Attached files

file filename
EX-99.1 - EX-99.1 - SOHU COM INCd601271dex991.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1 TO

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): September 16, 2013

 

 

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))

 

 

 


Explanatory Note:

This Amendment No.1 to Form 8-K amends a Current Report on Form 8-K filed by the registrant on September 16, 2013. This Amendment No. 1 is filed for the purpose of reporting a disposition of assets by the registrant pursuant to agreements entered into on September 16, 2013 and providing pro forma financial statements required by Item 9.01 (b) of Form 8-K and Article 11 of Regulation S-X. It also discloses additional information under Item 8.01 of Form 8-K.

Item 1.01. Entry into a Material Definitive Agreement.

On September 16, 2013 the registrant’s majority-owned search subsidiary Sogou Inc., a Cayman Islands company (together with its wholly-owned subsidiaries and variable interest entity, “Sogou”), entered into a Subscription Agreement (the “Subscription Agreement”) with THL A21 Limited, a British Virgin Islands company which is a wholly-owned subsidiary of Tencent Holdings Limited, a Cayman Islands company (Tencent Holdings Limited together with its subsidiaries, Tencent”); the registrant’s wholly-owned subsidiary Sohu.com (Search) Limited, a Cayman Islands company (“Sohu Search”); and Photon Group Limited (“Photon”), the investment vehicle of Dr. Charles Zhang, the registrant’s Chairman and Chief Executive Officer. The transactions contemplated under the Subscription Agreement were effective upon its execution.

Pursuant to the Subscription Agreement and a series of contracts also entered into on September 16, 2013 between Sogou and Tencent, Tencent invested a net amount of $448 million in cash in Sogou and is transferring its Soso search-related businesses and certain other assets to Sogou. The parties have agreed to customary representations, warranties, indemnities and covenants. As a result of the transaction, Tencent, through a combination of voting Series B Preferred Shares and non-voting Class B Ordinary Shares, holds 36.5% of Sogou’s equity capital on a fully-diluted basis, which could further increase to approximately 40% in the near future, and a 20.6% voting interest in Sogou. Sohu remains the controlling shareholder of Sogou through a voting agreement also entered into on September 16, 2013 among Sohu Search, Photon, Sogou’s Chief Executive Officer Mr. Xiaochuan Wang, and four other members of Sogou’s management. Sohu will continue to consolidate Sogou in its financial statements and recognize non-controlling interest.

Under an amended and restated memorandum of association adopted by Sogou’s shareholders effective September 16, 2013 in connection with the Subscription Agreement, the Sogou Series B Preferred Shares acquired by Tencent are entitled to customary dividend and liquidation preferences, anti-dilution protection, protective provisions, pre-emptive rights, and the right to participate pro rata in any dividends paid by Sogou.

Also on September 16, 2013, Sogou, Sohu Search, Photon, Mr. Xiaochuan Wang, four other members of Sogou’s management (collectively, the “Sohu Parties”) and Tencent entered into a Shareholders Agreement (the “Shareholders Agreement”). Under the Shareholders Agreement, the parties have agreed to vote their Sogou voting shares in all elections of directors to elect three designees of Sohu Search and two designees of Tencent. In addition, the Sohu Parties, on the one hand, and Tencent, on the other hand, may not transfer any equity shares in Sogou without the consent of Sohu Search or Tencent, as applicable. If consent to a transfer of shares is given by the appropriate party, the shares will remain subject to customary rights of first refusal and co-sale. In addition, Sogou has agreed to grant Tencent customary registration rights following an initial public offering by Sogou. The Shareholders Agreement will terminate effective upon the completion of an initial public offering by Sogou.

Sogou will use a portion of the cash proceeds of Tencent’s investment to pay a special dividend in the amount of approximately $301 million to the holders of Series A Preferred Shares of Sogou, payable promptly following the closing of the transaction.

Separately, Sogou and Tencent entered into a Business Cooperation Agreement and related agreements on September 16, 2013 pursuant to which they have agreed to jointly develop, cross-promote and integrate their respective products and services, while collaborating in areas of search technology, user insights and data sharing. Sogou’s leading products, including Sogou Pinyin and Sogou Search, will have direct access to the vast user base of Tencent’s online and mobile social communities.

