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Changyou Reports Third Quarter 2012 Unaudited Financial Results

       Changyou Reports Third Quarter 2012 Unaudited Financial Results

Changyou Achieves Record Total Revenues for the Third Quarter

Changyou Achieves Record Net Income for the Third Quarter

PR Newswire

BEIJING, Nov. 5, 2012

BEIJING, Nov. 5, 2012 /PRNewswire/ -- Changyou.com Limited ("Changyou" or the
"Company") (NASDAQ: CYOU), a leading online game developer and operator in
China, today announced its unaudited financial results for the third quarter
ended September 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20090402/CNTH020 )

Third quarter 2012 Highlights

  oTotal revenues reached a record US$165.8 million, an increase of 13%
    quarter-over-quarter and 29% year-over-year, exceeding the high end of the
    Company's guidance by US$8.8 million.
  oOnline game revenues reached a record US$151.1 million, an increase of 10%
    quarter-over-quarter and 30% year-over-year, exceeding the high end of the
    Company's guidance by US$7.1 million.
  oOnline advertising revenues reached a record US$12.8 million, an increase
    of 40% quarter-over-quarter and 32% year-over-year, exceeding the high end
    of the Company's guidance by US$0.8 million.
  oNet income attributable to Changyou.com Limited reached a record US$72.9
    million, or US$1.37 per fully diluted ADS[1]. Net income attributable to
    Changyou.com Limited increased 6% quarter-over-quarter and 18%
    year-over-year.
  oNon-GAAP[2] net income attributable to Changyou.com Limited reached a
    record US$75.9 million, or US$1.42 per fully diluted ADS. Non-GAAP net
    income attributable to Changyou.com Limited increased 5%
    quarter-over-quarter and 20% year-over-year, exceeding the high end of the
    Company's guidance by US$3.9 million.
  oOn August 6, 2012, the Company's board of directors declared a special
    one-time cash dividend of US$1.9 per Class A or Class B ordinary share, or
    US$3.8 per American Depositary Share ("ADS"). The total amount of this
    dividend was approximately US$201 million. The dividend was paid to
    shareholders on September 21, 2012.

Mr. Tao Wang, Changyou's chief executive officer, commented, "The third
quarter is a testimony to our corporate philosophy of putting our customers
first. Our key operational metrics and financial results demonstrate that we
have a solid base of players who are engaged and willing to spend in our games
as we continue to invest the resources to keep them fresh and exciting. In our
flagship MMO game, Tian Long Ba Bu, or TLBB, we saw higher player engagement
levels and spending from our core players after the release of the July 12^th
expansion pack and the October 25th major expansion pack. Meanwhile, our new
web game Wartune continued to build momentum as it was launched on more
platforms and in more countries during the quarter. Changyou is one of the few
online game companies in China with a leading presence in all three key
markets of the online games industry, MMO games, web games and online game
media. With the talents, customer base and marketing networks accumulated in
each of these three areas, we believe we can take our businesses further, both
in China and globally, and build the company into an even greater success."

Mr. Dewen Chen, president and chief operating officer, continued, "Our online
advertising business benefited from the traditionally strong summer season for
online games advertising in the third quarter. 17173.com is the portal of
choice for online game advertisers and we achieved higher utilization rates of
our advertising resources due to strong demand. We are building 17173.com into
an even better portal for game-related news. We launched two brand-new news
channels in the third quarter, one dedicated to web games and the other to
mobile games, and have plans to deliver news for international gamers as
well."

Mr. Alex Ho, Changyou's chief financial officer, added, "In the third quarter,
we once again topped past quarters' financial performance, in both GAAP and
non-GAAP terms, on our top-line and bottom-line results. Both our online games
business and online advertising business grew in terms of revenues and are
highly profitable and cash-generative. With the strong and stable cash flows
from our operations, we plan to keep investing in people and products to take
advantage of the many growth opportunities we see in the market and create
greater shareholder value over the long term."

Third Quarter 2012 Operational Results

The Company's operational results for the third quarter of 2012, which exclude
those of 7Road's games, were as follows:

  oAggregate registered accounts for the Company's games[3] increased 12%
    quarter-over-quarter and 41% year-over-year to 223.5 million.
  oAggregate PCU for the Company's games increased 1% quarter-over-quarter
    and decreased 5% year-over-year to 1.09 million.
  oAggregate APA for the Company's games decreased 8% quarter-over-quarter
    and 20% year-over-year to 2.41 million. The quarter-over-quarter and
    year-over-year decreases reflected a decline in the number of low-spending
    active paying accounts that did not make a purchase in the third quarter
    of 2012 as the Company continued last quarter's strategy of giving away
    virtual items and reducing in-game promotions in TLBB.
  oARPU for the Company's games increased 15% quarter-over-quarter and 46%
    year-over-year to RMB319. The quarter-over-quarter and year-over-year
    increases were mainly due to the decline in TLBB's low-spending active
    paying accounts and TLBB's core players increasing their spending in the
    third quarter of 2012.

