Report of Foreign Issuer (6-k)

KPMG LLP

16 Raffles Quay #22-00

+65 6213 3388

Hong Leong Building

+65 6225 0984

Singapore 048581

www.kpmg.com.sg

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15D-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May, 2015

Commission File Number: 000-30540

GIGAMEDIA LIMITED

8F, No. 22, Lane 407,

Section 2, Tiding

Boulevard

Neihu District

Taipei, Taiwan (R.O.C.)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F x Form 40-F ¨

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes ¨ No x

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b) :82- .)

GIGAMEDIA LIMITED is submitting under cover of Form 6-K:

GigaMedia Notice of Annual General Meeting of Shareholders and Proxy Statement (attached hereto as Exhibit 99.1)

GigaMedia Annual General Meeting of Shareholders Proxy Card (attached hereto as Exhibit 99.2)

GigaMedia 2014 Financial Statements Prepared in Accordance with U.S. GAAP (attached hereto as Exhibit 99.3)

GigaMedia 2014 Financial Statements Prepared in Accordance with Singapore GAAP (attached hereto as Exhibit 99.4)

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		GigaMedia Limited
		(Registrant)

Date: May 27, 2015		By: /s/ Collin Hwang
		(Signature)
		Name: Collin Hwang
		Title: Chief Executive Officer

Exhibit 99.1

NOTICE OF THE SIXTEENTH ANNUAL GENERAL MEETING OF SHAREHOLDERS

GigaMedia Limited

Incorporated in the Republic of Singapore

Registration No.: 199905474H

REGISTERED OFFICE

80 Robinson Road, #02-00

Singapore 068898

The 2015 annual general meeting of the shareholders of GigaMedia Limited (the “Company”) will be held on June 22, 2015 at 3 p.m. local time at 1404-5 Sunbeam Plaza, 1155 Canton Road, Kowloon, Hong Kong, for the following purposes:

AS ORDINARY AND SPECIAL BUSINESS

ORDINARY RESOLUTIONS:

To consider and, if thought fit, to pass, with or without modification, the following resolutions which will be proposed as Ordinary Resolutions:

1. Adoption of audited financial statements

RESOLVED that the Report of the Directors, Statement by the Directors, Auditor’s Report and Audited Financial Statements of the Company for the financial year ended December 31, 2014 are received and adopted.

(Resolution 1)

2. Approval of appointment of auditors

RESOLVED that KPMG and KPMG LLP be and are hereby appointed as the independent external auditors of the Company and that the Directors be and are hereby authorized to fix their remuneration.

(Resolution 2)

3. Approval of Directors’ remuneration

RESOLVED that the remuneration of the Directors is hereby approved in an aggregate amount not exceeding US$350,000 in respect of their professional services to the Company until the conclusion of the next Annual General Meeting of the Company.

(Resolution 3)

4. Approval for authority to allot and issue shares

RESOLVED that pursuant to Section 161 of the Companies Act, Chapter 50 of Singapore (“Companies Act”), authority be and is hereby given to the Directors of the Company to:

(1) (a)

issue ordinary shares in the Company (“Shares”) whether by way of rights, bonus or otherwise; and/or

(b)

make or grant offers, agreements or options (collectively, “Instruments”) that might or would require Shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) options, warrants, debentures or other instruments convertible into Shares,

at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit; and

(2)

notwithstanding that the authority conferred by this Resolution may have ceased to be in force, issue Shares pursuant to any Instrument made or granted by the Directors while this Resolution was in force; and

(3)

unless varied or revoked by the Company in general meeting, such authority conferred on the Directors of the Company shall continue in force:

(i)

until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held whichever is earlier; or

(ii)

in the case of Shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution, until the issuance of such Shares in accordance with the terms of the Instruments.

(Resolution 4)

5. Approval for share purchase mandate RESOLVED that:

(1)

for the purposes of Sections 76C and 76E of the Companies Act, the exercise by the Directors of the Company of all the powers of the Company to purchase or otherwise acquire issued Shares not exceeding in aggregate the Maximum Limit (as hereafter defined), at such price or prices as may be determined by the Directors from time to time up to the Maximum Price (as hereafter defined), by way of market purchase(s) on The Nasdaq Stock Market (“Nasdaq”) or off-market purchase(s) on an equal access scheme(s) as may be determined by the Directors as they see fit, which scheme(s) shall satisfy all the conditions of the Companies Act, and otherwise in accordance with all other laws and regulations and rules of Nasdaq as may for the time being be applicable, be and is hereby authorized and approved generally and unconditionally (the “Share Purchase Mandate”);

(2)

unless varied or revoked by the Company in general meeting, the authority conferred on the Directors of the Company pursuant to the Share Purchase Mandate may be exercised by the Directors at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earlier of:

(a)

the date on which the next Annual General Meeting of the Company is held; and

(b)

the date by which the next Annual General Meeting of the Company is required by law to be held;

(3)

in this Resolution:

“Average Closing Price” means the average of the last dealt prices of a Share for the five consecutive trading days on which the Shares are transacted on Nasdaq immediately preceding the date of market purchase by the Company or the date of making the offer pursuant to an equal access scheme and deemed to be adjusted in accordance with the listing rules of Nasdaq for any corporate action which occurs after the relevant five day period;

“Maximum Limit” means that number of issued Shares representing 10% of the total number of issued Shares as at the date of the passing of this Resolution (excluding any Shares which are held as treasury shares as at that date); and

“Maximum Price”, in relation to a Share to be purchased or acquired pursuant to the Share Purchase Mandate, means the purchase price (excluding brokerage, commission, applicable goods and services tax and other related expenses) which shall not exceed 105% of the Average Closing Price of the Shares; and

(4)

the Directors of the Company and/or any of them be and are hereby authorized to complete and do all such acts and things (including executing such documents as may be required) as they and/or he may consider expedient or necessary to give effect to the transactions contemplated and/or authorized by this Resolution.

(Resolution 5)

6. To transact any other business as may properly be transacted at the Sixteenth Annual General Meeting of the Company.

NOTES:

1. Shareholders are cordially invited to attend the Sixteenth Annual General Meeting in person. Whether or not you plan to be at the Sixteenth Annual General Meeting, you are urged to return your proxy. A shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and to vote instead of him.

2. Shareholders wishing to vote by proxy should complete the attached form.

3. The proxy form of an individual shareholder shall be signed either by the shareholder personally or by his attorney. The proxy form of a corporate shareholder shall be given either under its common seal or signed on its behalf by an attorney or a duly authorized officer of the corporate shareholder.

4. A proxy need not be a shareholder of the Company.

5. The proxy form (and if relevant, the original power of attorney, or other authority under which it is signed or a notarially certified copy of such power or authority) must be deposited at Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717, or the office of the Company, 8F, No. 22, Lane 407, Section 2, Tiding Boulevard, Taipei 114, Taiwan R.O.C., not less than 48 hours before the time for holding the Sixteenth Annual General Meeting, that is by no later than 3 a.m. June 17, 2015 (New York time), or 3 p.m. June 18, 2015 (Taipei time), failing which the proxy shall not be treated as valid.

6. Electronic Delivery of Future Proxy Materials. Shareholders can consent to receiving all future proxy statements, proxy card and annual reports electronically via e-mail or the internet. To sign up for electronic delivery, please follow the instructions below relating to “Electronic Delivery of Future Proxy Materials” and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

7. Only shareholders of record at the close of business on May 1, 2015 are entitled to notice of and to vote at the Sixteenth Annual General Meeting, or any adjournment or postponement of the Sixteenth Annual General Meeting.

8. The Company intends to use internal sources of funds or external borrowings or a combination of both to finance the Company’s purchase or acquisition of the Shares pursuant to the Share Purchase Mandate. The Directors do not propose to exercise the Share Purchase Mandate to such extent that it would materially and adversely affect the financial position of the Company and its subsidiaries. The amount of financing required for the Company to purchase or acquire its Shares, and the impact on the Company’s financial position, cannot be ascertained as at the date of this Notice as this will depend on the number of Shares purchased or acquired, the price at which such Shares were purchased or acquired and whether the Shares purchased or acquired would be held in treasury or cancelled.

BY ORDER OF THE BOARD

/s/ Kuo-Lun Huang

Kuo-Lun Huang (aka Collin Hwang)

Director and Chief Executive Officer

TABLE OF CONTENTS

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

PROXY STATEMENT

Questions and Answers about the Annual Meeting and Voting

Proposal 1

Proposal 2

Proposal 3

Proposal 4

Proposal 5

Other Matters

Proxy Solicitation

GigaMedia Limited

Incorporated in the Republic of Singapore

Registration No.: 199905474H

REGISTERED OFFICE

80 Robinson Road, #02-00

Singapore 068898

PROXY STATEMENT

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Why Did I Receive This Proxy Statement?

We sent you this proxy statement and the enclosed proxy card because the Company’s Board of Directors is soliciting your proxy to be used at the Company’s annual meeting of shareholders on June 22, 2015 at 3 p.m. local time at 1404-5 Sunbeam Plaza, 1155 Canton Road, Kowloon, Hong Kong, or at any adjournment or postponement of the meeting.

Who Can Vote?

You are entitled to vote if you owned the Shares on the record date (“Record Date”), which is the close of business on May 1, 2015. Each Share that you own entitles you to one vote.

How Many Shares of Voting Stock Are Outstanding?

On the Record Date, there were 55,261,661 Shares outstanding. The Shares are our only class of voting stock.

What May I Vote On?

1. Adoption of Audited Financial Statements

2. Approval of Appointment of Auditors

3. Approval of Directors’ Remuneration

4. Approval for Authority to Allot and Issue Shares

5. Approval for Share Purchase Mandate

Other Business

How Do I Vote?

To vote by proxy, you should complete, sign and date the enclosed proxy card and return it promptly in the prepaid envelope provided.

Electronic Delivery of Future Proxy Materials

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the internet. To sign up for electronic delivery, please go to www.proxyvote.com to indicate that you agree to receive or access proxy materials electronically in future years.

May I Revoke My Proxy?

Your proxy may be revoked prior to its exercise by appropriate notice to the undersigned.

If I Plan To Attend The Meeting, Should I Still Vote By Proxy?

Whether you plan to attend the meeting or not, we urge you to vote by proxy. Returning the proxy card will not affect your right to attend the meeting, and your proxy will not be used if you are personally present at the meeting and inform the Secretary in writing prior to the voting that you wish to vote your Shares in person.

How Will My Proxy Get Voted?

If you properly fill in your proxy card and send it to us, your proxy holder (the individual named on your proxy card) will vote your Shares as you have directed. If you sign the proxy card but do not make specific choices, the proxy holder will vote your Shares as recommended by the Board of Directors and the Company’s management.

How Will Voting On Any Other Business Be Conducted?

Although we do not know of any business to be considered at the meeting other than the proposals described in this proxy statement, if any other business is presented at the meeting, your returned proxy gives authority to the proxy holder to vote on these matters in his discretion.

Proposal 1. ADOPTION OF AUDITED FINANCIAL STATEMENTS

The Company seeks shareholders’ adoption of the audited financial statements of the Company (the “Audited Financial Statements”), which have been prepared under Singapore Generally Accepted Accounting Principles, in respect of the financial year ended December 31, 2014. Along with the Audited Financial Statements, the Company seeks Shareholders’ adoption of the Report of the Directors, Statement by the Directors and Auditor’s Report of the Company in respect of the same financial year.

Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the Sixteenth Annual General Meeting of the Company (“AGM”).

The Board of Directors of the Company (the “Board of Directors”) recommends a vote FOR this proposal.

Proposal 2. APPROVAL OF APPOINTMENT OF AUDITORS

The Company seeks Shareholders’ approval for the appointment of KPMG and KPMG LLP as the independent external auditors of the Company to hold such office until the conclusion of the next Annual General Meeting of the Company. The Board of Directors also seeks shareholders’ approval to authorize the Board of Directors to fix the remuneration for KPMG and KPMG LLP in respect of their service to the Company for the financial year ended December 31, 2015.

Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

The Board of Directors recommends a vote FOR this proposal.

Proposal 3. APPROVAL OF DIRECTORS’ REMUNERATION

The Company seeks shareholders’ approval on the remuneration of Directors in an aggregated amount not exceeding US$350,000 in respect of their professional services to the Company until the conclusion of the next Annual General Meeting of the Company.

Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

The Company’s management recommends a vote FOR this proposal.

Proposal 4. APPROVAL FOR AUTHORITY TO ALLOT AND ISSUE SHARES

The Company is incorporated in Singapore. Under the Companies Act, Chapter 50 of Singapore (the “Companies Act”), the Directors may exercise any power of the Company to issue new Shares only with the prior approval of the shareholders of the Company at a general meeting. Such approval, if granted, is effective from the date of the general meeting at which the approval was given until the date on which the next Annual General Meeting of the Company is held or is required by law to be held, whichever is earlier.

Shareholders’ approval is sought to give Directors authority to allot and issue new Shares and other instruments convertible into Shares during the period from the Sixteenth Annual General Meeting to the earlier of the next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by law to be held.

Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

The Board of Directors recommends a vote FOR this proposal.

Proposal 5. APPROVAL FOR SHARE PURCHASE MANDATE

The approval of the Share Purchase Mandate authorizing the Company to purchase or acquire its Shares would give the Company the flexibility to undertake share purchases or acquisitions at any time, subject to market conditions, during the period when the Share Purchase Mandate is in force.

In managing the business of the Company and its subsidiaries (the “Group”), the Company’s management strives to increase shareholders’ value by improving, inter alia, the return on equity of the Group. A share purchase by the Company is one of the ways through which the return on equity of the Group may be enhanced.

A Share purchase is also an available option for the Company to return surplus cash which is in excess of the financial and possible investment needs of the Group to its shareholders. In addition, the Share Purchase Mandate will allow the Company to have greater flexibility over, inter alia, the Company’s share capital structure and its dividend policy.

The Company intends to use internal sources of funds or external borrowings or a combination of both to finance the Company’s purchase or acquisition of the Shares pursuant to the Share Purchase Mandate. The Directors do not propose to exercise the Share Purchase Mandate to such extent that it would materially and adversely affect the financial position of the Group.

Share repurchase programmes may also help buffer short-term share price volatility and off-set the effects of short-term speculators and investors and, in turn, bolster shareholder confidence and employee morale.

Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

The Board of Directors recommends a vote FOR this proposal.

OTHER MATTERS

As of the date of this Proxy Statement, the Company does not intend to present and has not been informed that any other person intends to present any business not specified in this Proxy Statement for action at the Sixteenth Annual General Meeting.

Shareholders are urged to sign the enclosed proxy form and to return it promptly in the enclosed envelope. Proxies will be voted in accordance with shareholders’ directions. Signing the proxy form does not affect a shareholder’s right to vote at the Sixteenth Annual General Meeting, and the proxy may be revoked prior to its exercise by appropriate notice to the undersigned.

PROXY SOLICITATION

The Company will pay the cost of preparing and mailing this proxy statement and form of proxy to its shareholders. The Company has retained Mackenzie Partners, Inc. to request banks and brokers to forward copies of these materials to persons for whom they hold Shares and to request authority for execution of the proxies.

GIGAMEDIA LIMITED

/s/ Kuo-Lun Huang

Kuo-Lun Huang (aka Collin Hwang)

Director and Chief Executive Officer

Exhibit 99.2

LOGO

GIGAMEDIA LIMITED
8F, NO. 22, LANE 407, SECTION 2 TIDING BLVD.
NEIHU DISTRICT, TAIPEI 114
TAIWAN R.O.C.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please go to www.proxyvote.com, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY MAIL
Mark, sign and date your proxy card and return it, no less than 48 hours before the time of the meeting, in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
M92191-P66765
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
GIGAMEDIA LIMITED
The Board of Directors recommends you vote For proposals 1 through 5.
For Against Abstain
1. Adoption of Audited Financial Statements
2. Approval of Appointment of Auditors
3. Approval of Directors’ Remuneration
4. Approval of Authority to Allot and Issue Shares
5. Approval for Share Purchase Mandate
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
For address changes/comments, mark here.
(see reverse for instructions)
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
Signature [PLEASE SIGN WITHIN BOX] Date
Signature (Joint Owners)
Date

LOGO

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement, U.S. Annual Report and Singapore Annual Report are available at www.proxyvote.com.
M92192-P66765
GIGAMEDIA LIMITED
Annual Meeting of Shareholders
June 22, 2015 3:00 PM
This proxy is solicited by the Board of Directors
I/We, being a Shareholder/Shareholders of the above named Company, hereby appoint Kuo-Lun Huang (aka Collin Hwang) of 8F, No. 22, Lane 407, Section 2 Tiding Blvd., Neihu District, Taipei R.O.C., failing whom the Chairman of the Meeting, as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 1404-5 Sunbeam Plaza, 1155 Canton Rd., Kowloon, Hong Kong on Monday, June 22, 2015, at 3:00 PM local time, and at any adjournment or postponement thereof.
This Proxy, when properly executed and returned in a timely manner, will be voted at the Annual General Meeting and any adjournments thereof in the manner described herein. If no contrary indication is made, the proxy will be voted as recommended by the Board of Directors and the Company’s management.
1. The proxy form must be signed by the Shareholder or by the Shareholders’ attorney duly authorized in writing or, if the appointer is a corporation, either, under seal or in some other manner approved by the directors of the Company.
2. To be effective, the proxy form (and power of attorney or other authority under which it is signed or a notarially certified copy of such power of authority, if relevant) must be returned to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717, no less than 48 hours before the meeting.
Address changes/comments:
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side

Exhibit 99.3

GIGAMEDIA LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 AND 2014

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(With Reports of Independent Registered Public Accounting Firms Thereon)

GIGAMEDIA LIMITED AND SUBSIDIARIES

Index to Consolidated Financial Statements


	Page

Reports of Independent Registered Public Accounting Firms		1

Consolidated balance sheets as of December 31, 2013 and 2014		3

Consolidated statements of operations for the years ended December 31, 2012, 2013 and 2014		5

Consolidated statements of comprehensive loss for the years ended December 31, 2012, 2013 and 2014		6

Consolidated statements of changes in equity for the years ended December 31, 2012, 2013 and 2014		7

Consolidated statements of cash flows for the years ended December 31, 2012, 2013 and 2014		8

Notes to consolidated financial statements		10

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

GigaMedia Limited:

We have audited the accompanying consolidated balance sheets of GigaMedia Limited and subsidiaries (the “Company”) as of December 31, 2013 and 2014, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of GigaMedia Limited and subsidiaries as of December 31, 2013 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/S/ KPMG

Taipei, Taiwan (the Republic of China)

April 28, 2015

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

GigaMedia Limited

We have audited the accompanying consolidated statements of operations, comprehensive loss, changes in equity and cash flows of GigaMedia Limited and subsidiaries (the “Company”) for the year ended December 31, 2012. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of GigaMedia Limited and subsidiaries for the year ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ GHP Horwath, P.C.

Denver, Colorado

April 30, 2013

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2013 AND 2014

(in thousands of US dollars)


	December 31
	2013			2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 10)	$	58,801		$	50,640
Marketable securities - current (Note 11)		21,460			29,340
Accounts receivable - net (Note 12)		2,027			1,298
Prepaid expenses		750			564
Restricted cash (Notes 10 and 16)		—			8,991
Other current assets (Notes 13 and 25)		293			325

Total Current Assets		83,331			91,158

Marketable debt securities - noncurrent (Note 14)		6,048			4,744

Equity investments (Note 15)		5,822			5,781

PROPERTY, PLANT AND EQUIPMENT
Land and buildings		1,211			1,141
Information and communication equipment		4,082			3,903
Office furniture and fixtures		184			176
Leasehold improvements		122			123
Other		—			72

		5,599			5,415
Less: Accumulated depreciation and amortization		(3,922	)		(3,752	)

		1,677			1,663

INTANGIBLE ASSETS - NET (Note 7)		1,461			222

OTHER ASSETS
Refundable deposits		306			302
Prepaid licensing and royalty fees (Note 8)		4,666			4,383
Other (Note 19)		10			51

Total Other Assets		4,982			4,736

TOTAL ASSETS	$	103,321		$	108,304

(Continued)

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - (Continued)

DECEMBER 31, 2013 AND 2014

(in thousands of US dollars, except share data)


	December 31
	2013			2014
LIABILITIES & EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note 16)	$	4,361		$	18,641
Accounts payable		1,178			771
Accrued compensation		380			796
Accrued expenses (Note 17)		2,617			3,465
Deferred revenue		2,441			1,946
Other current liabilities (Note 18)		3,862			1,718

Total Current Liabilities		14,839			27,337

OTHER LIABILITIES
Accrued pension liabilities (Note 19)		170			—
Other (Notes 20 and 25)		11			1,938

Total Other Liabilities		181			1,938

Total Liabilities		15,020			29,275

EQUITY (Note 22)
GigaMedia Shareholders’ Equity:
Common shares, no par value, and additional paid-in capital; issued and outstanding 50,723 thousand shares in 2013 and 55,262 thousand shares in 2014		305,072			308,682
Accumulated deficit		(213,021	)		(218,176	)
Accumulated other comprehensive loss		(3,603	)		(11,487	)

Total GigaMedia shareholders’ equity		88,448			79,019

Noncontrolling interest		(147	)		10

Total Equity		88,301			79,029

COMMITMENTS AND CONTINGENCIES (Note 27)		—			—
TOTAL LIABILITIES AND EQUITY	$	103,321		$	108,304

The accompanying notes are an integral part of these consolidated financial statements.

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(in thousands of US dollars, except for earnings per share amounts)


	2012			2013			2014
OPERATING REVENUES
Asian online game and service revenues	$	27,470		$	14,106		$	8,199
Other revenues		—			926			1,580

		27,470			15,032			9,779

COSTS OF REVENUES
Cost of Asian online game and service revenues		(11,388	)		(6,425	)		(6,010	)
Cost of other revenues		—			(1,159	)		(1,825	)

		(11,388	)		(7,584	)		(7,835	)

GROSS PROFIT		16,082			7,448			1,944

OPERATING EXPENSES
Product development and engineering expenses		(1,471	)		(1,698	)		(892	)
Selling and marketing expenses		(8,377	)		(4,815	)		(6,708	)
General and administrative expenses		(13,384	)		(6,324	)		(6,378	)
Bad debt expense (Note 12)		(169	)		(37	)		(37	)
Impairment loss on property, plant and equipment (Note 9)		—			—			(28	)
Impairment loss on goodwill (Notes 6 and 9)		(12,489	)		(17,054	)		—
Impairment loss on intangible assets (Note 9)		(15	)		(13,251	)		(115	)
Impairment loss on prepaid licensing and royalty fees (Notes 8 and 9)		(702	)		(2,752	)		(1,259	)
Other		(49	)		(4	)		—

		(36,656	)		(45,935	)		(15,417	)

LOSS FROM OPERATIONS		(20,574	)		(38,487	)		(13,473	)

NON-OPERATING INCOME (EXPENSES)
Interest income		283			238			682
Gain on sales of marketable debt securities (Notes 11 and 14)		5,665			1,739			8,621
Interest expense		(247	)		(49	)		(243	)
Foreign exchange gain (loss), net		434			45			(556	)
Equity in net earnings (losses) on equity investments - net (Note 15)		234			526			(531	)
Impairment loss on marketable debt securities and investments (Note 9)		(1,193	)		—			—
Gain on sale of equity method investments (Note 5)		2,480			1,220			—
Other		(7	)		86			437