Also on September 16, 2013, Sogou entered into (i) a Repurchase Option Agreement with Sohu Search, exercisable commencing March 15, 2014, granting to Sogou the right to purchase 24,000,000 Series A Preferred Shares of Sogou held by Sohu Search for an aggregate purchase price of $78.8 million; (ii) a Repurchase Option Agreement with Photon, also exercisable commencing March 15, 2014, granting to Sogou the right to purchase 6,400,000 Series A Preferred Shares of Sogou held by Photon for an aggregate purchase price of $21 million; and (iii) a Repurchase/Put Option Agreement with China Web Search (HK) Limited (“China Web”), also exercisable commencing March 15, 2014, granting to Sogou the right to purchase, and China Web the right to put to Sogou, 14,400,000 Series A Preferred Shares of Sogou held by China Web for an aggregate purchase price of $47.3 million. Sogou expects to exercise its rights under each of these agreements when they first become exercisable.

Item 2.01. Completion of Acquisition or Disposition of Assets.

On September 16, 2013, the registrant completed the issuance to Tencent of a combination of voting Series B Preferred Shares and non-voting Class B Ordinary Shares in the registrant’s subsidiary Sogou and the acquisition from Tencent of its Soso search-related businesses and certain other assets to Sogou. Based on the Company’s assessment, the acquisition did not constitute a significant acquisition under Rule 3-05 of Regulation S-X. The disclosures contained in Item 1.01 of this report are incorporated herein by reference.

 

2


Item 8.01 Other Events.

On September 16, 2013, the registrant and Tencent Holdings Limited jointly issued a press release announcing a strategic cooperation between them with respect to Sogou, a subsidiary of the registrant. A copy of the press release is filed herewith as Exhibit 99.1.

On September 17, 2013, Sogou paid a special dividend to the holders of Series A Preferred Shares of Sogou. The holders of Sogou’s Series A Preferred Shares consist of the registrant, which is Sogou’s controlling shareholder; Photon Group Limited (“Photon”), which is the investment vehicle of the registrant’s Chairman and Chief Executive Officer Dr. Charles Zhang; and China Web Search (HK) Limited. Sogou’s intention to pay a dividend in the aggregate amount of approximately $301 million was previously reported in this report as originally filed by the registrant with the Securities and Exchange Commission on September 16, 2013. The amounts of the dividend received by the registrant and Photon were $161,192,517 and $42,984,671, respectively.

Earlier, in June 2012, the registrant had purchased from Alibaba Investments Limited (“Alibaba”), a private investment subsidiary of Alibaba Group Holding Limited, 24 million shares of Series A Preferred Shares of Sogou for cash consideration of $25.8 million. In the process of preparing the unaudited pro forma consolidated financial statements included in Item 9.01(b) of this report and reviewing matters related to the transactions reported under Item 2.01 of this report, the registrant’s management discovered an error, related to the registrant’s purchase of such 24 million Series A Preferred Shares from Alibaba, in the calculation of earnings per share and presentation of net income available to common shareholders of Sohu.com Inc. as previously reported by the registrant in the consolidated financial statements for the three months and six months ended June 30, 2012 included in the registrant’s Quarterly Report on Form 10-Q for the quarter (“2nd Quarter 2012 10-Q”). Such error has been corrected for purposes of the preparation of such pro forma consolidated financial statements. The error resulted from a mistake in the application of generally accepted accounting principles set forth in ASC 260-10-S99-2. The registrant’s management has determined that application of the relevant accounting principles would indicate that, upon the registrant’s purchase of the 24 million shares of Series A Preferred Shares of Sogou from Alibaba, the difference between the consideration transferred to the holder of the Series A Preferred Shares and the carrying amount of such shares in the registrant’s consolidated balance sheet, amounting to $14.2 million, represented a return to the holder that should be treated in a manner similar to the treatment of dividends paid on the Series A Preferred Shares. Accordingly, this amount of $14.2 million should have been subtracted from net income to arrive at net income available to common shareholders in the registrant’s calculation of earnings per share. The carry-forward effects of the aforementioned error also caused an error with the same effect for the nine months ended September 30, 2012 included in the registrant’s Quarterly Report on Form 10-Q for the quarter (“3rd Quarter 2012 10-Q”) and for the year ended December 31, 2012 included in the registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).

