other revenues are generally recognized when Sogou’s performance obligations under the applicable agreements have been satisfied, except for interest revenues from Sogou’s online lending and microcredit services, which are recognized using the effective interest method.

Changyou

Other revenues attributable to Changyou are primarily from IVAS.

As of August 12, 2019, the Sohu Group ceased consolidating Changyou’s cinema advertising business in its consolidated financial statements and, accordingly, the financial results of the cinema advertising business are excluded from the Sohu Group’s results from continuing operations and are presented in separate line items as discontinued operations in the consolidated financial statements, and retrospective adjustments to the Sohu Group’s historical audited consolidated financial statements have been made in order to provide a consistent basis of comparison.

Revenues generated from Changyou’s IVAS were derived primarily from software applications for PCs and mobile devices offered by RaidCall, which ceased operations in March 2019. Prior to March 2018, IVAS revenues also included revenues generated from the Dolphin Browser operated by MoboTap. Revenues from IVAS are recognized during the period the services are rendered or items are consumed under the gross method, as Changyou is the principal obligor for provision of the services.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment. The allowance for doubtful accounts and authorized credits is estimated based upon the Group’s assessment of various factors, including historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect the Group’s customers’ ability to pay. Contract assets as of December 31, 2019 were not material. The allowance for doubtful accounts and authorized credits was $16.2 million and $15.1 million, respectively, as of December 31, 2019 and December 31, 2018.

Receipts in advance and deferred revenue relate to unsatisfied performance obligations at the end of the period and primarily consist of fees received from game players in the online game business and from advertisers in the search and search-related advertising business. Due to the generally short-term duration of the contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenue recognized that was included in the receipts in advance and deferred revenue balance at the beginning of the period was $110.2 million for the year ended December 31, 2019.

There was no significant change in the contract assets and contract liability balances during 2019.

Revenue recognized in 2019 from performance obligations related to prior years was not material.

Practical Expedients

The Group has used the following practical expedients as allowed under ASC 606:

(i) The transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied has not been disclosed, as substantially all of the Group’s contracts have a duration of one year or less.

(ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. In instances where the timing of revenue recognition differs from the timing of invoicing, the Group has determined that its contracts generally do not include a significant financing component.

(iii) The Group applied the portfolio approach in determining the commencement date of consumption and the estimated lives of virtual items for the recognition of games revenue, given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materially from considering each one of them individually.

(iv) The Group generally expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded within sales and marketing expenses.

Cost of Revenues

Cost of Online Advertising Revenues

Cost of online advertising revenues includes cost of revenues from brand advertising services as well as cost of revenues from search and search-related services.

Cost of Brand Advertising Revenues

Cost of brand advertising revenues mainly consists of content and license costs, salary and benefits expenses, and bandwidth service costs. For self-developed video content, production costs incurred in excess of the amount of revenue contracted for are expensed as incurred.

Cost of Search and Search-related Advertising Revenues

Cost of search and search-related advertising revenues mainly consists of traffic acquisition costs, bandwidth service costs, depreciation expenses, salary and benefits expenses, and share-based compensation expense. Traffic acquisition costs represent the most significant portion of cost of revenues. Traffic acquisition costs consist primarily of payments to third parties that direct search queries of the users to Internet properties of Sogou or distribute Sogou advertisers’ promotional links through such third parties’ Internet properties. The traffic acquisitions costs for such arrangements consist primarily of fees that Sogou pays to the third parties based on an agreed-upon unit price and revenue-sharing payments that Sogou makes to such third parties based on an agreed-upon percentage of revenues generated from users’ clicks.

Cost of Online Game Revenues

Cost of online game revenues mainly consists of revenue-sharing payments, salary and benefits expenses, bandwidth service costs, content and license costs, tax surcharges, depreciation and amortization expenses, and other direct costs.

Cost of Other Revenues

Cost of other revenues mainly consists of revenue-sharing payments related to the IVAS business, costs of smart hardware products, revenue-sharing payments related to interactive broadcasting services, and content and license costs related to paid subscription services.

Product Development Expenses

Product development expenses mainly consist of salary and benefits expenses, content and license costs, technical service fees, facilities expenses, and depreciation and amortization expenses. These expenses are incurred for the enhancement and maintenance of the Sohu Group’s Internet platforms as well as for its products and services. The development costs of online games are expensed as incurred, including the development costs of online games prior to the establishment of technological feasibility and maintenance costs after the online games are available for marketing.

Sales and Marketing Expenses

Sales and marketing expenses mainly consist of advertising and promotional expenses, salary and benefits expenses, travel and entertainment expenses, and facilities expenses. Advertising and promotional expenses generally represent the expenses of promotions to create or stimulate a positive image of the Sohu Group or a desire to subscribe for the Group’s products and services. Advertising and promotional expenses are expensed as incurred.

General and Administrative Expenses

General and administrative expenses mainly consist of salary and benefits expenses, bad debts, professional fees, depreciation and amortization expenses, travel and entertainment expenses, and facilities expenses.

Share-based Compensation Expense

Sohu (excluding Sohu Video), Sogou, Changyou, and Sohu Video have incentive plans for the granting of share-based awards, including share options and restricted share units, to members of the boards of directors, management and other key employees.

For share-based awards for which a grant date has occurred, share-based compensation expense is recognized as costs and expenses in the consolidated statements of comprehensive income based on the fair value of the related share-based awards on their grant dates. For share-based awards for which the service inception date precedes the grant date, share-based compensation expense is recognized as costs and expenses in the consolidated statements of comprehensive income beginning on the service inception date and is re-measured on each subsequent reporting date before the grant date, based on the estimated fair value of the related share-based awards. Share-based compensation expense is charged to the shareholders’ equity or noncontrolling interest section in the consolidated balance sheets. The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. If factors change or different assumptions are used, the Group’s share-based compensation expense could be materially different for any period. Moreover, the estimates of fair value are not intended to predict actual future events or the value that ultimately will be realized by employees who receive equity awards.

Sohu (excluding Sohu Video), Sogou, and Changyou Share-based Awards

Sohu (excluding Sohu Video) Share-based Awards

In determining the fair value of share options granted by Sohu (excluding Sohu Video) as share-based awards, the public market price of the underlying shares at each reporting date was used, and a binomial valuation model was applied. In determining the fair value of restricted share units granted, the public market price of the underlying shares on the grant dates was applied.

Upon the dissolution of Sohu.com Inc. on May 31, 2018, Sohu.com Limited assumed all then existing obligations of Sohu.com Inc. with respect to equity incentive awards that had been granted under Sohu.com Inc.’s Amended and Restated 2010 Stock Incentive Plan (the “Sohu 2010 Stock Incentive Plan”) and remained outstanding, and such awards were converted into the right to receive upon exercise or settlement Sohu.com Limited’s ordinary shares under the Sohu.com Limited 2018 Share Incentive Plan (the “Sohu 2018 Share Incentive Plan”) rather than shares of the common stock of Sohu.com Inc., subject to the other terms of such outstanding awards. Options for the purchase of Sohu.com Limited’s ordinary shares, including options converted from those contractually granted under the Sohu 2010 Stock Incentive Plan, are subject to vesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets.

Under ASC 718-10-25, no grant date can be established until a mutual understanding is reached between Sohu and the recipients clarifying the subjective performance requirements. In accordance with ASC 718-10-55, as the service inception date preceded the grant date, compensation expense was accrued beginning on the service inception date and will be re-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. The estimate of the awards’ fair values will be fixed in the period in which the grant date occurs, and cumulative compensation expense will be adjusted based on the fair value at the grant date.

Sogou Share-based Awards

In determining the fair value of share options granted by Sogou as share-based awards, a binomial valuation model was applied. The determination of the fair value is affected by the fair value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables, including risk-free interest rates, exercise multiples, expected forfeiture rates, expected share price volatility rates, and expected dividends. Before the completion of Sogou’s IPO, the fair values of the ordinary shares were assessed using the income approach/discounted cash flow method or based on the mid-point of the estimated IPO price range, in each case with a discount for lack of marketability, given that the shares underlying the awards were not publicly traded at the time of grant.

After the completion of Sogou’s IPO, the fair values of the ordinary shares were determined based on the trading price of Sogou’ ADSs in the public market.

Before Sogou’s adoption of ASU 2018-07 “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” effective for fiscal years beginning after December 15, 2018, share-based compensation expense for share options granted to non-employees was measured at fair value at the earlier of the performance commitment date or the date service was completed and recognized over the period during which the service was provided. Sogou applied the guidance in ASC 505-50 to measure share options granted to non-employees based on the then-current fair value at each reporting date until the service had been provided and the performance targets had been met. After Sogou’s adoption of ASU 2018-07, share-based compensation expense for share options granted to non-employees is recognized in accordance with the requirements of ASC 718 for employee share-based compensation awards.

Changyou Share-based Awards

In determining the fair value of ordinary shares and restricted share units granted by Changyou as share-based awards in 2008, the income approach/discounted cash flow method with a discount for lack of marketability was applied, given that the shares underlying the awards were not publicly traded at the time of grant. Changyou’s 2008 Share Incentive Plan expired in August 2018 and is no longer available for granting new share-based awards. In determining the fair value of restricted share units granted after Changyou’s IPO, the public market price of the underlying shares on the grant dates was applied.

Options for the purchase of Changyou Class A ordinary shares contractually granted under the Changyou 2014 Share Incentive Plan and the Changyou 2019 Share Incentive Plan are subject to vesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets. Under ASC 718-10-25, no grant date can be established until a mutual understanding is reached between Changyou and the recipients clarifying the subjective performance requirements. In accordance with ASC 718-10-55, as the service inception date preceded the grant date, compensation expense was accrued beginning on the service inception date and will be re-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. The estimates of the awards’ fair values will be fixed in the period in which the grant date occurs, and cumulative compensation expense will be adjusted based on the fair values at the grant date. In determining the fair values of Changyou share options granted, the public market price of the underlying shares at each reporting date was used, and a binomial valuation model was applied.

Compensation Expense Recognition

For options and restricted share units granted with respect to Sohu (excluding Sohu Video) shares and Changyou shares, compensation expense is recognized on an accelerated basis upon the requisite service period and certain subjective performance targets being met. For share options granted with respect to Sogou shares, compensation expense is recognized over the estimated period during which the service period requirement and performance target will be met, which is usually within one year, or, after the performance target of Sogou’s completion of an IPO was met upon the completion of Sogou’s IPO on November 13, 2017, on an accelerated basis over the requisite service period, or, for options with only service period requirement, on an accelerated basis over the requisite service period. For Tencent restricted share units that Tencent had granted to employees who transferred to Sogou with the Soso search and search-related businesses, compensation expense is recognized by Sogou on an accelerated basis over the requisite service period, and the fair value of the share-based compensation is re-measured at each reporting date until the service has been provided. The number of share-based awards for which the service is not expected to be rendered over the requisite period is estimated, and no compensation expense is recorded for the number of awards so estimated.

Sohu Video Share-based Awards

On January 4, 2012, Sohu Video, the holding entity of Sohu’s video division, adopted a 2011 Share Incentive Plan (the “Video 2011 Share Incentive Plan”) which provides for the issuance of up to 25,000,000 ordinary shares of Sohu Video (representing approximately 10% of the outstanding Sohu Video shares on a fully-diluted basis) to management and key employees of the video division and to Sohu management. As of December 31, 2019, grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made, of which options for the purchase of 4,972,800 ordinary shares were vested.

For purposes of ASC 718-10-25, as of December 31, 2019, no grant date had occurred, because the broader terms and conditions of the option awards had neither been finalized nor mutually agreed upon with the recipients. Therefore the fair value of the awards was not determinable and could not be accounted for. In accordance with ASC 718-10-55, the Group’s management determined that the service inception date with respect to vested option awards for the purchase of 4,972,800 shares had preceded the grant date. Therefore, the Group recognized compensation expense for these vested Sohu Video share-based awards and re-measured, and will re-measure, the compensation expense on each subsequent reporting date based on the then-current fair values of these vested awards until the grant date is established.

Taxation

PRC Corporate Income Tax

Income taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Group’s financial statements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation allowance, if based on available evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination, the Group considers factors including future reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur in the future that would allow the Group to realize more of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred. If events were to occur in the future that would require the Group to realize less of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities.

The Group’s deferred tax assets are related to net operating losses and temporary differences between accounting basis and tax basis for its China-based Subsidiaries and VIEs, which are subject to corporate income tax in the PRC under the PRC Corporate Income Tax Law (the “CIT Law”).

PRC Withholding Tax on Dividends

The CIT Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises in the PRC to their immediate holding companies outside Mainland China. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangement between the PRC and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income,” if such holding company is considered a non-PRC resident enterprise and holds at least 25% of the equity interests in the PRC foreign invested enterprise distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holding company is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to a withholding tax rate of 10%.

PRC Value Added Tax

On May 1, 2016, the transition from the imposition of PRC business tax to the imposition of VAT was expanded to all industries in China, and all of the Sohu Group’s revenues have been subject to VAT since that date. To record VAT payable, the Group adopted the net presentation method, which presents the difference between the output VAT (at rates of 6% or 17% for the year ended December 31, 2017 and for the period from January 1, 2018 to April 30, 2018, at rates of 6% or 16% for the period from May 1, 2018 to March 31, 2019, and at rates of 6% or 13% after April 1, 2019) and the available input VAT amount (at the rate applicable to the supplier).

U.S. Corporate Income Tax

Sohu.com Inc., which was formerly the top-tier publicly-traded parent company of the Sohu Group, was dissolved and liquidated on May 31, 2018. Sohu.com Inc. was a Delaware corporation that was subject to U.S. federal corporate income tax on its taxable income at a rate of 21% for taxable years beginning after December 31, 2017 and of up to 35% for prior tax years. U.S. federal tax legislation signed into law on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. TCJA”), significantly modified the U.S. Internal Revenue Code by, among other things, reducing the maximum statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a partial territorial tax system with a one-time transition tax (the “Toll Charge”) on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings.

Certain activities conducted in the PRC resulted in U.S. corporate income taxes being imposed on Sohu.com Inc. when its subsidiaries that were controlled foreign corporations (“CFCs”) generated income that was subject to Subpart F of the U.S. Internal Revenue Code (“Subpart F”). Generally, passive income, such as rents, royalties, interest, dividends, and gains from disposal of the company’s investments, is among the types of income subject to taxation under Subpart F. Any income taxable under Subpart F was taxable in the U.S. at the applicable federal corporate income tax rate. Subpart F income also included certain income from intra-Group transactions between Sohu.com Inc.’s non-U.S. subsidiaries and VIEs and Changyou’s non-U.S. subsidiaries and VIEs or Sogou’s non-U.S. subsidiaries and VIEs, or where Sohu.com Inc.’s non-U.S. subsidiaries or VIEs made an “investment in U.S. property,” such as holding the stock in, or making a loan to, a U.S. corporation. Under a provision of the U.S. tax code commonly referred to as the CFC look-through rule, Sohu.com Inc. did not have to treat dividends received by its CFC subsidiaries as Subpart F income includible in Sohu.com Inc.’s taxable income in the U.S.

To the extent that portions of Sohu.com Inc.’s U.S. taxable income, such as Subpart F income or global intangible low-taxed income (“GILTI”), as applicable, had been determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may have been entitled to claim foreign tax credits to offset its U.S. income tax liabilities. Following the enactment of the U.S. TCJA, if dividends that Sohu.com Inc. received from its subsidiaries after January 1, 2018 were determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. would generally not have been required to pay U.S. corporate income tax on those dividends. Liabilities for U.S. corporate income tax were accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments were made when required by U.S. law.

Treatment of Toll Charge Related to the U.S. TCJA

Beginning in the fourth quarter of 2017, the Sohu Group had recognized a provisional amount of income tax expense for the Toll Charge of $219 million, which represented management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based on the deemed repatriation to the United States of its share of previously deferred earnings of certain of its non-U.S. subsidiaries, offset by a reduction of $4 million in liability for deferred U.S. income tax, as a result of the U.S. TCJA. The Sohu Group included the provisional amount of the Toll Charge of $219 million in its interim financial statements through the quarter ended September 30, 2018, in reliance on Staff Accounting Bulletin No. 118 (“SAB 118”).

For the fourth quarter of 2018, the Sohu Group’s management re-evaluated the impact on the Sohu Group of the Toll Charge under the U.S. TCJA. Management determined that it was more likely than not, based on the technical merits, that the tax position that the Sohu Group had no Toll Charge liability would be sustained. The Group recognized a tax benefit in the amount of $77 million, which was the largest amount that management determined to be greater than 50% likely to be realized upon settlement with the U.S. IRS. As a result, as of December 31, 2018, the Sohu Group had an unrecognized tax benefit in the amount of $142 million, which represented the difference between the tax benefit recognized in the fourth quarter of 2018 and management’s previous estimate of the Toll Charge. The estimate remained unchanged as of December 31, 2019. In addition, the Sohu Group accrued $2 million and $8 million, respectively, in interest on the unrecognized tax benefit for the years of 2018 and 2019.

The tax benefit recognized and the unrecognized tax benefit in relation to the Toll Charge may be subject to further adjustment in subsequent periods based on facts and circumstances that arose after December 31, 2019, such as any IRS assessments upon audit and management’s further judgment and estimates.

Uncertain Tax Positions

The Sohu Group is subject to various taxes in different jurisdictions, but primarily the PRC. Management reviews regularly the adequacy of the provisions for taxes as they relate to the Group’s income and transactions. In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement recognition. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement.

Net Income /(Loss) per Share

Basic net income /(loss) per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted net income /(loss) per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the period. Potential ordinary shares comprise shares issuable upon the exercise or settlement of share-based awards using the treasury stock method. The dilutive effect of share-based awards with performance requirements is not considered before the performance targets are actually met. The computation of diluted net income /(loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net income /(loss) per share.

Additionally, for purposes of calculating the numerator of diluted net income /(loss) per share, the net income /(loss) attributable to the Sohu Group is calculated as discussed below. The adjustment will not be made if there is an anti-dilutive effect.

Sogou’s net income /(loss) attributable to Sohu

Before Sogou’s IPO

Before Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu was determined using the percentage that the weighted average number of Sogou shares held by Sohu represented of the weighted average number of Sogou Pre-IPO Preferred Shares and Sogou Pre-IPO Ordinary Shares outstanding, shares issuable upon the conversion of convertible preferred shares under the if-converted method, and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and was not determined by allocating Sogou’s net income /(loss) to Sohu using the methodology for the calculation of net income /(loss) attributable to the Sogou noncontrolling shareholders.

After Sogou’s IPO

After Sogou’s IPO, Sogou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Sogou shares held by Sohu represents of the weighted average number of Sogou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Sogou, which is used for the calculation of basic net income per share.

In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, the percentage of Sohu’s shareholding in Sogou was calculated by treating convertible preferred shares issued by Sogou as having been converted at the beginning of the period and unvested Sogou share options with the performance targets achieved as well as vested but unexercised Sogou share options as having been exercised during the period. The dilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. Assuming an anti-dilutive effect, all of these Sogou shares and share options are excluded from the calculation of Sohu’s diluted income /(loss) per share. As a result, Sogou’s net income /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.

Changyou’s net income /(loss) attributable to Sohu

Prior to the completion of the Changyou Merger on April 17, 2020, Changyou’s net income /(loss) attributable to Sohu is determined using the percentage that the weighted average number of Changyou shares held by Sohu represents of the weighted average number of Changyou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Changyou, which is used for the calculation of basic net income per share.

In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, all of Changyou’s existing unvested restricted share units and share options, and vested restricted share units and share options that have not yet been settled, are treated as vested and settled by Changyou under the treasury stock method, causing the percentage of the weighted average number of shares held by Sohu in Changyou to decrease. As a result, Changyou’s net income /(loss) attributable to Sohu on a diluted basis decreased accordingly. Assuming an anti-dilutive effect, all of these Changyou restricted share units and share options are excluded from the calculation of Sohu’s diluted net income /(loss) per share. As a result, Changyou’s net income /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.

Fair Value of Financial Instruments

U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:

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

Level 2 - include other inputs that are directly or indirectly observable in the market place.

Level 3 - unobservable inputs which are supported by little or no market activity.

The Sohu Group’s financial instruments consist primarily of cash equivalents, restricted cash, short-term investments, accounts receivable, financing receivables, prepaid and other current assets, long-term investments, restricted time deposits, accounts payable, accrued liabilities, receipts in advance and deferred revenue, short-term bank loans, other short-term liabilities, long-term bank loans and long-term accounts payable.

Cash Equivalents

The Sohu Group’s cash equivalents mainly consist of time deposits with original maturities of three months or less, and highly liquid investments that are readily convertible to known amounts of cash.

Short-term Investments

For investments in financial instruments with a variable interest rate indexed to the performance of underlying assets, the Sohu Group elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the consolidated statements of comprehensive income.

Accounts Receivable, Net

The carrying value of accounts receivable is reduced by an allowance that reflects the Sohu Group’s best estimate of the amounts that will not be collected. The Group makes estimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance, including reviewing delinquent accounts receivable, performing an aging analysis and a customer credit analysis, and analyzing historical bad debt records and current economic trends.

Financing Receivables, Net

Financing receivables consist primarily of small consumer loans that Sogou makes to individual borrowers. Sogou funds such loans either through its own capital or through a trust which was jointly established by Sogou and a third-party investor, and is administered by a third-party trust company. As the trust only invests in loans facilitated by Sogou, Sogou has power to direct the activities of the trust. Sogou also has the obligation to absorb losses and the right to receive benefits from the trust that could potentially be significant to the trust. As a result, Sogou is considered the primary beneficiary of the trust and the trust is considered a consolidated VIE (the “Consolidated Trust”) under ASC 810.

