| Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Standards The consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”) to reflect the financial position and results of operations of the Sohu Group. Use of Estimates The preparation of these financial statements requires the Sohu Group to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going Basis of Consolidation and Recognition of Noncontrolling Interest The Sohu Group’s consolidated financial statements include the accounts of the Company and its subsidiaries and consolidated VIEs. All intra-Group transactions are eliminated except for revenues and expenses arising from intra-Group transactions that are considered to continue after the disposal of the discontinued operations. In the consolidated statements of comprehensive income, results from discontinued operations are reported separately from income and expenses from continuing operations and prior periods are presented on a comparative basis. VIE Consolidation Under ASC 810, if an entity has (i) the power to direct the activities of a VIE that most significantly affect the VIE’s economic performance and (ii) the right to receive economic benefits from the VIE that could be significant to the VIE, then such entity will be considered as holding a controlling financial interest in the VIE, which will make such entity a primary beneficiary of, and will require such entity to consolidate, the VIE. The VIEs through which the Sohu Group conducts a substantial portion of its business operations are wholly owned, directly or indirectly, by certain employees of the Sohu Group as nominee shareholders. For those VIEs with which the Sohu Group has contractual arrangements and with their nominee shareholders, management made evaluations of the relationships between the Sohu Group and such VIEs and the economic benefit flow of such contractual arrangements with such VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Sohu Group controls 100% of the nominee shareholders’ voting interests in such VIEs and the fact that any such VIE, if it has one or more wholly-owned subsidiaries that are also VIEs that the Sohu Group consolidates, holds and controls 100% of the shareholder’s voting interests in such subsidiary or subsidiaries even if any such subsidiary itself is not a party to any VIE contract with the Sohu Group. As a result of such evaluation, management concluded that the Sohu Group holds a controlling financial interest in all of the VIEs that it consolidates because the Sohu Group has the power to direct the activities of such VIEs that most significantly affect their economic performances and the right to receive economic benefits that could be significant to such VIEs and that, therefore, the Sohu Group is the primary beneficiary of, and is required under ASC 810 to consolidate, all of such VIEs. Noncontrolling Interest Recognition Noncontrolling interests are recognized to reflect the portion of the equity of subsidiaries and VIEs which is not attributable, directly or indirectly, to the controlling shareholders. Prior to the completion of the Tencent/Sohu Sogou Share Purchase, the noncontrolling interests in the Sohu Group’s consolidated financial statements consisted of noncontrolling interests for Sogou and noncontrolling interests reflecting economic interests in Changyou’s subsidiaries held by shareholders other than Changyou. As a result of the completion of the Tencent/Sohu Sogou Share Purchase, no noncontrolling interests are recognized except for noncontrolling interests reflecting economic interests in Changyou’s subsidiaries held by shareholders other than Changyou. Noncontrolling Interest for Changyou The Company beneficially holds and controls 100% of the combined total of Changyou’s outstanding ordinary shares and 100% of the total voting power in Changyou. The Company consolidates Changyou in its consolidated financial statements, and no noncontrolling interests are recognized except for noncontrolling interests reflecting economic interests in Changyou’s subsidiaries held by shareholders other than Changyou. Noncontrolling Interest for Sogou Prior to the completion of the Tencent/Sohu Sogou Share Purchase on September 23, 2021, as Sogou’s controlling shareholder, the Company consolidated Sogou in its consolidated financial statements as discontinued operations, and recognized noncontrolling interest reflecting economic interests in Sogou held by Sogou noncontrolling shareholders. Sogou’s net income/(loss) attributable to the Sogou noncontrolling shareholders is recorded as net income/(loss) from discontinued operations attributable to the noncontrolling shareholders in the Company’s consolidated statements of comprehensive income, based on the noncontrolling shareholders’ share of the economic interest in Sogou. Sogou’s cumulative results of operations attributable to the Sogou noncontrolling shareholders, along with changes in shareholders’ equity and adjustment for share-based compensation expense in relation to share-based awards that were unvested and vested but not yet settled and adjustment for changes in the Company’s ownership in Sogou, were recorded as noncontrolling interest in the Sohu Group’s consolidated balance sheets. As a result of the completion of the Tencent/Sohu Sogou Share Purchase, the Company no longer has any beneficial ownership interest in Sogou. Discontinued operations Discontinued operations are reported when a component, or a group of components, of an entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or (2) has a major impact on an entity’s financial results and operations. In the statement of financial position, the assets and liabilities of the discontinued operation are presented separately in the asset and liability sections, respectively, of the statement of financial position and prior periods are presented on a comparative basis. In the consolidated statements of comprehensive income, results from discontinued operations are reported separately from the income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows for discontinued operations are presented separately in the consolidated statements of cash flows. