UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 17, 2015
SOHU.COM INC.
(Exact name of registrant as specified in its charter)
| Delaware | 0-30961 | 98-0204667 | ||
| (State or other jurisdiction Of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
Level 18, SOHU.com Media Plaza
Block 3, No. 2 Kexueyuan South Road, Haidian District
Beijing 100190
People’s Republic of China
(011) 8610-6272-6666
(Address, including zip code, of registrant’s principal executive offices
and registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.01 | Completion of Acquisition or Disposition of Assets. |
On August 17, 2015, (i) Beijing Gamease Age Digital Technology Co., Ltd., a People’s Republic of China (“PRC”) company that is a variable interest entity of the registrant’s indirect majority-owned subsidiary Changyou.com Limited, a Cayman Islands company (“Changyou”), completed the sale to Shanghai Yong Chong Investment Center LP, a PRC limited partnership, of all of the equity interests in Shenzhen 7Road Technology Co., Ltd., a PRC company primarily engaged in the Web game business, and (ii) Changyou.com (HK) Limited, a Hong Kong company that is a wholly-owned subsidiary of Changyou, completed the sale to Supermax Holdings Group Limited, a British Virgin Islands company, of all of the equity capital of Changyou My Sdn. Bhd, a Malaysia company, and Changyou.com (UK) Company Limited, a United Kingdom company, which are engaged in the online game business in Malaysia and the United Kingdom, respectively. The aggregate consideration for these transactions was $205,000,000 in cash.
| Item 9.01 | Financial Statements and Exhibits. |
| (b) | Pro Forma Financial Information. |
An unaudited pro forma condensed consolidated balance sheet of the registrant as of June 30, 2015 giving effect to the transactions reported under Item 2.01 above as if they had occurred as of that date, and unaudited pro forma condensed consolidated statements of operations of the registrant for the year ended December 31, 2014 and for the six months ended June 30, 2015 giving effect to the transactions reported under Item 2.01 above as if they had occurred on January 1, 2014, are attached to this report as Exhibit 99.1.
| (d) | Exhibits. |
99.1 Pro Forma Financial Information
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| DATED: | August 21, 2015 | SOHU.COM INC. | ||||||
| By: | /s/ Carol Yu | |||||||
| Carol Yu | ||||||||
| President and Chief Financial Officer | ||||||||
3
Exhibit 99.1
Sohu.com Inc.
The accompanying (unaudited) pro forma condensed consolidated financial statements present the historical financial information of Sohu.com Inc (“Sohu”), as adjusted for the disposition of Shenzhen 7Road Technology Co., Ltd.(“7Road”), Changyou My Sdn. Bhd (“Changyou Malaysia”) and Changyou.com (UK) Company Limited (“Changyou UK”) (collectively, the “Disposition”). The accompanying pro forma condensed consolidated balance sheet presents the historical financial information of Sohu as of June 30, 2015, as adjusted assuming the Disposition took place on June 30, 2015. The accompanying pro forma condensed consolidated statements of operations for the year ended December 31, 2014 and the six months ended June 30, 2015, present the historical financial information of Sohu as adjusted to reflect the exclusion of the operations of 7Road, Changyou Malaysia and Changyou UK for the applicable period as if the Disposition had occurred on January 1, 2014. The Disposition is not considered as a discontinued operation on the historical financial statements of Sohu.
The consolidated balance sheet as of June 30, 2015 and the consolidated statement of operations for the six months ended June 30, 2015 of Sohu set forth below have been derived from the historical unaudited condensed consolidated financial statements of Sohu included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2015. The consolidated statement of operations for the year ended December 31, 2014 of Sohu set forth below has been derived from the historical consolidated financial statements of Sohu included in its Annual Report on Form 10-K for the year ended December 31, 2014.
These pro forma condensed consolidated financial statements have been prepared by management, based on historical financial information of Sohu, 7Road, Changyou Malaysia and Changyou UK. These pro forma condensed consolidated financial statements may not be indicative of the results that actually would have occurred if the Disposition had taken place on the dates indicated. The pro forma condensed consolidated financial statements should be read in conjunction with the historical financial statements of Sohu for the year ended December 31, 2014 and for the six months ended June 30, 2015.