The registrant’s management is currently assessing the impact of the aforementioned error, but has not yet completed its assessment, and as of the date of the filing of this Amendment No. 1 to Form 8-K neither the registrant’s full Board of Directors nor the registrant’s Audit Committee has reached a conclusion as to whether the error is of such a nature and scope as would require a statement that the registrant’s consolidated financial statements for the year ended December 31, 2012 included in the 2012 Form 10-K and/or for the quarters ended June 30, 2012 and September 20, 2012 included in the 2nd Quarter 2012 10-Q and the 3rd Quarter 2012 10-Q should no longer be relied upon, and whether the error reveals a deficiency in internal controls over financial reporting, and, if so, the level of any such deficiency. The registrant will include corrected information in future filings as appropriate.

The following chart provides a brief, unaudited, illustration of the information as included in the 2012 Form 10-K and as corrected.

 

     As
previously
reported
     As
corrected
 

Net income attributable to Sohu.com Inc.

   $ 87,159       $ 87,159   

Less: adjustment for deemed dividends to a holder of Series A Preferred Shares of a subsidiary

     —           14,219   
  

 

 

    

 

 

 

Net income available to common shareholders of Sohu.com Inc.

   $ 87,159       $ 72,940   
  

 

 

    

 

 

 

Basic earnings per share

   $ 2.29       $ 1.92   

Diluted earnings per share

   $ 2.03       $ 1.66   
  

 

 

    

 

 

 

For the 2nd Quarter 2012 10-Q and the 3rd Quarter 2012 10-Q, net income available to common shareholders of Sohu.com Inc. for calculation of earnings per share for the six months ended June 30, 2012 and the nine months ended September 30, 2012 should have been reduced by $14.2 million and the basic and diluted earnings per share for the six months ended June 30, 2012 and the nine months ended September 30, 2012 should have been $0.57 and $0.44, $1.25 and $1.06, respectively, after adjustment for the deemed dividend to the holder of Series A Preferred Shares of Sogou in the amount of $14.2 million.

 

3


Item 9.01 Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

Summary of Transaction

On September 16, 2013 Sohu.com Inc.’s (“Sohu” or the “Company”) majority-owned search subsidiary Sogou Inc., a Cayman Islands company (together with its wholly-owned subsidiaries and variable interest entity, “Sogou”), entered into a Subscription Agreement (the “Subscription Agreement”) with THL A21 Limited, a British Virgin Islands company which is a wholly-owned subsidiary of Tencent Holdings Limited, a Cayman Islands company (Tencent Holdings Limited together with its subsidiaries, “Tencent”); the Company’s wholly-owned subsidiary Sohu.com (Search) Limited, a Cayman Islands company (“Sohu Search”); and Photon Group Limited (“Photon”), the investment vehicle of Dr. Charles Zhang, the Company’s Chairman and Chief Executive Officer. The transactions contemplated under the Subscription Agreement were effective upon its execution.

Pursuant to the Subscription Agreement and a series of contracts also entered into on September 16, 2013 between Sogou and Tencent, Tencent invested a net amount of $448 million in cash in Sogou and is transferring its Soso search-related businesses and certain other assets to Sogou. As a result of the transaction, Tencent, through a combination of voting Series B Preferred Shares and non-voting Class B Ordinary Shares, holds 36.5% of Sogou’s equity capital on a fully-diluted basis. Sohu remains the controlling shareholder of Sogou through a voting agreement also entered into on September 16, 2013 among Sohu Search, Photon, Sogou’s Chief Executive Officer Mr. Xiaochuan Wang, and four other members of Sogou’s management. Sohu will continue to consolidate Sogou in its financial statements and recognize non-controlling interest.

Sogou used a portion of the cash proceeds of Tencent’s investment to pay a special dividend in the amount of approximately $301 million to the holders of Series A Preferred Shares of Sogou, promptly following the closing of the transaction, of which approximately $161 million was paid to Sohu Search.

