Sohu.com (SOHU)

Financial Implications

Principle of Consolidation

For the first quarter of 2009, Sohu consolidated 100% of Changyou. Since (1) Changyou had not completed an initial public offering as of March 31, 2009, and (2) Tao Wang would not participate in any distributions on his Changyou shares, whether or not vested, until the completion of an initial public offering, Sohu recognized no noncontrolling interest related to Changyou in Sohu’s consolidated statement of operations. Details of the noncontrolling interest balance as of March 31, 2009 are further discussed in Note 9, Noncontrolling Interest.

For the second quarter of 2009, as Sohu is Changyou’s controlling shareholder, Sohu will continue to consolidate Changyou but will recognize noncontrolling interests reflecting the shares held by public shareholders and Tao Wang (collectively, the “shareholders other than Sohu”). The portion of the results of operations of Changyou attributable to the shareholders other than Sohu will be presented as noncontrolling interest on Sohu’s consolidated statements of operations. In addition, the interest in the net assets of Changyou attributable to the shareholders other than Sohu, will be shown as noncontrolling interest on Sohu’s consolidated balance sheet.

Fully Diluted Earnings per Share

Subsequent to the offering, a combined total of 106,896,000 Class A ordinary shares and Class B ordinary shares of Changyou are outstanding on a fully diluted basis, including all Tao Wang’s 15,000,000 Class B ordinary shares (including the 6,000,000 Class B restricted ordinary shares discussed above) treated as owned by him, and including all of the 4,396,000 Class A and Class B restricted share units granted to executive officers other than Tao Wang and key employees treated as owned and vested by them. Sohu would have an approximately 65.7% equity interest in Changyou on a fully diluted basis and Sohu will include 65.7% of Changyou’s net income in computing Sohu’s diluted earnings per share when all existing restricted shares and restricted share units are fully vested.

Gain on Initial Public Offering of Changyou

As trading in ADSs in Changyou’s initial public offering did not commence until April 2, 2009, the transaction is not reflected in the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2009. The results of the initial public offering will be recorded in April 2009. As of that time, Sohu will recognize a one-time gain on the sale of Changyou

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shares of approximately $100 million, which will be recorded directly in the shareholders’ equity section of Sohu’s consolidated balance sheet in accordance with FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”).