1
SOHU.COM INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2015
(In thousands of US$)
| Sohu.com Inc (consolidated) |
Pro Forma Adjustments |
Footnote Reference |
Pro Forma | |||||||||||
| ASSETS |
||||||||||||||
| Cash and cash equivalents |
1,001,979 | 83,960 | (1) | 1,085,939 | ||||||||||
| Restricted time deposits |
250,866 | 250,866 | ||||||||||||
| Short-term investments |
197,086 | 197,086 | ||||||||||||
| Accounts receivable, net |
266,478 | (18,371 | ) | (2) | 248,107 | |||||||||
| Prepaid and other current assets |
129,700 | 76,808 | (1), (2) | 206,508 | ||||||||||
| Held for sale assets |
151,545 | (151,545 | ) | (1) | 0 | |||||||||
|
|
|
|
|
|
|
|
||||||||
| Total current assets |
1,997,654 | (9,148 | ) | 1,988,506 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| Fixed assets, net |
540,977 | 540,977 | ||||||||||||
| Goodwill |
193,830 | 193,830 | ||||||||||||
| Long-term investments, net |
49,057 | 49,057 | ||||||||||||
| Intangible assets, net |
88,784 | 88,784 | ||||||||||||
| Restricted time deposits |
144,681 | 144,681 | ||||||||||||
| Prepaid non-current assets |
10,255 | 10,255 | ||||||||||||
| Other assets |
35,220 | 35,220 | ||||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total assets |
3,060,458 | (9,148 | ) | 3,051,310 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| LIABILITIES |
||||||||||||||
| Accounts payable |
132,742 | 132,742 | ||||||||||||
| Accrued liabilities |
294,517 | 294,517 | ||||||||||||
| Receipts in advance and deferred revenue |
134,063 | 134,063 | ||||||||||||
| Accrued salary and benefits |
86,512 | 86,512 | ||||||||||||
| Taxes payable |
31,725 | 31,725 | ||||||||||||
| Deferred tax liabilities |
24,229 | 24,229 | ||||||||||||
| Short-term bank loans |
25,500 | 25,500 | ||||||||||||
| Other short-term liabilities |
208,023 | (62,603 | ) | (1) | 145,420 | |||||||||
| Contingent consideration |
2,045 | 2,045 | ||||||||||||
| Held for sale liabilities |
2,779 | (2,779 | ) | (1) | 0 | |||||||||
|
|
|
|
|
|
|
|
||||||||
| Total current liabilities |
942,135 | (65,382 | ) | 876,753 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| Long-term accounts payable |
2,601 | 2,601 | ||||||||||||
| Long-term bank loans |
344,500 | 344,500 | ||||||||||||
| Long-term taxes payable |
24,830 | 15,010 | (1) | 39,840 | ||||||||||
| Deferred tax liabilities |
6,115 | 6,115 | ||||||||||||
|
|
|
|||||||||||||
| Total long-term liabilities |
378,046 | 15,010 | 393,056 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total liabilities |
1,320,181 | (50,372 | ) | 1,269,809 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| Commitments and contingencies |
||||||||||||||
| Sohu.com Inc. shareholders’ equity |
1,173,748 | 41,224 | (1) | 1,214,972 | ||||||||||
| Noncontrolling interest |
566,529 | 566,529 | ||||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total shareholders’ equity |
1,740,277 | 41,224 | 1,781,501 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total liabilities and shareholders’ equity |
3,060,458 | (9,148 | ) | 3,051,310 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
2
SOHU.COM INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2014
(In thousands of US$, except per share data)
| Sohu.com Inc (consolidated) |
Pro Forma Adjustments |
Footnote Reference |
Pro Forma | |||||||||||
| Revenues: |
||||||||||||||
| Brand advertising |
541,158 | 541,158 | ||||||||||||
| Search and Web directory |
357,839 | 357,839 | ||||||||||||
| Subtotal of online advertising revenues |
898,997 | 898,997 | ||||||||||||
| Online games |
652,008 | 89,729 | (3) | 562,279 | ||||||||||
| Others |
122,072 | 122,072 | ||||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total revenues |
1,673,077 | 89,729 | 1,583,348 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Cost of revenues: |
||||||||||||||
| Brand advertising |
307,708 | 307,708 | ||||||||||||
| Search and Web directory |
163,918 | 163,918 | ||||||||||||
| Subtotal of cost of online advertising revenues |
471,626 | 471,626 | ||||||||||||
| Online games |
142,549 | 24,673 | (3) | 117,876 | ||||||||||
| Others |
71,459 | (4,726 | ) | (4) | 76,185 | |||||||||
|
|
|
|
|
|
|
|
||||||||
| Total cost of revenues |
685,634 | 19,947 | 665,687 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Gross profit |
987,443 | 69,782 | 917,661 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Operating expenses: |
||||||||||||||
| Product development |
409,285 | 25,310 | (3) | 383,975 | ||||||||||
| Sales and marketing |
526,514 | 2,058 | (3) | 524,456 | ||||||||||
| General and administrative |
204,325 | 7,624 | (3) | 196,701 | ||||||||||
| Goodwill impairment and impairment of intangible assets acquired as part of business acquisitions |