7Road's operational results for the third quarter of 2012 were as follows:

  oAggregate active accounts[4] for 7Road's games[5] were 66.8 million, an
    increase of 23% quarter-over-quarter and 42% year-over-year. The increases
    in active accounts were mainly due to new gamers on third-party web
    platforms playing Wartune (also known as Shen Qu) in the third quarter of
    2012.
  oAggregate active charging accounts[6] for 7Road's games were 1.66 million,
    a decrease of 5% quarter-over-quarter and 3% year-over-year. The decreases
    in active charging accounts resulted primarily from certain players of
    DDTank having ceased purchasing game coins because in the new version of
    DDTank, DDTank II, they were prevented from purchasing virtual items at
    discounted prices from other players. The decreases in active charging
    accounts also reflected the fact that DDTank, which has been in operation
    since 2008, has entered into a relatively mature phase. This resulting
    decrease in active charging accounts for DDTank was offset in part by an
    increase in the number of active charging accounts for Wartune (also known
    as Shen Qu) in the third quarter of 2012.
  oAverage revenue recognized per active charging account[7] ("ARCA") for
    7Road's games was RMB100 an increase of 61% quarter-over-quarter and 163%
    year-over-year. The increases resulted primarily from Wartune tending to
    have a higher ARCA than DDTank, and from ARCA for DDTank having increased
    as relatively lower-spending players ceased purchasing game coins after
    the discount market was closed when the new version of DDTank, DDTank II,
    was released.

Third Quarter 2012 Unaudited Financial Results

Revenues

Total revenues for the third quarter of 2012 increased 13%
quarter-over-quarter and 29% year-over-year to US$165.8 million.

Online game revenues, which include revenues from Changyou's game operations
and overseas licensing revenues and revenues from 7Road, increased 10%
quarter-over-quarter and 30% year-over-year to US$151.1 million. The
quarter-over-quarter and year-over-year increases were mainly due to the
growth momentum of TLBB and Wartune in China in the third quarter of 2012.

Online advertising revenues, which consist of revenues generated from the
17173 business, increased 40% quarter-over-quarter and 32% year-over-year to
US$12.8 million. The quarter-over-quarter increase was mainly due to the
seasonal pickup typical for advertising in China and higher utilization rates
of our advertising resources in the third quarter of 2012. The year-over-year
increase was mainly due to higher advertising prices and higher utilization
rates of our advertising resources in the third quarter of 2012 than in the
third quarter last year.

Other revenues, which consist of cinema advertising revenues, were US$1.9
million, an increase of 80% quarter-over-quarter and a decrease of 40%
year-over-year. The quarter-over-quarter increase was mainly due to the
seasonal pickup typical for advertising in China in the third quarter of 2012.
The year-over-year decrease was mainly due to the streamlining of the cinema
advertising business in 2012.

Gross profit

Gross profit increased 9% quarter-over-quarter and 23% year-over-year to
US$134.8 million. Non-GAAP gross profit increased 9% quarter-over-quarter and
23% year-over-year to US$134.9 million. Both gross margin and non-GAAP gross
margin were 81%, compared with 84% in the second quarter of 2012 and 85% in
the third quarter of 2011.

Gross profit of the online games business increased 9% quarter-over-quarter
and 29% year-over-year to US$130.0 million. Non-GAAP gross profit of the
online games business increased 9% quarter-over-quarter and 29% year-over-year
to US$130.1 million. Both gross margin and non-GAAP gross margin of the online
games business were 86%, compared with 87% in the second quarter of 2012 and
87% in the third quarter of 2011. The decline in gross margin and non-GAAP
gross margin for the online games business was mainly due to an increase in
headcount and related salaries and benefits expenses in the third quarter of
2012.

Gross profit of the online advertising business increased 43%
quarter-over-quarter and 28% year-over-year to US$11.0 million. Non-GAAP gross
profit of the online advertising business increased 43% quarter-over-quarter
and 27% year-over-year to US$11.1 million. Gross margin of the online
advertising business was 87%, compared with 85% in the second quarter of 2012
and 89% in the third quarter of 2011. Non-GAAP gross margin of the online
advertising business was 87%, compared with 85% in the second quarter of 2012
and 90% in the third quarter of 2011. The quarter-over-quarter increases in
gross margin and non-GAAP gross margin for the online advertising business
were mainly due to an increase in online advertising revenues in the third
quarter of 2012. The year-over-year decrease in gross margin and non-GAAP
gross margin for the online advertising business were mainly due to higher
bandwidth cost and increased salaries and benefits expenses due to the hiring
of more editors in the third quarter of 2012.