The financing receivables are recorded at the principal amount and interest accrued, net of allowance for credit losses that reflects Sogou’s best estimate of the amounts that will not be collected. Interest on loans is accrued based on the contractual interest rates of the loans when earned. The loan periods granted by Sogou to the borrowers related to the small consumer loans are generally within one year. The allowance for credit losses is determined at a level believed to be reasonable to absorb probable losses inherent in the loan portfolio as of each balance sheet date. The allowance is provided based on an assessment performed on a portfolio basis and is estimated on a quarterly basis or more often as necessary based on the delinquency rate, the aging of the amount due and other relevant factors.

Foreign Exchange Forward Contracts

Foreign exchange forward contracts are initially recognized on the date a foreign exchange forward contract is entered into and are subsequently measured at fair value.

Restricted Time Deposits

Restricted time deposits are valued based on the prevailing interest rates in the market using the discounted cash flow method.

Equity Investments

Investments in entities are recorded as equity investments under long-term investments. For investments in common stock or in-substance common stock of entities over which the Group can exercise significant influence but does not own a majority equity interest or control, the equity method is applied, and the Group adjusts the carrying amount of an investment and recognizes investment income or loss for the Group’s share of the earnings or loss of the investee after the date of investment. For those equity investments accounted for other than under the equity method or those that result in consolidation, the fair value method is applied. However, for equity investments that do not have readily determinable fair values, the Group chooses to account for them at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. If this measurement alternative is elected, changes in the carrying value of the equity investments will be required to be made whenever there are observable price changes in transactions for identical or similar investments of the same issuer. The implementation guidance notes that an entity should make a “reasonable effort” to identify price changes that are known or that can reasonably be known.

The Group assesses investments for impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the companies, including current earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. The fair value determination, particularly for investments in privately-held companies whose revenue model is still unclear, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments. If the assessment indicates that an impairment exists, the Group estimates the fair value of the investment and writes down the asset to its fair value, taking the corresponding charge to the consolidated statements of comprehensive income/(loss).

Long-Lived Assets

Long-lived assets include fixed assets and intangible assets.

Fixed Assets

Fixed assets mainly comprise office buildings, leasehold improvements, building improvements, vehicles, office furniture and computer equipment, and hardware. Fixed assets are recorded at cost less accumulated depreciation with no residual value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.


Fixed Assets		Estimated Useful Lives (years)
Office buildings		36-47
Leasehold improvements		Lesser of term of the lease or the estimated useful lives of the assets
Vehicles		4-10
Office furniture		5
Computer equipment and hardware		2-5

Expenditure for maintenance and repairs is expensed as incurred.

The gain or loss on the disposal of fixed assets is the difference between the net sale proceeds and the carrying value of the relevant assets and is recognized in operating expenses in the consolidated statements of comprehensive income.

Intangible Assets

Intangible assets mainly comprise purchased video content, operating rights for licensed games, domain names and trademarks, computer software, and developed technologies. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assets other than purchased video content is computed using the straight-line method over their estimated useful lives. Amortization of purchased video content is computed based on the trend in viewership accumulation over the shorter of the applicable license period or two years.

The estimated useful lives of the Group’s intangible assets are listed below:


Intangible Assets		Estimated Useful Lives (years)
Purchased video content		1 month to 2 years
Computer software		1-5
Developed technologies		3-10
Domain names and trademarks		4-30
Operating rights for licensed games		over the contract terms

Sohu Video enters into nonmonetary transactions to exchange online broadcasting rights for purchased video content with other online video broadcasting companies. Under ASC 845, the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered to obtain the acquired nonmonetary asset, and a gain or loss should be recognized on the exchange. The fair value of the asset received should be used to measure the cost if the fair value of the asset received is more reliable than the fair value of the asset surrendered. The Sohu Group records these nonmonetary exchanges at the fair values of the online broadcasting rights for purchased video content and recognize any net gain or loss from such exchange transactions.

Impairment of Long-lived Assets other than Purchased Video Content

In accordance with ASC 360-10-35, the Sohu Group reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of the long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. The estimation of future cash flows requires significant management judgment based on the Group’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Group’s business model is determined by its management.

Impairment of Purchased Video Content

Purchased video content is stated at the lower of cost less accumulated amortization, or net realizable value (“NRV”).

In accordance with ASC 920-350-35, if management’s expectations of the programming usefulness of a program, series, package, or program segment are revised downward, it may be necessary to write down unamortized cost to estimated NRV. A write-down from unamortized cost to a lower estimated NRV establishes a new cost basis. Accordingly, the Group measures the video content’s impairment loss by comparing the content’s carrying value to its NRV. An impairment loss will be recorded if the carrying value of video content is higher than its NRV. The impairment to be recognized is measured by the amount by which the carrying value of video content exceeds its NRV.

Lease

The Sohu Group adopted ASU No. 2016-02, Leases (Topic 842), at the beginning of the first quarter of 2019 using the modified retrospective method, and did not restate comparable periods. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with the Sohu Group’s historical accounting under Topic 840.

The Sohu Group elected the package of practical expedients permitted under the transition guidance, which allowed the Sohu Group to carry forward the historical lease classification, the assessment on whether an existing or expired contract contains a lease, and the treatment of initial direct costs. The Sohu Group also elected to keep leases with an initial term of 12 months or less off the balance sheet.

Under the new lease guidance, the Sohu Group determines if an arrangement is or contains a lease at inception. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of remaining lease payments over the lease terms. The Sohu Group only considers payments that are fixed and determinable at the time of lease commencement. The adoption of the new lease guidance resulted in recognition of $25.3 million of right-of-use assets and $22.9 million of lease liabilities as of January 1, 2019. The adoption did not impact the beginning retained earnings, or prior year consolidated statements of comprehensive income and consolidated statements of cash flows.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Sohu Group’s acquisitions of interests in its subsidiaries and consolidated VIEs. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports in its financial statements provisional amounts for the items for which the accounting is incomplete. If a measurement period adjustment is identified, the Group recognizes the adjustment as part of the acquisition accounting. The Sohu Group increases or decreases the provisional amounts of identifiable assets or liabilities by means of increases or decreases in goodwill for measurement period adjustments.

In accordance with ASC 350, the Group does not amortize goodwill, but tests it for impairment. The Group tests goodwill for impairment at the reporting unit level on an annual basis as of October 1, and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. Under ASC 350-20-35, the Group has the option to choose whether it will apply a qualitative assessment first and then a quantitative assessment, if necessary, or to apply a quantitative assessment directly. For reporting units applying a qualitative assessment first, the Group starts the goodwill impairment test by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the reporting unit with its carrying value. For reporting units directly applying the quantitative assessment, the Group performs the two-step goodwill impairment test by first quantitatively comparing the fair values of those reporting units to their carrying amounts, including goodwill. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair value, the Group performs the second step of the quantitative goodwill impairment test by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill, and if the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The Group estimates fair value using the income approach and the market approach. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates, control premium, comparable companies’ multipliers, and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.

Comprehensive Income

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the Sohu Group’s consolidated balance sheets, includes a cumulative foreign currency translation adjustment, and change in unrealized gains /(losses) on equity securities classified as available-for-sale before the adoption of ASU 2016-01.

Functional Currency and Foreign Currency Translation

An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and intra-Group transactions and arrangements. The functional currency of Sohu.com Limited, and its predecessor Sohu.com Inc., is the U.S. dollar. The functional currency of the Sohu Group’s subsidiaries in the U.S., the Cayman Islands, the British Virgin Islands and Hong Kong is the U.S. dollar. The functional currencies of the Sohu Group’s subsidiaries and VIEs in other countries are the national currencies of those counties, rather than the U.S. dollar.

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the consolidated statements of comprehensive income.

Financial statements of entities with a functional currency other than the U.S. dollar are translated into U.S. dollars, which is the reporting currency. Assets and liabilities are translated at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Shareholders’ equity accounts are translated using the historical exchange rates at the date the entry to shareholders’ equity was recorded, except for the change in retained earnings during the year, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating a foreign currency to the reporting currency are recorded in accumulated other comprehensive income in the consolidated balance sheets.

Impact of Recently Issued Accounting Pronouncements

Leases (Topic 842). In February, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance requires an entity to recognize both assets and liabilities arising from finance and operating leases, along with additional qualitative and quantitative disclosures. ASU No. 2016-02 requires a lessee to recognize a liability in its balance sheet to make lease payments (a “lease liability”) and a right-of-use asset representing its right to use the underlying asset for the lease term. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest comparative period presented, or at the beginning of the period of adoption. The Sohu Group adopted ASU 2016-02 at the beginning of the first quarter of fiscal year 2019, using the modified retrospective method and not restating comparable periods. The Sohu Group recorded right-of-use assets of approximately $25.3 million and lease liabilities of approximately $22.9 million on ASU 2016-02’s adoption date of January 1, 2019, primarily related to the Sohu Group’s leased office space. See “Summary of Significant Accounting Policies – Lease” above and Note 12—Lease.

Compensation-Stock Compensation (Topic 718). In June 2018, the FASB issue ASU No. 2018-07, Compensation-Stock Compensation (Topic 718), which provides guidance concerning amendments to nonemployee share-based payment accounting. The amendments covered by the guidance are effective for publicly-traded business entities for fiscal years beginning after December 15, 2018, including interim periods within the applicable fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than the date of an entity’s adoption of Topic 606. The adoption of ASU 2018-07 did not have a material impact on the Sohu Group’s consolidated financial statements.

Other accounting standards adopted beginning January 1, 2019 do not have a significant impact on the Sohu Group’s consolidated financial statements.

Impact of Recently Issued Accounting Pronouncements not Yet Adopted

Financial Instruments-Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is required to be adopted at the beginning of the first quarter of 2020 using a modified retrospective approach. The adoption of this guidance will result in a change in the provision policy, primarily for receivables. The Sohu Group expects to record approximately $6.7 million increase to allowance for credit losses on ASU 2016-13’s adoption date of January 1, 2020.

Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Sohu Group does not expect this guidance to have a material impact on its consolidated financial statements.

Simplifying the accounting for income taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and provides for consistent application of and simplifies generally accepted accounting principles for other areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The method of adoption varies depending on the component of the new rule that is being adopted. Early application is permitted. The Sohu Group does not expect to adopt ASU 2019-12 early and is currently evaluating the impact of adopting this standard on its consolidated financial statements.

Cloud computing. In 2018, the FASB issued new guidance on a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The guidance is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those fiscal years. The Sohu Group does not expect this guidance to have a material impact on its consolidated financial statements.

Fair value measurement disclosure requirements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Sohu Group does not expect this guidance to have a material impact on its consolidated financial statements.

Discontinued Operations

12 Months Ended

Dec. 31, 2019

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations Disclosure

3. DISCONTINUED OPERATIONS

In May 2010, Changyou acquired 50% of the equity interests in Shanghai Jingmao Culture Communication Co., Ltd. (“Shanghai Jingmao”) and an affiliate of Shanghai Jingmao, which were primarily engaged in the cinema advertising business. In January 2011, Changyou acquired the remaining 50% of the equity interests in Shanghai Jingmao and its affiliate for total consideration of approximately $3.0 million. In the fourth quarter of 2011, a full impairment loss of $5.2 million on goodwill was recognized for the cinema advertising business.

During the second quarter of 2019, after assessing the collectability of the assets of the cinema advertising business, including receivables and prepayments, Changyou recognized a $17.0 million asset impairment charge for the cinema advertising business.

Changyou ceased operating the cinema advertising business and wound down the business in August 2019 as a result of a Chinese court in Shanghai having granted a petition by Shanghai Jingmao for bankruptcy relief on August 12, 2019. Accordingly, the results of operations for Changyou’s cinema advertising business have been excluded from Changyou’s results from continuing operations in the condensed consolidated statements of operations and are presented in separate line items as discontinued operations. Retrospective adjustments to the historical statements have been made in order to provide a consistent basis of comparison. Additionally, as of December 31, 2018, the related assets and liabilities associated with the discontinued operations were classified as assets/liabilities associated with discontinued operations in the consolidated balance sheets to provide comparable financial information. Changyou recognized $nil disposal gain/loss for the year ended December 31, 2019. However, Changyou may recognize disposal gain/loss in the future, depending on developments in the bankruptcy proceedings in the Chinese court.

The following tables set forth the assets, liabilities, results of operations and cash flows of discontinued operations, that were included in the Group’s consolidated financial statements (in thousands):


	As of December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents		229
Restricted cash		2,435
Accounts receivable, net		16,761
Prepaid and other current assets		14,899
Total current assets associated with discontinued operations		34,324
Non-current assets:
Fixed assets, net		351
Intangible assets, net		47
Total non-current assets associated with discontinued operations		398

Total assets associated with discontinued operations		34,722

LIABILITIES
Current liabilities:
Payable to Changyou		72,319
Accounts payable		9,210
Receipts in advance and deferred revenue		4,378
Accrued salary and benefits		4,888
Accrued liabilities to suppliers		9,632
Tax payables		496
Other short-term liabilities		182
Total current liabilities associated with discontinued operations		101,105

Total liabilities associated with discontinued operations		101,105


	Year Ended December 31,
	2017			2018			2019⁽¹⁾
Revenues	$	91,419		$	70,202		$	37,323
Cost of revenues		84,944			89,233			43,857
Gross profit		6,475			(19,031	)		(6,534	)
Operating expenses:
Sales and marketing		22,622			20,288			8,807
General and administrative		3,833			4,965			18,583
Total operating expenses		26,455			25,253			27,390
Operating profit		(19,980	)		(44,284	)		(33,924	)
Interest income		0			6			7
Other income /(expense), net		(39	)		(557	)		61
Income before income tax expense		(20,019	)		(44,835	)		(33,856	)
Income tax expense		512			0			142

Net loss from discontinued operations, net of tax		(20,531	)		(44,835	)		(33,998	)


	Year Ended December 31,
	2017			2018			2019⁽¹⁾
Net cash provided by discontinued operating activities	$	1,062		$	3,422		$	9,341
Net cash provided used in discontinued investing activities		(954	)		(718	)		(10,808	)
Net cash provided by/(used in) discontinued financing activities		0			0			0


Note (1):		Includes the financial results of the discontinued operations from January 1, 2019 to August 12, 2019.

Segment Information

12 Months Ended

Dec. 31, 2019

SEGMENT INFORMATION [Abstract]

Segment Information

4. SEGMENT INFORMATION

The Sohu Group’s segments are business units that offer different services and are reviewed separately by the CODM, or the decision making group, in deciding how to allocate resources and in assessing performance. The Group’s CODM is the Company’s Chief Executive Officer. There are three segments in the Group, consisting of the Sohu segment, the Sogou segment, and the Changyou segment.

The following tables present summary information by segment (in thousands):


	Year Ended December 31, 2017
	Sohu			Sogou			Changyou			Eliminations			Consolidated
Revenues (1)	$	374,696		$	908,357		$	488,842		$	(2,306	)	$	1,769,589
Segment cost of revenues		(414,526	)		(456,861	)		(78,769	)		86			(950,070	)

Segment gross profit		(39,830	)		451,496			410,073			(2,220	)		819,519
SBC (2) in cost of revenues		415			(540	)		(73	)		0			(198	)

Gross profit		(39,415	)		450,956			410,000			(2,220	)		819,321

Operating expenses:
Product development (3)		(113,590	)		(156,359	)		(124,869	)		6,192			(388,626	)
Sales and marketing (1) (3)		(199,304	)		(152,121	)		(37,083	)		4,000			(384,508	)
General and administrative (3)		(44,563	)		(25,407	)		(33,385	)		130			(103,225	)
Goodwill impairment and impairment of intangible assets acquired as part of business acquisitions		0			0			(86,882	)		0			(86,882	)
SBC (2) in operating expenses		(765	)		(27,193	)		(17,320	)		0			(45,278	)

Total operating expenses		(358,222	)		(361,080	)		(299,539	)		10,322			(1,008,519	)

Operating profit /(loss)		(397,637	)		89,876			110,461			8,102			(189,198	)

Other income /(expense) (3)		4,694			692			9,413			(8,102	)		6,697
Interest income (4)		7,344			9,126			32,319			(24,651	)		24,138
Interest expense (4)		(24,367	)		0			(4,372	)		24,651			(4,088	)
Exchange difference		(2,107	)		(7,082	)		(5,196	)		0			(14,385	)

Income /(loss) before income tax expense		(412,073	)		92,612			142,625			0			(176,836	)

Income tax expense		(217,959	)		(14,422	)		(40,255	)		0			(272,636	)
Net income /(loss) from continuing operations		(630,032	)		78,190			102,370			0			(449,472	)
Net loss from discontinued operations		0			0			(20,531	)		0			(20,531	)

Net income /(loss)	$	(630,032	)	$	78,190		$	81,839		$	0		$	(470,003	)


Note (1):		The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou, and Changyou segments.
Note (2):		“SBC” stands for share-based compensation expense.
Note (3):		The elimination mainly consists of leasing income and expenses generated from a building that Sohu leases to Sogou.
Note (4):		The elimination represents interest income/ (expense) resulting from intra-Group loans between the Sohu segment and the Changyou segment.


	Year Ended December 31, 2018
	Sohu			Sogou			Changyou			Eliminations			Consolidated
Revenues (1)	$	274,670		$	1,124,158		$	415,561		$	(1,562	)	$	1,812,827
Segment cost of revenues		(218,184	)		(692,801	)		(71,626	)		56			(982,555	)

Segment gross profit		56,486			431,357			343,935			(1,506	)		830,272
SBC (2) in cost of revenues		707			(669	)		31			0			69

Gross profit		57,193			430,688			343,966			(1,506	)		830,341

Operating expenses:
Product development (3)		(123,743	)		(191,426	)		(126,593	)		6,733			(435,029	)
Sales and marketing (1) (3)		(203,307	)		(144,867	)		(34,512	)		2,801			(379,885	)
General and administrative (3)		(48,664	)		(36,177	)		(28,657	)		362			(113,136	)
Goodwill impairment and impairment of intangible assets acquired as part of business acquisitions		0			0			(16,369	)		0			(16,369	)
SBC (2) in operating expenses		4,940			(13,535	)		6,430			0			(2,165	)

Total operating expenses		(370,774	)		(386,005	)		(199,701	)		9,896			(946,584	)

Operating profit /(loss)		(313,581	)		44,683			144,265			8,390			(116,243	)

Other income /(expense) (3)		345,416			41,489			23,436			(345,617	)		64,724
Interest income (4)		14,001			8,037			34,403			(32,367	)		24,074
Interest expense (4)		(39,709	)		0			(10,197	)		32,368			(17,538	)
Exchange difference		1,981			5,725			1,320			0			9,026

Income /(loss) before income tax expense		8,108			99,934			193,227			(337,226	)		(35,957	)

Income tax benefit /(expense)		79,053			(1,153	)		(64,467	)		0			13,433
Net income /(loss) from continuing operations		87,161			98,781			128,760			(337,226	)		(22,524	)
Net loss from discontinued operations		0			0			(44,835	)		0			(44,835	)

Net income /(loss)	$	87,161		$	98,781		$	83,925		$	(337,226	)	$	(67,359	)


Note (1):		The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou, and Changyou segments.
Note (2):		“SBC” stands for share-based compensation expense.
Note (3):		The elimination mainly consists of the distribution by Changyou of a dividend to Sohu in 2018 and leasing income and expenses generated from a building that Sohu leases to Sogou.
Note (4):		The elimination represents interest income /(expense) resulting from intra-Group loans between the Sohu segment and the Changyou segment.


	Year Ended December 31, 2019
	Sohu			Sogou			Changyou			Eliminations			Consolidated
Revenues (1)	$	218,442		$	1,172,252		$	455,380		$	(627	)	$	1,845,447
Segment cost of revenues		(148,258	)		(737,981	)		(95,268	)		28			(981,479	)

Segment gross profit		70,184			434,271			360,112			(599	)		863,968
SBC (2) in cost of revenues		(23	)		(473	)		(120	)		0			(616	)

Gross profit		70,161			433,798			359,992			(599	)		863,352

Operating expenses:
Product development (3)		(113,762	)		(179,705	)		(119,726	)		6,142			(407,051	)
Sales and marketing (1) (3)		(155,226	)		(134,565	)		(49,768	)		2,117			(337,442	)
General and administrative (3)		(32,218	)		(39,665	)		(22,074	)		358			(93,599	)
Goodwill impairment and impairment of intangible assets acquired as part of business acquisitions		(7,245	)		0			0			0			(7,245	)
SBC (2) in operating expenses		(1,022	)		(15,428	)		(1,185	)		0			(17,635	)

Total operating expenses		(309,473	)		(369,363	)		(192,753	)		8,617			(862,972	)

Operating profit /(loss)		(239,312	)		64,435			167,239			8,018			380

Other income /(expense) (3)		331,599			21,126			14,477			(345,254	)		21,948
Interest income (4)		24,361			4,443			39,441			(57,699	)		10,546
Interest expense (4)		(46,730	)		0			(25,339	)		57,699			(14,370	)
Exchange difference		(445	)		1,849			1,875			0			3,279

Income /(loss) before income tax expense		69,473			91,853			197,693			(337,236	)		21,783

Income tax benefit /(expense)		(8,351	)		(2,748	)		(20,077	)		0			(31,176	)
Net income /(loss) from continuing operations		61,122			89,105			177,616			(337,236	)		(9,393	)
Net loss from discontinued operations		0			0			(33,998	)		0			(33,998	)

Net income /(loss)	$	61,122		$	89,105		$	143,618		$	(337,236	)	$	(43,391	)


Note (1):		The elimination mainly consists of revenues and expenses generated from marketing services among the Sohu, Sogou, and Changyou segments.
Note (2):		“SBC” stands for share-based compensation expense.
Note (3):		The elimination mainly consists of the distribution by Changyou of a dividend to Sohu in 2019 and leasing income and expenses generated from a building that Sohu leases to Sogou.
Note (4):		The elimination represents interest income /(expense) resulting from intra-Group loans between the Sohu segment and the Changyou segment.