52,282 | 52,282 | ||||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total operating expenses |
1,192,406 | 34,992 | 1,157,414 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Operating profit /(loss) |
(204,963 | ) | 34,790 | (239,753 | ) | |||||||||
|
|
|
|
|
|
|
|
||||||||
| Other income |
9,959 | 1,233 | (3) | 8,726 | ||||||||||
| Net interest income |
30,977 | 5,148 | (3) | 25,829 | ||||||||||
| Exchange difference |
(1,142 | ) | (70 | ) | (3) | (1,072 | ) | |||||||
|
|
|
|
|
|
|
|
||||||||
| Income /(loss) before income tax expense |
(165,169 | ) | 41,101 | (206,270 | ) | |||||||||
|
|
|
|
|
|
|
|
||||||||
| Income tax expense |
6,050 | 1,322 | (3), (5) | 4,728 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| Net income /(loss) |
(171,219 | ) | 39,779 | (210,998 | ) | |||||||||
|
|
|
|
|
|
|
|
||||||||
| Basic net loss per share attributable to Sohu.com Inc. |
(4.33 | ) | (5.03 | ) | ||||||||||
| Shares used in computing basic net loss per share attributable to Sohu.com Inc. |
38,468 | 38,468 | ||||||||||||
| Diluted net loss per share attributable to Sohu.com Inc. |
(4.43 | ) | (5.13 | ) | ||||||||||
| Shares used in computing diluted net loss per share attributable to Sohu.com Inc. |
38,468 | 38,468 | ||||||||||||
3
SOHU.COM INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2015
(In thousands of US$, except per share data)
| Sohu.com Inc (consolidated) |
Pro Forma Adjustments |
Footnote Reference |
Pro Forma | |||||||||||
| Revenues: |
||||||||||||||
| Brand advertising |
284,670 | 284,670 | ||||||||||||
| Search and Web directory |
240,332 | 240,332 | ||||||||||||
| Subtotal of online advertising revenues |
525,002 | 525,002 | ||||||||||||
| Online games |
357,344 | 31,197 | (3) | 326,147 | ||||||||||
| Others |
66,552 | 66,552 | ||||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total revenues |
948,898 | 31,197 | 917,701 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Cost of revenues: |
||||||||||||||
| Brand advertising |
204,399 | 204,399 | ||||||||||||
| Search and Web directory |
108,471 | 108,471 | ||||||||||||
| Subtotal of cost of online advertising revenues |
312,870 | 312,870 | ||||||||||||
| Online games |
93,414 | 7,730 | (3) | 85,684 | ||||||||||
| Others |
37,070 | (344 | ) | (4) | 37,414 | |||||||||
|
|
|
|
|
|
|
|
||||||||
| Total cost of revenues |
443,354 | 7,386 | 435,968 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Gross profit |
505,544 | 23,811 | 481,733 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Operating expenses: |
||||||||||||||
| Product development |
202,962 | 10,248 | (3) | 192,714 | ||||||||||
| Sales and marketing |
187,105 | (46 | ) | (3) | 187,151 | |||||||||
| General and administrative |
94,884 | 1,831 | (3) | 93,053 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| Total operating expenses |
484,951 | 12,033 | 472,918 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Operating profit /(loss) |
20,593 | 11,778 | 8,815 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Other income |
2,717 | 1,033 | (3) | 1,684 | ||||||||||
| Net interest income |
12,263 | 2,916 | (3) | 9,347 | ||||||||||
| Exchange difference |
(870 | ) | 234 | (3) | (1,104 | ) | ||||||||
|
|
|
|
|
|
|
|
||||||||
| Income /(loss) before income tax expense |
34,703 | 15,961 | 18,742 | |||||||||||
|
|
|
|
|
|
|
|
||||||||
| Income tax expense |
27,819 | 2,295 | (3), (5) | 25,524 | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| Net income /(loss) |
6,884 | 13,666 | (6,782 | ) | ||||||||||
|
|
|
|
|
|
|
|
||||||||
| Basic net loss per share attributable to Sohu.com Inc. |
(1.51 | ) | (1.75 | ) | ||||||||||
| Shares used in computing basic net loss per share attributable to Sohu.com Inc. |
38,556 | 38,556 | ||||||||||||
| Diluted net loss per share attributable to Sohu.com Inc. |
(1.53 | ) | (1.77 | ) | ||||||||||
| Shares used in computing diluted net loss per share attributable to Sohu.com Inc. |
38,556 | 38,556 | ||||||||||||
4
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of presentation
The accompanying pro forma condensed consolidated financial statements are presented to reflect the disposition of 7Road, Changyou.com (UK) and Changyou My Sdn. Bhd by Sohu.com Inc (the “Disposition”). The accompanying pro forma condensed consolidated balance sheet has been prepared to give effect to the Disposition as if the Disposition had occurred on June 30, 2015. The accompanying pro forma condensed consolidated statements of operations include the historical operations of Sohu.com Inc and exclude the operations of 7Road, Changyou.com (UK) and Changyou My Sdn. Bhd as if the Disposition had occurred on January 1, 2014.