Gross loss and non-GAAP gross loss of other business were US$6.3 million
compared with US$2.8 million in the second quarter of 2012 and US$246,000 in
the third quarter of 2011. The greater gross loss and non-GAAP gross loss of
other business were mainly due to the impairment provision for the advertising
resources at cinema circuits of $4.0 million in the third quarter of 2012.

Operating expenses

Total operating expenses were US$42.4 million, an increase of 1%
quarter-over-quarter and 12% year-over-year.

Product development expenses were US$18.1 million, an increase of 8%
quarter-over-quarter and 44% year-over-year. The quarter-over-quarter and
year-over-year increases were mainly due to an increase in salaries and
benefits after the Company hired more game engineers in the third quarter of
2012.

Sales and marketing expenses were US$16.4 million, an increase of 13%
quarter-over-quarter and a decrease of 7% year-over-year. The
quarter-over-quarter increase was mainly due to higher advertising spending
for the promotion of expansion packs in the third quarter of 2012. The
year-over-year decrease was mainly due to lower advertising spending as we
carried out a nationwide marketing campaign to promote the launch of a new
game, Duke of Mount Deer, in the third quarter of 2011.

General and administrative expenses were US$7.8 million, an increase of 1%
quarter-over-quarter and 3% year-over-year. The quarter-over-quarter and
year-over-year increases were mainly due to an increase in headcount and
related salaries and benefits expenses in the third quarter of 2012.

Operating profit

Operating profit increased 13% quarter-over-quarter and 29% year-over-year to
US$92.4 million. Operating margin was 56%, compared with 56% in the second
quarter of 2012 and 56% in the third quarter of 2011.

Non-GAAP operating profit increased 9% quarter-over-quarter and 28%
year-over-year to US$93.2 million. Non-GAAP operating margin was 56%, compared
with 58% in the second quarter of 2012 and 57% in the third quarter of 2011.

Net income

Net income increased 10% quarter-over-quarter and 23% year-over-year to
US$77.4 million. Net margin was 47%, compared with 48% in the second quarter
of 2012 and 49% in the third quarter of 2011.

Non-GAAP net income increased 10% quarter-over-quarter and 25% year-over-year
to US$80.4 million. Non-GAAP net margin was 49%, compared with 50% in the
second quarter of 2012 and 50% in the third quarter of 2011.

Net income attributable to mezzanine classified non-controlling interests

Net income attributable to mezzanine classified non-controlling interests
increased 311% quarter-over-quarter and 312% year-over-year to US$4.5 million.
In the third quarter of 2012, the increase in net income attributable to
mezzanine classified non-controlling interests of $3.4 million was mainly
because Changyou increased the estimated redemption value of the mezzanine
classified non-controlling interests in 7Road. Changyou increased the
estimated redemption value because judging from 7Road's performance in the
first three quarters of 2012, Changyou estimates that 7Road will likely exceed
its originally estimated performance for year 2012 and 2013, which will be the
basis to determine the exercise price of the put option that gives the
non-controlling shareholders the right to put their shares to Changyou at a
pre-determined price if 7Road achieves specified performance milestones before
the expiry of the put option and certain circumstances occur. Please refer to
the section "Notes to Financial Information", for further details on the put
option. The increase in the redemption value was recognized prospectively over
the period from the date of the change in estimate to the earliest exercise
date of the put right as an increase in net income attributable to mezzanine
classified non-controlling interests.

Net income attributable to Changyou.com Limited

Net income attributable to Changyou.com Limited increased 6%
quarter-over-quarter and 18% year-over-year to US$72.9 million. Fully diluted
earnings per ADS attributable to Changyou.com Limited were US$1.37, up from
US$1.29 in the second quarter of 2012 and US$1.16 in the third quarter of
2011. Net margin attributable to Changyou.com Limited was 44%, compared with
47% in the second quarter of 2012 and 48% in the third quarter of 2011.

Non-GAAP net income attributable to Changyou.com Limited increased 5%
quarter-over-quarter and 20% year-over-year to US$75.9 million. Non-GAAP fully
diluted earnings per ADS attributable to Changyou.com Limited were US$1.42, up
from US$1.35 in the second quarter of 2012 and US$1.18 in the third quarter of
2011. Non-GAAP net margin attributable to Changyou.com Limited was 46%,
compared with 49% in the second quarter of 2012 and 49% in the third quarter
of 2011.