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses arising from intra-Group transactions are eliminated except for those revenues and expenses that are considered to continue after the disposal of the discontinued operations. Segment Reporting The Sohu Group’s segments are business units that offer different services and are reviewed separately by the chief operating decision maker (the “CODM”) in deciding how to allocate resources and in assessing performance. The Group’s CODM is the Company’s Chief Executive Officer. Revenue Recognition Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services. The recognition of revenues involves certain management judgments, including the estimation of the fair value of an advertising-for-advertising licensed-out Starting in 2023, Focus, which used to conduct the Group’s online real estate services, was integrated into Sohu Media Portal. To provide a consistent basis of comparison, retrospective adjustments have been made to brand advertising revenues from Sohu Media Portal for the years ended December 31, 2021 and 2022, respectively, to include brand advertising revenues from Focus, which were presented separately for those years. The following table presents the Group’s revenues disaggregated by products and services:
Year Ended December 31, 2021 (in thousands)
Sohu Changyou Total
Brand advertising:
Sohu Media Portal $ 97,421 0 97,421
Sohu Video 26,803 0 26,803
17173.com Website 0 10,743 10,743
Online games:
PC games 0 469,332 469,332
Mobile games 0 168,893 168,893
Others 62,382 2 62,384
Total $ 186,606 648,970 835,576
Year Ended December 31, 2022 (in thousands)
Sohu Changyou Total
Brand advertising:
Sohu Media Portal $ 76,751 0 76,751
Sohu Video 19,620 0 19,620
17173.com Website 0 6,862 6,862
Online games:
PC games 0 425,744 425,744
Mobile games 0 159,680 159,680
Others 45,215 0 45,215
Total $ 141,586 592,286 733,872
Year Ended December 31, 2023 (in thousands)
Sohu Changyou Total
Brand advertising:
Sohu Media Portal $ 66,103 0 66,103
Sohu Video 17,572 0 17,572
17173.com Website 0 5,014 5,014
Online games:
PC games 0 368,721 368,721
Mobile games 0 110,976 110,976
Others 32,286 0 32,286
Total $ 115,961 484,711 600,672
Brand Advertising Revenues Brand advertising revenues are generated from brand advertising services. Through mobile devices and PCs, the Group provides advertisement placements to advertisers on different Internet platforms and in different formats. Certain customers may receive sales rebates, which are accounted for as variable consideration. The Group estimates the annual revenue volume from each customer with reference to its historical performance. The Group recognizes revenue for the amount of fees it receives from its customers, after deducting sales rebates and net of value-added tax (“VAT”). Brand Advertising Revenues Revenue Recognition of Multiple Performance Obligations The Group’s contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates revenues to each performance obligation based on its relative standalone selling price. The Group generally determines the standalone selling price of each distinct performance obligation based on the prices charged to customers when sold on a standalone basis. Where a standalone selling price is not directly observable, the Group generally estimates the selling price based on the prices at which performance obligations of a similar nature and geography are charged to customers. Most of such contracts have all performance obligations completed within the same quarter. Pricing Model The Group has three main types of pricing models, consisting of the Fixed Price model, the Cost Per Impression (“CPM”) model and the Cost Per Click (“CPC”) model.
(i) Fixed Price model Under the Fixed Price model, a contract is signed to establish a fixed price for the advertising services to be provided. Given that advertisers benefit from displayed advertisements evenly over the period the advertisements are displayed, the Group recognizes revenue on a straight-line basis over the period of display, provided all revenue recognition criteria have been met.
(ii) CPM model Under the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the advertiser. A qualifying display is defined as the appearance of an advertisement, where the advertisement meets criteria specified in the contract. Given that the fees are priced consistently throughout the contract and the unit prices are fixed in accordance with the Group’s pricing practices for similar advertisers, the Group recognizes revenue based on the fixed unit prices and the number of qualifying displays upon their occurrence, provided all revenue recognition criteria have been met.