	As of December 31, 2018
	Sohu		Sogou		Changyou		Eliminations			Consolidated
Cash and cash equivalents	$	180,005	$	185,175	$	454,305	$	0		$	819,485
Account and financing receivables, net		78,383		145,401		40,627		0			264,411
Fixed assets, net		186,756		147,495		170,396		0			504,647
Total assets (1)	$	1,319,490	$	1,462,844	$	2,037,803	$	(1,449,290	)	$	3,370,847


Note (1):		The elimination for segment assets mainly consists of elimination of intra-Group loans between Sohu and Changyou, and elimination of long-term investments in subsidiaries and consolidated VIEs.


	As of December 31, 2019
	Sohu		Sogou		Changyou		Eliminations			Consolidated
Cash and cash equivalents	$	68,229	$	142,464	$	94,433	$	0		$	305,126
Account and financing receivables, net		70,252		134,635		55,829		0			260,716
Fixed assets, net		177,978		110,006		159,713		(9	)		447,688
Total assets (1)	$	1,721,801	$	1,522,402	$	1,871,685	$	(2,426,098	)	$	2,689,790


Note (1):		The elimination for segment assets mainly consists of elimination of intra-Group loans between Sohu and Changyou, and elimination of long-term investments in subsidiaries and consolidated VIEs.

Share-based Compensation Expense

12 Months Ended

Dec. 31, 2019

SHARE-BASED COMPENSATION EXPENSE [Abstract]

Share-based Compensation Expense

5. SHARE-BASED COMPENSATION EXPENSE

Share-based compensation expense was recognized in costs and expenses for the years ended December 31, 2017, 2018 and 2019 as follows (in thousands):


	Year Ended December 31,
Share-based compensation expense	2017		2018			2019
Cost of revenues	$	198	$	(69	)	$	615
Product development expenses		23,547		6,131			12,063
Sales and marketing expenses		5,915		405			3,398
General and administrative expenses		15,817		(4,372	)		2,175

	$45,477		$2,095			$18,251

Share-based compensation expense was recognized for share awards of Sohu (excluding Sohu Video), Sogou, Changyou and Sohu Video as follows (in thousands):


	Year Ended December 31,
Share-based compensation expense	2017			2018			2019
For Sohu (excluding Sohu Video) share-based awards	$	652		$	(5,100	)	$	1,940
For Sogou share-based awards (1)		27,729			14,204			15,901
For Changyou share-based awards		17,394			(6,461	)		1,305
For Sohu Video share-based awards		(298	)		(548	)		(895	)

	$45,477			$2,095			$18,251

The negative amounts in the tables above resulted from re-measured compensation expense based on the then-current fair value of the awards on the reporting date.

Note (1): For the years ended December 31, 2017 and 2018, compensation expense for Sogou share-based awards also included compensation expense for Tencent restricted share units that Tencent had granted to employees who transferred to Sogou with the Soso search and search-related businesses. All of such restricted share units vested before January 1, 2019.

There was no capitalized share-based compensation expense for the years ended December 31, 2019, 2018 and 2017.

Advertising and Promotional Expenses, included in Sales and Marketing Expenses

12 Months Ended

Dec. 31, 2019

ADVERTISING AND PROMOTIONAL EXPENSES, INCLUDED IN SALES AND MARKETING EXPENSES [Abstract]

Advertising and Promotional Expenses, included in Sales and Marketing Expenses

6. ADVERTISING AND PROMOTIONAL EXPENSES, INCLUDED IN SALES AND MARKETING EXPENSES

Advertising and promotional expenses are included in sales and marketing expenses, and generally represent the expenses of promotions to create or stimulate a positive image of the Sohu Group or a desire to subscribe for the Group’s products and services. Advertising expenses are expensed as incurred. For the years ended December 31, 2019, 2018 and 2017, advertising and promotional expenses recognized in the consolidated statements of comprehensive income were $211.1 million, $238.7 million and $248.9 million, respectively.

Other Income /(Expense), net

12 Months Ended

Dec. 31, 2019

OTHER INCOME /(EXPENSE), NET [Abstract]

Other Income /(Expense), net

7. OTHER INCOME /(EXPENSE), NET

The following table summarizes the Sohu Group’s other income /(expense) (in thousands):


	Year Ended December 31,
	2017			2018			2019
Gain from the changes in fair value of financial instruments (1)		6,665			40,054			41,014
Government grant		2,160			5,428			6,386
Investment income /(expense) (2)		(2,051	)		14,565			3,004
Donations		(218	)		(70	)		(754	)
Write-off of unpaid long-term accounts payable		2,031			0			0
Impairment loss on available-for-sale equity securities (3)		(5,754	)		0			0
Impairment loss on equity investments (4)		0			(2,605	)		(34,119	)
Others		3,864			7,352			6,417

		$6,697		$	64,724		$	21,948


Note (1):		The increase for 2018 compared to 2017 mainly consisted of $33.4 million in income earned from investments in financial instruments.
Note (2):		The increase for 2018 compared to 2017 mainly consisted of $17.8 million in investment income recognized in the third quarter of 2018 by Sogou due to the observable change in the price of Zhihu Technology Limited (“Zhihu”) after the adoption of ASU 2016-01, offset by a $3.6 million investment loss representing a change in the fair value of Hylink Digital Solution Co., Ltd (“Hylink”).
Note (3):		Before the adoption of ASU 2016-01, the Group recognized an other than temporary impairment loss of $5.8 million in the third quarter of 2017 that was related to Keyeast Co., Ltd. (“Keyeast”), an investment measured as available-for-sale equity securities.
Note (4):		In the fourth quarter of 2019, the Sohu Group recognized impairment losses of $34.1 million for equity investments.

Balance Sheet Components

12 Months Ended

Dec. 31, 2019

BALANCE SHEET COMPONENTS [Abstract]

Balance Sheet Components

8. BALANCE SHEET COMPONENTS (IN THOUSANDS)


	As of December 31,
	2018			2019
Account and financing receivables, net
Accounts receivable	$	233,258			210,069
Financing receivables		46,238			66,858
Allowance for doubtful accounts and credit losses		(15,085	)		(16,211	)

	$	264,411			260,716

The following table presents the movement of allowances for doubtful accounts and credit losses for the years of 2017, 2018 and 2019:


	Balance at the beginning of year		Additional provision for bad debt, net of recoveries		Write-offs			Exchange difference			Balance at the end of year
2017		4,274		8,891		(8,634	)		340			4,871
2018		4,871		14,568		(3,848	)		(506	)		15,085
2019		15,085		20,344		(19,978	)		760			16,211


	As of December 31,
	2018		2019
Prepaid and other current assets
Matching loan due from a related party (See Note 9)	$	31,607	$	33,329
Prepaid taxes		29,452		30,068
Receivables from third-party payment service providers		14,012		14,221
Prepaid content and license		30,033		13,330
Prepaid cost of revenue		3,568		8,343
Inventory		12,657		4,186
Receivables from third party payment platforms		8,844		3,435
Prepaid rental deposit		4,978		3,113
Interest receivable from bank deposits with original maturities of three months or less		3,645		2,264
Employee advances		2,259		1,693
Prepaid office rent and facilities expenses		2,886		735
Due from discontinued associated company (1)		72,337		0
Others		9,466		9,615

	$	225,744		$124,332


Note (1):		As of December 31, 2018, Changyou had a receivable of $72,319 due from a discontinued associated company. In 2019, Changyou estimated an allowance of $72,319 for the receivable, which potentially might not be collected upon the liquidation of the discontinued associated company. Changyou will continually assess the allowance based on developments in bankruptcy proceedings with respect to the discontinued company in a Chinese court.


Prepaid non-current assets
Prepaid PRC income tax for the sale of assets associated with 17173.com by Sohu to Changyou	$	2,870	$	1,882
Others		237		0

	$	3,107	$	1,882

Other short-term liabilities
Contract deposits from advertisers	$	40,073	$	34,459
Matching loans due to a related party (See Note 9)		32,719		33,536
Contingent liability related to Shanghai Jingmao liquidation (1)		0		23,900
Deposits related to Focus		21,648		19,101
Lease liabilities		0		8,616
Payable to a third-party investor in the Consolidated Trust		0		8,601
Depository payable reimbursement		4,985		3,697
Early exercise of Sogou share options for trust arrangements		2,702		2,702
Accrued liabilities to suppliers		3,288		2,209
Consideration payable for equity investment		5,960		740
Others		12,546		11,750

	$	123,921	$	149,311


Note (1):		The contingent liability represents the aggregate of estimated potential payments to third parties in connection with the liquidation of Shanghai Jingmao. The stated amount of the contingent liability reflects Changyou’s best estimate as of December 31, 2019 pursuant to ASC 450-20. Changyou may revise this estimate in the future based on developments in PRC bankruptcy court proceedings regarding Shanghai Jingmao.


Receipts in advance and deferred revenue
Receipts in advance relating to:
brand advertising business	$	10,069	$	7,097
search and search-related business		65,465		67,756
online game business		14,635		5,524
other business		3,602		6,490

Total receipts in advance		93,771		86,867
Deferred revenue		26,633		31,355

	$120,404		$118,222

Related Party Transactions

12 Months Ended

Dec. 31, 2019

Related Party Transactions

9. RELATED PARTY TRANSACTIONS

Under an agreement between Sohu and Fox Financial Technology Group Limited (“Fox Financial,” formerly known as “SoEasy Internet Finance Group Limited”) entered into in August 2014, Sohu invested $4.8 million and $16.1 million, respectively, in Fox Financial in August 2014 and April 2015. In February 2016, Sohu invested an additional $10.5 million in Fox Financial.

Changyou’s Loan Arrangements with Fox Financial

Commencing in April 2015, certain subsidiaries of Changyou and certain subsidiaries of Fox Financial entered into a series of loan agreements pursuant to which the subsidiaries of Changyou were entitled to draw down HK dollar-denominated or U.S. dollar-denominated loans from the Fox Financial subsidiaries and the Fox Financial subsidiaries were entitled to draw down equivalent RMB-denominated loans from the subsidiaries of Changyou, to facilitate each other’s business operations. All of the loans carry a fixed rate of interest which approximates the current market interest rate.

In December 2018 and 2019, Changyou entered into supplemental agreements with Fox Financial pursuant to which all accrued and unpaid interest on the loans as of December 31, 2018 and December 31, 2019 was added to the principal of the corresponding loans. Due to the depreciation of the RMB against the U.S. dollar in 2018, the principal amounts of the Changyou’s outstanding RMB-denominated loans to Fox Financial as of December 31, 2018 were adjusted upward to amounts equal to the product of the principal amounts of Fox Financials’ outstanding U.S. dollar denominated loans to Changyou as of December 31, 2018, multiplied by the monthly average RMB to U.S. dollar exchange rate published by the Bank of China for the month of December 2018. As a result of such adjustment, Changyou advanced additional RMB-denominated loans in the principal amount of RMB8.2 million (approximately $1.2 million) to Fox Financial in January 2019.

In December 2019, Changyou entered into a supplemental agreement with Fox Financial which states that Fox Financial undertakes and agrees to provide to Changyou a guaranty of the repayment obligation of Fox Financial and to deposit an amount equal to the US dollar denominated loan principal and corresponding interest owed by Changyou to Fox Financial as a security deposit. If Fox Financial fails to repay the loan principal and corresponding interest based on RMB owed to Changyou, then the security deposit will be applied to repayment of the loan principal and corresponding interest owed to Changyou. The security deposit will be required to be replenished by Fox Financial if it is insufficient to repay the loan principal and corresponding interest of the RMB denominated loan owed to Changyou, and any remaining surplus after the repayment of the RMB denominated loan principal and interest will be returned to Fox Financial. The parties entered into an additional supplemental agreement, in which Changyou undertakes and agrees to provide to Fox Financial a guaranty of Changyou’s repayment obligation and to deposit an amount equal to the RMB denominated loan principal and corresponding interest owed by Fox Financial to Changyou as a security deposit. If Changyou fails to repay the loan principal and corresponding interest, then the security deposit will be applied to repayment of the loan principal and corresponding interest owed to Fox Financial. The security deposit will be required to be replenished by Changyou if it is insufficient to repay the loan principal and corresponding interest to Fox Financial, and the remaining security deposit (if any) will be returned to Changyou if there is any surplus after the repayment of the US dollar denominated loan principal and interest.

As of December 31, 2018 and December, 2019, Changyou had U.S. dollar-denominated loans payable to Fox Financial in a total amount of approximately $32.7 million and $33.5 million, respectively, and RMB-denominated loans receivable from Fox Financial in a total amount of approximately $31.6 million and $33.3 million, respectively. For the year ended December 31, 2018 and 2019, Changyou incurred interest expense of $0.5 million and 0.8 million, respectively, in connection with the loans payable and earned interest income of $1.1 million and $1.0 million, respectively, in connection with the loans receivable.

Intra-Group Loan and Share Pledge Agreement

12 Months Ended

Dec. 31, 2019

INTRA-GROUP LOAN AND SHARE PLEDGE AGREEMENT [Abstract]

Intra-Group Loan and Share Pledge Agreement

10. INTRA-GROUP LOAN AND SHARE PLEDGE AGREEMENT

On October 24, 2016, Sohu Media, a subsidiary of the Company, entered into a loan agreement (the “Loan Agreement”) with AmazGame, a subsidiary of Changyou, pursuant to which Sohu Media may borrow from time to time from AmazGame up to RMB1.0 billion (or approximately $148.6 million). Principal amounts outstanding under the Loan Agreement bear interest at an annual rate of 6%. The outstanding principal of each advance will be due one year from the date of the advance, subject to extension for an additional year with the consent of AmazGame.

On October 24, 2016, the Company’s indirect wholly-owned subsidiary Sohu.com (Game) Limited (“Sohu Game”) and Changyou entered into a share pledge agreement (the “Share Pledge Agreement”) pursuant to which Sohu Game pledged to Changyou Class B ordinary shares of Changyou held by Sohu Game. As of December 31, 2019, the number of Class B ordinary shares pledged by Sohu Game to Changyou was 43,823,946. On January 13, 2020, in connection with the organization of Changyou Merger Co. Limited (“Changyou Merger Co.”) as a wholly-owned subsidiary of Sohu Game for purposes of the Changyou Merger, Sohu Game transferred to Changyou Merger Co. all of the issued and outstanding Changyou Class B ordinary shares held by Sohu Game, including the Changyou Class B ordinary shares subject to the Sohu Share Pledge Agreement. Simultaneously with that contribution, the Sohu Share Pledge Agreement was revised to substitute Changyou Merger Co. as the pledgor in place of Sohu Game. Prior to April 17, the effectiveness of the Changyou Merger, Changyou executed and delivered to Changyou Merger Co. a Deed of Release providing for the release and discharge of Changyou Merger Co. from all obligations under the Share Pledge Agreement.

In December 2016, March 2017 and April 2017, Sohu Media received RMB500.0 million (or approximately $72.1 million), RMB200.0 million (or $30.6 million) and RMB300.0 million (or $45.9 million), respectively, from AmazGame. As of December 31, 2017, the total outstanding balance of the loan was RMB1.0 billion (or $153.0 million). In January 2018, Sohu Media entered into a supplementary agreement with AmazGame and Video Tianjin, a subsidiary of the Company, pursuant to which Sohu Media assigned and transferred the entire principal amount outstanding and all the related rights and obligations under the Loan Agreement to Video Tianjin. In both December 2018 and December 2019, Video Tianjin and AmazGame entered into agreements extending the due date of each advance for an additional year. As of December 31, 2018 and December 31, 2019, the total outstanding balance of the loan was RMB1.0 billion (or $145.7 million) and RMB1.0 billion (or $143.3 million), respectively. The intra-Group loan has been eliminated upon consolidation.

Fair Value Measurements

12 Months Ended

Dec. 31, 2019

FAIR VALUE MEASUREMENTS [Abstract]

Fair Value Measurements

11. FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

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

Level 2 - include other inputs that are directly or indirectly observable in the market place.

Level 3 - unobservable inputs which are supported by little or no market activity.

Financial Instruments Measured at Fair Value

The following table sets forth the financial instruments, measured at fair value by level within the fair value hierarchy, as of December 31, 2018 (in thousands):


			Fair value measurements at reporting date using
Items	As of December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	595,703	$	0	$	595,703	$	0
Short-term investments		1,041,395		0		1,041,395		0
Restricted time deposits		244,179		0		244,179		0
Equity investments with readily determinable fair values		6,790		6,790		0		0

The following table sets forth the financial instruments, measured at fair value by level within the fair value hierarchy, as of December 31, 2019 (in thousands):


			Fair value measurements at reporting date using
Items	As of December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	219,977	$	0	$	219,977	$	0
Short-term investments		1,316,833		0		1,316,833		0
Restricted time deposits		240		0		240		0
Equity investments with readily determinable fair values		9,320		9,320		0		0

Cash Equivalents

The Sohu Group’s cash equivalents mainly consist of time deposits with original maturities of three months or less, notice deposits, and highly liquid investments that are readily convertible to known amounts of cash. The fair values of cash equivalents are determined based on the pervasive interest rates in the market. The Group classifies the valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements. Generally, there are no quoted prices in active markets for identical cash equivalents at the reporting date. In order to determine the fair value, the Group must use the discounted cash flow method and observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Short-term Investments

In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Sohu Group elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the consolidated statements of comprehensive income as other income /(expense). To estimate fair value, the Group refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

As of December 31, 2019 and December 31, 2018, the Sohu Group’s investment in these financial instruments was $1.3 billion and $1.0 billion, respectively. The investment instruments were issued by commercial banks in China, and have a variable interest rate indexed to performance of underlying assets. Since these investments’ maturity dates are within one year, they are classified as short-term investments. For the years ended December 31, 2019 and 2018, the Sohu Group recorded a gain from changes in the fair value of short-term investments in the amounts of $41.0 million and $40.1 million in the consolidated statements of comprehensive income, respectively.

Foreign Exchange Forward Contracts

In September 2016 and January 2017, Changyou entered into foreign exchange forward contracts with banks in aggregate notional amounts of $100 million and $50 million, respectively. Changyou entered into such foreign exchange forward contracts in compliance with its risk management policy for the purpose of eliminating the negative impact on earnings and equity resulting from fluctuations in the exchange rate between the U.S. dollar and the RMB. The instruments are marked-to-market at each period-end with the associated changes in fair value recognized in the line item “Other income /(expense), net” in the consolidated statements of comprehensive income and “Other short-term liabilities” or “Prepaid and other current assets” in the consolidated balance sheets. The net cash inflow and outflow related to the settlement of the forward contracts are recorded in the line item “Other investing activities” under “Cash flows from investing activities” in the consolidated statements of cash flows.

In January 2018, Changyou settled the remaining foreign exchange forward contracts with a realized loss of $0.2 million recognized in the consolidated statements of comprehensive income for the year ended December 31, 2018. For the years ended December 31, 2019 and 2018, the Sohu Group recorded cash outflows related to the forward contracts of nil and $0.9 million, respectively, in the consolidated statements of cash flows. As of both December 31, 2019 and 2018, the carrying values of the foreign exchange forward contracts recognized in other short-term liabilities were nil.

The Group estimated the fair values of foreign exchange forward contracts using the Black-Scholes model. The fair values of the forward contracts were estimated based on quoted forward exchange prices at the reporting date. The Group classifies the fair value measurement of the forward contracts based on such inputs as Level 2 of fair value measurements.

Restricted Time Deposits

Restricted time deposits are valued based on the prevailing interest rates in the market using the discounted cash flow method. The Sohu Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

Changyou Loans from Offshore Banks, Secured by Time Deposits

In 2018, Changyou drew down loans from the Hong Kong branches of PRC banks, which were secured by an equivalent or greater amount of RMB deposits by Changyou in the PRC branches of the banks. The loans from the Hong Kong branches of the lending banks were classified as short-term or long-term bank loans based on the loans’ payment terms. For the years ended December 31, 2019 and 2018, interest income from the restricted time deposits securing the loans were $0.5 million and $1.0 million, respectively, and expense for interest on the loans was $2.1 million and $1.4 million, respectively.

Equity Investments

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The main provisions require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value through earnings, unless they qualify for a measurement alternative. The new guidance required modified retrospective application to all outstanding instruments beginning January 1, 2018, with a cumulative effect adjustment recorded to opening accumulated deficit as of the beginning of the first period in which the guidance becomes effective. However, changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively.

The Group measures equity investments under the equity method and equity investments without readily determinable fair values at fair value on a non-recurring basis when an impairment charge is to be recognized. As of December 31, 2018 and 2019, certain investments were measured using significant unobservable inputs (Level 3) and written down from their respective carrying values to their fair values, considering the stage of development, the business plan, the financial condition, the sufficiency of funding and the operating performance of the investee companies, with impairment charges incurred and recorded in other income for the years then ended. The Group recognized an impairment loss of $5.8 million for an investment measured as available-for-sale equity securities in 2017. The Group recognized impairment losses of $2.6 million and $34.1 million, respectively, for investments without readily determinable fair values and equity method investments in 2018 and 2019.

Equity Investments Accounted for Using the Equity Method

For investments in common stock or in-substance common stock of entities over which the Group can exercise significant influence but does not own a majority equity interest or control, the equity method is applied, and the Group adjusts the carrying amount of an investment and recognizes investment income or loss for the Group’s share of the earnings or loss of the investee after the date of investment. The Group measures equity investments under the equity method at fair value on a non-recurring basis only if an impairment charge is to be recognized. The Group classifies these non-recurring fair value measurements as Level 3 of fair value measurement

Equity Investments with Readily Determinable Fair Values

Effective as of January 1, 2018, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair value previously reported in other comprehensive income) for equity securities with readily determinable fair values.

Equity investments with readily determinable fair values are valued using the market approach based on the quoted prices in active markets at the reporting date. The Group classifies the valuation techniques that use these inputs as Level 1 of fair value measurements.

Equity Investments without Readily Determinable Fair Values

Based on ASU 2016-01, an entity will be able to elect to record equity investments without readily determinable fair values and not accounted for by the equity method at cost, less impairment, adjusted for subsequent observable price changes. Entities that elect this measurement alternative will report changes in the carrying value of the equity investments in current earnings.