Liquidity

As of September 30, 2012, Changyou had a combined balance of cash and cash
equivalents and short-term investments of US$340.6 million, which decreased
from US$464.9 million as of June 30, 2012. Operating cash flow for the third
quarter of 2012 was a net inflow of US$100.2 million.

The decrease in the Company's combined balance of cash and cash equivalents
and short-term investments was due to the payment of a special cash dividend
of US$201 million in the third quarter.

As of September 30, 2012, Changyou had short-term and long-term bank loans of
US$222.4 million and current and non-current restricted time deposits of
US$225.5 million. The bank loans and restricted time deposits were mainly
related to offshore bridge loans from banks that the Company obtained in order
to expedite the payment of the special cash dividend to the Company's
shareholders. The offshore bridge loans were secured with an equivalent or
higher amount of Renminbi-denominated onshore bank deposits by the Company's
subsidiaries in China.

Other Business Developments in the Third Quarter of 2012

Changyou Declared and Paid Special Cash Dividend to Shareholders

On August 6, 2012, the Company's board of directors declared a special
one-time cash dividend of US$1.9 per Class A or Class B ordinary share, or
US$3.8 per ADS. The total amount of this dividend was approximately US$201
million. The dividend was paid to shareholders on September 21, 2012.

Business Outlook

For the fourth quarter of 2012, Changyou expects:

  oTotal revenues to be between US$166.0 million and US$170.0 million,
    including online game revenues of US$152.0 million to US$155.0 million and
    online advertising revenues of US$12.0 million to US$13.0 million.
  oNon-GAAP net income attributable to Changyou.com Limited to be between
    US$69.0 million and US$71.0 million.
  oNon-GAAP fully diluted earnings per ADS attributable to Changyou.com
    Limited to be between US$1.29 and US$1.33.
  oAssuming no new grants of share-based awards, share-based compensation
    expense to be between US$0.5 million and US$1.0 million, reducing fully
    diluted earnings per ADS attributable to Changyou.com Limited by US$0.01
    to US$0.02.

Basis of Presentation for Unaudited Financial Results

On December 15, 2011, Changyou completed the acquisition from Sohu of the
17173 business. As Changyou and the 17173 business were under common control
by Sohu both before and after the acquisition, in accordance with ASC 805-50,
Changyou's unaudited consolidated financial information reported in this press
release, unless otherwise stated, has been prepared as if the 17173 business
had been owned and operated by Changyou throughout the periods presented.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial information prepared in
accordance with United States Generally Accepted Accounting Principles
("GAAP"), Changyou's management uses non-GAAP measures of gross profit,
operating profit, net income, net income attributable to Changyou.com Limited
and diluted net income attributable to Changyou.com Limited per ADS, which are
adjusted from results based on GAAP to exclude the compensation cost of
share-based awards granted, goodwill impairment, impairment of intangibles via
acquisitions of businesses and the related tax impact, non-cash tax benefits
from excess tax deductions related to share-based awards and income/expense
from the adjustment of contingent consideration previously recorded for
acquisitions. These measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a substitute
for, or superior to, GAAP results.

Beginning in the fourth quarter of 2011, the Company revised its non-GAAP
reporting methodology to exclude goodwill impairment, impairment of
intangibles via acquisitions of businesses and the related tax impact,
non-cash tax benefits from excess tax deductions related to share-based awards
and income/expense from the adjustment of contingent consideration previously
recorded for acquisitions, in addition to its historical practice of excluding
share-based compensation expense from non-GAAP results.

Changyou's management believes that excluding share-based compensation
expense, goodwill impairment, impairment of intangibles via acquisitions of
businesses and the related tax impact, non-cash tax benefits from excess tax
deductions related to share-based awards and income/expense from the
adjustment of contingent consideration previously recorded for acquisitions
from its non-GAAP financial measures is useful for itself and investors.
Further, the amount of share-based compensation expense, goodwill impairment,
impairment of intangibles via acquisitions of businesses and the related tax
impact, non-cash tax benefits from excess tax deductions related to
share-based awards and income/expense from the adjustment of contingent
consideration previously recorded for acquisitions cannot be anticipated by
management, and these expenses are not built into the Company's annual budgets
and quarterly forecasts, which generally will be the basis for information
Changyou provides to analysts and investors as guidance for future operating
performance. As share-based compensation expense, goodwill impairment,
impairment of intangibles via acquisitions of businesses and the related tax
impact, non-cash tax benefits from excess tax deductions related to
share-based awards and income/expense from the adjustment of contingent
consideration previously recorded for acquisitions does not involve subsequent
cash outflow, Changyou does not factor this in when evaluating and approving
expenditures or when determining the allocation of its resources to its
business operations. As a result, in general, the monthly financial results
for internal reporting and any performance measure for commissions and bonuses
are based on non-GAAP financial measures that exclude share-based compensation
expense, goodwill impairment, impairment of intangibles via acquisitions of
businesses and the related tax impact, non-cash tax benefits from excess tax
deductions related to share-based awards and income/expense from the
adjustment of contingent consideration previously recorded for acquisitions.