Also on September 16, 2013, Sogou entered into (i) a Repurchase Option Agreement with Sohu Search, exercisable commencing March 15, 2014, granting to Sogou the right to purchase 24,000,000 Series A Preferred Shares of Sogou held by Sohu Search for an aggregate purchase price of $78.8 million; (ii) a Repurchase Option Agreement with Photon, also exercisable commencing March 15, 2014, granting to Sogou the right to purchase 6,400,000 Series A Preferred Shares of Sogou held by Photon for an aggregate purchase price of $21 million; and (iii) a Repurchase/Put Option Agreement with China Web Search (HK) Limited (“ China Web “), also exercisable commencing March 15, 2014, granting to Sogou the right to purchase, and China Web the right to put to Sogou, 14,400,000 Series A Preferred Shares of Sogou held by China Web for an aggregate purchase price of $47.3 million. Sogou expects to exercise its rights under each of these agreements when they first become exercisable.

Basis of Presentation

Due to the dilutive impact to Sohu’s shareholding percentage, the issuance of voting Series B Preferred Shares and non-voting Class B Ordinary Shares to Tencent is treated as a disposition of a portion of Sohu’s interest in the share capital of Sogou. Tencent’s transfer of Tencent’s Soso search-related businesses and certain other assets to Sogou is treated as an acquisition.

As the acquisition of the Soso search-related businesses and certain other assets is not significant, the following unaudited pro forma consolidated financial statement information has been prepared to reflect only the disposition of a portion of Sohu’s interest in the share capital of Sogou.

The unaudited pro forma consolidated statement of comprehensive income for the six months ended June 30, 2013 and the year ended December 31, 2012 are based on the Company’s historical consolidated statements of comprehensive income, and give effect to the transaction as if it had occurred on January 1, 2012. The unaudited pro forma consolidated balance sheet as of June 30, 2013 is based on Sohu’s historical balance sheet as of that date, and gives effect to the transaction as if it had occurred on June 30, 2013.

The unaudited pro forma consolidated financial statement information presented below is based on the assumptions and adjustments set forth in the notes to such information. The unaudited pro forma adjustments made in the compilation of the unaudited pro forma consolidated financial statement information were directly attributable to the transaction, are factually supportable, are based upon available information and assumptions that the Company considers to be reasonable, and have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission. The unaudited pro forma consolidated financial information is for informational purposes only and should not be considered indicative of actual results that would have been achieved had the transaction actually been consummated on the dates indicated and does not purport to be indicative of results of operations as of any future date or for any future period.

 

4


This unaudited pro forma consolidated financial statement information should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on February 28, 2013 (the “2012 Form 10-K”), and the unaudited consolidated financial statements and notes thereto included in the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2013 filed on August 8, 2013. As disclosed in Item 8.01 of this report and Note 1 to the unaudited pro forma consolidated financial statements below, the calculation of earnings per share and basic earnings per share as reported by the Company in the consolidated financial statements included in the 2012 Form 10-K contained an error, which has been corrected for purposes of the preparation of this pro forma consolidated financial statement information.

 

5


SOHU.COM INC.

Unaudited Pro Forma Consolidated Balance Sheet

(In thousands, except par value)

 

     As of June 30, 2013  
           Pro Forma Adjustments to reflect
transactions completed on or promptly
after September 16, 2013

(Note 2)
    Pro Forma Adjustments to reflect
Sogou exercising its repurchase

option rights
(Note 3)
 
     Sohu.com Inc.
(Note 1)
    Pro
Forma
Adjustments
    Footnote
Reference
  Pro
Forma
Balance
Sheet
    Pro
Forma
Adjustments
   

Footnote

Reference

  Pro
Forma
Balance
Sheet as
adjusted
 

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ 770,542      $ 308,300      (a)   $ 1,078,842      $ (68,300   (i)   $ 1,010,542   

Restricted time deposits

     169,324        0          169,324        0          169,324   

Short-term investments

     97,123        0          97,123        0          97,123   

Investments in debt securities

     80,923        0          80,923        0          80,923   

Accounts receivable, net

     138,612        0          138,612        0          138,612   

Prepaid and other current assets

     87,677        0          87,677        0          87,677   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current assets

     1,344,201        308,300          1,652,501        (68,300       1,584,201   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Fixed assets, net

     496,359        0          496,359        0          496,359   

Goodwill

     161,409        0          161,409        0          161,409   

Intangible assets, net

     67,181        0          67,181        0          67,181   

Restricted time deposits

     173,190        0          173,190        0          173,190   

Prepaid non-current assets

     10,296        0          10,296        0          10,296   

Other assets

     16,852        27,472      (b)     44,324        0          44,324   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total assets

   $ 2,269,488      $ 335,772        $ 2,605,260      $ (68,300     $ 2,536,960   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