If this measurement alternative is elected, changes in the carrying value of the equity investment will be required to be made whenever there are observable price changes in transactions for identical or similar investments of the same issuer. The implementation guidance notes that an entity should make a “reasonable effort” to identify price changes that are known or that can reasonably be known. When observable price changes were identified, the Group used the back-solve method to re-measure the fair value of the investments and to determine the amount that should be recorded as upward or downward adjustments. The back-solve method requires considering the rights and preferences of each classes of equity and solving for the total equity value that is consistent with a recent transaction of the subject company’s securities. This method requires making assumptions on future outcomes available to the subject company, the probability of each scenario, expected time to liquidity events, volatility and risk-free rate. The Group classifies this non-recurring fair value measurement as Level 3 of fair value measurement.

Short-term Receivables and Payables

Accounts receivable and prepaid and other current assets are financial assets with carrying values that approximate fair value due to their short-term nature. Short-term accounts payable, accrued liabilities, receipts in advance and deferred revenue, short-term bank loans and other short-term liabilities are financial liabilities with carrying values that approximate fair value due to their short-term nature. For short-term receivables and payables, the Group estimated fair values using the discounted cash flow method. The Group classifies the valuation technique as Level 2 of fair value measurements.

Short-term Bank Loans

For short-term bank loans, the rates of interest under the agreements with the lending banks were determined based on the prevailing interest rates in the market. The Sohu Group estimated fair values using the discounted cash flow method and classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

•

Factoring contract with recourse with HongKong and Shanghai Banking Corporation Limited (“HSBC”)

In May 2017, Sohu entered into a factoring contract with recourse with HSBC, pursuant to which Sohu may borrow from HSBC from time to time up to a combined aggregate of RMB180.0 million (or $26.2 million), which is the upper limit reviewed by HSBC at least annually. The loan is secured by up to RMB198.0 million (or $28.8 million) of Sohu’s accounts receivable and guaranteed by Sohu Media. Interest accrues on the principal amounts of the loans outstanding at an annual rate agreed to by HSBC and Sohu upon drawdown. In June 2019, Sohu terminated the factoring contract with recourse with HSBC, and the accounts receivable of Sohu was released from the pledge. As of both December 31, 2019 and December 31, 2018, the total outstanding balance of the loan was nil.

•

Credit agreements with Ping An Bank Co., Ltd. (“Ping An Bank”)

In May 2017, Sohu entered into credit agreements with Ping An Bank pursuant to which Sohu was entitled to borrow from Ping An Bank from time to time until May 18, 2020 up to a combined aggregate of RMB2.50 billion (or $364.3 million). The loan was initially secured by pledges of Sohu’s two buildings and guaranteed by Sohu Game. The initial interest rate for the loans was an annual rate equal to 115% of the rate published by the PBOC. In July 2017, Sohu entered into an amendment of its loan arrangements with Ping An Bank pursuant to which interest on outstanding principal amounts accrued at a rate designated separately upon each drawdown based on the benchmark loan rate published by the PBOC with reference to then prevailing market interest rates. In July 2017, Sohu drew down from Ping An Bank pursuant to the loan arrangements a loan with a term of 12 months in the amount of RMB400.0 million (or approximately $58.3 million) and an interest rate of 6.525% per annum, which was 150% of the rate published by the PBOC as of the date of the drawdown. In September 2017, Sohu entered into another amendment of its loan arrangements with Ping An Bank pursuant to which the maximum amount that Sohu was entitled to borrow was reduced from RMB2.50 billion (or $364.3 million) to RMB600 million (or $87.4 million), and one of Sohu’s buildings, which serves as Sohu’s corporate headquarters, was released from the pledge. In April 2018, Sohu repaid all of the outstanding balance under the loan arrangements with Ping An Bank and the other building of Sohu was released from the pledge. As of both December 31, 2019 and December 31, 2018, the total outstanding balance of the loan was nil.

•

Credit agreements with Industrial and Commercial Bank of China Limited (“ICBC”)

In September 2017, Sohu entered into credit agreements with ICBC pursuant to which Sohu was entitled to borrow from ICBC from time to time until March 31, 2018 up to a combined aggregate of RMB800 million (or $116.6 million). The loan is secured by the pledge of Sohu’s building which serves as Sohu’s corporate headquarters in Beijing. Interest accrues on the principal amounts of the loans outstanding at an annual rate equal to the Loan Prime Rate (“LPR”) published by the National Interbank Funding Center, plus 1.2%. The outstanding principal amount of the loan will be payable in four equal installments, with the first installment payable 18 months after the drawdown and the other three installments payable semi-annually at the end of each of the three successive six-month periods after the first installment payment.

As of December 31, 2019 and December 31, 2018, the total outstanding balance of the loan was RMB400 million (or $57.3 million) and RMB800 million (or $116.6 million), respectively. As of December 31, 2019, RMB400 million (or $57.3 million) was classified as a short-term bank loan based on the loan’s repayment terms.

•

Credit agreements with the China Merchants Bank Co., Ltd. (“CMB”)

In April 2018, Sohu entered into credit agreements with CMB pursuant to which Sohu was entitled to borrow from CMB from time to time until March 22, 2021 up to an aggregate of RMB700 million (or approximately $102.0 million)(the “CMB Loan”).

In April, 2018, Sohu made an initial drawdown under the CMB Loan with a term of 12 months in the amount of RMB400 million (or $58.3 million) (the “First Drawdown”). The proceeds of the First Drawdown were used to repay in full the outstanding balance and all accrued and unpaid interest under credit agreements between Sohu and Ping An Bank. The CMB Loan was secured by a pledge of Sohu’s building, which was released from the pledge after Ping An Bank received such repayment. Interest accrued on the outstanding principal balance at a rate of 6% per year. In April 2019, the outstanding principal amount of the First Drawdown was repaid in full.

In June, 2018, Sohu made a drawdown under the CMB Loan with a term of 24 months in the amount of RMB300 million (or approximately $43.7 million) (the “Subsequent Drawdown”). Interest accrued on the outstanding principal balance at a rate of 6% per year. The outstanding principal amount of the Subsequent Drawdown was payable in four installments. The first installment of RMB45 million (or $6.7 million) was paid in December 2018; the second and third installments of RMB90 million (or $13.1 million) in the aggregate were paid early in June 2019; and the fourth installment of RMB165 million (or $23.3million) was paid early in July 2019.

In April 2019 and May 2019, Sohu made drawdowns under the CMB Loan with a term of 12 months in the aggregate amount of RMB399 million ($59.3 million). Interest accrues on the outstanding principal balances at a rate of 5.1% per year. The outstanding principal amount of each drawdown will be due and payable 12 months after such drawdown.

As of December 31, 2019 and December 31, 2018, the total outstanding balance of the CMB loan was RMB399 million (or $57.2 million) and RMB655 million (or $95.4 million), respectively. As of December 31, 2019, RMB399 million (or $57.2 million) was classified as short-term bank loans based on the loan’s repayment terms.

Long-term Payables

Long-term payables mainly consist of long-term accounts payable, long-term bank loans, long-term tax liabilities and deferred tax liabilities (see Note 16).

Long-term accounts payable are financial liabilities with carrying values that approximate fair value due to any changes in fair value, after considering the discount rate, being immaterial. For long-term accounts payable, the Group estimated fair values using the discounted cash flow method. The Sohu Group classifies the valuation technique as Level 2 of fair value measurements.

Assets Measured at Fair Value on a Nonrecurring Basis

The following table sets forth assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of December 31, 2018 and 2019 (in thousands)


			Fair value measurements at reporting date using
Items	As of December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Purchased video content recorded in prepaid and other assets	$	5,504	$	0	$	0	$	5,504
Intangible assets, net		24,071		0		0		24,071
Goodwill		53,263		0		0		53,263


			Fair value measurements at reporting date using
Items	As of December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Purchased video content recorded in prepaid and other assets	$	3,115	$	0	$	0	$	3,115
Intangible assets, net		11,437		0		0		11,437
Goodwill		52,923		0		0		52,923

Purchased Video Content Recorded in Prepaid and Other Assets

The impairment losses recognized in prepaid and other assets were mainly due to impairment losses for Sohu Video’s purchased video content. See Note 15 - Intangible Assets, Net.

Intangible Assets

Intangible assets mainly comprise purchased video content, operating rights for licensed games, domain names and trademarks, computer software, and developed technologies. The impairment losses recognized for intangible assets were mainly due to impairment losses for the domain name related to the 56.com Website and Sohu Video’s purchased video content. See Note 15 - Intangible Assets, Net.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Group’s acquisitions of interests in its subsidiaries and consolidated VIEs. See Note 14 - Goodwill.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Lease

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

12. LEASE

The Group has entered into operating lease agreements, primarily for offices in China with lease periods expiring between 2019 and 2022. The determination of whether an arrangement is or contains a lease is made at the inception of the lease by evaluating whether the arrangement conveys the right to use an identified asset and whether the Group obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Operating lease assets and liabilities are included on the Group’s consolidated balance sheets beginning January 1, 2019. The right-of-use assets are included in other assets, while the current portion of the operating lease liabilities is included in other short-term liabilities and the long-term portion is included in other long-term liabilities. The Group has elected to not recognize lease assets and lease liabilities for leases with a term of twelve months or less on the consolidated balance sheets.

Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Group uses its incremental borrowing rate in determining the present value of the future lease payments, because the interest rate implicit in most of the leases is not readily determinable. The Group estimates its incremental borrowing rate for each leased asset based on the interest rate the Group would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

Certain lease agreements contain an option for the Group to renew a lease for a term agreed to by the Group and the lessor or an option to terminate a lease earlier than the maturity date. The Group considers these options, which may be elected at the Group’s sole discretion, in determining the lease term on a lease-by-lease basis. The Group’s lease agreements generally do not contain any residual value guarantees or material restrictive covenants. Certain of the Group’s leases contain free or escalating rent payment terms. Operating lease expense is recognized on a straight-line basis over the lease term.

The Group’s lease agreements generally contain lease and non-lease components. Non-lease components consist primarily of payments for maintenance and utilities. The Group has identified separate lease and non-lease components, allocated the contractual considerations between components based on the terms specified in the lease agreements, and accounted for the lease components separately from the non-lease components. Payments under the lease arrangements are primarily fixed with no variable payments.

Components of operating lease expense are as follows (in thousands):


	Year Ended December 31, 2019
Operating lease expense	$	12,623
Short-term lease expense		263

Total operating lease expense	$	12,886

Supplemental cash flow information related to leases are as follows (in thousands):


	Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	12,164


	Year Ended December 31, 2019
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	11,332

The following table presents supplemental balance sheet information related to the operating leases (in thousands):


	Year Ended December 31, 2019
Assets:

Operating lease right-of-use assets	$	16,656

Liabilities:
Current lease liabilities		8,616
Non-current lease liabilities		5,770

Total operating lease liabilities	$	14,386

Maturities of lease liabilities under operating leases as of December 31, 2019 are as follows (in thousands):


2020	$	8,969
2021		5,380
2022		972
2023		0
2024		0
Thereafter		0

Total future lease payments		15,321
Less: imputed interest		935

Total present value of lease liabilities	$	14,386

The following table presents supplemental information for comparative periods of future minimum rental payments under the operating leases as of December 31, 2018 (in thousands):


2019	$	12,367
2020		10,311
2021		6,032
2022		809
2023		270
Thereafter		0

Total minimum lease payments (1)	$	29,789

Note (1): Amounts are based on ASC 840, which was superseded upon the Group’s adoption of ASC 842 on January 1, 2019. Rental expenses under operating leases were $17.2 million and $14.7 million for the years ended December 31, 2017, and 2018, respectively.

As of December 31, 2019, operating leases recognized in lease liabilities had a weighted average remaining lease term of 2.0 years and a weighted average discount rate of 4.9%. As of December 31, 2019, the Group had no lease contracts that had been entered into but were not yet commenced.

Fixed Assets

12 Months Ended

Dec. 31, 2019

FIXED ASSETS [Abstract]

Fixed Assets

13. FIXED ASSETS

The following table summarizes the Sohu Group’s fixed assets (in thousands):


	As of December 31,
	2018			2019
Office buildings	$	372,723		$	366,686
Computer equipment and hardware		418,198			414,532
Leasehold and building improvements		48,364			47,262
Office furniture		8,768			9,091
Vehicles		3,812			3,595

Fixed assets, gross		851,865			841,166
Accumulated depreciation		(347,218	)		(393,478	)

Fixed assets, net	$	504,647		$	447,688

For the years ended December 31, 2019, 2018 and 2017, depreciation expenses for fixed assets were $92.9 million, $92.8 million and $82.9 million, respectively.

Goodwill

12 Months Ended

Dec. 31, 2019

GOODWILL [Abstract]

Goodwill

14. GOODWILL

Changes in the carrying value of goodwill by segment are as follows (in thousands):


	Sohu			Sogou			Changyou			Total
Balance as of December 31, 2017
Goodwill		73,941			5,908			181,421			261,270
Accumulated impairment losses		(35,788	)		0			(153,917	)		(189,705	)

	$	38,153		$	5,908		$	27,504		$	71,565

Transactions in 2018
Foreign currency translation adjustment		(772	)		(283	)		(878	)		(1,933	)
Impairment losses		0			0			(16,369	)		(16,369	)

Balance as of December 31, 2018	$	37,381		$	5,625		$	10,257		$	53,263

Balance as of December 31, 2018
Goodwill		69,627			5,625			180,543			255,795
Accumulated impairment losses		(32,246	)		0			(170,286	)		(202,532	)

	$	37,381			5,625		$	10,257		$	53,263

Transactions in 2019
Foreign currency translation adjustment		(249	)		(91	)		0			(340	)
Impairment losses		0			0			0			0

Balance as of December 31, 2019	$	37,132		$	5,534		$	10,257		$	52,923

Balance as of December 31, 2019
Goodwill		69,378			5,534			180,543			255,455
Accumulated impairment losses		(32,246	)		0			(170,286	)		(202,532	)

	$	37,132			5,534		$	10,257		$	52,923

There was one reporting unit under the Sohu segment and one reporting unit under the Sogou segment. After Changyou ceased operations of RaidCall and the cinema advertising business, the reporting units under the Changyou segment consisted of the Changyou online game business and the 17173.com Website.

In the fourth quarter of 2019, the Sohu Group tested goodwill for impairment at the reporting unit level. The Group performed impairment tests using the qualitative and quantitative methods. For the Sohu and Sogou segments, impairment tests were conducted by quantitatively comparing the fair values of the reporting units to their carrying amounts. The Sohu and Sogou segments estimated the fair values by weighting the results from the income approach and market approach. The valuation approach considers a number of factors that include expected future cash flows, growth rates, discount rates, and market price, and requires Sohu and Sogou to make certain assumptions and estimates regarding industry economic factors and future profitability of the business. For the Changyou segment, Changyou first qualitatively assessed whether it was more likely than not that the fair values of the reporting segments were less than their carrying amounts. For those reporting units where it was more likely than not that their fair values were less than their carrying amounts, Changyou performed the first step of a two-step quantitative goodwill impairment test. Changyou estimated the fair values using the income approach considering factors that included expected future cash flows, growth rates and discount rates.

In March 2019 and August 2019, respectively, Changyou ceased its RaidCall and cinema advertising business operations. Accordingly, there were no impairments for these two units, as the carrying values of both RaidCall and the cinema advertising business were nil before their cessation. As of December 31, 2019, for the Sohu and Sogou segments and the businesses in the Changyou segment, management concluded that the fair values of the reporting units exceeded their carrying values, indicating that the goodwill of the reporting units was not impaired.

In the fourth quarter of 2018, Changyou recognized a $16.4 million impairment loss for goodwill relating to the 17173.com Website, primarily due to (i) the launch of new initiatives for the 17173.com Website having fallen behind schedule in the fourth quarter of 2018 and the profit outlook for the 17173.com Website being uncertain, and (ii) the relevant Chinese authority’s temporary suspension between April and December of 2018 of its review of, and issuance of publishing and authorization codes for, online games, which resulted in declines in the number of new games launched and the related demand from game developers and operators for online advertising services on the 17173.com Website, both of which Changyou’s management determined had a material adverse impact on Changyou’s ability to generate revenues and net income from the 17173.com Website. As of December 31, 2018, for the Sohu and Sogou segments, and the businesses in the Changyou segment other than the 17173.com Website, management concluded that the fair values of the reporting units exceeded their carrying values, indicating that the goodwill of the reporting units was not impaired.

Intangible Assets, Net

12 Months Ended

Dec. 31, 2019

INTANGIBLE ASSETS, NET [Abstract]

Intangible Assets, Net

15. INTANGIBLE ASSETS, NET


	As of December 31, 2018
Items	Gross Carrying Amount		Accumulated Amortization			Impairment			Net Carrying Amount
Purchased video content	$	177,307	$	(156,198	)	$	(18,556	)	$	2,553
Operating rights for licensed games		46,237		(22,239	)		(11,776	)		12,222
Domain names and trademarks		28,054		(11,124	)		(9,341	)		7,589
Computer software		15,550		(13,948	)		0			1,602
Developed technologies		8,902		(1,463	)		(7,439	)		0
Others		6,141		(4,171	)		(1,865	)		105

Total	$	282,191	$	(209,143	)	$	(48,977	)	$	24,071


	As of December 31, 2019
Items	Gross Carrying Amount		Accumulated Amortization			Impairment			Net Carrying Amount
Purchased video content	$	217,610	$	(179,167	)	$	(35,940	)	$	2,503
Operating rights for licensed games		47,226		(27,992	)		(12,365	)		6,869
Domain names and trademarks		27,644		(11,210	)		(16,176	)		258
Computer software		16,231		(14,515	)		0			1,716
Developed technologies		8,773		(1,441	)		(7,332	)		0
Others		6,044		(4,118	)		(1,835	)		91

Total	$	323,528	$	(238,443	)	$	(73,648	)	$	11,437

Impairment Losses

In 2019, Sohu recognized a $7.2 million impairment loss for a domain name related to the 56.com Website, mainly due to enhanced restrictions that Chinese regulatory authorities imposed on the broadcasting industry, which had an adverse effect on the operation of the 56.com Website. Also in 2019, Sohu recognized a $4.0 million impairment loss related to Sohu Video’s purchased video content pursuant to the Sohu Group’s policy on impairment of overseas content.

In 2018, Sohu recognized $10.4 million in losses related to Sohu Video’s purchased video content, of which $9.8 million was recognized as impairment of intangible assets and $0.6 million was recognized as impairment of prepaid and other current assets, as Sohu Video’s revenues for 2018 did not meet management’s expectations.

In 2017, Sohu recognized $70.6 million in losses related to Sohu Video’s purchased video content, of which $43.1 million was recognized as impairment of intangible assets and $27.5 million was recognized as impairment of prepaid and other current assets. The impairment losses incurred were mainly due to Sohu Video’s restructuring of its sales team and a strategy shift from purchasing expensive head content to self-producing content, as a result, revenues for 2017 did not meet management’s expectations. Also in 2017, Changyou recognized a $3.4 million impairment loss related to intangible assets for its MoboTap business, mainly due to reinforced restrictions that Chinese regulatory authorities imposed on online card and board games, which had an adverse impact on MoboTap’s current performance, and also increased the uncertainty for its future operations and cash flow.

Amortization

In 2019, 2018 and 2017, amortization of intangible assets was $39.5 million, $59.3 million and $140.2 million, respectively.

As of December 31, 2019, amortization expenses for future periods are estimated to be as follows:


For the year ending December 31,	(in thousands)
2020		7,042
2021		3,414
2022		515
2023		300
2024		99

Thereafter		67

Total expected amortization expense	$	11,437

Taxation

12 Months Ended

Dec. 31, 2019

TAXATION [Abstract]

Taxation

16. TAXATION

Income Tax

PRC Corporate Income Tax

The majority of the subsidiaries and VIEs of the Sohu Group are based in mainland China and are subject to income taxes in the PRC. These China-based subsidiaries and VIEs conduct substantially all of the Sohu Group’s operations, and generate most of the Sohu Group’s income or losses. The CIT Law applies an income tax rate of 25% to all enterprises but grants preferential tax treatment to HNTEs, “Software Enterprises,” and KNSEs.

Principal Entities Qualified as HNTEs

Under preferential tax treatment, HNTEs can enjoy an income tax rate of 15%, but need to re-apply every three years. During this three-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for that year. If an HNTE fails to meet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in that year, and must instead use the regular 25% CIT rate.

As of December 31, 2019, the following principal entities of the Sohu Group were qualified as HNTEs and were entitled to an income tax rate of 15%.

For Sohu’s Business

–

Sohu New Momentum. Sohu New Momentum re-applied for HNTE qualification and received approval in December 2019. Sohu New Momentum is entitled to continue to enjoy the beneficial tax rate as an HNTE for the years 2019 through 2021, and will need to re-apply for HNTE qualification in 2022.

–

Sohu Internet and Video Tianjin. Sohu Internet and Video Tianjin qualified as HNTEs for the years 2018 through 2020, and will need to re-apply for HNTE qualification in 2021.

–

Sohu Media. Sohu Media qualified as an HNTE for the years 2017 through 2019, and will need to re-apply for HNTE qualification in 2020.

For Sogou’s Business

–

Sogou Network. Sogou Network re-applied for HNTE qualification and received approval in December 2019. Sogou Network is entitled to continue to enjoy the beneficial tax rate as an HNTE for the years 2019 through 2021, and will need to re-apply for HNTE qualification in 2022.

–

Sogou Information. Sogou Information qualified as an HNTE for the years 2018 through 2020, and will need to re-apply for HNTE qualification in 2021.

–

Sogou Technology. Sogou Technology qualified as an HNTE for the years 2017 through 2019, and will need to re-apply for HNTE qualification in 2020.

For Changyou’s Business

–

Gamespace. Gamespace re-applied for HNTE qualification and received approval in October 2019. Gamespace is entitled to continue to enjoy the beneficial tax rate as an HNTE for the years 2019 through 2021, and will need to re-apply for HNTE qualification in 2022.