		7,649			3,805			8,410

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(12,925	)		(34,682	)		(5,063	)
INCOME TAX (EXPENSE) BENEFIT (Note 25)		(671	)		(61	)		73

LOSS FROM CONTINUING OPERATIONS		(13,596	)		(34,743	)		(4,990	)
LOSS FROM DISCONTINUED OPERATIONS - NET OF TAX (Note 5)		(2,521	)		(318	)		—

NET LOSS		(16,117	)		(35,061	)		(4,990	)
LESS: NET LOSS (INCOME) ATTRIBUTABLE TO THE NONCONTROLLING INTERESTS		827			281			(165	)

NET LOSS ATTRIBUTABLE TO SHAREHOLDERS OF GIGAMEDIA	($	15,290	)	($	34,780	)	($	5,155	)

NET LOSS ATTRIBUTABLE TO SHAREHOLDERS OF GIGAMEDIA
Loss from continuing operations - net of tax	($	12,769	)	($	34,462	)	($	5,155	)
Loss from discontinued operations - net of tax		(2,521	)		(318	)		—

	($	15,290	)	($	34,780	)	($	5,155	)

LOSS PER SHARE ATTRIBUTABLE TO GIGAMEDIA
Basic:
Loss from continuing operations	($	0.25	)	($	0.68	)	($	0.10	)
Loss from discontinued operations		(0.05	)		(0.01	)		—

Net loss	($	0.30	)	($	0.69	)	($	0.10	)

Diluted:
Loss from continuing operations	($	0.25	)	($	0.68	)	($	0.10	)
Loss from discontinued operations		(0.05	)		(0.01	)		—

Net loss	($	0.30	)	($	0.69	)	($	0.10	)

WEIGHTED AVERAGE SHARES USED TO COMPUTE LOSS PER SHARE ATTRIBUTABLE TO GIGAMEDIA SHAREHOLDERS (Note 2)
Basic		50,720			50,720			53,927

Diluted		50,720			50,720			53,927

The accompanying notes are an integral part of these consolidated financial statements.

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(in thousands of US dollars)


	2012			2013			2014
NET LOSS	($	16,117	)	($	35,061	)	($	4,990	)
OTHER COMPREHENSIVE INCOME (LOSS) - NET OF TAX:
Unrealized gain (loss) on marketable debt securities		(24,004	)		4,698			(7,715	)
Defined benefit pension plan adjustment		(323	)		15			—
Foreign currency translation adjustments		1,814			57			(171	)
Deconsolidation of subsidiaries		2,799			—			—

	($	19,714	)		4,770			(7,886	)

COMPREHENSIVE LOSS		(35,831	)		(30,291	)		(12,876	)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTERESTS		(2,189	)		287			(163	)

COMPREHENSIVE LOSS ATTRIBUTABLE TO GIGAMEDIA SHAREHOLDERS	($	38,020	)	($	30,004	)	($	13,039	)

The accompanying notes are an integral part of these consolidated financial statements.

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(in thousands of US dollars and shares, except per share amounts)


	GIGAMEDIA SHAREHOLDERS
	Common shares and additional paid-in capital				Accumulated			Accumulated other comprehensive			Noncontrolling
	Shares		Amount		deficit (Note 22)			income (loss)			interest			Total
Balance as of January 1, 2012		50,720	$	304,672	($	162,951	)		14,351		($	2,996	)	$	153,076
Stock-based compensation		—		179		—			—			—			179
Reversal of cumulative dividend to subsidiary preferred shares (Note 21)		—		—		—			—			469			469
Net loss		—		—		(15,290	)		—			(827	)		(16,117	)
Other comprehensive income (loss)		—		—		—			(22,730	)		3,016			(19,714	)

Balance as of December 31, 2012		50,720		304,851		(178,241	)		(8,379	)		(338	)		117,893
Issuance of common shares from exercise of stock options and RSUs		3		2		—			—			—			2
Stock-based compensation		—		219		—			—			—			219
Acquisition of FingerRockz		—		—		—			—			478			478
Net loss		—		—		(34,780	)		—			(281	)		(35,061	)
Other comprehensive income (loss)		—		—		—			4,776			(6	)		4,770

Balance as of December 31, 2013		50,723		305,072		(213,021	)		(3,603	)		(147	)		88,301
Issuance of common shares from exercise of stock options and RSUs		4,539		3,593		—			—			—			3,593
Stock-based compensation		—		17		—			—			—			17
Liquidation of Dragongate Enterprises Ltd.												(6	)		(6	)
Net income (loss)		—		—		(5,155	)		—			165			(4,990	)
Other comprehensive loss		—		—		—			(7,884	)		(2	)		(7,886	)

Balance as of December 31, 2014		55,262	$	308,682	($	218,176	)	($	11,487	)		10		$	79,029

The accompanying notes are an integral part of these consolidated financial statements.

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(in thousands of US dollars)


	2012			2013			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(16,117	)	($	35,061	)	($	4,990	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1,224			408			306
Amortization		2,204			1,907			1,211
Stock-based compensation		179			219			21
Gain on sales of equity method investments		(2,480	)		(1,220	)		—
Impairment loss on property, plant and equipment		—			—			28
Impairment losses on goodwill		12,489			17,054			—
Impairment losses on intangible assets		15			13,251			115
Impairment losses on prepaid licensing and royalty fees		702			2,752			1,259
Provision for bad debt expenses		169			37			37
Losses (gains) on disposals of property, plant and equipment		208			4			(2	)
Gains on sales of marketable securities		(5,665	)		(1,739	)		(8,621	)
Equity in net (earnings) losses on equity investments - net		(234	)		(526	)		531
Impairment losses on marketable securities and investments		1,193			—			—
Other		377			(141	)		(306	)
Net changes in operating assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable		1,537			767			692
Prepaid expenses		755			52			186
Other current assets		(174	)		708			(260	)
Accounts payable		(515	)		854			(407	)
Accrued expenses		(59	)		(2,223	)		848
Accrued compensation		(831	)		(853	)		416
Other current liabilities		(467	)		(1,017	)		(711	)
Accrued pension liabilities / Prepaid pension assets		110			(111	)		(215	)
Prepaid licensing and royalty fees		(2,397	)		1,026			(976	)
Other		454			(453	)		—

Net cash used in operating activities		(7,323	)		(4,305	)		(10,838	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash		3,694			—			(8,991	)
Cash dividends received from investees		—			—			247
Proceeds from disposals of marketable debt securities		8,610			3,419			18,692
Divestiture of business, net of cash transferred		(1,308	)		—			—
Purchases of property, plant and equipment		(429	)		(225	)		(420	)
Proceeds from disposals of property, plant and equipment		76			35			2
Proceeds from disposals of businesses, net of transaction costs		1,735			3,258			—
Purchases of marketable debt securities		—			(2,460	)		(6,490	)
Purchase of equity investments		—			—			(19,552	)
Purchases of intangible assets		(1,679	)		(1,227	)		(110	)
Acquisitions, net of cash acquired		—			73			—
Decrease (increase) in refundable deposits		428			86			3
Other		(10	)		(5	)		(7	)

Net cash provided by (used in) investing activities		11,117			2,954			(16,626	)

(Continued)

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(in thousands of US dollars)


	2012			2013			2014
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings		(4,348	)		(3,146	)		15,232
Cash received from the exercise of stock options		—			2			3,593

Net cash provided by (used in) financing activities		(4,348	)		(3,144	)		18,825

Net foreign currency exchange differences on cash and cash equivalents		(712	)		565			478

NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,266	)		(3,930	)		(8,161	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		63,997			62,731			58,801

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	62,731		$	58,801		$	50,640

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year	$	248		$	53		$	237

Income tax paid (refunded) during the year	$	121		($	285	)	($	84	)

The accompanying notes are an integral part of these consolidated financial statements.

GIGAMEDIA LIMITED AND SUBSIDIARIES

Notes To Consolidated Financial Statements

December 31, 2012, 2013 AND 2014

NOTE 1. Principal Activities, Basis of Presentation, and Summary of Significant Accounting Policies

(a) Principal Activities

GigaMedia Limited (referred to hereinafter as GigaMedia, our Company, we, us, or our) is a diversified provider of online and mobile games and cloud computing services, with headquarters in Taipei, Taiwan.

Our Asian online game and service business operates a suite of play-for-fun online games and provides related services, mainly targeting online and mobile game players across Asia, including Greater China and Southeast Asia.

We began developing a new cloud computing business in the second half of 2012. The cloud business aims at providing an integrated platform of services and tools for medium-to-larger enterprises in Greater China to increase flexibility, efficiency and competitiveness, as well as in bidding for government contracts in Taiwan. We launched the business in April 2013.

In July 2012 we sold a non-controlling interest we held in an online gaming software and service business to BetClic Everest Group (“BEG”). (See Note 5, “Divestitures”, for additional information.) Prior to the disposal, through our equity investment, the gaming software and service business offered software solutions for online gaming, which was licensed under a software license and support service contract.

(b) Basis of Presentation

The accompanying consolidated financial statements of our Company have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

Following the completion of the sale of 60 percent interest in our gaming software and service business in April 2010, we deconsolidated the results of the gaming software and service business and began accounting for the remaining interest under the equity method of accounting until the closing of the disposal transaction in July 2012 when we sold our remaining ownership. (See Note 5, “Divestitures”, for additional information.)

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

In June 2012, our board of directors approved a plan to liquidate and dissolve JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”), a wholly-owned subsidiary, and Shanghai JIDI Network Technology Co., Ltd. (“Shanghai JIDI”), a variable-interest entity controlled through a series of contractual arrangements. Therefore the results of these entities are reported as discontinued operations for all periods presented. (See Note 5, “Divestitures”, for additional information.)

(c) Summary of significant accounting policies

Principles of Consolidation

The consolidated financial statements include the accounts of GigaMedia and subsidiaries after elimination of all significant inter-company accounts and transactions. In addition, the accounts of our Company’s variable-interest entities are included in the consolidated financial statements. (See Note 3, “Variable-Interest Entities”, for additional information.) The accounting policies for other less than majority-owned investments are described in Note 1 below within the paragraphs headed “Marketable Securities” and “Investments”.

Foreign Currency Translation and Transactions

Assets and liabilities denominated in non-U.S. dollars are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at weighted-average rates of exchange prevailing during the year. Cumulative translation adjustments resulting from this process are charged or credited to other comprehensive income. Gains and losses on foreign currency transactions are included in other income and expenses.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment; allowances for doubtful accounts; the valuation of deferred tax assets, long-lived assets, inventory, investments and share-based compensation; and accrued pension liabilities, income tax uncertainties and other contingencies.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Revenue Recognition

General

Revenues are recognized when persuasive evidence of an arrangement exists, delivery occurs and the customer takes ownership and assumes risks or services are rendered, the sales price is fixed or determinable and collectability is reasonably assured.

Sales taxes assessed by governmental authorities on our revenue transactions are presented on a net basis and therefore are excluded from revenues in our consolidated financial statements.

Multiple-Element Arrangements

Our Company enters into multiple-element revenue arrangements, which may include any combination of services, software, and/or products. To the extent that a deliverable in a multiple-element arrangement is subject to specific accounting guidance, whether and/or how to separate multiple deliverable arrangements into separate units of accounting (separability) and how to allocate the arrangement consideration among those separate units of accounting (allocation) for that deliverable is accounted for in accordance with such specific guidance.

In addition to the aforementioned general policies, the following are the specific revenue recognition policies for each major category of revenue.