The non-GAAP financial measures are provided to enhance investors' overall
understanding of Changyou's current financial performance and prospects for
the future. A limitation of using non-GAAP gross profit, operating profit, net
income, net income attributable to Changyou.com Limited and diluted net income
attributable to Changyou.com Limited per ADS, excluding share-based
compensation expense, goodwill impairment, impairment of intangibles via
acquisitions of businesses and the related tax impact, non-cash tax benefits
from excess tax deductions related to share-based awards and income/expense
from the adjustment of contingent consideration previously recorded for
acquisitions, is that the share-based compensation charge has been and will
continue to be a significant recurring expense in the Company's business for
the foreseeable future, and goodwill impairment, impairment of intangibles via
acquisitions of businesses and the related tax impact, non-cash tax benefits
from excess tax deductions related to share-based awards and income/expense
from the adjustment of contingent consideration previously recorded for
acquisitions may recur in the future. In order to mitigate these limitations
the Company has provided specific information regarding the GAAP amounts
excluded from each non-GAAP measure. The accompanying tables include details
on the reconciliation between GAAP financial measures that are most directly
comparable to the non-GAAP financial measures the Company has presented.

Notes to Financial Information

Financial information in this press release other than the information
indicated as being non-GAAP is derived from Changyou's unaudited financial
statements prepared in accordance with GAAP.

Mezzanine equity consists of non-controlling interests in 7Road and a put
option that gives the non-controlling shareholders the right to put their
shares to Changyou at a pre-determined price if 7Road achieves specified
performance milestones before the expiry of the put option and 7Road does not
complete an initial public offering on NASDAQ, the New York Stock Exchange or
The Stock Exchange of Hong Kong by 2014. The put option will expire in 2014.
Non-controlling interests of 7Road and the put option are classified as
mezzanine equity in Changyou's consolidated balance sheets, as redemption of
the non-controlling interests is not solely within the control of Changyou.

In accordance with ASC subtopic 480-10, Changyou accretes the balance of
non-controlling interests to its redemption value over the period from the
date of the 7Road acquisition to the earliest exercise date of the put right.
Any subsequent changes in the redemption value are considered to be changes in
accounting estimates and are also recognized over the same period as net
income attributable to mezzanine classified non-controlling interests.

In the third quarter of 2012, Changyou estimated that based on 7Road's
performance in the first three quarters of 2012, 7Road will likely exceed its
originally estimated performance for year 2012 and 2013, which will be the
basis to determine the exercise price of the put option. As a result, the
Company has increased the estimated redemption value of the mezzanine
classified non-controlling interests in 7Road. The increase in the redemption
value was recognized prospectively over the period from the date of the change
in estimate to the earliest exercise date of the put right as an increase in
net income attributable to mezzanine classified non-controlling interests.

Safe Harbor Statement

It is currently expected that the Business Outlook will not be updated until
the release of Changyou's next quarterly earnings announcement; however,
Changyou reserves the right to update its Business Outlook at any time for any
reason.

This announcement contains forward-looking statements. Statements that are not
historical facts, including statements about the Company's 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. The Company cautions 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, the continuing global financial and credit markets crisis and
its potential impact on the Chinese economy, the uncertain regulatory
landscape in the People's Republic of China, fluctuations in Changyou's
quarterly operating results, Changyou's historical and possible future losses
and limited operating history, and the Company's reliance on Tian Long Ba Bu
as its major revenue source. Further information regarding these and other
risks is included in Changyou's Annual Report on Form 20-F filed on February
28, 2012, and other filings with the Securities and Exchange Commission.

Conference Call Information

Changyou's management team will host an earnings conference call today at 7
a.m. U.S. Eastern Time, November 5, 2012 (8 p.m. Beijing/Hong Kong, November
5, 2012).

The dial-in details for the live conference call are:

US:            +1-866-519-4004
Hong Kong:     +852-2475-0994
International: +1-718-354-1231
Passcode:      CYOU

Please dial in 10 minutes before the call is scheduled to begin and provide
the passcode to join the call.