Note B - Pro forma adjustments
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. The pro forma adjustments to the unaudited pro forma condensed consolidated balance sheet represent adjustments as if the Disposition had taken place on June 30, 2015, and the pro forma adjustments to the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2014 and for the six months ended June 30, 2015 represent adjustments as if the Disposition had taken place on January 1, 2014.
(1) These adjustments reflect the effects of the Disposition as if the Disposition had occurred on June 30, 2015, and include:
i) recording of cash proceeds received at closing (US$84.0 million); receivables due from the buyers (US$58.4 million); and elimination of other short-term liabilities (US$62.6 million) established for advanced payment received from the buyers prior to June 30, 2015;.
ii) disposal of assets and liabilities held for sale as of June 30, 2015 as a result of the Disposition. Details of the aggregate assets and liabilities at June 30, 2015 are included in Table 1 below; and
iii) recording of gain from the Disposition of US$56.2 million and estimated tax expense of US$15.0 million, which is calculated by applying the applicable tax rate to the gain, which is the difference between the net consideration received from the buyers and Sohu’s tax basis in the equity interests sold in the Disposition.
Table 1
| As of June 30, 2015 | ||||
| Cash and cash equivalents |
$ | 14,871 | ||
| Prepaid and other current assets |
13,677 | |||
| Goodwill |
109,735 | |||
| Fixed assets |
6,567 | |||
| Intangible assets |
6,331 | |||
| Deferred tax assets |
364 | |||
|
|
|
|||
| Held-for-sale assets |
$ | 151,545 | ||
|
|
|
|||
| Deferred tax liability |
(959 | ) | ||
| Accrued payroll and welfare |
(628 | ) | ||
| Deferred revenue |
(138 | ) | ||
| Tax payable |
(1,054 | ) | ||
|
|
|
|||
| Held-for-sale liabilities |
$ | (2,779 | ) | |
|
|
|
|||
5
(2) This adjustment reflects the reclassification of accounts receivable from game players of US$18.4 million that were not sold to the buyers. Pursuant to the agreements with the buyers, these accounts receivable will be collected by 7Road and distributed to Changyou after the completion of the Disposition. Accordingly, these accounts receivable are reclassified as other receivables from 7Road as if the Disposition had occurred on June 30, 2015.
(3) This adjustment reflects the elimination of the effects of the operations of 7Road, Changyou Malaysia and Changyou UK.
(4) This adjustment reflects the adding back of costs in connection with a revenue-sharing arrangement between Changyou and 7Road. Under an existing arrangement, Changyou has offered Internet value-added services with respect to the operation of web games and mobile games developed by 7Road. After Changyou collected proceeds from game players, it would remit a pre-agreed percentage of proceeds to 7Road as a revenue-sharing payment. The arrangement was in effect during the year ended December 31, 2014 and the six months ended June 30, 2015. Changyou’s related Internet value-added service revenues from game players were US$5.6 million and US$0.34 million, respectively, and Changyou made revenue-sharing payments to 7Road of US$4.7 million and US$0.34 million, respectively, for the year ended December 31, 2014 and the six months ended June 30, 2015. The arrangement was terminated in July 2015.
As 7Road was a consolidated variable interest entity of Changyou, the revenue-sharing payment paid by Changyou to 7Road and the corresponding revenue recorded by 7Road in their respective financial statements were eliminated upon preparation of the consolidated financial statements of Sohu. Treating the Disposition as if it had occurred on January 1, 2014, for purposes of these pro forma statements of operations, 7Road is treated as a third-party vendor to Changyou rather than a consolidated variable interest entity of Changyou and Sohu, and the revenue-sharing arrangements are treated as transactions between two independent third parties. Changyou’s revenue-sharing payments to 7Road were correspondingly adjusted back as costs of revenue of Changyou.
(5) A low effective tax rate was in effect primarily as a result of a preferential tax rate enjoyed by 7Road.
6