Discontinued Operations

12 Months Ended

Dec. 31, 2021

Discontinued Operations and Disposal Groups [Abstract]

. DISCONTINUED OPERATIONS

Discontinued Operation of Sogou

Between Sohu’s entry into the Tencent/Sohu Sogou Share Purchase Agreement on September 29, 2020 and the completion of the Tencent/Sohu Sogou Share Purchase on September 23, 2021, Sogou met the criteria for discontinued operations. Accordingly, the results of operations for Sogou’s business prior to the completion of the Tencent/Sohu Sogou Share Purchase are excluded from Sohu’s results from continuing operations in the Sogou Group’s consolidated statements of comprehensive income 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, 2020, the related assets and liabilities associated with the discontinued operations with respect to Sogou were classified as assets held for sale and liabilities held for sale associated with discontinued operations in the consolidated balance sheets to provide comparable financial information. Long-lived assets have not been depreciated or amortized after they were classified as held for sale. As a result, for the year ended December 31, 2020 and the period ended September 23, 2021, depreciation and amortization expenses of $17.0 million and $46.7 million were not recognized for long-lived assets accordingly. On September 23, 2021, the Tencent/Sohu Sogou Share Purchase and the Sogou Merger were completed, and Sohu recognized gain of approximately

$855

million, net of transaction and other costs, which is included in income from discontinued operations. After September 23, 2021, Sohu no longer had any ownership interest in Sogou.

The following tables set forth the assets, liabilities, results of operations and cash flows of discontinued operations with respect to Sogou, that were included in the Sohu Group’s consolidated financial statements

(in thousands):


	As of December 31, 2020
ASSETS

Cash and cash equivalents	$	287,185
Restricted cash		23,018
Short-term investments		774,618
Account and financing receivables, net		73,656
Prepaid and other current assets		28,946
Long-term investments, net		74,004
Fixed assets, net		89,089
Goodwill		6,527
Intangible assets, net		1,446
Other assets		53,679

Total assets associated with discontinued operations	$	1,412,168

LIABILITIES
Accounts payable	$	122,695
Accrued liabilities		68,582
Receipts in advance		64,414
Accrued salary and benefits		25,350
Taxes payable		64,082
Other short-term liabilities		61,154
Long-term liabilities		10,721

Total liabilities associated with discontinued operations	$	416,998


	Year Ended December 31,
	2019		2020			2021 (1)

Revenues	$	1,172,252	$	924,664		$	407,607
Cost of revenues		738,454		722,614			274,408
Gross profit		433,798		202,050			133,199
Operating expenses:
Research and development (2)		190,402		193,376			141,506
Sales and marketing (2)		138,291		102,523			53,481
General and administrative (2)		40,670		29,271			11,854
Total operating expenses		369,363		325,170			206,841
Operating profit/(loss)		64,435		(123,120	)		(73,642	)
Interest income		4,443		2,807			2,377
Interest expense		0		0			(761	)
Foreign currency exchange gain/(loss)		1,849		(7,767	)		(848	)
Other income, net		21,127		38,633			81,655
Income/(loss) from discontinued operations before income tax expense		91,854		(89,447	)		8,781
Income tax expense/(benefit)		2,748		2,346			(1,112	)
Results of operations from discontinued operations, net of tax		89,106		(91,793	)		9,893
Gain on disposal of discontinued operations		0		0			855,009

Net income/(loss) from discontinued operations, net of tax		89,106		(91,793	)		864,902

Effective Tax Rate


	Year Ended December 31,
	2019			2020			2021 (1)(3)
Statutory Rate:		25	%		25	%		25	%
Effect of tax holidays applicable to subsidiaries and consolidated VIEs		(2	%)		(18	%)		127	%
Tax differential from statutory rate applicable to subsidiaries and consolidated VIEs		3	%		(3	%)		(90	%)
Changes in valuation allowance for deferred tax assets		7	%		(43	%)		349	%
Research and development super-deduction and other permanent book-tax differences		(25	%)		35	%		(249	%)
Capital gains from equity investments		(5	%)		1	%		(175	%)

		3	%		(3	%)		(13	%)


	Year Ended December 31,
	2019			2020			2021 (1)
Net cash provided by/(used in) discontinued operating activities	$	219,516		$	(68,187	)	$	(175,888	)
Net cash provided by/(used in) discontinued investing activities		(217,598	)		235,374			1,054,148
Net cash used in discontinued financing activities		(33,415	)		(8,209	)		(9,132	)

Note	(1): Includes the financial results of the discontinued operations from January 1, 2021 to September 23, 2021.

Note (2): Expenses generated from marketing services between the Sohu Group and Sogou Group, and leasing expenses generated from a building that Sohu leases to Sogou are not eliminated because those expenses are considered to continue after the disposal of the discontinued operations.

Note (3): The changes in the effective tax rate for the period ended September 23, 2021 resulted from the lower income from discontinued operations before income tax expense.

Discontinued Operation of Shanghai Jingmao

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.

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

2019

. Accordingly, the results of operations for Changyou’s cinema advertising business have been excluded from Changyou’s results from continuing operations in the consolidated statements of comprehensive income 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. Changyou recognized

nil

disposal gain/loss for the years ended December

2019

and

2020

. However, Changyou may recognize disposal gain/loss in the future, depending on developments in the bankruptcy proceedings in the Chinese court

See Note 8 - Balance Sheet Components.

The following tables set forth the results of operations and cash flows of discontinued operations with respect to Changyou’s cinema advertising business, that were included in the Group’s consolidated financial statements (in thousands):


	Year Ended December 31,
	2019 (1)

Revenues	$	37,323
Cost of revenues		43,857
Gross loss		(6,534	)
Operating expenses:
Sales and marketing		8,807
General and administrative		18,583
Total operating expenses		27,390
Operating loss		(33,924	)
Interest income		7
Other income/(expense), net		61
Loss from discontinued operations before income tax expense		(33,856	)
Income tax expense		142

Net loss from discontinued operations, net of tax		(33,998	)


	Year Ended December 31,
	2019 (1)

Net cash provided by discontinued operating activities	$	9,341
Net cash used in discontinued investing activities		(10,808	)
Net cash provided by discontinued financing activities		0

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