Asian Online Game and Service Revenues

Online game revenues are earned through the sale of online game points, prepaid cards, game packs, through the sublicensing of certain games to distributors and through licensing fee revenues. Virtual online game points are sold to distributors or end-users who can make the payments through credit cards, Internet ATMs or telecommunication service operators. Physical prepaid cards and game packs are sold through distributors and convenience stores. Proceeds from sales of physical cards and game packs, net of sales discounts, and online game points are deferred when received and revenue is recognized upon the actual usage of the playing time or in-game virtual items by the end-users; over the estimated useful life of virtual items; or when the sold game points expire and can no longer be used to access the online games or products in accordance with our published game points expiration policy. Sublicensing revenues from the distributors are recognized based on end-users’ activation to the game system and when the performance obligations have been completed. Licensing fee revenues are recognized when the delivery of licensed products has occurred and the fee is fixed or determinable.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Sales of virtual online game points and licensing fee revenues are reported on a gross basis. In the sales of virtual online game points and game licenses, we act as principal and we have latitude in establishing price. Fixed percentage fees retained by service providers for payment processing related to our online game services are recognized as cost of online game revenues. We report sublicensing revenues on a net basis. In the sublicense agreements, we act as agent and the distributors are responsible for the operating and the marketing.

Online game and service revenues also include revenues derived from online advertising arrangements, sponsorship arrangements, or a combination of both. These service arrangements allow advertisers to place advertisements on particular areas of our Company’s websites and online game platforms over a stated period of time. Service revenues from online advertising arrangements are recognized ratably over the period of the contract when the collectability is reasonably assured.

Cloud Product and Service Revenues

Cloud service revenues are related to cloud computing services provided by our Company. Revenues are recorded net of discounts. Cloud service revenues are recognized upon acceptance for project services provided, or for the period of time for which we provide services to the customer. Customers of subscriptions have a choice of paying either monthly or in advance for a certain period of time, for which they receive corresponding discounts. Our Company records any such advanced payment receipts as other current liabilities and amortizes such revenues over the subscription period.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Revenues from the sales of equipment and other related products are recognized upon acceptance.

Deferred Revenues

Deferred revenues consist mainly of the prepaid income related to our Asian online game and service business. Deferred revenue represents proceeds received relating to the sale of game points and in-game items which are activated or charged to the respective player game account by players, but which have not been consumed by the players or expired. Deferred revenue is credited to profit or loss when the game points and in-game items are consumed or expired. Pursuant to relevant new requirements in Taiwan, cash totaling $1.5 million as of December 31, 2014, has been deposited in an escrow account in a bank as a performance bond for the players’ game points, and is included within restricted cash in the consolidated balance sheets.

Prepaid Licensing and Royalty Fees

Our Company, through our subsidiaries, routinely enters into agreements with licensors to acquire licenses for using, marketing, distributing, selling and publishing multi-player online games.

Prepaid licensing fees paid to licensors are amortized on a straight-line basis over the shorter of the estimated useful economic life of the relevant online game or license period, which is usually within two to five years. The annual amortization is modified if the amount computed on the ratio of current gross revenues for a game license over the total of current and anticipated future gross revenues for that game license is greater than the amount computed using the straight-line method.

Prepaid royalty fees and related costs are initially deferred when paid to licensors and amortized as operating costs based on certain percentage of revenues generated by the licensee from operating the related online game in the specific country or region over the contract period.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Fair Value Measurements

Our Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

•

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

•

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

•

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Our Company generally determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available; otherwise we apply appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating adjusted available market discount rate information and our Company’s estimates for non-performance and liquidity risk. These techniques rely extensively on the use of a number of assumptions, including the discount rate, credit spreads, and estimates of future cash flows. (See Note 9, “Fair Value Measurements”, for additional information.)

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and so near to their maturity that they present relatively insignificant risk from changes in interest rates. Commercial paper, negotiable certificates of deposit, time deposits and bank acceptances with original maturities of three months or less are considered to be cash equivalents. Pledged time deposits are excluded from cash and cash equivalents for purposes of the consolidated statements of cash flows.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Marketable Securities

Our Company’s investments in marketable securities are classified either as available-for-sale or trading. For the marketable securities classified as available-for-sale, the investments are stated at fair value with any unrealized gains or losses reported in accumulated other comprehensive income (loss) within equity until realized. For the marketable security classified as trading, we recognize the changes of the fair value of the investment in our consolidated statements of operations.

Other-than-temporary impairments, if any, are charged to non-operating expense in the period in which the loss occurs. In determining whether an other-than-temporary impairment has occurred, our Company primarily considers, among other factors, the length of the time and the extent to which the fair value of an investment has been at a value less than cost. When an other-than-temporary loss is recognized, the fair value of the investment becomes the new cost basis of the investment and is not adjusted for subsequent recoveries in fair value. Realized gains and losses also are included in non-operating income and expense in the consolidated statements of operations. (See Note 9, “Fair Value Measurements”, for additional information.)

Investments

Equity investments in non-publicly traded securities of companies over which our Company has no ability to exercise significant influence are accounted for under the cost method.

For equity investments accounted for as available-for-sale or trading, cash dividends are recognized as investment income. Stock dividends are recognized as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

For equity investments accounted under equity method, stock dividends received from investees as a result of appropriation of net earnings and additional paid-in capital are recognized as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the weighted-average method. Cash dividends are accounted for as a reduction to the carrying value of the investment.

Equity investments in companies over which our Company has the ability to exercise significant influence but does not hold a controlling financial interest are accounted for under the equity method. We recognize our share of the earnings or losses of the investee. Under the equity method, the difference between the cost of the acquisition and our Company’s share of the fair value of the net identifiable assets is recognized as goodwill and is included in the carrying amount of the investment. When our Company’s carrying value in an equity method investee is reduced to zero, no further losses are recorded in our consolidated financial statements unless our Company guaranteed obligations of the investee or has committed to additional funding. When the investee subsequently reports income, our Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Unrealized losses that are considered other-than-temporary, if any, are charged to non-operating expenses. Realized gains and losses, measured against carrying amount, are also included in non-operating income and expenses. (See Note 9, “Fair Value Measurements”, for additional information.)

Receivables

Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. Our Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and our customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is recorded on a straight-line basis over useful lives that correspond to categories as follows:


Categories	Years
Buildings		50
Information and communication equipment		2 to 5
Office furniture and equipment		3 to 5
Leasehold improvements		3 to 5

Leasehold improvements are amortized over the shorter of the term of the lease or the economic useful life of the assets. Improvements and replacements are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred.

We have entered into agreements to lease certain of our Company’s land and buildings to a third party under operating leases, which were renewed in September and October 2013, and which expire no later than September 2016. As of December 31, 2013 and 2014, the carrying amount of the land and buildings under lease was $1.2 million and $1.1 million, respectively. The rental income under the operating lease amounted to $74 thousand, $74 thousand and $73 thousand for 2012, 2013 and 2014, respectively. The minimum rental income to be received under this operating lease is $124 thousand through September 2016.

Business Acquisitions

Our Company accounts for its business acquisitions using the acquisition method. Under this method, our Company recognizes and measures the identifiable assets acquired, the liabilities assumed and any noncontrolling interest at their acquisition-date fair values, with limited exceptions. Acquisition-related costs are generally expensed as incurred.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Intangible Assets and Goodwill

Intangible assets with finite lives are amortized by the straight-line method over their estimated useful lives, ranging from half a year to nine years. Intangible assets with indefinite useful lives are not amortized. Goodwill is not amortized.

Impairment of Intangible Assets, Goodwill and Long-Lived Assets

Goodwill is reviewed for impairment annually or sooner when circumstances indicate an impairment may exist, using a fair-value approach at the reporting unit level. A reporting unit is the operating segment, or a business, which is one level below that operating segment (the “component” level) if discrete financial information is prepared and regularly reviewed by management at the segment level. Components are aggregated as a single reporting unit if they have similar economic characteristics. In connection with our goodwill impairment test, we first assess qualitative factors as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.

If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed.

Intangible assets with indefinite useful lives are tested for impairment at the reporting unit level, at least annually, or whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable from its related future discounted cash flows. Impairment is measured as the difference between the carrying amounts and the fair value of the assets, and is recognized as a loss from operations. In connection with our impairment test for the intangible assets with indefinite useful lives, we first assess qualitative factors as a basis for determining whether it is necessary to perform the quantitative impairment test.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Long-lived assets other than goodwill and intangible assets not being amortized are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable from its related future undiscounted cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured by the extent to which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value, and is recognized as a loss from operations. (See Note 9, “Fair Value Measurements”, for additional information.)

Software Cost

Costs to develop our Asian online game products are capitalized after technological feasibility has been established, and when the product is available for general release to customers, costs are expensed. Costs incurred prior to the establishment of technological feasibility are expensed when incurred and are included in product development and engineering expenses. Capitalized amounts are amortized using the straight-line method, which is applied over the estimated useful economic life of the software, ranging from half a year to three years. The annual amortization is modified if the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product is greater than the amount computed using the straight-line method.

We capitalize certain costs incurred to purchase or to internally create and implement internal-use computer software, which includes software coding, installation, testing and certain data conversion. These capitalized costs are amortized on a straight-line basis over the shorter of the useful economic life of the software or its contractual license period, which is typically three years.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Product Development and Engineering

Product development and engineering expenses primarily consist of research compensation, depreciation and amortization, and are expensed as incurred.

Advertising

Direct-response advertising costs incurred in relation to the acquisition or origination of a customer relationship are capitalized and deferred. The deferred costs are recognized as expense in the consolidated statements of operations over the estimated lives of customer relationships. Costs of broadcast advertising are recorded as expenses as advertising airtime is used. Other advertising expenditures are expensed as incurred.

Advertising expenses incurred in 2012, 2013 and 2014 totaled $3.2 million, $676 thousand and $888 thousand, respectively. As of December 31, 2013 and 2014, prepaid advertising amounted to $1 thousand and $12 thousand, respectively.

Leases

Leases for which substantially all of the risks and rewards of ownership remain with the leasing company are accounted for as operating leases. Payments made under operating leases, net of any incentives received by our Company from the leasing company, are charged to the consolidated statements of operations on a straight-line basis over the lease periods.

Leases are classified as capital leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Assets held under capital leases are recognized as assets of our Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a lease obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligation in order to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Share-Based Compensation

Share-based compensation represents the cost related to share-based awards granted to employees. We measure share-based compensation cost at the grant date, based on the estimated fair value of the award. Share-based compensation is recognized for the portion of the award that is ultimately expected to vest, and the cost is amortized on a straight-line basis (net of estimated forfeitures) over the vesting period. Our Company estimates the fair value of stock options using the Black-Scholes valuation model. The cost is recorded in operating costs and operating expenses in the consolidated statements of operations based on the employees’ respective function.

For shares and stock options granted to non-employees, we measure the fair value of the equity instruments granted at the earlier of the performance commitment date or when the performance is completed.

Retirement Plan and Net Periodic Pension Cost

Under our defined benefit pension plan, net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized net transition obligation and gains or losses on plan assets, is recognized based on an actuarial valuation report. We recognize the funded status of pension plans and non-pension post-retirement benefit plans (retirement-related benefit plans) as an asset or a liability in the consolidated balance sheets.

Under our defined contribution pension plans, net periodic pension cost is recognized as incurred.

Income Taxes

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities. We recognize the investment tax credit associated with the purchase of intangible assets and technology, research and development expenditures, employee compensation and certain equity investments using the flow-through method. Deferred tax assets and liabilities are measured using the enacted tax rate and laws that will be in effect when the related temporary differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount that will more-likely-than-not be realized. In assessing the likelihood of realization, management considers estimates of future taxable income.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

In addition, we recognize the financial statement impact of a tax position when it is more-likely-than-not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is measured at the largest amount that is greater than a 50 percent likely of being realized upon settlement. Interest and penalties on an underpayment of income taxes are reflected as income tax expense in the consolidated financial statements.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares, composed of incremental common shares issuable upon the exercise of warrants and options in all periods, are included in the computation of diluted earnings (loss) per share to the extent such shares are dilutive. Diluted earnings (loss) per share also takes into consideration the effect of dilutive securities issued by subsidiaries. In a period in which a loss is incurred, only the weighted average number of common shares issued and outstanding is used to compute the diluted loss per share, as the inclusion of potential common shares would be anti-dilutive. Therefore, for the years ended December 31, 2012, 2013 and 2014, basic and diluted loss per share are the same.