–

Changyou Chuangxiang. Changyou Chuangxiang applied for HNTE qualification and received approval in October 2019. Changyou Chuangxiang is entitled to enjoy the beneficial tax rate as an HNTE for the years 2019 through 2021, and will need to re-apply for HNTE qualification in 2022.

–

Gamease and AmazGame. Gamease and AmazGame qualified as HNTEs for the years 2017 through 2019, and will need to re-apply for HNTE qualification in 2020.

Principal Entities Qualified as Software Enterprises and KNSEs

The CIT Law and its implementing regulations provide that a Software Enterprise is entitled to an income tax exemption for two years beginning with its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years. An entity that qualifies as a KNSE is entitled to a further reduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessment each year to ensure they meet the criteria for qualification and file required supporting documents with the tax authorities before using the preferential CIT rates. These enterprises will be subject to the tax authorities’ assessment each year as to whether they are entitled to use the relevant preferential CIT treatments. If at any time during the preferential tax treatment years an enterprise uses the preferential CIT rates but the relevant authorities determine that it fails to meet applicable criteria for qualification, the relevant authorities may revoke the enterprise’s Software Enterprise/KNSE status.

For Changyou’s Business

–

AmazGame. In 2019, AmazGame completed a self-assessment and filed required supporting documents for KNSE status for 2018. Also in 2019, AmazGame was qualified as a KNSE after the relevant government authorities’ assessment and became entitled to a preferential income tax rate of 10% for 2018. AmazGame will follow the same process in 2020 for KNSE status for 2019.

–

Changyou Chuangxiang. In 2019, Changyou Chuangxiang completed a self-assessment, filed required supporting documents, was qualified as a Software Enterprise, and became entitled to the second year of an income tax exemption for 2018. Changyou Chuangxiang will follow the same process in 2020 to entitle it to the third year of an income tax exemption for 2019.

U.S. Corporate Income Tax

Sohu.com Inc., which was formerly the top-tier publicly-traded parent company of the Sohu Group, was dissolved and liquidated on May 31, 2018. Sohu.com Inc. was a Delaware corporation that was subject to U.S. federal corporate income tax on its taxable income at a rate of 21% for taxable years beginning after December 31, 2017 and of up to 35% for prior tax years. U.S. federal tax legislation signed into law on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. TCJA”), significantly modified the U.S. Internal Revenue Code by, among other things, reducing the maximum statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a partial territorial tax system with a one-time Toll Charge on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings.

To the extent that portions of Sohu.com Inc.’s U.S. taxable income, such as Subpart F income or GILTI, as applicable, had been determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. may have been entitled to claim foreign tax credits to offset its U.S. income tax liabilities. Following the enactment of the U.S. TCJA, if dividends that Sohu.com Inc. received from its subsidiaries after January 1, 2018 were determined to be from sources outside of the U.S., subject to certain limitations, Sohu.com Inc. would generally not have been required to pay U.S. corporate income tax on those dividends. Liabilities for U.S. corporate income tax were accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments were made when required by U.S. law.

Treatment of Toll Charge Related to the U.S. TCJA

Cayman Island Tax

Under the current tax laws of the Cayman Islands, the Group is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Group to its shareholders.

Hong Kong Tax

The Group’s subsidiaries incorporated in Hong Kong are subject to profits tax in Hong Kong at the rate of 16.5% for each of the years ended December 31, 2017, 2018 and 2019.

Composition of Income Tax Expense

Sohu.com Inc., which was the former top-tier entity of the Sohu Group, was a Delaware corporation that was subject to United States income tax. On May 31, 2018, Sohu.com Inc. was dissolved and liquidated and Sohu.com Limited became the top-tier entity of the Sohu Group. Sohu.com Limited is not subject to income or capital gains tax under the current laws of the Cayman Islands. There are no other taxes likely to be material to Sohu.com Limited levied by the government of the Cayman Islands.

The components of income before income taxes are as follows (in thousands):


	Year ended December 31,
	2017			2018			2019
Income /(loss) before income tax expense
Income /(loss) from China operations	$	(55,874	)	$	(2,865	)	$	(4,390	)
Income /(loss) from non-China operations		(120,962	)		(33,092	)		26,173

Total income /(loss) before income tax expense	$	(176,836	)	$	(35,957	)	$	21,783

Income tax expense applicable to China operations
Current tax	$	56,938		$	15,040		$	14,510
Deferred tax		343			49,598			8,455

Subtotal income tax expense applicable to China operations		57,281			64,638			22,965
Non-China income tax expense/(benefit)		214,737			(78,540	)		7,887
Non-China withholding tax expense		618			469			324

Total income tax expense	$	272,636		$	(13,433	)	$	31,176

In 2019, of the 31.2 million total income tax expense, $23.0 million was for PRC tax, resulting primarily from accrued regular income tax expense of $41.5 million, offset by a reversal of PRC income tax expense of $19.5 million by Changyou due to preferential tax rates that Changyou’s subsidiaries were entitled to as KNSE and Software enterprises, and $8 million was for U.S. corporate income tax, resulting primarily from accrued interest on an unrecognized tax benefit.

For the fourth quarter of 2018, the Sohu Group’s management re-evaluated the impact on the Sohu Group of the Toll Charge under the U.S. TCJA. Management determined that it was more likely than not, based on the technical merits, that the tax position that the Sohu Group had no Toll Charge liability would be sustained. The Group recognized a tax benefit in the amount of $77 million, which was the largest amount that management determined to be greater than 50% likely to be realized upon settlement with the U.S. IRS. As a result, as of December 31, 2018 the Sohu Group had an unrecognized tax benefit in the amount of $142 million, which represented the difference between the tax benefit recognized in the fourth quarter of 2018 and management’s previous estimate of the Toll Charge. In addition, the Sohu Group accrued $2 million in interest on the unrecognized tax benefit.

In 2017, of the $272.6 million income tax expense, $55.9 million was for PRC tax, mainly attributable to the Sohu Group’s business operations, and $214.7 million was for U.S. corporate income tax, resulting primarily from the Company’s recognition in the fourth quarter of 2017 of $219 million for the Toll Charge, which represented management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based on the deemed repatriation to the United States of Sohu.com Inc.’s share of previously deferred earnings of certain non-U.S. subsidiaries of Sohu.com Inc., offset by a reduction of $4 million in liability for deferred U.S. income tax as a result of the U.S. TCJA. See “Treatment of Toll Charge Related to the U.S. TCJA” above.

The combined effects of the income tax exemption and reduction available to the Group are as follows (in thousands, except per share data):


	Year Ended December 31,
	2017		2018		2019
Tax holiday effect	$	17,736	$	28,385	$	10,110
Basic net income per share effect		0.46		0.73		0.26

Effective Tax Rate

The CIT Law applies an income tax rate of 25% to all enterprises, but grants preferential tax treatment to HNTEs, Software Enterprises, and KNSEs.

The U.S. TCJA significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time Toll Charge on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings.

The following is reconciliation between the statutory rate and the Group’s effective tax rate. For 2017, the statutory rate represented the U.S. statutory rate of 35%, and for 2018 and 2019, the statutory rate represented the PRC statutory rate of 25%. The table does not reflect any accruals related to the Toll Charge. See “U.S. Corporate Income Tax” and “Treatment of Toll Charge Related to the U.S. TCJA.”


	Year Ended December 31,
	2017			2018			2019
Statutory Rate:		35	%		25	%		25	%
Effect of tax holidays applicable to subsidiaries and consolidated VIEs (1)		10	%		79	%		(46	%)
Tax differential from statutory rate applicable to subsidiaries and consolidated VIEs		(14	%)		(6	%)		(12	%)
Effect of withholding taxes (2)		(2	%)		(147	%)		40	%
Changes in valuation allowance for deferred tax assets		(56	%)		(128	%)		260	%
Research and development super-deduction		9	%		66	%		(142	%)
Others		(13	%)		(55	%)		(17	%)

		(31	%)		(166	%)		108	%

Note (1): The reversal of income tax for preferential income tax rates that Changyou’s and Sogou’s subsidiaries and VIEs were entitled to as KNSEs or Software Enterprises for 2017, 2018 and 2019 was included in the “Effect of tax holidays applicable to subsidiaries and consolidated VIEs” in the above table.

Note (2): The change was mainly due to additional income withholding tax of $47 million that was recognized in the first quarter of 2018 due to a revised policy for Changyou’s PRC subsidiaries with respect to their distribution of cash dividends. The revised policy was adopted to facilitate the distribution of a special cash dividend in the aggregate amount of approximately $500.0 million that was declared by Changyou’s Board of Directors on April 5, 2018.

PRC Withholding Tax on Dividends

Before 2018, in order to fund the distribution of a dividend to shareholders of the Sohu Group’s majority-owned subsidiary Changyou, Changyou’s management determined to cause one of its PRC subsidiaries to declare and distribute a cash dividend of all of its stand-alone 2012 earnings and half of its stand-alone subsequent years’ earnings to its direct overseas parent company, Changyou HK, and adopted as a policy for such subsequent years for its PRC subsidiaries a limit on payment of dividends to their direct overseas parent companies of one-half of such PRC subsidiaries’ earnings. In 2018, in order to facilitate the distribution of a special cash dividend of $500.0 million declared by Changyou’s board of directors on April 5, 2018, Changyou revised its policy for its PRC subsidiaries with respect to their distribution of cash dividends. Under the revised policy, all of Changyou’s PRC subsidiaries (not including Changyou’s VIEs and their subsidiaries) will be able to distribute their cumulative available and undistributed earnings to their direct overseas parent companies in future periods. The change resulted in Changyou’s accrual of additional withholding income taxes of approximately $47 million for the period before December 31, 2017, which was recognized in the Sohu Group’s consolidated financial statements for the quarter ended March 31, 2018. As of December 31, 2019, the Sohu Group had accrued deferred tax liabilities related to Changyou in the amount of $86.8 million for PRC withholding tax.

With the exception of that dividend, the Sohu Group does not intend to have any of its PRC subsidiaries or VIEs distribute any undistributed profits of such subsidiaries or VIEs to their direct overseas parent companies, but rather intends that such profits will be permanently reinvested by such subsidiaries and VIEs for their PRC operations. As of December 31, 2019, the total amount of undistributed profits from the PRC subsidiaries and VIEs for which no withholding tax had been accrued was $743.9 million, and the unrecognized tax liabilities were $74.4 million.

PRC Value-Added Tax

On May 1, 2016, the transition from the imposition of PRC business tax to the imposition of VAT was expanded to all industries in China, and as a result all of the Sohu Group’s revenues have been subject to VAT since that date. To record VAT payable, the Group adopted the net presentation method, which presents the difference between the output VAT (at rates of 6% or 17% for the year ended December 31, 2017 and for the period from January 1, 2018 to April 30, 2018, at rates of 6% or 16% for the period from May 1, 2018 to March 31, 2019, and at rates of 6% or 13% after April 1, 2019) and the available input VAT amount (at the rate applicable to the supplier).

Deferred Tax Assets and Liabilities

Significant components of the Group’s deferred tax assets and liabilities consist of the following (in thousands):


	As of December 31,
	2018			2019
Deferred tax assets:
Net operating loss from operations	$	257,955		$	290,266
Accrued bonus and commissions		26,704			25,457
Provision for inventory and doubtful receivables		3,931			7,517
Intangible assets transfer		1,524			916
Others		9,250			18,132

Total deferred tax assets		299,364			342,288
Less: Valuation allowance		(272,008	)		(311,813	)

Net deferred tax assets	$	27,356		$	30,475

Deferred tax liabilities
Withholding tax for Dividend	$	(79,824	)	$	(86,834	)
Intangible assets from business acquisitions		(1,087	)		0
Others		(4,353	)		(9,070	)

Total deferred tax liabilities	$	(85,264	)	$	(95,904	)

Net deferred tax assets are recorded under other assets in the consolidated balance sheets. As of December 31, 2019, the Group had net operating losses from PRC entities of approximately $1.43 billion available to offset against future net profit for income tax purposes. The Group anticipates that it is more likely than not that these net operating losses may not be utilized based on its estimate of the operation performance of these PRC entities; therefore, $283.4 million in deferred tax assets generated from net operating losses were offset by a valuation allowance.

The following table sets forth the movement of the valuation allowances for deferred tax assets for the years presented (in thousands):


	For the Year Ended December 31,
	2017			2018			2019
Beginning balance	$	214,531			250,096			272,008
Provision for the year		56,259			41,405			52,939
Reversal for the year		(33,392	)		(7,726	)		(8,650	)
Foreign currency translation adjustment		12,698			(11,767	)		(4,484	)

Ending balance	$	250,096			272,008			311,813

In 2019, $15.9 million of PRC net operating losses generated from previous years expired. Pursuant to a public announcement issued by the PRC State Administration of Taxation in August 2018, net operating losses of entities not qualified as HNTEs will expire between 2020 and 2024 if not utilized and those of entities qualified as HNTEs will expire in 2029.

Uncertain Tax Positions

The following table summarizes the Group’s unrecognized tax benefit from January 1, 2017 to December 31, 2019 (in thousands):


	As of December 31,
	2017			2018			2019
Beginning balance	$	32,682		$	31,138		$	174,363
Increases /(decreases) related to prior year tax positions		(1,544	)		(1,190	)		7,300
Increases related to current year tax positions		0			144,415			0

Ending balance	$	31,138		$	174,363		$	181,663

The increase in 2019 was mainly due to $8 million interest recognized in connection with an unrecognized tax benefit for the year ended December 31, 2019.

The increase in 2018 was mainly due to an unrecognized tax benefit in the amount of $142 million, which represented the difference between the tax benefit recognized in the fourth quarter of 2018 in relation to the Toll Charge and management’s previous estimate of the Toll Charge that would have been due by Sohu.com Inc. if it had not been dissolved and liquidated on May 31, 2018. The Group recognized interest in the amount of $2 million in connection with the unrecognized tax benefit for the year ended December 31, 2018. The Group did not have any significant penalties associated with tax positions for the year ended December 31, 2018.

The material jurisdictions in which the Group is subject to potential examination include China and the United States. In general, the PRC tax authorities have up to five years, and the U.S. IRS has up to three years and in certain cases up to six years, to conduct examinations of the tax filings of the Group.

Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

COMMITMENTS AND CONTINGENCIES [Abstract]

Commitments and Contingencies

17. COMMITMENTS AND CONTINGENCIES

Commitments

The following table sets forth the Group’s commitments as of December 31, 2019 (in thousands):


	2020		2021		2022		2023		2024		Thereafter		Total Payments Required
Purchase of bandwidth	$	50,405		352		0		0		0		0		50,757
Operating rights for licensed games and titles of games in development		12,806		600		0		0		0		0		13,406
Purchase of content and services – video		7,429		2,013		0		0		0		0		9,442
Purchase of content and services – others		5,526		180		53		18		0		0		5,777
Goods purchases		5,633		0		0		0		0		0		5,633
Operating lease obligations		3,020		93		10		0		0		0		3,123
Interest payment commitment		2,164		0		0		0		0		0		2,164
Others		3,127		460		0		0		0		0		3,587

Total Payments Required	$	90,110		3,698		63		18		0		0		93,889

Litigation

The Sohu Group is a party to various litigation matters which it considers routine and incidental to its business. The Sohu Group records a liability when the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. The Sohu Group evaluates, on a regular basis, developments in litigation matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Management believes that the total liabilities to the Sohu Group that may arise as a result of currently pending legal proceedings will not have a material adverse effect on the Group’s business, results of operations, financial condition and cash flows. Sogou is currently involved in several lawsuits in PRC courts where its competitors instituted proceedings or asserted counterclaims against the Sogou or the Sogou instituted proceedings or asserted counterclaims against its competitors. There are also two putative class action lawsuits that have been filed against Sogou in the United States, one in a State court in the State of California and one in the United States District Court for the Southern District of New York, that allege violations of U.S. securities laws in connection with Sogou’s IPO in 2017. As of December 31, 2019, Sohu and Changyou had no significant litigation contingencies, and Sogou had recorded estimated liabilities of $6.5 million for litigation contingencies as a component of accrued liabilities related to its currently pending proceedings.

PRC Law and Regulations

The Chinese market in which the Sohu Group operates poses certain macro-economic and regulatory risks and uncertainties. These uncertainties extend to the ability to operate an Internet business and to conduct brand advertising, search and search-related advertising, online game, and other services in the PRC. Though the PRC has, since 1978, implemented a wide range of market-oriented economic reforms, continued reforms and progress towards a full market-oriented economy are uncertain. In addition, the telecommunication, information, and media industries remain highly regulated. Restrictions are currently in place and are unclear with respect to which segments of these industries foreign-owned entities, like the Sohu Group, may operate. The Chinese government may issue from time to time new laws or new interpretations of existing laws to regulate areas such as telecommunication, information and media. The Sohu Group’s legal structure and scope of operations in China could be subject to restrictions, which could result in limits on its ability to conduct business in the PRC. Certain risks related to PRC law that could affect the Sohu Group’s VIE structure are discussed in Note 18 - VIEs.

Regulatory risks also encompass interpretation by PRC tax authorities of current tax law, including the applicability of certain preferential tax treatments.

The Sohu Group’s sales, purchase and expense transactions are generally denominated in RMB and a significant portion of its assets and liabilities are denominated in RMB. The RMB is not freely convertible into foreign currencies. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB by its subsidiaries in China may require certain supporting documentation in order to effect the remittance.

VIEs

12 Months Ended

Dec. 31, 2019

VIES [Abstract]

VIEs

18. VIEs

Background

PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content, Internet access, online games, mobile, value added telecommunications and certain other businesses in which the Sohu Group is engaged or could be deemed to be engaged. Consequently, the Sohu Group conducts certain of its operations and businesses in the PRC through its VIEs. The Sohu Group consolidates in its consolidated financial statements all of the VIEs of which the Group is the primary beneficiary.

VIEs Consolidated within the Sohu Group

The Sohu Group adopted the guidance of accounting for VIEs, which requires VIEs to be consolidated by the primary beneficiary of the entity. Management made evaluations of the relationships between the Sohu Group and its VIEs and the economic benefit flow of contractual arrangements with the VIEs. In connection with such evaluation, management also took into account the fact that, as a result of contractual arrangements with its consolidated VIEs, the Sohu Group controls the shareholders’ voting interests in those VIEs. As a result of such evaluation, the management concluded that the Sohu Group is the primary beneficiary of the VIEs which the Group consolidates.

All of the consolidated VIEs are incorporated and operated in the PRC, and the Group’s principal VIEs are directly or indirectly owned by Dr. Charles Zhang, the Sohu Group’s Chairman and Chief Executive Officer, or other executive officers and employees of the Sohu Group identified below. Capital for the consolidated VIEs was funded by the Sohu Group through loans provided to Dr. Charles Zhang and other executive officers and employees, and was initially recorded as loans to related parties. These loans are eliminated for accounting purposes against the capital of the VIEs upon consolidation.

Under contractual agreements with the Sohu Group, Dr. Charles Zhang and those other executive officers and employees of the Sohu Group who are shareholders of the consolidated VIEs are required to transfer their ownership in these entities to the Group, if permitted by PRC laws and regulations, or, if not so permitted, to designees of the Group at any time as requested by the Group to repay the loans outstanding. All voting rights of the consolidated VIEs are assigned to the Sohu Group, and the Group has the right to designate all directors and senior management personnel of the consolidated VIEs, and also has the obligation to absorb losses of the consolidated VIEs. Dr. Charles Zhang and those other executive officers and employees of the Sohu Group who are shareholders of the consolidated VIEs have pledged their shares in the consolidated VIEs as collateral for the loans. As of December 31, 2019, the aggregate amount of these loans was $7.7 million.

Under its contractual arrangements with the consolidated VIEs, the Sohu Group has the power to direct activities of the VIEs, and can have assets transferred freely out of the VIEs without any restrictions. Therefore, the Group considers that there is no asset of a consolidated VIE that can be used only to settle obligations of the VIEs, except for registered capital and PRC statutory reserves of the VIEs. As of December 31, 2019, the registered capital and PRC statutory reserves of the consolidated VIEs totaled $83.5 million. As all of the consolidated VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the consolidated VIEs do not have recourse to the general credit of the Sohu Group for any of the liabilities of the consolidated VIEs. Currently there is no contractual arrangement that could require the Sohu Group to provide additional financial support to the consolidated VIEs. As the Sohu Group is conducting certain business in the PRC mainly through the consolidated VIEs, the Group may provide such support on a discretionary basis in the future, which could expose the Group to a loss.

The Sohu Group classified the consolidated VIEs within the Sohu Group as principal VIEs or immaterial VIEs based on certain criteria, such as the VIEs’ total assets or revenues. The following is a summary of the principal VIEs within the Sohu Group:

Basic Information for Principal VIEs and Subsidiaries of Principal VIEs

For Sohu’s Business

–

High Century

High Century was incorporated in 2001. As of December 31, 2019, Dr. Charles Zhang and Wei Li held 80% and 20% interests, respectively, in this entity.

–

Heng Da Yi Tong

Heng Da Yi Tong was incorporated in 2002. As of December 31, 2019, Dr. Charles Zhang and Wei Li held 80% and 20% interests, respectively, in this entity.

–

Sohu Internet

Sohu Internet was incorporated in 2003. As of December 31, 2019, High Century held a 100% interest in this entity.

–

Donglin

Donglin was incorporated in 2010. As of December 31, 2019, Sohu Internet held a 100% interest in this entity.

–

Tianjin Jinhu

Tianjin Jinhu was incorporated in 2011. In October 2016, Ye Deng transferred its 50% equity interest in Tianjin Jinhu to Xiufeng Deng. As of December 31, 2019, Xiufeng Deng and Xuemei Zhang each held a 50% interest in this entity.

–

Focus Interactive

Focus Interactive was incorporated in July 2014. As of December 31, 2019, Heng Da Yi Tong held 100% of the equity interests in this entity.

For Sogou’s Business

–

Sogou Information

Sogou Information was incorporated in 2005. As of December 31, 2019, Xiaochuan Wang, Sogou’s Chief Executive Officer, High Century and Tencent held 10%, 45% and 45% interests, respectively, in this entity.