(iii) CPC model Under the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser. The unit price for each click is auction-based, and the Group charges advertisers on a per-click Online Game Revenues Changyou’s online game revenues are generated primarily from its self-operated and licensed-out in-game Changyou is the principal of its self-operated games. Changyou hosts the games on its own servers and is responsible for the sale and marketing of the games as well as customer service. Accordingly, revenues are recorded gross of revenue sharing-payments to third-party developers and/or mobile App stores, but net of VAT and discounts to game card distributors where applicable. Changyou obtains revenues from the sale of in-game PC Games Proceeds from Changyou’s self-operated PC games are collected from players and third-party game card distributors through sales of Changyou’s game points on its online payment platform and prepaid game cards. Changyou’s self-operated PC games are either developed in house or licensed from third-party developers. For licensed PC games, Changyou remits a pre-agreed Mobile Games Self-operated Mobile Games For self-operated mobile games, Changyou sells game points to its game players via third-party mobile App stores. The mobile App stores in turn pay Changyou proceeds after deducting their share of pre-agreed Changyou’s self-operated mobile games are either developed in house or licensed from or jointly developed with third-party developers. For licensed and jointly-developed mobile games, Changyou remits a pre-agreed Licensed Out Mobile Games Changyou also authorizes third parties to operate its mobile games. Licensed out games include mobile games developed in house, such as Changyou’s mobile games Legacy TLBB Mobile and New TLBB Mobile, and mobile games jointly developed with third-party developers. Changyou receives monthly revenue-based royalty payments from the third-party licensee operators. Changyou receives additional up-front Other Revenues Other revenues consist primarily of revenues from paid subscription services, revenue sharing from other platforms, and interactive broadcasting services. Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment. The allowance for credit losses is estimated based upon the Group’s assessment of various factors, including past collection experience and consideration of current and future economic conditions and other factors that may affect the Group’s customers’ ability to pay. Contract assets as of December 31, 2023 were not material. The allowance for credit losses was $12.1 million and $13.9 million, respectively, as of December 31, 2023 and 2022. Contract liabilities are presented as receipts in advance and deferred revenue on the consolidated balance sheets of the Group. Receipts in advance and deferred revenue relate to unsatisfied performance obligations at the end of the period and primarily consist of fees received from game players in the online game business and from advertisers in the brand advertising business. Due to the generally short-term duration of the contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenue recognized that was included in the receipts in advance and deferred revenue balance at the beginning of the period was $43.5 million for the year ended December 31, 2023. There was no significant change in the contract assets and contract liability balances during 2023. Revenue recognized in 2023 from performance obligations related to prior years was not material. Practical Expedients The Group has used the following practical expedients as allowed under ASC 606: (i) The transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied has not been disclosed, as substantially all of the Group’s contracts have a duration of one year or less. (ii) Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. In instances where the timing of revenue recognition differs from the timing of invoicing, the Group has determined that its contracts generally do not include a significant financing component. (iii) The Group applied the portfolio approach in determining the commencement date of consumption and the estimated lives of virtual items for the recognition of games revenue, given that the effect of applying a portfolio approach to a group game players’ behaviors would not differ materially from considering each one of them individually. (iv) The Group generally expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded within sales and marketing expenses. Cost of Revenues Cost of Brand Advertising Revenues Cost of brand advertising revenues mainly consists of salary and benefits expenses, content and license costs, and costs incurred for related content marketing campaigns. For self-developed video content, production costs incurred in excess of the amount of revenue contracted for are expensed as incurred. Cost of Online Game Revenues Cost of online game revenues mainly consists of revenue-sharing payments, salary and benefits expenses, bandwidth service costs, and content and license costs. Cost of Other Revenues Cost of other revenues mainly consists of content and license costs related to paid subscription services, revenue-sharing payments related to interactive broadcasting services, and revenue-sharing payments related to payment channels. Product Development Expenses Product development expenses mainly consist of salary and benefits expenses, content and license costs, depreciation and amortization expenses, bandwidth service expenses, and professional fees. These expenses are incurred for the enhancement and maintenance of the Sohu Group’s Internet platforms as well as for its products and services. The development costs of online games are expensed as incurred, including the development costs of online games prior to the establishment of technological feasibility and maintenance costs after the online games are available for marketing. Sales and Marketing Expenses Sales and marketing expenses mainly consist of advertising and promotional expenses, salary and benefits expenses, travel and entertainment