LIABILITIES

              

Current liabilities:

              

Accounts payable

     81,585        0          81,585        0          81,585   

Accrued liabilities

     145,801        6,840      (c)     152,641        0          152,641   

Receipts in advance and deferred revenue

     90,488        0          90,488        0          90,488   

Accrued salary and benefits

     72,583        0          72,583        0          72,583   

Taxes payable

     35,882        16,120      (d)     52,002        5,300      (i)     57,302   

Deferred tax liabilities

     15,395        0          15,395        0          15,395   

Short-term bank loans

     164,000        0          164,000        0          164,000   

Other short-term liabilities

     49,070        5,760      (e)     54,830        (5,760   (i)     49,070   

Contingent consideration

     0        0          0        0          0   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current liabilities

     654,804        28,720          683,524        (460       683,064   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Long-term accounts payable

     7,423        0          7,423        0          7,423   

Long-term bank loans

     158,963        0          158,963        0          158,963   

Deferred tax liabilities

     7,571        0          7,571        0          7,571   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total long-term liabilities

     173,957        0          173,957        0          173,957   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities

     828,761        28,720          857,481        (460       857,021   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Commitments and contingencies

              

MEZZANINE EQUITY

     0        0          0        0          0   

SHAREHOLDERS’ EQUITY

              

Sohu.com Inc. shareholders’ equity:

              

Common stock: $0.001 par value per share (75,400 shares authorized; 38,279 shares issued and outstanding as of June 30, 2013)

     44        0          44        0          44   

Additional paid-in capital

     389,541        (20,280   Note1,(f)     369,261        (1,140   (i)     368,121   

Treasury stock (5,889 shares)

     (143,858     0          (143,858     0          (143,858

Accumulated other comprehensive income

     99,413        0          99,413        0          99,413   

Retained earnings

     816,241        (141,300   Note1,(g)     674,941        (59,709   (i)     615,232   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total Sohu.com Inc. shareholders’ equity

     1,161,381        (161,580       999,801        (60,849       938,952   

Noncontrolling interest

     279,346        468,632      (h)     747,978        (6,991   (i)     740,987   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total shareholders’ equity

     1,440,727        307,052          1,747,779        (67,840       1,679,939   

Total liabilities, mezzanine equity and shareholders’ equity

   $ 2,269,488      $ 335,772        $ 2,605,260      $ (68,300     $ 2,536,960   
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.

 

6


SOHU.COM INC.

Unaudited Pro Forma Consolidated Statement of Comprehensive Income

(In thousands, except per share data)

 

    Year Ended December 31, 2012  
          Pro Forma Adjustments to reflect
transactions completed on or
promptly after September 16, 2013

(Note 2)
    Pro Forma Adjustments to reflect
Sogou exercising its repurchase

option rights
(Note 3)
 
    Sohu.com Inc.
(Note 1)
    Pro Forma
Adjustments
    Footnote
Reference
  Pro Forma
Statement of
Comprehensive
Income
    Pro Forma
Adjustments
    Footnote
Reference
  Pro Forma
Statement of
Comprehensive
Income as
adjusted
 

Revenues:

             

Online advertising:

             

Brand advertising

  $ 290,205      $ 0        $ 290,205      $ 0        $ 290,205   

Search and others

    124,389        0          124,389        0          124,389   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Subtotal of online advertising revenues

    414,594        0          414,594        0          414,594   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Online games

    574,653        0          574,653        0          574,653   

Mobile

    55,893        0          55,893        0          55,893   

Others

    22,061        0          22,061        0          22,061   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total revenues

    1,067,201        0          1,067,201        0          1,067,201   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Cost of revenues:

             

Online advertising:

             

Brand advertising

    161,195        0          161,195        0          161,195   

Search and others

    70,628        0          70,628        0          70,628   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Subtotal of cost of online advertising revenues

    231,823        0          231,823        0          231,823   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Online games

    77,859        0          77,859        0          77,859   

Mobile

    36,893        0          36,893        0          36,893   

Others

    23,083        0          23,083        0          23,083   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total cost of revenues

    369,658        0          369,658        0          369,658   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross profit

    697,543        0          697,543        0          697,543   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating expenses:

             