A telephone replay of the call will be available after the conclusion of the
conference call at 10:00 a.m. U.S. Eastern Time on November 5, 2012 through
November 12, 2012. The dial-in details for the telephone replay are:

International: +1-866-214-5335
Passcode:      39864820

The live webcast and archive of the conference call will be available on the
Investor Relations section of Changyou's website at
http://www.changyou.com/ir/.

About Changyou

Changyou.com Limited (NASDAQ: CYOU) is a leading developer and operator of
online games in China with a diverse portfolio of online games that includes
Tian Long Ba Bu, one of the most popular massively multi-player online ("MMO")
games in China, and DDTank and Wartune (also known as Shen Qu), which are two
popular web games in China. Changyou also owns and operates the 17173.com
Website, a leading game information portal in China. Changyou began operations
as a business unit within Sohu.com Inc. (NASDAQ: SOHU) in 2003, and was carved
out as a separate, stand-alone company in December 2007. It completed an
initial public offering on April 7, 2009. Changyou has an advanced technology
platform that includes advanced 2.5D and 3D graphics engines, a uniform game
development platform, effective anti-cheating and anti-hacking technologies,
proprietary cross-networking technology and advanced data protection
technology. For more information, please visit http://www.changyou.com/ir/.

For investor and media inquiries, please contact:

In China:

Ms. Angie Chang
Investor Relations
Changyou.com Limited
Tel: +86 (10) 6861-3688
E-mail: ir@cyou-inc.com

In the United States:

Mr. Jeff Bloker
Christensen
Tel: +1 (480) 614-3003
E-mail: jbloker@ChristensenIR.com



CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS)


                                                                                                            Three Months Ended
                                                                                                            Sep.30,2012   Jun.30,2012   Sep.30,2011
                                                                                                                                            Restated (a)
Revenues:
 Online game                                                                                       $ 151,093       $ 137,172       $ 115,799
 Online advertising                                                                                  12,756          9,096           9,684
 Others                                                                                              1,933           1,073           3,214
Total revenues                                                                                             165,782         147,341         128,697
Cost of revenues:
 Online game (includes share-based compensation expense                                              21,067          18,301          14,578
 of $62, $61 and $21 respectively)
 Online advertising (includes share-based compensation                                               1,722           1,370           1,038
 expense of $16, $16 and $31 respectively)
 Others                                                                                              8,197           3,899           3,460
Total cost of revenues                                                                                     30,986          23,570          19,076
Grossprofit   134,796         123,771         109,621
Operating expenses:
 Product development (includes share-based compensation                                                 18,119          16,770          12,592
  expense of $391, $539 and$465, respectively)
 Sales and marketing (includes share-based compensation                                                 16,442          14,521          17,655
 expense of $89, $89 and $236 respectively)
 General and administrative (includes share-based compensation                                          7,822           7,757           7,615
 expense of $235,$271 and $545 respectively)
 Impairment of acquired intangibles via acquisition of businesses                                       0               2,906           0
Total operating expenses                                                                                   42,383          41,954          37,862
Operating profit                                                                                            92,413          81,817          71,759
Interest income                                                                                             3,604           4,035           3,404
Foreign currency exchange gain/(loss)                                                                       548             (174)           (160)
Other income/(expense), net                                                                                 (1,787)         554             1,141
Income before income tax expense                                                                            94,778          86,232          76,144
Income tax expense                                                                                          (17,354)        (16,074)        (13,163)
Netincome              77,424          70,158          62,981
 Less: Net income attributable to mezzanine classified                                                 4,495           1,095           1,092
 non-controlling interests
Net income attributable to Changyou.com Limited                                                           $ 72,929        $ 69,063        $ 61,889
Basic net income per ADS attributable to Changyou.com Limited                                             $ 1.38          $ 1.31          $ 1.18
ADSs used in computing basic net income per ADS attributable to                                            52,862          52,851          52,506
Changyou.com Limited
Diluted net income per ADS attributable to Changyou.com Limited                                           $ 1.37          $ 1.29          $ 1.16
ADSs used in computing diluted net income per ADS attributable to                                          53,405          53,379          53,331
Changyou.com Limited
Note:
(a) The above condensed consolidated statements of operations have been prepared as if the 17173 business recently acquired from Sohu had been owned by
the Company throughout the periods presented, in accordance with ASC 805-50. Changyou completed the acquisition of the 17173 business from Sohu on
December 15, 2011.



CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)


                                                 As of           As of
                                                 Sep.30,2012   Dec.31,2011
ASSETS
Current assets:
Cash and cash equivalents                      $ 300,266       $ 330,411
Accounts receivable, net                         23,412          11,326
Short-term investments                           40,353          17,560
Restricted time deposits                         115,124         0
Prepaid and other current assets                 28,533          11,610
Total current assets                             507,688         370,907
Non-current assets:
Fixed assets, net                                65,553          68,394
Goodwill                                         133,829         134,616
Intangible assets, net                           58,808          48,441
Restricted time deposits                         110,393         0
Equity investments                               850             350
Deferred tax assets                              4,289           3,605
Other assets, net                                138,362         126,760
Total non-current assets                         512,084         382,166
TOTAL ASSETS                                   $ 1,019,772     $ 753,073
LIABILITIES
Current liabilities:
Receipts in advance and deferred revenue       $ 49,765        $ 51,900
Accounts payable and accrued liabilities         101,897         69,438
Short-term bank loans                            113,000         0
Tax payables                                     15,453          13,189
Deferred tax liabilities                         8,701           0
Due to Sohu                                      16,823          20,969
Total current liabilities                        305,639         155,496
Long-term liabilities:
Long-term bank loans                             109,353         0
Long-term deferred tax liabilities               7,883           5,146
Long-term contingent consideration               0               16,704
Long-term accounts payable                       15,042          3,612
Total long-term liabilities                      132,278         25,462
Total liabilities                                437,917         180,958
MEZZANINE EQUITY
Total mezzanine equity                           56,896          57,254
SHAREHOLDERS' EQUITY
Total shareholders' equity                       524,959         514,861
TOTAL LIABILITIES, MEZZANINE EQUITY AND        $ 1,019,772     $ 753,073
SHAREHOLDERS' EQUITY





CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)


                                                                                Three Months Ended Sep. 30, 2012
                                                                                   Non-GAAP adjustments
                                                                                                 Impairmentof    Fair value
                                                                                   Share-based   intangiblesvia  change in
                                                                          GAAP     compensation  acquisitionsof  contingent   Non-GAAP
                                                                                   expense (a)   businesses and   liabilities
                                                                                                 the related tax  (b)(d)
                                                                                                 impact (b)(c)
Onlinegamegrossprofit                                                $ 130,026  62            0                0            130,088
Onlineadvertisinggrossprofit                                           11,034   16            0                0            11,050
Other gross loss                                                          (6,264)  0             0                0            (6,264)
Grossprofit $ 134,796  78            0                0            134,874
Gross margin                                                              81%                                                  81%
Operating profit                                                        $ 92,413   793           0                0            93,206
Operating margin                                                          56%                                                  56%
Net income                                                              $ 77,424   793           0                2,195        80,412
Net income attributable toChangyou.com Limited                         $ 72,929   793           0                2,195        75,917
Net margin                                                                44%                                                  46%
Diluted net income per ADSattributable to                             $ 1.37                                                 1.42
 Changyou.com Limited
ADSs used in computingdiluted net income per                             53,405                                               53,534
 ADSattributable toChangyou.com Limited


Note:
(a) To eliminate share-based compensation expense as measured using the fair value method.
(b) Beginning in the fourth quarter of 2011, the Company revised its non-GAAP reporting methodology to exclude goodwill impairment,
impairment of intangiblesvia acquisitions of businesses and the related tax impact, non-cash tax benefits from excess tax deductions
related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions,
in addition to its historical practice of excluding share-based compensation expense from non-GAAP results.
(c) For the three months ended September 30, 2012, there was no impairment of intangibles via acquisitions of businesses and the
related tax impact.
(d) For the three months ended September 30, 2012, there was an increase in the fair value of contingent liabilities related to the
7Road acquisition of $2.2 million due to the Company's expectations that 7Road will exceed specified performance targets in 2012 as set
out in the acquisition contract.





CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)


                                                                               Three Months Ended Jun. 30, 2012
                                                                                  Non-GAAP adjustments
                                                                                                Impairmentof    Fair value
                                                                                  Share-based   intangiblesvia  change in
                                                                         GAAP     compensation  acquisitionsof  contingent   Non-GAAP
                                                                                  expense (a)   businesses and   liabilities
                                                                                                the related tax  (b)(d)
                                                                                                impact (b)(c)
Onlinegamegrossprofit                                     $ 118,871  61            0                0            118,932
Online advertising gross profit                                          7,726    16            0                0            7,742
Other gross loss                                                         (2,826)  0             0                0            (2,826)
Grossprofit $ 123,771  77            0                0            123,848
Gross margin                                                             84%                                                  84%
Operating profit                                                       $ 81,817   976           2,906            0            85,699
Operating margin                                                         56%                                                  58%
Net income                                                             $ 70,158   976           2,268            0            73,402
Net income attributable to Changyou.com Limited                        $ 69,063   976           2,268            0            72,307
Net margin                                                               47%                                                  49%
Diluted net income per ADSattributable to                             $ 1.29                                                 1.35
 Changyou.com Limited
ADSs used in computing diluted net income per                            53,379                                               53,536
 ADSattributable to Changyou.com Limited