Noncontrolling Interest

Noncontrolling interest in the equity of a subsidiary is accounted for and reported as equity. Changes in our Company’s ownership interest in a subsidiary that do not result in deconsolidation are accounted for as equity transactions. Any retained noncontrolling equity investment upon the deconsolidation of a subsidiary is initially measured at fair value.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Segment Reporting

We use the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by our Company’s chief operating decision maker for making operating decisions, allocating resources and assessing performance as the source for determining our operating segments. Our Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer.

Segment profit and loss is determined on a basis that is consistent with how our Company reports operating income (loss) in its consolidated statements of operations. Our Company does not report segment asset information to the CODM. Consequently, no asset information by segment is presented. There are no intersegment transactions.

Discontinued Operations

Discontinued operations are reported when a component of an entity either has been disposed of, or is classified as held for sale, and (a) represents a separate major line of business or geographical area of operations, (b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or (c) is a subsidiary acquired exclusively with a view to resale. Discontinued operations are presented separately in the accompanying consolidated statements of operations and prior period financial statements are revised to present discontinued operations retrospectively.

(d) Recent Accounting Pronouncements Not Yet Adopted

The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, in May 2014. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should also disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for annual reporting periods beginning after December 15, 2016. Our Company will implement the provisions of ASU 2014-09 as of January 1, 2017. We have yet to determine the impact of the new standard on our current policies for revenue recognition.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 2. LOSS PER SHARE

The following table provides a reconciliation of the denominators of the basic and diluted per share computations:


(in thousand shares)	2012		2013		2014
Weighted average number of outstanding shares
Basic		50,720		50,720		53,927
Effect of dilutive securities
Employee share-based compensation		—		—		—

Diluted		50,720		50,720		53,927

Options to purchase 1,444 thousand, 1,149 thousand and 683 thousand shares of common stock were not included in dilutive securities for the years ended December 31, 2012, 2013 and 2014, respectively, as the effect would be anti-dilutive.

NOTE 3. VARIABLE-INTEREST ENTITIES

Shanghai JIDI

In order to comply with foreign ownership restrictions and to hold the necessary licenses required, through June 2012 we had operated our Asian online game and service business in the People’s Republic of China (“PRC”) through our VIE, Shanghai JIDI. We had no ownership interest in Shanghai JIDI and relied on a series of contractual arrangements that were intended to give us effective control over Shanghai JIDI. Those contractual arrangements were duly executed and the share pledge agreements were registered with local government authority in compliance with PRC legal requirements. Therefore, we effectively controlled Shanghai JIDI, and were the primary beneficiary of Shanghai JIDI. Shanghai JIDI held an Internet Content Provider (“ICP”) license, an Internet cultural operation license and an Internet publishing license. In June 2012, our board of directors approved a plan to dispose of Shanghai JIDI. As a result, Shanghai JIDI’s operations have been accounted for as discontinued operations. (See Note 5, “Divestitures”, for additional information.) In May 2013, we were notified by the competent authority that Shanghai JIDI had completed the dissolution procedures and was duly deregistered.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

For the year ended December 31, 2012, and the period from January to May 2013, total revenues and net loss of Shanghai JIDI (which are included within discontinued operations) were as follows:


(in US$ thousands)	2012			2013
Total revenues	$	100		$	—

Net loss	$	(888	)	$	—

NOTE 4. ACQUISITIONS

FingerRockz

On October 18, 2013, we subscribed in cash to 405 thousand new common shares of FingerRockz Co., Ltd. (“FingerRockz”), which represents a controlling financial interest of 51.6 percent of the ownership; thereupon we began consolidating FingerRockz. FingerRockz is a mobile game developer and publisher in Taiwan, and we acquired it purposely to enhance our research and development capabilities for mobile games. This primary factor among others, contributed to a purchase price in excess of the fair value of the net identifiable assets acquired and liabilities assumed, and intangible assets. In the acquisition, the most appealing asset to our Company was FingerRockz’s creative team. Because the assembled workforce was not an identifiable asset to be recognized separately from goodwill, the value attributed to it was subsumed into goodwill. The goodwill related to this acquisition is not expected to be deductible for tax purpose.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The following table summarizes the consideration paid for the acquisition and the amounts of estimated fair value of the assets acquired and liabilities assumed at the acquisition date.


(In US$ thousands)	Amount
Consideration and noncontrolling interest:
The consideration transferred	$	510
The fair value of noncontrolling interest in FingerRockz		478

	$	988

Identifiable assets acquired and liabilities assumed:
Cash, receivables and other current assets	$	585
Customer contracts		67
Payables and other current liabilities		(160	)

Net		492
Goodwill		496

	$	988

The following unaudited pro forma results of operations for the years ended December 31, 2012 and 2013 are presented as if the acquisition had been consummated on January 20, 2012, the inception of FingerRockz:


	For the years ended December 31 (unaudited)
(in US$ thousands, except for loss per share)	2012			2013
Net revenues	$	27,477		$	15,040

Net loss attributable to GigaMedia shareholders	$	(15,334	)	$	(34,845	)

Basic and diluted loss per share	$	(0.30	)	$	(0.69	)

The above unaudited pro forma information does not reflect any incremental direct costs, including any restructuring charges to be recorded in connection with the acquisition, or any potential cost savings that may result from the consolidation of certain operations of our Company or FingerRockz. Accordingly, the unaudited pro forma financial information above not necessarily indicative the actual results that would have occurred had the acquisition of FingerRockz been combined during the periods presented, nor it necessarily indicative of future consolidated results of operations.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 5. DIVESTITURES

IAHGames

In July 2012, we entered into agreements to sell a 60 percent ownership in IAHGames, together with the sale of a 100 percent ownership in Spring Asia Limited (“Spring Asia”), which has a 30 percent interest in Game First International Corporation (“GFI”), to IAHGames’ management and Management Capital International Limited (“MCIL”), a British Virgin Islands company owned by IAHGames’ management. We retained a 20 percent ownership in IAHGames. Upon the closing of the agreements, we deconsolidated the results of IAHGames’ operations and began accounting for our remaining 20 percent interest under the equity method.

Our Company accounted for the deconsolidation of and the retained noncontrolling investment in IAHGames in August 2012 at fair value.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

In consideration for the sale of IAHGames and Spring Asia, we were to receive $3 million in cash. The consideration was to be collected in four equal installments, with the first due upon closing, the second due in October 2012, the third due in January 2013 and the fourth due in April 2013. The payments were collateralized by the shares of Spring Asia and were only released from the escrow in proportion to the payment made upon each installment. The first installment of $750 thousand was received upon the closing on August 15, 2012. However, the buyer had defaulted on the remaining three installments. Considering the uncertainty as to the collectability of the remaining three installments, we had deferred the disposal gain of $211 thousand against the consideration installments receivable of $2,250 thousand as of December 31, 2012. The deferred gain was determined as follows:


(In US$ thousand)	Amount
The fair value of consideration received and receivable, net of any transaction costs, plus	$	3,000
The fair value of the 20% retained noncontrolling investment in IAH at the date of deconsolidation		—

		3,000

The carrying amount (credit balance) of IAHGames at the date of deconsolidation		(14,536	)
Net receivables due to GigaMedia from IAHGames waived upon the closing of the sale		17,542
Other comprehensive income component of equity related to IAHGames at the date of the deconsolidation		(217	)

		2,789

Deferred gain on deconsolidation of IAHGames	$	211

On April 17, 2013, we entered into a settlement agreement with IAHGames, IAHGames’ management, and MCIL. Pursuant to the settlement agreement, either IAHGames or IAHGames’ management was to pay us $2,258 thousand, which included interest, to fulfill IAHGames’ obligation under the aforementioned sale of ownership in Spring Asia. In addition, MCIL was to purchase all of our remaining shares in IAHGames for a consideration of $1,000 thousand. The payments were received in May 2013. Upon the receipt of these payments, the above deferred gain and disposal gain for the remaining shares which totaled approximately $1.2 million, was recognized as non-operating income.

JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”)

In June 2012, our board of directors approved a plan to liquidate and dissolve JIDI, a wholly-owned subsidiary, and Shanghai JIDI, a VIE controlled through a series of contractual arrangements.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Results for JIDI and Shanghai JIDI operations are reported as discontinued operations for all periods presented. The carrying amounts of the remaining assets and liabilities, if any, of JIDI and Shanghai JIDI were not significant to our consolidated financial statements as of December 31, 2013, and we recognized a loss of $588 thousand in connection with the disposal of property, plant and equipment, which was included within discontinued operations in 2012. The process of liquidation and dissolution was completed by the end of 2013. Summarized financial information for discontinued operations of JIDI and Shanghai JIDI are as follows:


(in US$ thousands)	2012			2013
Revenue	$	100		$	—

Loss from discontinued operations before tax	$	(2,521	)	$	(318	)
Income tax expense		—			—

Loss from discontinued operations	$	(2,521	)	$	(318	)

Non-controlling Interest in Gaming software and service business

We held a non-controlling equity interest in a gaming software and service business through July 2012, when we entered into another agreement with BEG to sell our non-controlling ownership interest, along with a shareholder loan, for consideration of $1.7 million. Of this consideration, $985 thousand was paid to us in cash, while the remainder related to the extinguishment of a 2009 tax liability. The closing of the sale occurred in August 2012. The sale resulted in the recognition of a gain of approximately $2.5 million, net of transaction costs, which was recorded as non-operating income.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 6. GOODWILL

The following table summarizes the changes to our Company’s goodwill:


(In US$ thousands)	2012			2013
Balance at beginning of year	$	28,437		$	16,934
Acquisition—FingerRockz (Note 4)		—			496
Impairment charge—FunTown and FingerRockz (Note 9)		(12,489	)		(17,054	)
Translation adjustment		986			(376	)

Balance at end of year	$	16,934		$	—

By the acquisition of FingerRockz in 2013, we obtained its mobile platform development experience which now constitutes an important complement to FunTown’s R&D capacity in mobile games. We reassigned its role and developed our estimates of future cash flows from mobile games accordingly. Therefore, for the purpose of testing goodwill for impairment, we determined FingerRockz to be an integral part of FunTown with respect to determining reporting unit, and goodwill arising from the acquisition of FingerRockz was reassigned to FunTown.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 7. INTANGIBLE ASSETS – NET

The following table summarizes our Company’s intangible assets, by major asset class:


	December 31, 2014
(In US$ thousands)	Gross carrying amount		Accumulated amortization		Net
With finite-life intangible assets
Capitalized software development cost	$	2,503	$	2,300	$	203
Customer relationships		5,757		5,757		—
Other		71		52		19

	$	8,331	$	8,109	$	222


	December 31, 2013
(In US$ thousands)	Gross carrying amount		Accumulated amortization		Net
With finite-life intangible assets
Completed technology	$	2,536	$	2,536	$	—
Capitalized software development cost		3,130		2,471		659
Customer relationships		6,112		5,433		679
Other		141		18		123

	$	11,919	$	10,458	$	1,461

Intangible assets with finite lives are amortized over their estimated useful lives ranging from 0.5 to 9 years, with the overall weighted-average life of 5.5 years.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

For the years ended December 31, 2012, 2013 and 2014, total amortization expense of intangible assets were $2.2 million, $1.9 million and $1.2 million, respectively, which includes amortization of capitalized software development costs of $1.1 million, $1.2 million and $494 thousand. As of December 31, 2014, based on the current amount of intangibles subject to amortization, the estimated amortization expense for each of the following years is as follows:


(In US$ thousands)	Amount
2015	$	132
2016		66
2017		24

	$	222

NOTE 8. PREPAID LICENSING AND ROYALTY FEES

The following table summarizes changes to our Company’s prepaid licensing and royalty fees:


(in US$ thousands)	2012			2013			2014
Balance at beginning of year	$	7,103		$	8,644		$	4,666
Addition		5,848			14			1,498
Amortization and usage		(3,671	)		(706	)		(264	)
Exchange difference		218			(216	)		(258	)
Deconsolidation—IAHGames		(152	)		—			—
Impairment charges (Note 9)		(702	)		(3,070	)		(1,259	)

Balance at end of year	$	8,644		$	4,666		$	4,383

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 9. FAIR VALUE MEASUREMENTS

The following table presents the carrying amounts and estimated fair values of our Company’s financial instruments at December 31, 2013 and 2014.