Product development

    181,359        0          181,359        0          181,359   

Sales and marketing

    214,736        0          214,736        0          214,736   

General and administrative

    75,243        0          75,243        0          75,243   

Impairment of intangible assets via acquisition of businesses

    2,906        0          2,906        0          2,906   

Total operating expenses

    474,244        0          474,244        0          474,244   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating profit

    223,299        0          223,299        0          223,299   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Other income

    5,422        0          5,422        0          5,422   

Interest income

    25,277        0          25,277        0          25,277   

Exchange difference

    (635     0          (635     0          (635
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income before income tax expense

    253,363        0          253,363        0          253,363   

Income tax expense

    76,171        0          76,171        0          76,171   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income

    177,192        0          177,192        0          177,192   

Less: Net income attributable to the mezzanine-classified noncontrolling interest shareholders

    11,196        0          11,196        0          11,196   

Net income attributable to the noncontrolling interest shareholders

    78,837        0          78,837        (2,435   (i)     76,402   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income attributable to Sohu.com Inc.

    87,159        0          87,159        2,435          89,594   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Less: Deemed dividend to subsidiary’s Series A preferred shareholders

    14,219        0          14,219        0          14,219   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income available to common shareholders of Sohu.com Inc.

  $ 72,940      $ 0        $ 72,940      $ 2,435        $ 75,375   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Basic net income per share to common shareholders of Sohu.com Inc.

  $ 1.92      $ 0.00        $ 1.92      $ 0.06        $ 1.98   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Shares used in computing basic net income per share.

    38,038        0          38,038        0          38,038   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Diluted net income per share to common shareholders of Sohu.com Inc.

  $ 1.66      $ 0.10        $ 1.76      $ 0.00        $ 1.76   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Shares used in computing diluted net income per share

    38,392        0          38,392        0          38,392   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.

 

7


SOHU.COM INC.

Unaudited Pro Forma Consolidated Statement of Comprehensive Income

(In thousands, except per share data)

 

    Six Months Ended June 30, 2013  
          Pro Forma Adjustments to reflect
transactions completed on or
promptly after September 16, 2013

(Note 2)
    Pro Forma Adjustments to reflect
Sogou exercising its repurchase

option rights
(Note 3)
 
    Sohu.com Inc.
(Note 1)
    Pro
Forma
Adjustments
    Footnote
Reference
  Pro
Forma
Statement of
Comprehensive
Income
    Pro
Forma
Adjustments
    Footnote
Reference
  Pro
Forma
Statement of
Comprehensive
Income as
adjusted
 

Revenues:

             

Online advertising:

             

Brand advertising

  $ 180,428      $ 0        $ 180,428      $ 0        $ 180,428   

Search and others

    82,223        0          82,223        0          82,223   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Subtotal of online advertising revenues

    262,651        0          262,651        0          262,651   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Online games

    335,716        0          335,716        0          335,716   

Mobile

    29,086        0          29,086        0          29,086   

Others

    19,047        0          19,047        0          19,047   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total revenues

    646,500        0          646,500        0          646,500   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Cost of revenues:

             

Online advertising:

             

Brand advertising

    96,434        0          96,434        0          96,434   

Search and others

    45,290        0          45,290        0          45,290   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Subtotal of cost of online advertising revenues

    141,724        0          141,724        0          141,724   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Online games

    45,630        0          45,630        0          45,630   

Mobile

    18,235        0          18,235        0          18,235   

Others

    11,585        0          11,585        0          11,585   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total cost of revenues

    217,174        0          217,174        0          217,174   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross profit

    429,326        0          429,326        0          429,326   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating expenses:

             

Product development

    115,180        0          115,180        0          115,180   

Sales and marketing

    130,401        0          130,401        0          130,401   

General and administrative

    48,361        0          48,361        0          48,361   

Impairment of intangible assets via acquisition of businesses

    0        0          0        0          0   

Total operating expenses

    293,942        0          293,942        0          293,942   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating profit

    135,384        0          135,384        0          135,384   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Other income

    4,063        0          4,063        0          4,063   

Interest income

    12,199        0          12,199        0          12,199   

Exchange difference

    (3,969     0          (3,969     0          (3,969
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Income before income tax expense

    147,677        0          147,677        0          147,677   

Income tax expense

    36,269        0          36,269        0          36,269   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income

    111,408        0          111,408        0          111,408   

Less: Net income attributable to the mezzanine-classified noncontrolling interest shareholders

    17,780        0          17,780        0          17,780   

Net income attributable to the noncontrolling interest shareholders

    47,571        0          47,571        (894   (i)     46,677   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income available to common shareholders of Sohu.com Inc.