Note:
(a) To eliminate share-based compensation expense as measured using the fair value method.
(b) Beginning in the fourth quarter of 2011, the Company revised its non-GAAP reporting methodology to exclude goodwill impairment,
impairment of intangibles via acquisitions of businesses and the related tax impact, non-cash tax benefits from excess tax deductions
related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions,
in addition to its historical practice of excluding share-based compensation expense from non-GAAP results.
(c) For the three months ended June 30, 2012, there was $2.9 million of impairment of intangibles via acquisitions of businesses.
(d) For the three months ended June 30, 2012, there was no fair value change in contingent liabilities.







CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)


                                                                               Three Months Ended Sep. 30, 2011
                                                                                  Non-GAAP adjustments
                                                                                                Impairment of    Fair value
                                                                                  Share-based   intangibles via  change in
                                                                         GAAP     compensation  acquisitionsof  contingent   Non-GAAP
                                                                                  expense (a)   businesses and   liabilities
                                                                                                the related tax  (b)(d)
                                                                                                impact (b)(c)
Online game gross profit                                               $ 101,221  21            0                0            101,242
Online advertising gross profit                                          8,646    31            0                0            8,677
Other gross loss                                                         (246)    0             0                0            (246)
Gross profit                                                           $ 109,621  52            0                0            109,673
Gross margin                                                             85%                                                  85%
Operating profit                                                       $ 71,759   1,298         0                0            73,057
Operating margin                                                         56%                                                  57%
Netincome $ 62,981   1,298         0                0            64,279
Net income attributable to Changyou.com Limited                        $ 61,889   1,298         0                0            63,187
Net margin                                                               48%                                                  49%
Diluted net income per ADS attributable to                            $ 1.16                                                 1.18
Changyou.com Limited
ADSs used in computing diluted net income per                            53,331                                               53,447
 ADS attributable to Changyou.com Limited




Note:
(a) To eliminate share-based compensation expense as measured using the fair value method.
(b) Beginning in the fourth quarter of 2011, the Company revised its non-GAAP reporting methodology to exclude goodwill impairment,
impairment of intangibles via acquisitions of businesses and the related tax impact, non-cash tax benefits from excess tax deductions
related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions,
in addition to its historical practice of excluding share-based compensation expense from non-GAAP results.
(c) For the three months ended September 30, 2011, there was no impairment of intangibles via acquisitions of businesses and the
related tax impact.
(d) For the three months ended September 30, 2011, there was no fair value change in contingent liabilities.



[1] Each American depositary share ("ADS") represents two Class A ordinary
shares.

[2] Beginning in the fourth quarter of 2011, the Company revised its non-GAAP
reporting methodology to exclude goodwill impairment, impairment of
intangibles via acquisitions of businesses and related tax impact, non-cash
tax benefits from excess tax deductions related to share-based awards and
income/expense from the adjustment of contingent consideration previously
recorded for acquisitions, in addition to its historical practice of excluding
share-based compensation expense from non-GAAP results. Explanation of the
Company's non-GAAP financial measures and related reconciliations to GAAP
financial measures are included in the accompanying "Non-GAAP Disclosure" and
"Reconciliations of Non-GAAP Results of Operation Measures to the Nearest
Comparable GAAP Measures."

[3] Excludes 7Road's games and comprises the following games operated in
China: Tian Long Ba Bu ("TLBB"), Duke of Mount Deer ("DMD"), Blade Online,
Blade Hero 2, Tao Yuan, Da Hua Shui Hu, Zhong Hua Ying Xiong, Immortal Faith,
and Legend of Ancient World.

[4] Active accounts are defined as registered accounts that were logged in at
least once during the period.

[5] Comprises 7Road's web games: DDTank and Wartune (also known as Shen Qu).

[6] Active charging accounts are defined as the number of active accounts that
purchased virtual currency for use in the game during the period.

[7] Average revenue recognized per active charging accounts is defined as net
revenues recognized by 7Road for the period divided by the number of active
charging accounts for the same period.



SOURCE Changyou.com Limited

Website: http://www.changyou.com/en
 
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