(in US$ thousands)	2013				2014
(in US$ thousands)	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets
Cash and cash equivalents	$	58,801	$	58,801	$	50,640	$	50,640
Marketable securities—current		21,460		21,460		29,340		29,340
Accounts receivable		2,027		2,027		1,298		1,298
Restricted cash		—		—		8,991		8,991
Marketable debt securities—noncurrent		6,048		6,048		4,744		4,744
Refundable deposits		306		306		302		302
Financial liabilities
Short-term borrowings		4,361		4,361		18,641		18,641
Accounts payable		1,178		1,178		771		771
Accrued compensation		380		380		796		796
Accrued expenses		2,617		2,617		3,465		3,465

The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions.

The fair values of the financial instruments shown in the above table as of December 31, 2013 and 2014 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an arm’s length transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. In situations where there is little market activity for the asset or liability at the measurement date, the fair value measurement reflects our Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by us based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

•

Cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued compensation and expenses, and short-term borrowings: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments.

•

Marketable securities: Open-end fund, debt and equity securities are measured using quoted market prices at the reporting date multiplied by the quantity held. Redeemable preferred shares are measured using valuation techniques.

•

Refundable deposits: Measurement of refundable deposits with no fixed maturities is based on carrying amounts.

Significant Unobservable Inputs

The table below presents the ranges of significant unobservable inputs used to value our Company’s level 3 financial instruments. These ranges represent the significant unobservable inputs that were used in the valuation of each type of financial instrument. These inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of our level 3 financial instruments.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014


Level 3 Financial Instruments	Significant Unobservable Inputs by Valuation Technique	Range of Significant Unobservable Inputs as of December 2014
Debt securities - Preferred shares with redemption rights	• Price/Sales per share ratio for selective comparable companies • Discount for lack of marketability	• 2.0 times ~ 14.0 times • 25%

Level 3 Financial Instruments	Significant Unobservable Inputs by Valuation Technique	Range of Significant Unobservable Inputs as of December 2013
Debt securities - Preferred shares with redemption rights	• Price/Sales per share ratio for selective comparable companies • Discount for lack of marketability	• 2.5 times ~ 5.9 times • 25%

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

Our Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Assets and liabilities measured at fair value on a recurring basis are summarized as below:


(in US$ thousands)	Fair Value Measurement Using						Year Ended
(in US$ thousands)	Level 1		Level 2		Level 3		December 31, 2014
Assets
Cash equivalents—time deposits	$	—	$	12,112	$	—	$	12,112
Restricted cash—time deposits		—		8,991		—		8,991
Marketable securities—current
Open-end fund		318		—		—		318
Equity securities		29,022		—		—		29,022
Marketable securities—noncurrent
Debt securities		—		—		4,744		4,744

	$	29,340	$	21,103	$	4,744	$	55,187


(in US$ thousands)	Fair Value Measurement Using						Year Ended
(in US$ thousands)	Level 1		Level 2		Level 3		December 31, 2013
Assets
Cash equivalents—time deposits	$	—	$	14,638	$	—	$	14,638
Marketable securities—current
Open-end fund		336		—		—		336
Equity securities		21,124		—		—		21,124
Marketable securities—noncurrent
Debt securities		—		2,109		3,939		6,048

	$	21,460	$	16,747	$	3,939	$	42,146

Our Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1 for the years ended December 31, 2013 and 2014.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Level 1 and 2 measurements:

Cash equivalents—time deposits and restricted cash—time deposits are convertible into a known amount of cash and are subject to an insignificant risk of change in value. Certain marketable securities are valued using a market approach based on the quoted market prices of identical instruments when available, or other observable inputs such as trading prices of identical instruments in inactive markets. The fair values of the marketable equity securities that have publicly quoted trading prices are valued using those observable prices, unless adjustments are required to available observable inputs.

In 2012, 2013 and 2014, we recognized unrealized gains (losses) of ($24.0) million, $4.7 million and $101 thousand, respectively, on marketable securities valued using market observable inputs, which are included in other comprehensive income.

Level 3 measurements:

For assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2013 and 2014, a reconciliation of the beginning and ending balances are presented as follows:


(in US$ thousands)	Marketable Securities - Debt and Equity Securities
(in US$ thousands)	2013			2014
Balance at beginning of year	$	4,292		$	3,939
Total gains or (losses) (realized/unrealized)
included in earnings		985			—
included in other comprehensive income		1,212			805
Sale		(2,550	)		—

Balance at end of year	$	3,939		$	4,744

The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.	$	—		$	—

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Realized and unrealized gains (or losses) included in the consolidated financial statements for 2012, 2013 and 2014 for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are reported in the consolidated financial statements as follows:


(in US$ thousands)	Gain on sales of marketable securities		Impairment loss on marketable securities and investments
Total gains (losses) included in earnings
for 2012	$	3,370	$	(493	)
for 2013		985		—
for 2014		—		—
Change in unrealized gains (losses) relating to assets still held at the reporting date
for 2012	$	—	$	(493	)
for 2013		—		—
for 2014		—		—

The fair values of the marketable debt and equity securities are derived using a discounted cash flow method with unobservable inputs or adopting a market approach using observable inputs of guideline public companies that market participants would use in pricing the securities. The discounted cash flow method incorporates adjusted available market discount rate information and our Company’s estimates of liquidity risk, and other cash flow model related assumptions.

In 2012, 2013 and 2014, we recognized other-than-temporary impairments of $493 thousand, $0 and $0, respectively, related to marketable debt and equity securities, which is included in non-operating expenses within “impairment loss on marketable securities and investments” in the consolidated statements of operations.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The unrealized gain recognized in our consolidated statement of operations due to the difference between fair value of the equity investment at December 31, 2014 and its acquisition cost in June 2014 was $75 thousand.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities measured at fair value on a nonrecurring basis include measuring impairment when required for long-lived assets. For GigaMedia, long-lived assets measured at fair value on a nonrecurring basis include investments accounted for under the equity method and cost method, property, plant, and equipment, intangible assets, prepaid licensing and royalty fees, and goodwill.

Assets and liabilities measured at fair value on a nonrecurring basis that were determined to be impaired as of December 31, 2013 and 2014 are summarized as below:


(in US$ thousands)	Fair Value measurement Using						Year Ended December 31,		Total Impairment
Assets	Level 1		Level 2		Level 3		2014		Losses
(a) Property, plant and equipment—Information and communication equipment	$	—	$	—	$	—	$	—	$	28
(c) Intangible assets—Capitalized software cost		—		—		—		—		115
(d) Prepaid licensing and royalty fees		—		—		3,033		3,033		1,259

Total	$	—	$	—	$	3,033	$	3,033	$	1,402

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014


(in US$ thousands)	Fair Value measurement Using						Year Ended December 31,		Total Impairment
Assets	Level 1		Level 2		Level 3		2013		Losses
(b) Goodwill—Resulting from acquisition of FunTown and FingerRockz	$	—	$	—	$	—	$	—	$	17,054
(c) Intangible assets—Trade name and Capitalized software cost		—		—		—		—		13,251
(d) Prepaid licensing and royalty fees		—		—		—		—		2,752

Total	$	—	$	—	$	—	$	—	$	33,057

(a)	Impairment losses on certain property, plant, and equipment which were determined to be impaired:

In 2014, we recognized an impairment loss of $28 thousand against our information and communication equipment. The impairment charges are included in operating expenses within “impairment losses on property, plant and equipment” in the consolidated statements of operations. The impairment charge for the equipment was related to servers used for certain product and service lines within our cloud product and service business for which the carrying amount was determined not to be recoverable from its related future undiscounted cash flows. This equipment was valued using unobservable inputs such as discounted cash flows, incorporating adjusted available market discount rate information and our Company’s estimates for liquidity risk, and other cash flow model – related assumptions.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(b) Impairment losses on goodwill which was determined to be impaired:

The fair value of the Asian online game reporting unit was determined based on the present value of estimated future net cash flows discounted at the weighted average cost of capital. In 2013, due to a continued slowdown in demand for our causal online games and the loss of a key licensed game, we experienced significant decline in revenues and negative operating margin in Taiwan from our previous future cash flow expectations from this reporting unit. Further, in the Fall of 2013 we went through an internal restructuring of our operations and made a business decision to transition from PC-based games to browser/mobile games and social casino games. Also our market capitalization had also fallen below our net book value based on the quoted market price of our common stock for a sustained period of time. Based on these qualitative factors, we determined it was more likely than not the revised fair value of this reporting unit may be less than its carrying value, and the related recovery the remaining goodwill could be impaired. Using the same methodology as in the past to determine the estimated fair value of this reporting unit, we developed our expected future net cash flows based on historical data and internal developed estimates as part of our updated long-term strategic plan and included a terminal value of $0. Other significant estimates and assumptions used in developing the future net cash flows included an assumed average revenue decline of 28% and a weighted average cost of capital to discount these expected future cash flows of 13%. As a result, the carrying value of this reporting unit exceeded its fair value, and the implied fair value of the goodwill was determined to be $0. Consequently, a goodwill impairment charge of $17.0 million was recognized in 2013.

In 2013, the trade name arising from the acquisition of FunTown and certain capitalized software development costs were fully written down, resulting in impairment charges of $13.3 million, included in operating expenses within “impairment loss on intangible assets” in the consolidated statements of operations. The impairment charge for the trade name of FunTown is a result of our repositioning of it as described above, while the impairment charges for the capitalized software costs were the result of certain projects within our Asian online game and service business that we ceased further development on, and as a result, we recorded a full impairment of the carrying value of the assets related to these projects.

In 2014, certain capitalized and prepaid software development costs for our cloud product and service business were fully written down, resulting in impairment charges of $115 thousand, included in operating expenses within “impairment loss on intangible assets” in the consolidated statements of operations. The impairment charge is for certain product lines within our cloud product and service business that we decided to shift focus from, and as a result, we recorded a full impairment of the carrying value of the assets related to these items.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(d) Impairment losses on certain prepaid licensing and royalty fees which were determined to be impaired:

In 2013 and 2014, certain prepaid licensing and royalty fees were written down to $0 and $3.0 million, respectively, resulting in impairment charges of $2.8 million and $1.3 million, respectively. This impairment is included in operating expenses in the consolidated statements of operations. The impairment charges for the prepaid licensing and royalty fees related to certain licensed games within our Asian online game and service business that we stopped operating or for which the carrying amounts of the related assets were determined not to be recoverable from their expected future undiscounted cash flows. The licensing fee games and related royalties are re-valued on when impairment exists, using unobservable inputs such as discounted cash flows, incorporating adjusted available market discount rate information and our Company’s estimates for liquidity risk, along with other cash flow model related assumptions.

NOTE 10. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:


	December 31
(in US$ thousands)	2013		2014
Cash and savings accounts	$	44,163	$	38,529
Time deposits		14,638		21,102

Total cash and cash equivalents		58,801		59,631
Less: Cash restricted as collateral and performance bond		—		(8,991	)

Cash and cash equivalents reported on the consolidated statements of cash flows	$	58,801	$	50,640

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

As of December 31, 2014, cash amounting to $1.5 million has been deposited in an escrow account in a bank as a performance bond for our players’ game points, and certain time deposits amounting to $7.5 million have also been pledged as collateral for borrowings from financial institutions. These deposits are restricted and are included in restricted cash in the consolidated balance sheets.