  $ 46,057      $ 0        $ 46,057      $ 894        $ 46,951   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Basic net income per share to common shareholders of Sohu.com Inc.

  $ 1.21      $ 0.00        $ 1.21      $ 0.02        $ 1.23   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Shares used in computing basic net income per share

    38,214        0          38,214        0          38,214   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Diluted net income per share to common shareholders of Sohu.com Inc.

  $ 1.16      $ 0.02        $ 1.18      $ 0.00        $ 1.18   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Shares used in computing diluted net income per share.

    38,461        0          38,461        0          38,461   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements.

 

8


Sohu.com Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

 

  1. Sohu.com Inc. Balance Sheet and Statements of Comprehensive Income

Subject to the following paragraph, amounts are derived from the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2013, filed on August 8, 2013, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 28, 2013 (the “2012 Form 10-K).

On June 29, 2012, the Company purchased 24 million Series A Preferred Shares of its subsidiary Sogou from Alibaba Investments Limited (“Alibaba”), a private investment subsidiary of Alibaba Group Holding Limited, for cash consideration of $25.8 million. Under ASC subtopic 480-10, changes in a parent’s ownership interest in a subsidiary while the parent retains control of the subsidiary are accounted for as equity transactions, and do not impact net income or comprehensive income in the consolidated financial statements. The $14.2 million excess of the purchase price over Alibaba’s net investment balance reduced additional paid-in capital in the Company’s consolidated balance sheets.

Under ASC 260-10-S99-2, repurchases of preferred shares are viewed as an additional return to the holders of the preferred shares. Any difference between the fair value of the consideration transferred to the holders of the preferred shares and the carrying amount of the preferred shares in the Company’s consolidated balance sheet represents a return to or from the preferred shares that should be treated in a manner similar to the treatment of dividends paid on preferred shares, and therefore included as an adjustment to earnings per share. In the course of preparing the pro forma financial statements included in Item 9.01(b) of this report for the transactions reported in Items 2.01 of this report, the Company’s management determined that this one-off charge to earnings per share was not properly reflected in the Company’s financial statements for the three-month and six-month periods ended June 30, 2012 and the same effects carried forward for the nine-month period ended September 30, 2012 included in the Company’s Current Reports on Form 10-Q for the quarters then ended and for the year ended December 31, 2012 included in the Annual Report on Form 10-K for the year then ended, and that the earnings as reported for those periods should have been reduced by the amount of the purchase price for the Series A Preferred Shares of Sogou that was in excess of the carrying value of the Series A Preferred Shares in the Company’s consolidated balance sheets, which amounted to $14.2 million. For the purpose of the unaudited pro forma financial information included in Item 9.01(b) of this report, the effect of the reduction on net income available to common shareholders of Sohu.com Inc. and earnings per share for the year ended December 31, 2012 is as follows:

 

     As
previously
reported
     As
corrected
 

Net income attributable to Sohu.com Inc.

   $ 87,159       $ 87,159   

Less: adjustment for deemed dividends to a holder of Series A Preferred Shares of a subsidiary

     —           14,219   
  

 

 

    

 

 

 

Net income available to common shareholders of Sohu.com Inc.

   $ 87,159       $ 72,940   
  

 

 

    

 

 

 

Basic earnings per share

   $ 2.29       $ 1.92   

Diluted earnings per share

   $ 2.03       $ 1.66   
  

 

 

    

 

 

 

The Company is in the process of assessing the materiality of this misstatement on prior periods’ financial statements in accordance with ASC 250 (SEC’s Staff Accounting Bulletin No. 99, Materiality) and its implications with respect to the Company’s internal control over financial reporting, and based on that assessment will determine whether the error is material, whether a retroactive correction of the error is required by ASC 250 (SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,”), and whether the error reveals a deficiency in internal controls over financial reporting, and, if so, the level of any such deficiency. The Company has not completed the assessment as of the date of this report.