–

Chengdu Easypay

Chengdu Easypay was incorporated in 2015. As of December 31, 2019, Sogou Information and Beijing Shi Ji Si Su Technology Co., Ltd. (“Shi Ji Si Su”), a subsidiary of Sogou Information, held 9% and 91% interests, respectively, in this entity.

For Changyou’s Business

–

Gamease

Gamease was incorporated in 2007. As of December 31, 2019, High Century held a 100% interest in this entity.

–

Shanghai ICE

Shanghai ICE was acquired by Changyou in 2010. As of December 31, 2019, Gamease held a 100% interest in this entity.

–

Guanyou Gamespace

Guanyou Gamespace was incorporated in 2010. As of December 31, 2019, Beijing Changyou Star Digital Technology Co., Ltd (“Changyou Star”) held a 100% interest in this entity.

Financial Information

The following financial information of the Sohu Group’s consolidated VIEs (including subsidiaries of VIEs) is included in the accompanying consolidated financial statements (in thousands):


	As of December 31,
	2018		2019
ASSETS:
Cash and cash equivalents	$	65,864	$	52,744
Restricted cash		697		6,474
Account and financing receivables, net		122,884		140,300
Prepaid and other current assets		20,554		17,528
Short-term investments		7,305		7,192
Intra-Group receivables due from the Company’s subsidiaries		390,157		420,103

Total current assets		607,461		644,341

Long-term investments, net		45,871		43,657
Fixed assets, net		1,793		1,400
Intangible assets, net		18,240		6,832
Goodwill		36,353		36,194
Other non-current assets		1,925		16,656

Total assets	$	711,643	$	749,080

LIABILITIES:
Accounts payable	$	84,749	$	74,781
Accrued liabilities		60,555		64,874
Receipts in advance and deferred revenue		43,020		47,735
Other current liabilities		86,851		80,859
Intra-Group payables due to the Company’s subsidiaries		273,672		300,601

Total current liabilities		548,847		568,850

Long-term tax liabilities		13,554		13,220
Deferred tax liabilities		2,239		1,998
Intra-Group payables due to the Company’s subsidiaries		18,897		18,599
Other long-term liabilities		0		1,130

Total liabilities	$	583,537	$	603,797


	As of December 31,
	2017		2018			2019
Net revenue	$	881,284	$	923,131		$	1,013,452
Net income /(loss)	$	34,910	$	(18,436	)	$	18,116


	Year ended December 31,
	2017			2018			2019
Net cash provided by /(used in) operating activities	$	(52,351	)	$	69,925		$	(7,084	)
Net cash used in investing activities		(14,020	)		(49,271	)		(18,481	)
Net cash provided by /(used in) financing activities	$	(131	)	$	650		$	8,601

Summary of Significant Agreements Currently in Effect

Agreements between Subsidiaries, Consolidated VIEs and Nominee Shareholders

Loan and share pledge agreement between Sohu Media and the shareholders of High Century: The agreement provides for loans to the shareholders of High Century for them to make contributions to the registered capital of High Century in exchange for the equity interests in High Century, and the shareholders pledge those equity interests to Sohu Media as security for the loans. The agreement includes powers of attorney that give Sohu Media the power to appoint nominees to act on behalf of the shareholders of High Century in connection with all actions to be taken by High Century. Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in High Century, which are held by the Sohu Group’s legal department and may be completed and effected at Sohu Media’s election.

Loan and share pledge agreement between Sohu Focus HK and the shareholders of Heng Da Yi Tong: The agreement provides for loans to the shareholders of Heng Da Yi Tong for them to make contributions to the registered capital of Heng Da Yi Tong in exchange for the equity interests in Heng Da Yi Tong, and the shareholders pledge those equity interests to Focus HK as security for the loans. The agreement includes powers of attorney that give Focus HK the power to appoint nominees to act on behalf of the shareholders of Heng Da Yi Tong in connection with all actions to be taken by Heng Da Yi Tong. Pursuant to the agreement, the shareholders executed in blank transfers of their equity interests in Heng Da Yi Tong, which are held by the Sohu Group’s legal department and may be completed and effected at Focus HK’s election.

Loan agreements and equity pledge agreements between Video Tianjin and the shareholders of Tianjin Jinhu. The loan agreements provide for loans to the shareholders of Tianjin Jinhu for them to make contributions to the registered capital of Tianjin Jinhu in exchange for the equity interests in Tianjin Jinhu. Under the equity pledge agreements, the shareholders of Tianjin Jinhu pledge to Video Tianjin their equity interests in Tianjin Jinhu to secure the performance of their obligations under the loan agreements and Tianjin Jinhu’s obligations to Video Tianjin under their business agreements. The loans are interest free and are repayable on demand, but the shareholders can only repay the loans by transferring to Video Tianjin their equity interests in Tianjin Jinhu.

Exclusive equity interest purchase right agreements between Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. Pursuant to these agreements, Video Tianjin and any third party designated by it have the right, exercisable at any time when it becomes legal to do so under PRC law, to purchase from the shareholders of Tianjin Jinhu all or any part of their equity interests at the lowest purchase price permissible under PRC law.

Business operation agreement among Video Tianjin, Tianjin Jinhu and the shareholders of Tianjin Jinhu. The agreement sets forth the right of Video Tianjin to control the actions of the shareholders of Tianjin Jinhu. The agreement has a term of 10 years, renewable at the request of Video Tianjin.

Powers of Attorney executed by the shareholders of Tianjin Jinhu in favor of Video Tianjin with a term of 10 years, extendable at the request of Video Tianjin. These powers of attorney give Video Tianjin the right to appoint nominees to act on behalf of each of the Tianjin Jinhu shareholders in connection with all actions to be taken by Tianjin Jinhu.

Loan and share pledge agreements between Sogou Technology and the shareholders of Sogou Information. The loan agreement provides for a loan to Xiaochuan Wang, the individual shareholder of Sogou Information, to be used by him to make contributions to the registered capital of Sogou Information in exchange for his equity interest in Sogou Information. The loan is interest free-and is repayable on demand, but the shareholder may repay the loan only by transferring to Sogou Technology his equity interest in Sogou Information. Under the pledge agreement, all of the shareholders of Sogou Information pledge their equity interests to Sogou Technology to secure the performance of their obligations under the various VIE-related agreements. If any shareholder of Sogou Information breaches any of his or its obligations under any VIE-related agreements, Sogou Technology is entitled to exercise its right as the beneficiary under the share pledge agreement. The share pledge agreement terminates only after all of the obligations of the shareholders under the various VIE-related agreements are no longer in effect.

Exclusive equity interest purchase right agreements between Sogou Technology, Sogou Information and the shareholders of Sogou Information. Pursuant to these agreements, Sogou Technology and any third party designated by it have the right, exercisable at any time when it becomes legal to do so under PRC law, to purchase from the shareholders of Sogou Information all or any part of their equity interests at the lowest purchase price permissible under PRC law.

Business operation agreement among Sogou Technology, Sogou Information and the shareholders of Sogou Information. The agreement sets forth the right of Sogou Technology to control the actions of the shareholders of Sogou Information. The agreement has a term of 10 years, renewable at the request of Sogou Technology.

Powers of Attorney executed by the shareholders of Sogou Information in favor of Sogou Technology with a term of 10 years, extendable at the request of Sogou Technology. These powers of attorney give Sogou Technology the right to appoint nominees to act on behalf of each of the three Sogou Information shareholders in connection with all actions to be taken by Sogou Information.

Loan agreements and equity pledge agreements between AmazGame and the sole shareholder of Gamease and between Gamespace and the sole shareholder of Guanyou Gamespace. The loan agreements provide for loans to the respective shareholders of Gamease and Guanyou Gamespace for the shareholders to make contributions to the registered capital of Gamease and Guanyou Gamespace in exchange for 100% of the equity interests in Gamease and Guanyou Gamespace. The loans are interest free and are repayable on demand, but the shareholders can only repay the loans by transferring to AmazGame and Gamespace, as the case may be, their equity interests in Gamease and Guanyou Gamespace. Under the equity pledge agreements, the respective shareholders of Gamease and Guanyou Gamespace pledge to AmazGame and Gamespace, their equity interests in Gamease and Guanyou Gamespace to secure the performance of their obligations under the loan agreements and Gamease’s and Guanyou Gamespace’s obligations to AmazGame and Gamespace under the various VIE-related agreements. If the shareholders breach their obligations under any VIE-related agreements (Gamease’s or Guanyou Gamespace’s breach of any of its obligations under the various applicable VIE-related agreements will be treated as its shareholder’s breach of its obligations), including the equity pledge agreements, AmazGame and Gamespace are entitled to exercise their rights as the beneficiaries under the applicable equity pledge agreements, including all rights the respective shareholders have as shareholders of Gamease or Guanyou Gamespace.

Equity interest purchase right agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, Guanyou Gamespace and the sole shareholder of Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace have the right, exercisable at any time if and when it is legal to do so under PRC law, to purchase from the respective shareholders of Gamease and Guanyou Gamespace all or any part of their equity interests in Gamease and Guanyou Gamespace at a purchase price equal to their initial contributions to the registered capital of Gamease and Guanyou Gamespace.

Powers of attorney executed by the sole shareholder of Gamease in favor of AmazGame and by the sole shareholder of Guanyou Gamespace in favor of Gamespace, with a term of 10 years. These powers of attorney give the respective boards of directors of AmazGame and Gamespace the right to appoint nominees to act on behalf of their respective shareholders in connection with all actions to be taken by Gamease and Guanyou Gamespace.

Business operation agreements among AmazGame, Gamease and the sole shareholder of Gamease and among Gamespace, Guanyou Gamespace and the sole shareholder of Guanyou Gamespace. These agreements set forth the right of AmazGame and Gamespace to control the actions of Gamease and Guanyou Gamespace, as the case may be, and the respective shareholders of Gamease and Guanyou Gamespace. Each agreement has a term of 10 years.

Business Arrangements between Subsidiaries and Consolidated VIEs

Exclusive technology consulting and service agreement between Sohu Era and Sohu Internet. Pursuant to this agreement Sohu Era has the right to provide technical consultation and other related services to Sohu Internet, in exchange for a percentage of the gross revenue of Sohu Internet. The agreement has an initial term of two years, and is renewable at the request of Sohu Era.

Exclusive technology consulting and service agreement between Video Tianjin and Tianjin Jinhu. Pursuant to this agreement Video Tianjin has the right to provide technical consultation and other related services to Tianjin Jinhu in exchange for a fee. The agreement has a term of 10 years and is renewable at the request of Video Tianjin.

Exclusive technology consulting and service agreement between Sogou Technology and Sogou Information. Pursuant to this agreement Sogou Technology has the right to provide technical consultation and other related services to Sogou Information in exchange for a fee. The agreement has a term of 10 years and is renewable at the request of Sogou Technology.

Technology support and utilization agreements between AmazGame and Gamease and between Gamespace and Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace have the right to provide certain product development and application services and technology support to Gamease and Guanyou Gamespace, respectively, for a fee equal to a predetermined percentage, subject to adjustment by AmazGame or Gamespace at any time, of Gamease’s and Guanyou Gamespace’s respective revenues. Each agreement terminates only when AmazGame or Gamespace is dissolved.

Services and maintenance agreements between AmazGame and Gamease, and between Gamespace and Guanyou Gamespace. Pursuant to these agreements, AmazGame and Gamespace, respectively, provide marketing, staffing, business operation and maintenance services to Gamease and Guanyou Gamespace, respectively, in exchange for a fee equal to the cost of providing such services plus a predetermined margin. Each agreement terminates only when AmazGame or Gamespace, as the case may be, is dissolved.

Certain of the contractual arrangements described above between the VIEs and the related wholly-owned subsidiaries of the Sohu Group are silent regarding renewals. However, because the VIEs are controlled by the Sohu Group through powers of attorney granted to the Sohu Group by the shareholders of the VIEs, the contractual arrangements can be, and are expected to be, renewed at the subsidiaries’ election.

VIE-Related Risks

It is possible that the Sohu Group’s operation of certain of its operations and businesses through VIEs could be found by PRC authorities to be in violation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. If a finding were made by PRC authorities that the Sohu Group’s operation of certain of its operations and businesses through VIEs is prohibited, regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating the Sohu Group’s income, revoking the business or operating licenses of the affected businesses, requiring the Sohu Group to restructure its ownership structure or operations, or requiring the Sohu Group to discontinue all or any portion of its operations. Any of these actions could cause significant disruption to the Sohu Group’s business operations, and have a severe adverse impact on the Sohu Group’s cash flows, financial position, and operating performance. The Sohu Group’s management considers the possibility of such a finding by PRC regulatory authorities to be remote.

In addition, it is possible that the contracts among the Sohu Group, the Sohu Group’s VIEs and shareholders of its VIEs would not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC law and regulations or are otherwise not enforceable for public policy reasons. In the event that the Sohu Group was unable to enforce these contractual arrangements, the Sohu Group would not be able to exert effective control over the affected VIEs. Consequently, such VIEs’ results of operations, assets and liabilities would not be included in the Sohu Group’s consolidated financial statements. If such were the case, the Sohu Group’s cash flows, financial position and operating performance would be severely adversely affected. The Sohu Group’s contractual arrangements with respect to its consolidated VIEs are in place. The Sohu Group’s management believes that such contracts are enforceable, and considers the possibility remote that PRC regulatory authorities with jurisdiction over the Sohu Group’s operations and contractual relationships would find the contracts to be unenforceable.

The Sohu Group’s operations and businesses rely on the operations and businesses of its VIEs, which hold certain recognized and unrecognized revenue-producing assets. The recognized revenue-producing assets include goodwill and intangible assets acquired through business acquisitions. Goodwill primarily represents the expected synergies from combining an acquired business with the Sohu Group. Intangible assets acquired through business acquisitions mainly consist of customer relationships, non-compete agreements, user bases, copyrights, trademarks and developed technologies. Unrecognized revenue-producing assets mainly consist of licenses and intellectual property. Licenses include operations licenses, such as Internet information service licenses and licenses for providing content. Intellectual property developed by the Sohu Group mainly consists of patents, copyrights, trademarks, and domain names. The Sohu Group’s operations and businesses may be adversely impacted if the Sohu Group loses the ability to use and enjoy assets held by these VIEs.

Sohu.com Limited Shareholders' Equity

12 Months Ended

Dec. 31, 2019

SOHU.COM LIMITED SHAREHOLDERS' EQUITY [Abstract]

Sohu.com Limited Shareholders' Equity

19. SOHU.COM LIMITED SHAREHOLDERS’ EQUITY

Summary of the Company’s outstanding shares (in thousands):


	Number of Outstanding Shares
	As of December 31,
	2017		2018		2019
Balance, beginning of year		38,742		38,898		39,229
Issuance:		156		331		40

Balance, end of year		38,898		39,229		39,269

Share Incentive Plans

Sohu (excluding Sohu Video), Sogou, Changyou, and Sohu Video have incentive plans for the granting of share-based awards, including options and restricted share units, to their directors, management and other key employees.

1) Sohu.com Limited Share-based Awards

Sohu’s 2018 Share Incentive Plan

On July 2, 2010, Sohu.com Inc.’s shareholders adopted the 2010 Stock Incentive Plan, which provides for the issuance of up to 1,500,000 shares of Sohu.com Inc.’s common stock, including stock issued pursuant to the vesting and settlement of restricted stock units and pursuant to the exercise of stock options. The maximum term of any share-based award granted under the Sohu 2010 Stock Incentive Plan is ten years from the grant date.

On April 2, 2018, Sohu.com Limited adopted the Sohu 2018 Share Incentive Plan, which provides for the issuance of up 1,148,565 ordinary shares of Sohu.com Limited. The Sohu 2018 Share Incentive Plan will expire in April 2028.

Upon the dissolution of Sohu.com Inc. on May 31, 2018, Sohu.com Limited assumed all then existing obligations of Sohu.com Inc. with respect to equity incentive awards that had been granted under the Sohu 2010 Stock Incentive Plan and then remained outstanding, and such awards were converted into the right to receive upon exercise or settlement Sohu.com Limited’s ordinary shares under the Sohu 2018 Share Incentive Plan rather than shares of the common stock of Sohu.com Inc., subject to the other terms of such outstanding awards.

As of December 31, 2019, 189,405 shares were available for grant under the Sohu 2018 Share Incentive Plan.

i) Summary of Share Option Activity

In February 2015, May 2016, September 2017 and November 2017, Sohu.com Inc.’s Board of Directors approved contractual grants to members of the Company’s management and key employees of options for the purchase of an aggregate of 1,068,000, 13,000, 32,000 and 6,000 shares of common stock of Sohu.com Inc., respectively, under the Sohu 2010 Stock Incentive Plan, with nominal exercise prices of $0.001, all of which were converted, on May 31, 2018, into the right to receive upon exercise Sohu.com Limited’s ordinary shares under the Sohu 2018 Share Incentive Plan. In February 2019 and July 2019, Sohu.com Limited’s Board of Directors approved contractual grants to members of the Company’s management and key employees of options for the purchase of an aggregate of 20,000 and 477,500 shares of ordinary shares of Sohu.com Limited, respectively, under the Sohu 2018 Share Incentive Plan, with nominal exercise prices of $0.001. These share options vest and become exercisable in four equal installments over a period of four years, with each installment vesting upon the satisfaction of a service period requirement and certain subjective performance targets. These share options are substantially similar to restricted share units except for the nominal exercise price, which would be zero for restricted share units.

Under ASC 718-10-25 and ASC 718-10-55, no grant date can be established for these options until a mutual understanding is reached between the Company and the recipients clarifying the subjective performance requirements. If the service inception date preceded the grant date, compensation expense should be accrued beginning on the service inception date, and re-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards. To determine the fair value of these options, the public market price of the underlying shares at each reporting date is used and a binomial valuation model is applied.

As of December 31, 2019, 703,625 of these options had been granted and had become vested on their respective vesting dates, as a mutual understanding of the subjective performance targets was reached between the Company and the recipients, the targets had been satisfied, and the service period requirements had been fulfilled. The cumulative share-based compensation expense for these granted options has been adjusted and fixed based on their aggregate fair values, at their respective grant dates, of $25.3 million.

A summary of option activity under the Sohu 2018 Share Incentive Plan as of and for the year ended December 31, 2019 is presented below:


Options	Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding as of January 1, 2019		42		$	0.001			$
Granted		125			0.001
Exercised		(39	)		0.001
Forfeited or expired		0

Outstanding as of December 31, 2019		128			0.001		5.21		1,434

Vested as of December 31, 2019		128			0.001		5.21		1,434

Exercisable as of December 31, 2019		128			0.001		5.21		1,434

Note (1): The aggregated intrinsic value in the preceding table represents the difference between Sohu’s closing ADS price of $11.18 on December 31, 2019 and the nominal exercise price of the options.

For the years ended December 31, 2019, 2018 and 2017, total share-based compensation expense recognized for these options was $1.9 million, negative $5.1 million and $2.4 million, respectively. The negative amounts in the tables above resulted from re-measured compensation expense based on the then-current fair value of the awards on the reporting date. For the years ended December 31, 2019, 2018 and 2017, the total fair values of these Sohu options vested on their respective vesting dates were $2.5 million, $5.0 million and $7.1 million, respectively. For the years ended December 31, 2019, 2018 and 2017, the total intrinsic value of options exercised was $0.6 million, $6.2 million and $6.1 million, respectively.

ii) Summary of restricted stock unit activity

All of the restricted stock/share units previously granted under the Sohu 2018 Share Incentive Plan were vested as of December 31, 2018, as the requisite service period for all these awards had been completed. There has been no share-based compensation expense recognized since then.

For the years ended December 31, 2019, 2018 and 2017, total share-based compensation expense recognized for restricted stock/share units was nil, nil and negative $1.7 million, respectively.

As of December 31, 2019, there was nil of unrecognized compensation expense related to unvested restricted stock/share units. The total fair value on their respective vesting dates of restricted stock/share units vested during the years ended December 31, 2019, 2018 and 2017 was nil, nil and $0.3 million, respectively.

2) Sogou Inc. Share-based Awards

Sogou 2010 Share Incentive Plan

Sogou adopted a share incentive plan on October 20, 2010, which was amended effective August 22, 2014 to increase the aggregate number of Sogou Class A Ordinary Shares issuable under the plan to 41,500,000 (as amended to date, the “Sogou 2010 Share Incentive Plan”). Awards of share rights may be granted under the Sogou 2010 Share Incentive Plan to management and other key employees of Sogou and of any present or future parents or subsidiaries or VIEs of Sogou. The maximum term of any share incentive award granted under the Sogou 2010 Share Incentive Plan is ten years from the grant date. The Sogou 2010 Share Incentive Plan will expire on October 19, 2020.

The options contractually granted under the Sogou 2010 Share Incentive Plan may be placed in one of the following three categories:

(i)

Performance-based options, which vest and become exercisable either in four equal installments or in two to four installments of specified share numbers over their specified vesting periods, with each installment vesting upon a service period requirement being met, as well as the employee grantee’s achievement, as determined by Sogou’s chief executive officer, of performance targets for the corresponding period specified by Sogou’s chief executive officer. For purposes of recognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance targets have been set; or

(ii)	Service-based options, which vest and become exercisable either in four equal installments or in two to four installments of specified share numbers over their specified vesting periods, with each installment vesting only upon a service period requirement being met; or

(iii)

IPO-based options, which were subject to completion of an IPO and vesting/ exercisability in five equal installments, with (i) the first installment vesting upon the expiration of all underwriters’ lockup periods applicable to Sogou’s IPO and (ii) each of the four subsequent installments vesting on the first, second, third, and fourth anniversary dates of the completion of Sogou’s IPO.