We maintain cash and cash equivalents, as well as restricted cash, in bank accounts with major financial institutions with high credit ratings located in the following jurisdictions:


	December 31
(in US$ thousands)	2013		2014
Taiwan	$	55,661	$	49,829
China		—		6,055
Hong Kong		2,956		2,178
Singapore		—		1,418
Malaysia		133		—
Others		51		151

	$	58,801	$	59,631

NOTE 11. MARKETABLE SECURITIES – CURRENT

Marketable securities – current consist of the following:


	December 31
(in US$ thousands)	2013		2014
Equity securities	$	21,124	$	29,022
Open-end fund		336		318

	$	21,460	$	29,340

As of December 31, 2013 and 2014, the balances of unrealized gains for marketable securities – current were $17.9 million and $9.4 million, respectively. For 2014, unrealized gains of $75 thousand on certain marketable securities held at year-end were included in Non-operating income – Other. During 2012, 2013 and 2014, realized gains from the disposal of marketable securities – current amounted to $2.3 million, $754 thousand, and $8.8 million, respectively. The costs for calculating gains on disposal were based on each security’s average cost.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 12. ACCOUNTS RECEIVABLE – NET

Accounts receivable consist of the following:


	December 31
(in US$ thousands)	2013			2014
Accounts receivable	$	2,082		$	1,354
Less: Allowance for doubtful accounts		(55	)		(56	)

	$	2,027		$	1,298

The following is a summary of the changes in our Company’s allowance for doubtful accounts during the years ended December 31, 2012, 2013 and 2014:


(in US$ thousands)	2012			2013			2014
Balance at beginning of year	$	2,594		$	130		$	55
Additions: Provision for bad debt expense		169			37			37
Less: Write-offs		(269	)		(109	)		(33	)
Deconsolidation - IAHGames		(2,370	)		—			—
Translation adjustment		6			(3	)		(3	)

Balance at end of year	$	130		$	55		$	56

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 13. OTHER CURRENT ASSETS

Other current assets consist of the following:


	December 31
(in US$ thousands)	2013			2014
Loans receivable – current	$	3,394		$	27
Less: Allowance for loans receivable – current		(3,394	)		(27	)
Deferred income tax assets – current, net (Note 25)		—			—
Other		293			325

	$	293		$	325

The following is a reconciliation of changes in our Company’s allowance for loans receivable—current during the years ended December 31, 2012, 2013 and 2014:


(in US$ thousands)	2012			2013			2014
Balance at beginning of year	$	5,057		$	3,437		$	3,394
Less: Writes-offs		(1,620	)		—			(3,359	)
Less: Reversal for collection of bad debt		—			(54	)		—
Translation adjustment		—			11			(8	)

Balance at end of year	$	3,437		$	3,394		$	27

NOTE 14. MARKETABLE DEBT SECURITIES – NONCURRENT

Marketable debt securities – noncurrent consist of the following:


	December 31
(in US$ thousands)	2013		2014
Available-for-sale securities
Debt securities	$	6,048	$	4,744

Our Company’s marketable securities – noncurrent are invested in convertible preferred shares and corporate bonds and are classified as available-for-sale securities.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The preferred shares are convertible into common shares on 1:1 basis, subject to certain adjustments, and shall be automatically converted upon certain conditions outlined in the agreements. The convertible preferred shares are all redeemable based upon certain agreed-upon conditions.

The embedded conversion options of the convertible preferred shares do not meet the definition of derivative instruments and therefore are not bifurcated from the preferred share investment.

We have also considered and determined whether our investments in preferred shares are in-substance common shares which should be accounted for under the equity method. Given that our convertible preferred shares have substantive redemption rights and thus do not meet the criteria of in-substance common shares, we have accounted for them as debt securities.

As of December 31, 2013 and 2014, the balances of unrealized gains for marketable securities – noncurrent were $1.2 million and $2.0 million, respectively. During 2012, 2013 and 2014, realized gains (losses) from the disposal of marketable securities – non-current amounted to $3.4 million, $985 thousand and ($171) thousand, respectively. Gains (losses) on disposal were based on the security’s average cost.

NOTE 15. EQUITY INVESTMENTS

Equity investments consist of the following:


	December 31
(in US$ thousands)	2013		2014
Investments accounted for under the equity method	$	5,822	$	5,781

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Our Company’s investments accounted for under the equity method primarily consist of the following: (a) from July 2012 to May 2013, a 20 percent equity interest investment in Infocomm Asia Holdings Pte Ltd. (“IAHGames”), an online game operator, publisher and distributor in Southeast Asia (See Note 5 “Divestitures”, for additional information); (b) an 18 percent equity interest investment in East Gate Media Contents & Technology Fund (“East Gate”), a Korean Fund Limited Partnership that invests in online game businesses and films; and (c) a 22.86 percent equity interest investment in Double2 Network Technology Co., Ltd. (“Double2”), a Taiwanese company that mainly engaged in development of causal gaming software.

In July 2012, we entered into agreements to sell a 60 percent ownership in IAHGames to IAHGames’ management and Management Capital International Limited (“MCIL”), a British Virgin Islands company owned by IAHGames’ management. As we only retained a 20 percent ownership in IAHGames, upon the closing of the agreements, we deconsolidated the results of IAHGames’ operations and began accounting for our remaining 20 percent interest under the equity method up to May 2013 when we sold the remaining interest in IAHGames to IAHGames’ management and MCIL. (See Note 5, “Divestitures” for additional information.)

Our Company has an 18 percent interest in East Gate, a Korean Limited Partnership. We account for this limited partnership investment under the equity method accounting since we have the ability to exercise significant influence over partnership operating and financial policies based on the terms of the partnership agreement.

NOTE 16. SHORT-TERM BORROWINGS

As of December 31, 2013 and 2014, short-term borrowings totaled $4.4 million and $18.6 million, respectively. These amounts were borrowed from certain financial institutions. The annual interest rates on these borrowings ranged from 1.50 percent to 1.60 percent for 2013 and from 1.35 percent to 1.95 percent for 2014. The maturity dates fell in late January 2014 as of December 31, 2013, and fell in January and July 2015 as of December 31, 2014. As of December 31, 2013 and 2014, the weighted-average interest rate on total short-term borrowings was 1.52 percent and 1.72 percent, respectively.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

As of December 31, 2013 and 2014, the total amount of unused lines of credit available for borrowing under these agreements was approximately $9.9 million and $1.1 million, respectively.

We pledged certain time deposits as collateral for borrowings from financial institutions. The pledged time deposits amounted to $0 and $7.5 million as of December 31, 2013 and 2014, respectively, and are included in restricted cash in the consolidated balance sheets.

NOTE 17. ACCRUED EXPENSES

Accrued expenses consist of the following:


	December 31
(in US$ thousands)	2013		2014
Accrued outsourced development	$	—	$	838
Accrued professional fees		740		603
Accrued royalties		128		308
Accrued advertising expenses		421		613
Accrued incentive to distributors		137		71
Accrued director compensation and liability insurance		424		155
Other		767		877

	$	2,617	$	3,465

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 18. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:


	December 31
(in US$ thousands)	2013		2014
Income taxes payable	$	1,560	$	1,542
Deferred tax liabilities (Note 25)		1,987		—
Other		315		176

	$	3,862	$	1,718

NOTE 19. PENSION BENEFITS

Our Company and our subsidiaries have defined benefit and defined contribution pension plans that cover substantially all of our employees.

Defined Benefit Pension Plan

We have a defined benefit pension plan in accordance with the Labor Standards Law of the Republic of China (R.O.C.) for our employees located in Taiwan, covering substantially all full-time employees for services provided prior to July 1, 2005, and employees who have elected to remain in the defined benefit pension plan subsequent to the enactment of the Labor Pension Act on July 1, 2005. Under the defined benefit pension plan, employees are entitled to a lump sum retirement benefit upon retirement equivalent to the aggregate of 2 months’ pensionable salary for each of the first 15 years of service and 1 month’s pensionable salary for each year of service thereafter subject to a maximum of 45 months’ pensionable salary. The pensionable salary is the monthly average salary or wage of the final six months prior to approved retirement.

We use a December 31 measurement date for our defined benefit pension plan. As of December 31, 2013 and 2014, the accumulated benefit obligation amounted to $360 thousand and $196 thousand, respectively, and the funded status of accrued pension liability (prepaid pension assets) amounted to $170 thousand and ($45) thousand, respectively. The fair value of plan assets amounted to $300 thousand and $303 thousand as of December 31, 2013 and 2014, respectively. The accumulated other comprehensive income amounted to $0 and $0 as of December 31, 2013 and 2014, respectively. The net periodic benefit cost (income) for 2012, 2013 and 2014 amounted to $30 thousand, ($77) thousand and ($199) thousand, respectively.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The following table sets forth the plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2013 and 2014:


	December 31
(in US$ thousands)	2013		2014
Benefit Obligation	$	470	$	258
Fair value of plan assets		300		303

	$	170	$	(45	)

Amounts recognized in the balance sheet consist of:
Noncurrent liabilities (assets)	$	170	$	(45	)
Accumulated other comprehensive income		—		—

Net amount recognized	$	170	$	(45	)

Amounts recognized in accumulated comprehensive income consist of:
Unrecognized net gain	$	—	$	—

For the years ended December 31, 2013 and 2014, the net period pension cost consisted of the following:


	December 31
(in US$ thousands)	2013			2014
Service cost	$	14		$	15
Interest cost		10			9
Expected return on plan assets		(5	)		(6	)
Amortization of prior service cost		(50	)		—
Amortization of net loss		1			—
Curtailment gain		(47	)		(217	)

	$	(77	)	$	(199	)

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Weighted average assumptions used to determine benefit obligations for 2013 and 2014 were as follows:


	December 31
	2013			2014
Discount rate		2.00	%		2.00	%
Rate of compensation increase		1.50	%		1.50	%

Weighted average assumptions used to determine net periodic benefit cost for end of fiscal year were as follows:


	2013			2014
Discount rate		1.75	%		2.00	%
Rate of return on plan assets		1.75	%		2.00	%
Rate of compensation increase		1.50	%		1.50	%

Management determines the discount rate and rate of return on plan assets based on the yields of twenty year ROC central government bonds which is in line with the respective employees remaining service period and the historical rate of return on the above mentioned Fund mandated by the ROC Labor Standard Law.

We have contributed an amount equal to 2 percent of the salaries and wages paid to all qualified employees located in Taiwan to a pension fund (the “Fund”). The Fund is administered by a pension fund monitoring committee (the “Committee”) and deposited in the Committee’s name in the Bank of Taiwan. Our Company makes pension payments from our account in the Fund unless the Fund is insufficient, in which case we make payments from internal funds as payments become due. We seek to maintain a normal, highly liquid working capital balance to ensure payments are made timely.

We expect to make a contribution of $14 thousand to the Fund in 2015. We expect to make benefit payments of $1 thousand from 2015 to 2019 and $1 thousand from 2020 to 2024.

Defined Contribution Pension Plans

We have provided defined contribution plans for employees located in Taiwan and Hong Kong. Contributions to the plans are expensed as incurred.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Taiwan

Pursuant to the new “Labor Pension Act” enacted on July 1, 2005, our Company has a defined contribution pension plan for our employees located in Taiwan. For eligible employees who elect to participate in the defined contribution pension plan, we contribute no less than 6 percent of an employee’s monthly salary and wage and up to the maximum amount of NT$9 thousand (approximately $284), to each of the eligible employees’ individual pension accounts at the Bureau of Labor Insurance each month. Pension payments to employees are made either by monthly installments or in a lump sum from the accumulated contributions and earnings in employees’ individual accounts.