 

9


  2. Pro Forma Adjustments to reflect transactions completed on or promptly after September 16, 2013

The pro forma adjustments to reflect transactions completed on or promptly after September 16, 2013 are adjusted to reflect the following transactions (i) effectiveness of the Subscription Agreement and Tencent’s investment of a net amount of $448 million in Sogou and receipt of Series B Preferred Shares and non-voting Class B Common Shares; (ii) Sogou’s use of a portion of the cash proceeds of Tencent’s investment to pay a special dividend in the amount of approximately $301 million to the holders of Series A Preferred Shares of Sogou; (iii) Sogou’s entering into Repurchase Option Agreement with Sohu Search and Photon, and a Repurchase/Put Option Agreement with China Web. These pro forma adjustments are included in the unaudited pro forma consolidated financial statement information as follows:

Unaudited Pro Forma Consolidated Balance Sheet and Consolidated Statement of Comprehensive Income

 

(a) The components of pro foma adjustments to cash and cash equivalents are as follows (in thousands):   

To record net cash proceeds received for issuance of Series B Preferred Shares and Class B Ordinary Shares to Tencent

   $ 448,000   

To record cash paid for special dividend to Photon and China Web as holders of Series A Preferred Shares (cash paid for special dividend to Sohu Search has been eliminated in the Company’s consolidated balance sheet)

     (139,700
  

 

 

 

Total of pro forma adjustments (a)

   $ 308,300   
  

 

 

 
(b) To record the acquisition of Soso search-related businesses and certain other assets from Tencent   
(c) To record an accrual for unpaid professional fees related to the transactions as if the transaction occurred on June 30, 2013   
(d) To record the impact of Sogou’s payment of special dividend to Sohu Search on current taxes payable at an effective tax rate of 10%   
(e) To record the estimated fair value of the put option granted to China Web by Sogou   
(f) The components of pro foma adjustments on Additional paid-in capital are as follows (in thousands):   

To record impact of current taxes payable on special dividend paid

   $ (16,120

To record the impact of the Repurchase Option with China Web and Photon

     (4,160
  

 

 

 

Total of pro forma adjustments (f)

   $ (20,280
  

 

 

 
(g) The components of pro foma adjustment on retained earning are as follows (in thousands):   

(1) To record the special dividend paid to Photon and China Web as holders of Series A Preferred Shares

   $ (139,700

(2) To record the net impact of the aforemontioned Repurchase and Put Option

     (1,600
  

 

 

 

Total of pro forma adjustments (g)

   $ (141,300
  

 

 

 
(h) The components of pro foma adjustments on noncontrolling interest are as follows (in thousands):   

To record the effect of issuance of Series B Preferred Shares and Class B Ordinary Shares

   $ 475,472   

To record the effect of the accrual for unpaid professional fees directly attributable to the issuance of Class B Ordinary Shares and Series B Preferred Shares

  

 

(6,840

  

 

 

 

Total of pro forma adjustments (h)

   $ 468,632   
  

 

 

 

 

10


  3. Pro Forma Adjustments to reflect Sogou exercising its repurchase option rights1

Unaudited Pro Forma Consolidated Balance Sheet and Consolidated Statement of Comprehensive Income

 

  (i) The pro forma adjustments to reflect the exercise of Repurchase Option on Series A Preferred Shares are adjusted to reflect as if the exercise took place on June 30, 2013, as Sogou expects to exercise these rights under each of these agreements when they first become exercisable.

(d) The following Exhibit is filed as part of this report:

99.1 Press release dated September 16, 2013

 

1  The special dividend paid to and exercise of repurchase option with Photon and China Web are not reflected in the pro forma adjustments to the Consolidated Statement of Comprehensive Income, as these transactions are one-off and do not have a continuing effect to the Company’s financial statements.

Safe Harbor Statement

This report on 8-K includes forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement.

Potential risks and uncertainties include, but are not limited to, intense competition in the online search business in general in China and in its application to the mobile platform in particular, the possibility that Sogou’s strategic cooperation with Tencent will not produce the hoped-for synergies and opportunities in the search market in China, and the other risks and uncertainties described in Sohu’s annual report on Form 10-K for the year ended December 31, 2012, and other filings with the Securities and Exchange Commission.

 

11


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: September 20, 2013     SOHU.COM INC.
    By:  

/s/ Carol Yu

      Carol Yu
      Co-President and Chief Financial Officer

 

12