A summary of each of the above three categories of Sogou’s share options as of December 31, 2019 is presented below:


	Contractually Granted (in thousands)		Granted (For Purposes of Share- based Compensation Expense) (in thousands)		Vested and Exercisable (in thousands)		Exercised (in thousands)
Performance-based options		29,932		28,059		27,653		26,767
Service-based options		2,031		2,031		951		481
IPO-based options		7,250		7,250		4,370		2,930

Total		39,213		37,340		32,974		30,178

A summary of Sogou share option activity under the Sogou 2010 Share Incentive Plan as of and for the year ended December 31, 2019 is presented below:


Options	Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding as of January 1, 2019		6,445		$	0.419		5.29	$
Granted		1,432			0.001
Exercised		(500	)		0.001
Forfeited or expired		(215	)		0.001

Outstanding as of December 31, 2019		7,162			0.377		4.45		29,887

Vested as of December 31, 2019 and expected to vest thereafter		6,572			0.411		4.35		27,198

Exercisable as of December 31, 2019		2,796			0.033		4.42		11,819

Note (1): The aggregate intrinsic values in the preceding table represent the difference between Sogou’s closing price of $4.55 per Sogou ADS (each representing one Sogou Class A Ordinary Share) on December 31, 2019 and the exercise prices of the share options.

For the years ended December 31, 2019, 2018 and 2017, total share-based compensation expense recognized for Sogou share options under the Sogou 2010 Share Incentive Plan was $13.5 million, $12.5 million and $23.0 million, respectively. As of December 31, 2019, there was $2.7 million of unrecognized compensation expense related to unvested Sogou share options. The expense is expected to be recognized over a weighted average period of 1.56 years. For the years ended December 31, 2019, 2018 and 2017, the total intrinsic value of options exercised was $1.6 million, $33.2 million, and $11.1 million, respectively.

Prior to the completion of Sogou’s IPO, the fair values of Sogou Class A Ordinary Shares were assessed using the income approach /discounted cash flow method or based on the mid-point of the estimated Sogou IPO price range, in each case with a discount for lack of marketability, because the Sogou Class A Ordinary Shares underlying the award were not publicly traded at the time of grant. The assessment required complex and subjective judgments regarding Sogou’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants were made. After the completion of Sogou’s IPO, the fair values of the ordinary shares of Sogou were determined based on the market price of Sogou’s ADSs.

The fair value of the Sogou share options granted under the Sogou 2010 Incentive Plan was estimated on the date of grant with the assistance of a qualified professional appraiser, using the binomial valuation model with the following assumptions used:


Assumptions Adopted	2017			2018			2019
Average risk-free interest rate		2.14%~3.00	%		3.36%~3.51	%		2.60%~2.86	%
Exercise multiple		2~3			2			2~3
Expected forfeiture rate (post-vesting)		0%~12	%		12	%		0%~12	%
Weighted average expected option life		7			9			7
Volatility rate		39%~47	%		40%~46	%		36%~41	%
Dividend yield		0	%		0	%		0	%
Weighted average fair value of share options		10.35			12.26			4.05

Sogou estimated the risk-free rate based on the market yields of U.S. Treasury securities with an estimated country-risk differential as of the valuation date. An exercise multiple was estimated as the ratio of the fair value of the Sogou Class A Ordinary Shares over the exercise prices as of the time the options would be expected to be exercised, based on consideration of research studies regarding exercise patterns based on historical statistical data. In Sogou’s valuation analysis, a multiple of three was applied for management and a multiple of two was applied for other key employees. Sogou estimated the forfeiture rate to be 0% or 1% for the Sogou share options granted to Sogou management and 12% for the Sogou share options granted to Sogou’s other key employees. As Sogou’s ordinary shares had been publicly traded for slightly more than two years as of December 31, 2019, the expected volatility at the valuation date was estimated based on the historical volatility of specified comparable companies for the periods before the grant dates with length commensurate with the expected term of the Sogou share options. Sogou has no history or expectation of paying dividends on its ordinary shares. Accordingly, the dividend yield was estimated to be 0%.

Sogou 2017 Share Incentive Plan

In October 2017, Sogou adopted a share incentive plan (the “Sogou 2017 Share Incentive Plan”) which provides that the aggregate number of Sogou Class A Ordinary Shares issuable under the plan is 28,000,000. Share incentive awards may be granted under the Sogou 2017 Share Incentive Plan to Sogou’s management and employees and of any of its present or future parents or subsidiaries. The maximum term of any share incentive award granted under the Sogou 2017 Share Incentive Plan is ten years from the grant date.

The options contractually granted under the Sogou 2017 Share Incentive Plan may be placed in one of the following two categories:

(i)

Performance-based options, which vest and become exercisable in four equal installments, with each installment vesting upon a service period requirement being met, as well as the employee grantee’s achievement, as determined by Sogou’s chief executive officer, of performance targets for the corresponding period specified by Sogou’s chief executive officer. For purposes of recognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance targets have been set; or

(ii)	Service-based options, which vest and become exercisable in four equal installments, with each installment vesting only upon a service period requirement being met.

A summary of each of the above two categories of Sogou’s share options as of December 31, 2019 is presented below:


	Contractually Granted (in thousands)		Granted (For Purposes of Share- based Compensation Expense) (in thousands)		Vested and Exercisable (in thousands)		Exercised (in thousands)
Performance-based options		140		18		14		0
Service-based options		829		829		155		48

Total		969		847		169		48

A summary of Sogou share option activity under the Sogou 2017 Share Incentive Plan as of and for the year ended December 31, 2019 is presented below:


Options	Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding as of January 1, 2019		730		$	0.001		9.57	$
Granted		267			0.001
Exercised		(48	)		0.001
Forfeited or expired		(151	)		0.001

Outstanding as of December 31, 2019		798			0.001		8.90		3,629

Vested as of December 31, 2019 and expected to vest thereafter		638			0.001		8.87		2,904

Exercisable as of December 31, 2019		121			0.001		8.55		551

Note (1): The aggregate intrinsic value in the preceding table represents the difference between the closing price of $4.55 per Sogou ADS (each representing one Class A Ordinary Share) on December 31, 2019 and the exercise prices of the share options.

For the years ended December 31, 2019 and 2018, total share-based compensation expense recognized for Sogou share options under the Sogou 2017 Share Incentive Plan was $2.4 million and $1.6 million, respectively. As of December 31, 2019 there was $2.3 million of unrecognized compensation expense related to unvested Sogou share options. The expense is expected to be recognized over a weighted average period of 1.90 years.

The method used to determine the fair value of the Sogou share options granted under the Sogou 2017 Share Incentive Plan was the same as the method used for the share options granted under the Sogou 2010 Incentive Plan as described above, except for the assumptions used in the binomial valuation model as presented below:


Assumptions Adopted	2018			2019
Average risk-free interest rate		3.41%~3.95	%		2.37%~3.45	%
Exercise multiple		2			2~3
Expected forfeiture rate (post-vesting)		12	%		0%~12	%
Weighted average expected option life		10			10
Volatility rate		40%~46	%		41%~42	%
Dividend yield		0	%		0	%
Weighted average fair value of share options		10.09			4.87

Sohu Management Sogou Share Option Arrangement

Under an arrangement (the “Sohu Management Sogou Share Option Arrangement”) that was approved by the boards of directors of Sohu and Sogou in March 2011, Sohu has the right to provide to members of Sohu’s Board of Directors, management and other key employees of the Sohu, and certain members of management and other key employees of Sogou the opportunity to purchase from Sohu up to 12,000,000 Sogou Class A Ordinary Shares at a fixed exercise price of $0.625 or $0.001 per share. Of these 12,000,000 Sogou Class A Ordinary Shares, 8,800,000 are Sogou Class A Ordinary Shares previously held by Sohu and 3,200,000 are Sogou Class A Ordinary Shares that were newly-issued on April 14, 2011 by Sogou to Sohu at a price of $0.625 per share, or a total of $2.0 million. As of December 31, 2019, Sohu had contractually granted options for the purchase of 8,305,000 Sogou Class A Ordinary Shares under the Sohu Management Sogou Share Option Arrangement.

The options contractually granted under the Sohu Management Sogou Share Option Arrangement may be placed in one of the following two categories:

(i)

Performance-based options, which vest and become exercisable in four equal installments, with each installment vesting upon a service period requirement being met, as well as the Sogou Group’s achievement of performance targets for the corresponding period. All of these options vested and became exercisable before January 1, 2017. For purposes of recognition of share-based compensation expense, each installment is considered to be granted as of the date that the performance targets have been set; or

(ii)	Service-based options, which were granted to members of Sohu’s Board of Directors. All of these share options vested and became exercisable in 2015, as the service period requirement had been met.

A summary of the above two categories of Sogou’s share options as of December 31, 2019 is presented below:


	Contractually Granted (in thousands)		Granted (For Purposes of Share- based Compensation Expense) (in thousands)		Vested and Exercisable (in thousands)		Exercised (in thousands)
Performance-based options		8,290		8,290		8,290		8,290
Service-based options		15		15		15		6

Total		8,305		8,305		8,305		8,296

A summary of Sogou share option activity under the Sohu Management Sogou Share Option Arrangement as of and for the year ended December 31, 2019 is presented below:


	Number Of Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding as of January 1, 2019		9	$	0.001		6.38	$
Granted		0
Exercised		0
Forfeited or expired		0

Outstanding as of December 31, 2019		9		0.001		5.38		41

Vested as of December 31, 2019		9		0.001		5.38		41

Exercisable as of December 31, 2019		9		0.001		5.38		41

Note (1): The aggregate intrinsic values in the preceding table represent the difference between the closing price of $4.55 per Sogou ADS (each representing one Class A Ordinary Share) on December 31, 2019 and the exercise prices of the options.

As all Sogou share options granted under the Sohu Management Sogou Share Option Arrangement vested before January 1, 2017, no share-based compensation expense was recognized for the years ended December 31, 2019, 2018, and 2017. For the years ended December 31, 2019, 2018, and 2017, the total intrinsic value of options exercised was $249, nil, and nil, respectively.

Option Modification

In the first and second quarter of 2013, a portion of the Sogou share options granted under the Sogou 2010 Share Incentive Plan and the Sohu Management Sogou Share Option Arrangement were exercised early, and the resulting Sogou ordinary shares were transferred to trusts with the original option grantees as beneficiaries. The trusts will distribute the Sogou ordinary shares to those beneficiaries in installments based on the vesting requirements under the original option agreements. Although these trust arrangements caused a modification of the terms of these Sogou share options, the modification was not considered substantive. Accordingly, no incremental fair value related to these Sogou ordinary shares resulted from the modification, and the remaining share-based compensation expense for these Sogou ordinary shares continued to be recognized over the original remaining vesting period.

As of December 31, 2019, 3,798,000 Sogou Class A Ordinary Shares issued upon the early exercise of options granted under the Sogou 2010 Share Incentive Plan remained unvested in accordance with the vesting requirements under the original option agreements and 1,722,000 Sogou Class A Ordinary Shares had vested but had not been distributed to the beneficiaries. All Sogou Class A Ordinary Shares issued upon such early exercise that have become vested have been included in the disclosures under the headings “Sogou 2010 Share Incentive Plan” and “Sohu Management Sogou Share Option Arrangement” above.

In the first quarter of 2018, Sogou changed the vesting conditions of options for the purchase of 2,181,192 Sogou Class A Ordinary Shares contractually granted under the Sogou 2010 Share Incentive Plan by removing as a condition of vesting Sogou’s achievement of performance targets for the period corresponding to the vesting schedule. Of these options, options for the purchase of 1,601,427 Sogou Class A Ordinary Shares had not been deemed granted, because their performance targets for the current period had not been set, so the removal of the performance targets resulted in these options becoming subject to vesting only upon service-period requirements being met and being deemed granted immediately upon the effectiveness of the changes. For the remaining options for the purchase of 579,765 Sogou Class A Ordinary Shares, which had been deemed granted, the removal of the performance targets constituted a modification. The modification was not considered substantive, because their performance targets had been achieved before the modification. Based on valuation results, no incremental fair value related to these Sogou ordinary shares was recognized in connection with the modification, and the remaining share-based compensation expense for these Sogou ordinary shares continued to be recognized over the remaining vesting period.

3) Changyou.com Limited Share-based Awards

Changyou 2008 Share Incentive Plan

Changyou’s 2008 Share Incentive Plan (the “Changyou 2008 Share Incentive Plan”) originally provided for the issuance of up to 2,000,000 Changyou ordinary shares, including Changyou ordinary shares issued pursuant to the exercise of share options and upon vesting and settlement of restricted share units. The 2,000,000 reserved Changyou ordinary shares became 20,000,000 Changyou ordinary shares in March 2009 when Changyou effected a ten-for-one share split of its ordinary shares. Most of the awards granted under the Changyou 2008 Share Incentive Plan vest over a period of four years. The maximum term of any share right granted under the Changyou 2008 Share Incentive Plan is ten years from the grant date. The Changyou 2008 Share Incentive Plan expired in August 2018 and is no longer available for granting new share-based awards.

All of the restricted Changyou ordinary shares and restricted share units granted under the Changyou 2008 Share Incentive Plan were vested as of December 31, 2017, as the requisite service period for all these awards had been completed. There has been no share-based compensation expense recognized under the Changyou 2008 Share Incentive Plan since then.

Changyou 2014 Share Incentive Plan

On June 27, 2014, Changyou reserved 2,000,000 of its Class A ordinary shares under the Changyou.com Limited 2014 Share Incentive Plan (the “Changyou 2014 Share Incentive Plan”) for the purpose of making share incentive awards to certain members of its management and key employees. On November 2, 2014, Changyou’s Board approved an increase in the number of Class A ordinary shares reserved under the Changyou 2014 Share Incentive Plan from 2,000,000 to 6,000,000. The maximum term of any share right granted under the Changyou 2014 Share Incentive Plan is ten years from the grant date. The Changyou 2014 Share Incentive Plan will terminate in June 2024. As of December 31, 2019, all shares available for grant under the Changyou 2014 Share Incentive Plan had been granted.

i) Summary of Share Option Activity

On November 2, 2014, Changyou approved the contractual grant of an aggregate of 2,416,000 Class A restricted share units to certain members of its management and certain other employees. On February 16, 2015, Changyou’s Board of Directors approved the conversion of 2,400,000 of these Class A restricted share units into options for the purchase of Class A ordinary shares at an exercise price of $0.01. On June 1, 2015, Changyou’s Board of Directors approved the contractual grant of options for the purchase of an aggregate of 1,998,000 Class A ordinary shares to certain members of its management and certain other employees at an exercise price of $0.01. On July 28, 2016, Changyou’s Board of Directors approved the contractual grant of options for the purchase of an aggregate of 100,000 Class A ordinary shares to certain member of its management at an exercise price of $0.01. On August 26, 2019, Changyou’s Board of Directors approved the grant, effective as of October 1, 2019, to a member of Changyou’s management and a Changyou employee of options for the purchase of an aggregate of 3,023,000 Class A ordinary shares at an exercise price of $0.01 per Class A ordinary share. These Changyou share options vest in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and the achievement of certain subjective performance targets. These Changyou share options are substantially similar to restricted share units except for the nominal exercise price, which would be zero for restricted share units.

Under ASC 718-10-25 and ASC 718-10-55, no grant date can be established until a mutual understanding is reached between the Company and the recipients clarifying the subjective performance requirements. If the service inception date preceded the grant date, compensation expense should be accrued beginning on the service inception date, and re-measured on each subsequent reporting date before the grant date is established, based on the then-current fair value of the awards.

To determine the fair value of these Changyou share options, the public market price of the underlying Changyou Class A ordinary shares at each reporting date is used and a binomial valuation model is applied.

As of December 31, 2019, 2,952,000 of these Changyou share options had been granted and had become vested on their respective vesting dates, as a mutual understanding of the subjective performance targets had been reached between Changyou and the recipients, the targets had been satisfied, and the service period requirements had been fulfilled. The cumulative share-based compensation expense of $36.4 million for these granted share options was adjusted and fixed based on the aggregate amounts of the fair values of these granted share options at their respective grant dates.

A summary of share option activity under the Changyou 2014 Share Incentive Plan as of and for the year ended December 31, 2018 is presented below:


	Number Of Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (1) (in thousands)
Outstanding as of January 1, 2019		601		$	0.01		5.98	$	5.487
Granted		234			0.01
Exercised		(762	)		0.01
Forfeited or expired		0

Outstanding as of December 31, 2019		73			0.01		5.42		357

Vested as of December 31, 2019		73			0.01				357

Exercisable as of December 31, 2019		73			0.01

Note (1): The aggregate intrinsic value in the preceding table represents the difference between Changyou’s closing price of $9.79 per ADS, or $4.9 per Class A ordinary share, on December 31, 2019 and the nominal exercise price of the share option.

For the years ended December 31, 2019, 2018 and 2017, total share-based compensation expense recognized for these share options under the Changyou 2014 Share Incentive Plan was negative $1.9 million, negative $6.5 million and $17.4 million, respectively. For the years ended December 31, 2019, 2018 and 2017, the total fair values of these Changyou share options vested on their respective vesting dates were $1.0 million, $5.7 million and $14.8 million, respectively. For the years ended December 31, 2019, 2018 and 2017, the total intrinsic value of share options exercised was $6.6 million, $14.9 million and $10.3 million, respectively.

Changyou 2019 Share Incentive Plan

On August 3, 2019, Changyou adopted and reserved for issuance 3,000,000 Class A ordinary shares under a new share incentive plan (the “Changyou 2019 Share Incentive Plan”). On August 26, 2019, Changyou’s Board of Directors approved the grant, effective as of October 1, 2019, to certain members of the Changyou’s management and certain other employees of options for the purchase of an aggregate of 1,909,000 Class A ordinary shares at an exercise price of $0.01. These Changyou share options vest in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and the achievement of certain subjective performance targets.

As of December 31, 2019, none of the Changyou share options granted under the Changyou 2019 Share Incentive Plan had vested. The cumulative share-based compensation expense of $3.2 million for these granted share options was adjusted and fixed based on the aggregate amounts of the fair values of these granted share options at their respective grant dates.

4) Sohu Video Share-based Awards

On January 4, 2012, Sohu Video adopted the Video 2011 Share Incentive Plan, under which 25,000,000 ordinary shares of Sohu Video are reserved for the purpose of making share incentive awards to management and key employees of Sohu Video and to Sohu management. The maximum term of any share incentive award granted under the Video 2011 Share Incentive Plan is ten years from the grant date. The Video 2011 Share Incentive Plan will expire on January 3, 2022. As of December 31, 2019, grants of options for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made and were subject to vesting in four equal installments, with each installment vesting upon a service period requirement being met, as well as Sohu Video’s achievement of performance targets for the corresponding period. For purposes of ASC 718-10-25, as of December 31, 2019, no grant date had occurred, because the broader terms and conditions of the option awards had neither been finalized nor mutually agreed upon with the recipients. As of December 31, 2019, options for the purchase of 4,972,800 Sohu Video ordinary shares were vested.

For the years ended December 31, 2019, 2018 and 2017, total share-based compensation expense recognized for vested Sohu Video options under the Video 2011 Share Incentive Plan was negative $0.9 million, negative $0.5 million and $0.3 million, respectively.

The fair value as of December 31, 2019 of the Sohu Video options contractually granted to management and key employees of Sohu Video and to Sohu management was estimated on the reporting date using the binomial valuation model, with the following assumptions used:


Assumptions Adopted	2018			2019
Average risk-free interest rate		3.19	%		2.44	%
Exercise multiple		2.8			2.8
Expected forfeiture rate (post-vesting)		14	%		14	%
Weighted average expected option life		3.0			2.0
Volatility rate		45.1	%		53.9	%
Dividend yield		0			0
Fair value		0.53			0.35

Noncontrolling Interest

12 Months Ended

Dec. 31, 2019

NONCONTROLLING INTEREST [Abstract]

Noncontrolling Interest

20. NONCONTROLLING INTEREST

Prior to the completion of the Changyou Merger on April 17, 2020, the noncontrolling interests in the Sohu Group’s consolidated financial statements primarily consist of noncontrolling interests for Sogou and Changyou.

Noncontrolling Interest in the Consolidated Balance Sheets

As of December 31, 2018 and 2019, noncontrolling interest in the consolidated balance sheets was $0.96 billion and $0.88 billion, respectively.


	As of December 31,
	2018		2019
Sogou	$	686,503	$	726,960
Changyou		277,608		151,503

Total	$	964,111	$	878,463

Noncontrolling Interest of Sogou

As of December 31, 2019 and 2018, noncontrolling interest of Sogou of $727.0 million and $686.5 million, respectively, was recognized in the Sohu Group’s consolidated balance sheets, representing an economic interest of 66% and 67%, respectively, in Sogou’s net assets held by shareholders other than Sohu and reflecting the reclassification of Sogou’s share-based compensation expense from shareholders’ additional paid-in capital to noncontrolling interest.

Noncontrolling Interest of Changyou

As of December 31, 2019 and 2018, noncontrolling interest of Changyou of $151.5 million and $277.6 million, respectively, was recognized in the Sohu Group’s consolidated balance sheets, both representing an economic interest of 33% for 2019 and 2018, respectively, in Changyou’s net assets held by shareholders other than Sohu and reflecting the reclassification of Changyou’s share-based compensation expense from shareholders’ additional paid-in capital to noncontrolling interest.

Noncontrolling Interest in the Consolidated Statements of Comprehensive Income /(Loss)

For the years ended December 31, 2019, 2018 and 2017, respectively, the Sohu Group had net income of $105.9 million, net income of $92.7 million and net income of $84.5 million, respectively, attributable to the noncontrolling interest in the consolidated statements of comprehensive income /(loss).


	Year Ended December 31,
	2017			2018		2019
Sogou	$	77,025		$	65,586	$	58,955
Changyou		7,603			27,137		46,990
Other		(105	)		0		0

Total	$	84,523		$	92,723	$	105,945


	Year Ended December 31,
	2017			2018			2019
Net income from continuing operations attributable to noncontrolling shareholders	$	91,076		$	107,318		$	117,177
Net loss from discontinued operations attributable to noncontrolling shareholders		(6,553	)		(14,595	)		(11,232	)

Net income attributable to noncontrolling interest shareholders	$	84,523		$	92,723		$	105,945

Noncontrolling Interest of Sogou

For the years ended December 31, 2019, 2018 and 2017, respectively, a $59.0 million net income, a $65.6 million net income and a $77.0 million net income, respectively, attributable to the noncontrolling interest of Sogou was recognized in the Sohu Group’s consolidated statements of comprehensive income, representing Sogou’s net income /(loss) attributable to shareholders other than Sohu.

