Sohu.com (SOHU)

Immediately after the closing of Changyou’s initial public offering, Sohu’s equity interest in Changyou was reduced to approximately 68.5%. As Sohu remains Changyou’s controlling shareholder following the initial public offering, we will continue to consolidate Changyou, but, commencing with the second quarter of 2009, we will recognize noncontrolling interests reflecting the shares held by shareholders other than Sohu. Our net income and earnings per share will be reduced accordingly.

Share-based compensation expense will increase as the unvested restricted share units granted to Changyou executive officers and employees begin to vest under a share-based award arrangement.

Restricted share units granted to Changyou executive officers and employees will be dilutive securities for the purposes of computing diluted earnings per share of Changyou after the completion of the initial public offering. This will have a corresponding impact on the computation of Sohu’s diluted earnings per share. Subsequent to the offering, 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.

As a separate publicly listed company, Changyou may have interests that differ from, or may even be contrary to, those of Sohu. Although we have entered into various agreements covering transactions between Changyou and us, we may have disagreements on certain matters. Our business might be adversely affected by such disagreements.

We cannot assure you that Changyou’s initial public offering will result in increase for our shareholders in the market value of their holdings in our company sufficient to offset the reduction in our interest in Changyou resulting from the initial public offering. In addition, the market price of our common stock could be volatile as a result of the initial public offering and may continue to be more volatile than our common stock would have been if the initial public offering had not occurred.