expenses, professional fees, and facilities expenses. Advertising and promotional expenses generally represent the expenses of promotions to create or stimulate a positive image of the Sohu Group or a desire to subscribe for the Group’s products and services. Advertising and promotional expenses are expensed as incurred. General and Administrative Expenses General and administrative expenses mainly consist of salary and benefits expenses, professional fees, facilities expenses, travel and entertainment expenses, and office expenses. Share-based Compensation Expense Sohu (excluding Fox Video Limited (“Fox Video,” which was referred to in the Company’s previous annual reports on Form 20-F For share-based awards for which a grant date has occurred, share-based compensation expense is recognized as costs and expenses in the consolidated statements of comprehensive income based on the fair value of the related share-based awards on their grant dates. For share-based awards for which the service inception date precedes the grant date, share-based compensation expense is recognized as costs and expenses in the consolidated statements of comprehensive income beginning on the service inception date and is re-measured After the completion of the Changyou Merger, the board of directors of the Company (the “Sohu Board”) approved a modification plan for the granted but unvested share options under the Changyou 2014 Share Incentive Plan and the Changyou 2019 Share Incentive Plan (the “Changyou Plans’ Modification”). After the Changyou Plans’ Modification, liability is accrued over the service period based on a fixed price of $5.39 per Changyou Class A ordinary share, which equals the Changyou Merger consideration of $5.40 per Changyou Class A ordinary share minus the per-share re-measurement Sohu (excluding Fox Video) and Changyou Share-based Awards Sohu (excluding Fox Video) Share-based Awards In determining the fair value of share options granted by Sohu (excluding Fox Video) as share-based awards, the public market price of the underlying shares at each reporting date was used, and a binomial valuation model was applied. In determining the fair value of restricted share units granted, the public market price of the underlying shares on the grant dates was applied. Upon the dissolution of Sohu.com Inc. on May 31, 2018, Sohu.com Limited assumed all then existing obligations of Sohu.com Inc. with respect to equity incentive awards that had been granted under Sohu.com Inc.’s Amended and Restated 2010 Stock Incentive Plan (the “Sohu 2010 Stock Incentive Plan”) and remained outstanding, and such awards were converted into the right to receive upon exercise or settlement Sohu.com Limited’s ordinary shares under the Sohu.com Limited 2018 Share Incentive Plan (the “Sohu 2018 Share Incentive Plan”) rather than shares of the common stock of Sohu.com Inc., subject to the other terms of such outstanding awards. Options for the purchase of Sohu.com Limited’s ordinary shares, including options converted from those contractually granted under the Sohu 2010 Stock Incentive Plan, are subject to vesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets. Under ASC 718-10-25, 718-10-55, re-measured Changyou Share-based Awards Options for the purchase of Changyou Class A ordinary shares contractually granted under the Changyou 2014 Share Incentive Plan and the Changyou 2019 Share Incentive Plan are subject to vesting in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and certain subjective performance targets. Under ASC 718-10-25, 718-10-55, re-measured After the Changyou Plans’ Modification, share-based compensation expense is accrued over the service period based on the fixed price of re-measurement As of December 31, 2023, 8,020,504 of these Changyou share options had been granted and had become vested on their respective vesting dates, as a mutual understanding of the subjective performance targets had been reached between Changyou and the recipients, the targets had been satisfied, and the service period requirements had been fulfilled. Compensation Expense Recognition For options and restricted share units granted with respect to Sohu (excluding Fox Video) shares and Changyou shares, compensation expense is recognized on a graded vesting method upon the requisite service period and certain subjective performance targets being met. The number of share-based awards for which the service is not expected to be rendered over the requisite period is estimated, and no compensation expense is recorded for the number of awards so estimated. Fox Video Share-based Awards On January 4, 2012, Fox Video, a Cayman Islands company that was wholly owned by Sohu.com Limited and before June 16, 2022 was the Offshore holding entity of the Sohu Group’s online video business, adopted a 2011 Share Incentive Plan (the “Fox Video Share Incentive Plan,” which was referred to in the Company’s previous annual reports on Form 20-F Taxation Chinese Mainland Income Tax Income taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Group’s financial statements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation allowance, if based on available evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination, the Group considers factors including future reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur in the future that would allow the Group to realize more of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred. If events were to occur in the future that would require the Group to realize less of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. The Group’s deferred tax assets are related to net operating losses and temporary book versus tax basis differences for its Chinese mainland-based subsidiaries and the VIEs that it consolidates, which are subject to income tax in the Chinese mainland. Chinese Mainland Withholding Tax on Dividends Dividends distributed by foreign-invested enterprises in the Chinese mainland to their immediate holding companies outside the Chinese mainland are subject to a 10% withholding tax. A lower withholding tax rate