Noncontrolling Interest of Changyou

For the years ended December 31, 2019, 2018 and 2017, respectively, a $47.0 million net income, a $27.1 million net income and a $7.6 million net income, respectively, attributable to the noncontrolling interest of Changyou was recognized in the Sohu Group’s consolidated statements of comprehensive income /(loss), representing a 33%, 33% and 32%, economic interest, respectively, in Changyou attributable to shareholders other than Sohu.

Net Income /(Loss) per Share

12 Months Ended

Dec. 31, 2019

NET INCOME /(LOSS) PER SHARE [Abstract]

Net Income /(Loss) per Share

21. NET INCOME /(LOSS) PER SHARE

Sogou’s Net Income /(Loss) Attributable to Sohu

Before Sogou’s IPO

After Sogou’s IPO

In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, the percentage of Sohu’s shareholding in Sogou was calculated by treating convertible preferred shares issued by Sogou as having been converted at the beginning of the period and unvested Sogou share options with the performance targets achieved as well as vested but unexercised Sogou share options as having been exercised during the period. The dilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. The effect of this calculation is presented as “incremental dilution from Sogou” in the table below. Assuming an anti-dilutive effect, all of these Sogou shares and share options are excluded from the calculation of Sohu’s diluted income /(loss) per share. As a result, Sogou’s net income /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.

For the year ended December 31, 2019, all of the Sogou share options had a dilutive effect, and therefore were included in the calculation of Sohu.com Limited’s diluted net income /(loss) per share. This impact is presented as “incremental dilution from Sogou” in the table below.

Changyou’s Net Income /(Loss) Attributable to Sohu

In the calculation of Sohu’s diluted net income /(loss) per share, assuming a dilutive effect, all of Changyou’s existing unvested restricted share units and share options, and vested restricted share units and share options that have not yet been settled, are treated as vested and settled by Changyou under the treasury stock method, causing the percentage of the weighted average number of shares held by Sohu in Changyou to decrease. As a result, Changyou’s net income /(loss) attributable to Sohu on a diluted basis decreased accordingly. The effect of this calculation is presented as “incremental dilution from Changyou” in the table below. Assuming an anti-dilutive effect, all of these Changyou restricted share units and share options are excluded from the calculation of Sohu’s diluted net income /(loss) per share. As a result, Changyou’s net income /(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income /(loss) per share.

For the year ended December 31, 2019, all of these Changyou restricted share units and share options had a dilutive effect, and therefore were included in the calculation of Sohu.com Limited’s diluted net income /(loss) per share. This impact is presented as “incremental dilution from Changyou” in the table below.

The following table presents the calculation of the Sohu Group’s basic and diluted net loss per share (in thousands, except per share data).


	Year Ended December 31,
	2017			2018			2019
Numerator:
Net loss from continuing operations attributable to Sohu.com Limited, basic	$	(540,548	)	$	(129,842	)	$	(126,570	)
Net loss from discontinued operations attributable to Sohu.com Limited, basic		(13,978	)		(30,240	)		(22,766	)
Net loss attributable to Sohu.com Limited, basic		(554,526	)	$	(160,082	)		(149,336	)
Effect of dilutive securities:
Incremental dilution from Sogou		(31	)		(496	)		(606	)
Incremental dilution from Changyou		(1,233	)		(381	)		(507	)
Net loss from continuing operations attributable to Sohu.com Limited, diluted		(542,026	)		(130,960	)		(127,738	)
Net loss from discontinued operations attributable to Sohu.com Limited, diluted		(13,764	)		(29,999	)		(22,711	)

Net loss attributable to Sohu.com Limited, diluted	$	(555,790	)	$	(160,959	)	$	(150,449	)

Denominator:
Weighted average basic ordinary shares outstanding		38,858			38,959			39,249
Effect of dilutive securities:
Share options and restricted share units		0			0			0

Weighted average diluted ordinary shares outstanding	$	38,858		$	38,959		$	39,249

Basic net loss per share attributable to Sohu.com Limited
Continuing operations	$	(13.91	)	$	(3.33	)	$	(3.22	)
Discontinued operations		(0.36	)		(0.78	)		(0.58	)

Net loss per share		(14.27	)		(4.11	)		(3.80	)

Diluted net loss per share attributable to Sohu.com Limited
Continuing operations	$	(13.95	)	$	(3.36	)	$	(3.25	)
Discontinued operations		(0.35	)		(0.77	)		(0.58	)

Net loss per share		(14.30	)		(4.13	)		(3.83	)

China Contribution Plan

12 Months Ended

Dec. 31, 2019

CHINA CONTRIBUTION PLAN [Abstract]

China Contribution Plan

22. CHINA CONTRIBUTION PLAN

The Sohu Group’s subsidiaries and consolidated VIEs in China participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Group’s subsidiaries and consolidated VIEs to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Group’s China-based subsidiaries and consolidated VIEs have no further commitments beyond their monthly contributions. For the years ended December 31, 2019, 2018 and 2017, the Group’s China based subsidiaries and consolidated VIEs contributed a total of $141.4 million, $150.6 million and $137.5 million, respectively, to these funds.

Profit Appropriation

12 Months Ended

Dec. 31, 2019

PROFIT APPROPRIATION [Abstract]

Profit Appropriation

23. PROFIT APPROPRIATION

The Sohu Group’s China-based subsidiaries and VIEs are required to make appropriations to certain non-distributable reserve funds.

On March 15, 2019, the Standing Committee of the National People’s Congress of the PRC issued the Law of the People’s Republic of China on Foreign Investment (the “Foreign Investment Law”), which took effect on January 1, 2020 and replaced the Law of the People’s Republic of China on Foreign Investment Enterprises, promulgated on April 12, 1986 and most recently amended on September 3, 2016 (the “Replaced Foreign Investment Enterprises Law”), and certain other laws and regulations relating to foreign investment. On December 12, 2019, the State Council of the PRC also issued the Implementing Regulations of the Foreign Investment Law., which became effective on January 1, 2020.

Under the China Foreign Investment Enterprises Laws and its supplemental regulations those of the Group’s China-based subsidiaries that are considered under PRC law to be WFOEs are required to make appropriations from their after-tax profit as determined under generally accepted accounting principles in the PRC (the “after-tax-profit under PRC GAAP”) to non-distributable reserve funds, including (i) a general reserve fund and (ii) a staff bonus and welfare fund. Each year, at least 10% of the after-tax-profit under PRC GAAP is required to be set aside as general reserve fund until such appropriations for the fund equal 50% of the registered capital of the applicable entity. The appropriation for the other reserve fund is at the Group’s discretion as determined by each entity. Alternatively, after January 1, 2020, those China-based subsidiaries of the Group that are wholly foreign-owned enterprises may choose to make appropriations from their after-tax-profit under PRC GAAP to non-distributable reserve funds, including a statutory surplus fund and a discretionary surplus fund, in compliance with the requirements of the Company Law of the PRC (the “Company Law”) that apply to PRC domestically-funded enterprises.

Pursuant to the Company Law, those of the Group’s China-based subsidiaries that are considered under PRC law to be domestically funded enterprises, as well as the Group’s VIEs, are required to make appropriations from their after-tax-profit under PRC GAAP to non-distributable reserve funds, including a statutory surplus fund and a discretionary surplus fund. Each year, at least 10% of the after-tax-profit under PRC GAAP is required to be set aside as statutory surplus fund until such appropriations for the fund equal 50% of the registered capital of the applicable entity. The appropriation for the discretionary surplus fund is at the Company’s discretion as determined by each entity.

Upon certain regulatory approvals and subject to certain limitations, the general reserve fund and the statutory surplus fund can be used to offset prior year losses, if any, and can be converted into paid-in capital of the applicable entity.

For the years ended December 31, 2019, 2018 and 2017, the total amount of profits contributed to these funds by the Group was $10.4 million, $7.3 million and $12.0 million, respectively. As of December 31, 2019 and 2018, the total amount of profits contributed to these funds by the Group was $80.7 million and $70.3 million, respectively.

As a result of these and other restrictions under PRC laws and regulations, the Group’s China-based subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets in the form of non-distributable reserve funds to the Company in the form of dividends, loans or advances. Even though the Company currently does not require any such dividends, loans or advances from its China-based subsidiaries and VIEs for working capital and other funding purposes, the Company may in the future require additional cash resources from its China-based subsidiaries and VIEs due to changes in business conditions, to fund future acquisitions and development, or to declare and pay dividends to or make distributions to its shareholders.

Concentration Risks

12 Months Ended

Dec. 31, 2019

CONCENTRATION RISKS [Abstract]

Concentration Risks

24. CONCENTRATION RISKS

Because its operations are substantially conducted in the PRC, the Sohu Group is subject to PRC-related political, economic and legal risks. Besides these risks, the Sohu Group may also have the following concentration risks.

Operation Risk

For the years ended December 31, 2019, 2018 and 2017, there were no revenues from customers that individually represent greater than 10% of the total online advertising revenues.

For the year ended December 31, 2019, revenues from TLBB were $215.2 million, accounting for approximately 49% of Changyou’s online game revenues, approximately 47% of Changyou’s total revenues and approximately 12% of the Sohu Group’s total revenues. For the year ended December 31, 2019, revenues from Legacy TLBB Mobile were $101.1 million, accounting for approximately 23% of Changyou’s online game revenues, approximately 22% of Changyou’s total revenues, and approximately 5% of the Sohu Group’s total revenues.

Financial instruments that potentially subject the Sohu Group to concentration risks consist primarily of cash and cash equivalents and short-term investments. Cash and cash equivalents in Sohu Group are mainly denominated in RMB and in U.S. dollars. Short-term investments are denominated in RMB. The Group may experience economic losses and negative impacts on earnings and equity as a result of fluctuations in the exchange rate between the U.S. dollar and the RMB. Moreover, the Chinese government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. The Group may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency.

Credit Risk

As of December 31, 2019, approximately 64% of the Sohu Group’s cash and cash equivalents and short-term investments were held in 23 financial institutions in Mainland China. The remaining cash and cash equivalents and short-term investments were held primarily in financial institutions in Hong Kong and Macao.

As of December 31, 2018, approximately 60% of the Sohu Group’s cash and cash equivalents and short-term investments were held in 17 financial institutions in Mainland China. The remaining cash and cash equivalents and short-term investments were held primarily in financial institutions in Hong Kong and Macao.

The Sohu Group holds its cash and bank deposits at Chinese financial institutions that are among the largest and most respected in the PRC and at international financial institutions with high ratings from internationally-recognized rating agencies. The management chooses these institutions because of their reputations and track records for stability, and their known large cash reserves, and management periodically reviews these institutions’ reputations, track records, and reported reserves.

Management expects that any additional institutions that the Sohu Group uses for its cash and bank deposits will be chosen with similar criteria for soundness. As a further means of managing its credit risk, the Sohu Group holds its cash and bank deposits in a number of different financial institutions. As of December 31, 2019 and 2018, the Sohu Group held its cash and bank deposits in different financial institutions and held no more than approximately 24% and 35%, respectively, of its total cash at any single institution.

Under PRC law, it is generally required that a commercial bank in the PRC that holds third party cash deposits protect the depositors’ rights over and interests in their deposited money; PRC banks are subject to a series of risk control regulatory standards; and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a material credit crisis.

For the credit risk related to accounts receivable, the Sohu Group performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.

Restricted Net Assets

12 Months Ended

Dec. 31, 2019

RESTRICTED NET ASSETS [Abstract]

Restricted Net Assets

25. RESTRICTED NET ASSETS

Relevant PRC law and regulations permit payment of dividends by PRC-based operating entities only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, a PRC-based operating entity is required to annually appropriate 10% of net after-tax income to the statutory surplus reserve fund (see Note 23) prior to payment of any dividends, unless such reserve funds have reached 50% of the entity’s registered capital. As a result of these and other restrictions under PRC law and regulations, PRC-based operating entities are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances. The Company may in the future require additional cash resources from PRC-based operating entities due to changes in business conditions, to fund future acquisitions and development, or to declare and pay dividends to or distribution to its shareholders. As of December 31, 2019, the Group had restricted net assets in the amount of $428.5 million.

Subsequent Events

12 Months Ended

Dec. 31, 2019

SUBSEQUENT EVENTS [Abstract]

Subsequent Events

26. SUBSEQUENT EVENTS

The outbreak of the novel coronavirus disease that has been designated as COVID-19, which emerged in late December 2019 and has spread around the world in 2020, has affected economic activity across many industries in China, including the online advertising industry. Measures imposed by the PRC government, including travel restrictions, school closings, extended holidays, and requirements that most business be conducted remotely, have interrupted the operation of businesses in various areas. This, in turn, has caused a reduction in the Company’s advertising revenues, and an increase in traffic acquisition costs of Sogou, both of which have had and could continue to have an adverse effect on the Company’s results of operations. As the future extent and effect of the COVID-19 virus in China and the world are difficult to predict, the related financial impact on the Company’s future results of operations cannot be reasonably estimated at this time.

On April 3, 2020, the Company’s indirect wholly-owned subsidiary Sohu Game, as borrower, and Sohu.com Limited, as guarantor, entered into a facility agreement (the “Facility Agreement”) with ICBC Tokyo pursuant to which ICBC Tokyo agreed to provide a term loan facility of up to $250 million (the “Term Facility”), subject to customary conditions, to be used to finance the consummation of the Changyou Merger and the related transactions and to pay related fees and expenses associated with the Changyou Merger. The Term Facility will consist of (i) a one-year term facility for term loans of up to $100 million (the “One-Year Facility”) and (ii) a four-year term facility for term loans of up to $150 million (the “Four-Year Facility”). The outstanding principal amount of the loans under the One- Year Facility will be due in full on the one-year anniversary of the date of the first utilization of the One-Year Facility. The outstanding principal amount of the loans under the Four-Year Facility will be due in installments, with $7.5 million due and payable at the end of each of the second and third calendar years during the term of the Four-Year Facility and the remaining outstanding principal amount due and payable on the fourth anniversary of the date of the first utilization of the One-Year Facility. The Term Facility will be available for drawdown from the date of the Facility Agreement until six months after the date of the Facility Agreement, and the Term Facility may be drawn in up to three installments by Sohu Game at its election. The Term Facility bears interest at a rate of Three Month LIBOR plus a margin of 1.75%, with LIBOR to be determined by ICBC on the basis of the London InterBank Offered Rate published two business days before the first day of each three calendar month interest period. Accrued interest will be paid every three calendar months on the first day after the end of each such three-month interest period. The obligations of Sohu Game as borrower under the Term Facility are initially fully guaranteed by Sohu.com Limited, and are initially secured by first priority share pledges or mortgages over 97.9% of the outstanding equity interests in Changyou. In addition, Sohu Game is required to cause Changyou, within one (1) month after the initial funding under the Term Facility, to pledge a deposit certificate evidencing an RMB deposit equivalent to not less $125 million at an exchange rate of $1.00 = RMB7.20 and, within three months after the initial funding under the Term Facility, to pledge RMB deposit certificates evidencing amounts at least equivalent to the Facility Agreement amount (including the initial $125 million-equivalent deposit certificate). Upon the effectiveness of such additional pledge, Sohu’s guarantee and all share pledges or mortgages over the outstanding equity interests in Changyou will be released and discharged. On April 16, 2020, Sohu Game made a drawdown in the amount of $192 million under this Term Facility.

On April 17, 2020, the Company completed the acquisition of all outstanding shares of Changyou that Sohu did not already beneficially own, through the Changyou Merger, in which Sohu’s newly-formed indirectly wholly-owned subsidiary Changyou Merger Co. merged with and into Changyou.com Limited, with Changyou.com Limited being the surviving company. Pursuant to the plan of merger for the Changyou Merger, each Class A ordinary share of Changyou (each, a “Changyou Class A Ordinary Share”) issued and outstanding immediately prior to the effectiveness of the Changyou Merger, other than the Class A ordinary shares held by the Company, was cancelled in exchange for the right to receive $5.40 in cash without interest, and each outstanding American depositary share of Changyou (each a “Changyou ADS,” representing two Changyou Class A Ordinary Shares) was cancelled in exchange for the right to receive $10.80 in cash without interest. Because Changyou Merger Co. owned over 90% of the voting power represented by all issued and outstanding shares of Changyou prior to the effectiveness of the Changyou Merger and the Changyou Merger was in the form of a short-form merger in accordance with section 233(7) of the Companies Law of the Cayman Islands, the Changyou Merger was not subject to a vote of the shareholders of Changyou. As a result of the Changyou Merger Changyou has become a privately-owned company wholly owned directly and indirectly by Sohu and Changyou ADSs are no longer listed on the Nasdaq Global Select Market.

The Group has performed an evaluation of subsequent events through the date of this report, which is the date the financial statements were issued, with no other material events or transactions needing recognition or disclosure found.

Additional Information - Condensed Financial Statements

12 Months Ended

Dec. 31, 2019

ADDITIONAL INFORMATION - CONDENSED FINANCIAL INFORMATION OF REGISTRANT [Abstract]

Additional - Condensed Financial Information of Registrant

27. ADDITIONAL INFORMATION — CONDENSED FINANCIAL STATEMENTS

The condensed financial statements of Sohu.com Limited have been prepared in accordance with Securities and Exchange Commission Regulation S-X Rule 5-04 and Rule 12-04.

The Company records its investments in subsidiaries and VIEs under the equity method of accounting. Such investments and long-term loans to subsidiaries and VIEs are presented on the balance sheet as “Interests in subsidiaries and VIEs” and the loss of the subsidiaries and VIEs is presented as “Share of loss of subsidiaries and VIEs” in the statement of comprehensive income.

The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these financial statements should be read in conjunction with the notes to the Consolidated Financial Statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

As of December 31, 2018 and 2019, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those, if any, which have been separately disclosed in the consolidated financial statements.

SOHU.COM LIMITED

CONDENSED BALANCE SHEETS

(In thousands)


	As of December 31,
	2018			2019
ASSETS
Current assets:
Cash and cash equivalents	$	16,492		$	3,756
Prepaid and other current assets		1,169			744
Due from subsidiaries and VIEs		470,649			530,182

Total current assets		488,310			534,682
Interests in subsidiaries and VIEs		224,679			22,093
Other assets, net		27,736			27,736

Total assets	$	740,725		$	584,511

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities		7,472			3,757
Long-term liabilities		144,414			152,300

Total liabilities		151,886			156,057

Shareholders’ equity:
Ordinary Shares: $0.001 par value per share (75,400 shares authorized; 39,229 shares and 39,269 shares, respectively, issued and outstanding as of December 31, 2018 and 2019)		39			39
Additional paid-in capital		958,883			948,201
Accumulated other comprehensive income		24,718			24,351
Accumulated deficit		(394,801	)		(544,137	)

Total shareholders’ equity		588,839			428,454

Total liabilities and shareholders’ equity	$	740,725		$	584,511

SOHU.COM LIMITED

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)


	Year Ended December 31,
	2017			2018			2019
Revenues	$	0		$	0		$	0
Cost of revenues		0			0			0

Gross profit		0			0			0

Operating expenses:
General and administrative		8,824			12,206			2,320

Operating loss		(8,824	)		(12,206	)		(2,320	)
Share of loss of subsidiaries and VIEs		(331,106	)		(232,307	)		(184,092	)
Other income /(expense)		71			22			44,738
Interest income		152			5,865			225

Loss before income tax expense/(benefit)		(339,707	)		(238,626	)		(141,449	)
Income tax expense/(benefit)		214,819			(78,544	)		7,887

Net loss		(554,526	)		(160,082	)		(149,336	)

Other comprehensive income /(loss)		34,992			(13,494	)		24,351

Comprehensive loss	$	(519,534	)	$	(173,576	)	$	(124,985	)

SOHU.COM LIMITED

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)


	Year Ended December 31,
	2017			2018			2019
Cash flows from operating activities:
Net loss	$	(554,526	)	$	(160,082	)	$	(149,336	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Investment loss from subsidiaries and VIEs		331,106			232,307			184,092
Share-based compensation expense /(benefit)		(814	)		(1,916	)		395
Others		0			(993	)		0
Changes in current assets and liabilities:
Due from subsidiaries and VIEs		0			(2,963	)		(59,533	)
Prepaid and other current assets		3,933			(3,996	)		425
Tax liabilities		222,350			(79,569	)		7,886
Accrued liabilities		(8,194	)		1,892			(3,715	)

Net cash used in operating activities		(6,145	)		(15,320	)		(19,786	)

Cash flows from investing activities:
Dividend received		0			0			7,050

Net cash used in operating activities		0			0			7,050

Net decrease in cash, cash equivalents, restricted cash and restricted time deposits		(6,145	)		(15,320	)		(12,736	)
Cash, cash equivalents, restricted cash and restricted time deposits at beginning of year		8,990			2,845			16,732
Cash and cash equivalents, restricted cash and restricted time deposits of Sohu.com Limited at the date of the liquidation of Sohu.com Inc.		0			29,207			0

Cash, cash equivalents, restricted cash and restricted time deposits at end of year	$	2,845		$	16,732		$	3,996

Reconciliation of cash, cash equivalents, and restricted time deposits to the condensed balance sheets:
Cash and cash equivalents	$	2,845		$	16,492		$	3,756
Restricted time deposits included in other assets		0			240			240

Total cash, cash equivalents, restricted cash and restricted time deposits at end of year	$	2,845		$	16,732		$	3,996

Summary of Significant Accounting Policies (Polices)

12 Months Ended

Dec. 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Accounting Standards

Accounting Standards

Discontinued operations

Discontinued operations

Use of Estimates

Use of Estimates

Basis of Consolidation and Recognition of Noncontrolling Interest