may be applied if there is a tax treaty between the Chinese mainland and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5% withholding tax rate under an arrangement between the Chinese mainland and the Hong Kong Special Administrative Region on the “Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income,” if such holding company is considered a non-Chinese Chinese Mainland Value Added Tax All of the Sohu Group’s revenues have been subject to VAT since May 1, 2016. To record VAT payable, the Group adopted the net presentation method, which presents the difference between the output VAT (at a rate of 6% or 13%) Taxation on distributions from VIEs to Subsidiaries Pursuant to the contractual agreements with the VIEs and their respective shareholders, the Sohu Group’s Chinese mainland subsidiaries charge the VIEs service fees. For income tax purposes, the Sohu Group’s Chinese mainland subsidiaries and the VIEs file income tax returns on a separate basis. The service fees paid by the VIEs are deductible by the VIEs for Chinese mainland income tax purposes and are recognized as income by the Sohu Group’s Chinese mainland subsidiaries. U.S. Corporate Income Tax Sohu.com Inc., which was formerly the top-tier one-time Treatment of Toll Charge Related to the U.S. TCJA Beginning in the fourth quarter of 2017, the Sohu Group had recognized a provisional amount of income tax expense for the Toll Charge of $219 million, which represented management’s estimate of the amount of the Toll Charge that would have been payable by Sohu.com Inc. based on the deemed repatriation to the United States of its share of previously deferred earnings of certain of its non-U.S. For the fourth quarter of 2018, the Sohu Group’s management re-evaluated that The tax benefit recognized and the unrecognized tax benefit in relation to the Toll Charge may be subject to further adjustment in subsequent periods based on facts and circumstances that arose after December 31, 2023, such as any IRS assessments upon audit and management’s further judgment and estimates. Uncertain Tax Positions The Sohu Group is subject to various taxes in different jurisdictions, but primarily the Chinese mainland. Management reviews regularly the adequacy of the provisions for taxes as they relate to the Group’s income and transactions. In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step two-step Net Income/(Loss) per Share Basic net income/(loss) per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted net income/(loss) per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the period. Potential ordinary shares comprise shares issuable upon the exercise or settlement of share-based awards using the treasury stock method. The dilutive effect of share-based awards with performance requirements is not considered before the performance targets are actually met. The computation of diluted net income/(loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease in loss per share amounts) on net income/(loss) per share. Additionally, for purposes of calculating the numerator of diluted net income/(loss) per share, the net income/(loss) attributable to the Sohu Group is calculated as discussed below. The adjustment will not be made if there is an anti-dilutive effect. Changyou’s net income/(loss) attributable to Sohu Sohu holds 100% of the combined total of Changyou’s outstanding ordinary shares, so Changyou’s net income/(loss) is wholly attributable to Sohu. After the Changyou Plans’ Modification, all of Changyou’s share-based awards became obligation-based awards. Accordingly, all of those Changyou awards are excluded from the calculation of Sohu’s diluted net income/(loss) per share. Changyou’s net income/(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income/(loss) per share. There have been no dilutive effects resulting from Changyou’s existing unvested share options. Sogou’s net income/(loss) attributable to Sohu (Discontinued) Prior to the completion of the Tencent/Sohu Sogou Share Purchase on September 23, 2021, Sogou’s net income/(loss) attributable to Sohu was determined using the percentage that the weighted average number of Sogou shares held by Sohu represented of the weighted average number of Sogou ordinary shares and shares issuable upon the exercise or settlement of share-based awards under the treasury stock method, and not by using the percentage held by Sohu of the total economic interest in Sogou, which is used for the calculation of basic net income per share. Sogou’s net income/(loss) attributable to Sohu is reflected as discontinued operations in the Sohu Group’s consolidated statements of comprehensive income. In the calculation of Sohu’s diluted net income/(loss) per share, assuming a dilutive effect, the percentage of Sohu’s shareholding in Sogou was calculated by treating unvested Sogou share options where the performance targets had been achieved, as well as vested but unexercised Sogou share options, as having been exercised during the period. The dilutive effect of share-based awards with a performance requirement was not considered before the performance targets were actually met. Assuming an anti-dilutive effect, all of these Sogou shares and share options are excluded from the calculation of Sohu’s diluted income/(loss) per share. As a result, Sogou’s net income/(loss) attributable to Sohu on a diluted basis equals the number used for the calculation of Sohu’s basic net income/(loss) per share. As a result of the completion of the Tencent/Sohu Sogou Share Purchase, Sohu no longer has any ownership interest in Sogou and Sogou is not included in Sohu’s consolidated financial statements. Fair Value of Financial Instruments U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is: Level 1 - observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - include other inputs that are directly or indirectly observable in the marketplace. Level 3 - unobservable inputs which are supported by little or no market activity. The Sohu Group’s financial instruments consist primarily of cash equivalents, restricted cash, short- |