Hong Kong

According to the relevant Hong Kong regulations, we provide a contribution plan for the eligible employees in Hong Kong. We must contribute at least 5 percent of the employees’ total salaries. For this purpose, the monthly relevant contribution to their individual contribution accounts is subject to a cap of HK$1.5 thousand (approximately $193). After the termination of employment, the benefits still belong to the employees in any circumstances.

The total amount of defined contribution pension expenses pursuant to our defined contribution plans for the years ended December 31, 2012, 2013, and 2014 were $585 thousand, $357 thousand, and $364 thousand, respectively.

NOTE 20. OTHER LIABILITIES – OTHER

Other liabilities consist of the following:


	December 31
(in US$ thousands)	2013		2014
Deferred tax liabilities (Note 25)	$	—	$	1,928
Other		11		10

	$	11	$	1,938

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 21. SUBSIDIARY PREFERRED SHARES

In connection with our acquisition of a controlling financial interest in IAHGames, that subsidiary had Class A preferred shares, which were owned by the noncontrolling shareholders. As August 15, 2012 when we deconsolidated IAHGames, these Class A preferred shares were valued at $1.3 million, and represented 8.9 percent of IAHGames’ accumulated voting interest. The holder of the Class A preferred shares was entitled to cumulative dividends at 10 percent per annum. The preferred shares were redeemable at the holder’s option at any time after the expiration of certain licensed games, and were convertible into ordinary shares at any time. Pursuant to agreements entered into in connection with our acquisition of IAHGames in July 2010, all Class A preferred shares were to be converted to ordinary shares of IAHGames at the acquisition date. The preferred shares were fully converted into ordinary shares by the closing date when we sold 60 percent of IAHGames. (See Note 5, “Divestitures”, for additional information.)

Since the Class A preferred shares were never currently redeemable and it was not probable that they would become redeemable as a result of our acquisition of IAHGames, the subsequent adjustment for accretion was not required. However, the cumulative dividends and the reversal of dividends upon the conversion described above for these Class A preferred shares of ($469) thousand for the period from January 1, 2012 to July 31, 2012 are included as a component of “net income (loss) attributable to the noncontrolling interest” in the consolidated statement of operations.

NOTE 22. EQUITY

In accordance with Singapore law, the holders of ordinary shares that do not have par value, are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the general meeting of our company. All shares rank equally with regard to our company’s residual assets. In addition, we are not required to have a number of authorized common shares to be issued.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

In accordance with R.O.C. law, an appropriation for legal reserve amounting to 10 percent of a company’s net profit is required until the reserve equals the aggregate par value of such Taiwan company’s issued capital stock. As of December 31, 2013 and 2014, the legal reserves of Hoshin GigaMedia Center Inc. (“Hoshin GigaMedia”) were $3.0 million for each period. The reserve can only be used to offset a deficit or be distributed as a stock dividend of up to 50 percent of the reserve balance when the reserve balance has reached 50 percent of the aggregate paid-in capital of Hoshin GigaMedia.

NOTE 23. COMPREHENSIVE INCOME

The accumulated balances for each classification of other comprehensive income are as follows:


(in US$ thousands)	Foreign currency items			Unrealized gain on securities			Pension and post retirement benefit plans			Accumulated other comprehensive income (loss)
Balance at January 1, 2012	$	(24,367	)	$	38,410		$	308		$	14,351
Net current period change		1,814			(18,339	)		(323	)		(16,848	)
Reclassification adjustments for gains reclassified into income		—			(5,665	)		—			(5,665	)
Deconsolidation of subsidiaries		(217	)		—			—			(217	)

Balance at December 31, 2012		(22,770	)		14,406			(15	)		(8,379	)
Net current period change		(801	)		6,437			15			5,651
Reclassification adjustments for gains reclassified into income		864			(1,739	)		—			(875	)

Balance at December 31, 2013		(22,707	)		19,104			—			(3,603	)
Net current period change		(176	)		906			—			730
Reclassification adjustments for gains reclassified into income		7			(8,621	)		—			(8,614	)

Balance at December 31, 2014	$	(22,876	)	$	11,389		$	—		$	(11,487	)

There were no significant tax effects allocated to each component of other comprehensive income for the years ended December 31, 2012, 2013 and 2014.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

NOTE 24. SHARE-BASED COMPENSATION

The following table summarizes the total stock-based compensation expense recognized in our consolidated statements of operations:


(in US$ thousands)	2012			2013		2014
Cost of online game and service revenues	$	—		$	—	$	—
Product development & engineering expenses		—			—		—
Selling and marketing expenses		20			—		—
General and administrative expenses		159			219		21

Pre-tax stock-based compensation expense		179			219		21
Income tax (benefit) expense		(41	)		27		(17	)

Total stock-based compensation expense reported in continuing operations	$	138		$	246	$	4

Total stock-based compensation expense reported in discontinued operations, net of tax	$	—		$	—	$	—

There were no significant capitalized stock-based compensation costs at December 31, 2013 and 2014. There was no recognized stock-based compensation tax benefit for the years ended December 31, 2013 and 2014, as our Company recognized a full valuation allowance on net deferred tax assets as of December 31, 2013 and 2014.

(a) Overview of Stock-Based Compensation Plans

2002 Employee Share Option Plan

At the June 2002 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2002 Employee Share Option Plan (the “2002 Plan”) under which up to three million common shares of our Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of our Company are eligible to participate in the 2002 Plan. The 2002 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2002 Plan is 10 years.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

2004 Employee Share Option Plan

At the June 2004 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2004 Employee Share Option Plan (the “2004 Plan”) under which up to seven million common shares of our Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of our Company are eligible to participate in the 2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2004 Plan is 10 years.

2006 Equity Incentive Plan

At the June 2006 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2006 Equity Incentive Plan (the “2006 Plan”) under which up to one million common shares of our Company have been reserved for issuance. The 2006 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2006 Plan. The maximum contractual term for the options under the 2006 Plan is 10 years.

2007 Equity Incentive Plan

At the June 2007 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2007 Equity Incentive Plan (the “2007 Plan”) under which up to two million common shares of our Company have been reserved for issuance. The 2007 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2007 Plan. The maximum contractual term for the options under the 2007 Plan is 10 years.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

2008 Equity Incentive Plan

At the June 2008 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2008 Equity Incentive Plan (the “2008 Plan”) under which up to one million common shares of our Company have been reserved for issuance. The 2008 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2008 Plan. The maximum contractual term for the options under the 2008 Plan is 10 years.

2008 Employee Share Purchase Plan

At the June 2008 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2008 Employee Share Purchase Plan (the “2008 ESPP”) under which up to two hundred thousand common shares of our Company were reserved for issuance. Any person who is regularly employed by our Company or our designated subsidiaries shall be eligible to participate in the 2008 ESPP. Pursuant to the 2008 ESPP, our Company would offer the shares to qualified employees on favorable terms. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2008 ESPP. The 2008 ESPP is administered by a committee designated by the board of directors. As of December 31, 2014, no shares have been subscribed by qualified employees under the 2008 ESPP.

2009 Equity Incentive Plan

At the June 2009 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2009 Equity Incentive Plan (the “2009 Plan”) under which up to one and a half million common shares of our Company have been reserved for issuance. The 2009 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2009 Plan. The maximum contractual term for the options under the 2009 Plan is 10 years.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

2009 Employee Share Purchase Plan

At the June 2009 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2009 Employee Share Purchase Plan (the “2009 ESPP”) under which up to two hundred thousand common shares of our Company have been reserved for issuance. To be eligible, employees must be regularly employed by us or our designated subsidiaries. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2009 ESPP. The 2009 ESPP is administered by a committee designated by the board of directors. As of December 31, 2014, no shares have been issued to employees under the 2009 ESPP.

2010 Equity Incentive Plan

At the June 2010 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2010 Equity Incentive Plan (the “2010 Plan”) under which up to one million common shares of our Company have been reserved for issuance. The 2010 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2010 Plan. The maximum contractual term for the options under the 2010 Plan is 10 years.

2010 Employee Share Purchase Plan

At the June 2010 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2010 Employee Share Purchase Plan (the “2010 ESPP”) under which up to two hundred thousand common shares of our Company have been reserved for issuance. To be eligible, employees must be regularly employed by us or our designated subsidiaries. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2010 ESPP. The 2010 ESPP is administered by a committee designated by the board of directors. As of December 31, 2014, no shares have been issued to employees under the 2010 ESPP.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Summarized below are the general terms of our stock-based compensation plans, for which awards have been granted as of December 31, 2014.

Stock-Based

compensation plan

Granted awards

Vesting schedule

Options’ exercise
price

RSUs’ grant date
fair value

2002 Plan

3,000,000

immediately upon
granting

$0.79

—

2004 Plan

7,875,185

⁽¹⁾

immediately upon
granting to four years

$0.79~$2.55

—

2006 Plan

1,223,333

⁽²⁾

immediately upon
granting to four years

$0.8101~$16.60

2.91~$16.01

2007 Plan

3,355,217

⁽³⁾

immediately upon
granting to four years

$1.20~$18.17

2.47~$15.35

2008 Plan

1,000,000

immediately upon
granting to six years

$2.47~$4.24

—

2009 Plan

2,500,000

⁽⁴⁾

immediately upon
granting to four years

$0.955~$2.47

—

2010 Plan

2,200,000

⁽⁵⁾

three years

$0.8101~$1.14

—

(1)	The granted awards, net of forfeited or canceled shares, were within reserved shares of 7 million common shares.

(2)	The granted awards, net of forfeited or canceled shares, were within reserved shares of 1 million common shares.

(3)	The granted awards, net of forfeited or canceled shares, were within reserved shares of 2 million common shares.

(4)	The granted awards, net of forfeited or canceled shares, were within reserved shares of 1.5 million common shares.

(5)	The granted awards, net of forfeited or canceled shares, were within reserved shares of 1 million common shares.

Options and Restricted Stock Units (“RSUs”) generally vest over the schedule described above. Certain RSUs provide for accelerated vesting if there is a change in control. All options and RSUs are expected to be settled by issuing new shares.

(b) Options

In 2012, 2013 and 2014, 0, 3,000 and 4,538,685 options were exercised, and cash received from the exercise of stock options was $0, $2 thousand and $3.6 million, respectively, which resulted in no significant tax benefit realized on a consolidated basis.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Our Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted to employees. The following table summarizes the assumptions used in the model for options granted during 2013 and 2014:


	2013	2014
Option term (years)	5.8	5.9
Volatility	59.46%~61.84%	58.75%~59.27%
Weighted-average volatility	61%	59%
Risk-free interest rate	0.930%~1.610%	1.968%~2.065%
Dividend yield	0%	0%
Weighted-average fair value of option granted	$0.60	$0.68

Option term. The expected term of the options granted represents the period of time that they are expected to be outstanding. Our Company estimates the expected term of options granted based on historical experience with grants and option exercises.

Expected volatility rate. An analysis of historical volatility was used to develop the estimate of expected volatility.

Risk-free interest rate. The risk-free interest rate is based on yields of U.S. Treasury bonds for the expected term of the options.

Expected dividend yield. The dividend yield is based on our Company’s current dividend yield.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Option transactions during the last three years are summarized as follows:


	2012					2013					2014
	Weighted Avg. Exercise Price		No. of Shares (in thousands)			Weighted Avg. Exercise Price		No. of Shares (in thousands)			Weighted Avg. Exercise Price		No. of Shares (in thousands)			Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Balance at January 31	$	2.13		9,493		$	1.97		9,210		$	1.95		9,223
Options granted		0.96		2,070			1.09		620			1.23		328
Options exercised		—		—			0.79		(3	)		0.79		(4,539	)
Options Forfeited / canceled / expired		1.74		(2,353	)		1.28		(604	)		1.13		(1,882	)

Balance at December 31	$	1.97		9,210		$	1.95		9,223		$	4.06		3,130			5.21	$	1,998

Exercisable at December 31	$	2.15		7,584		$	2.13		7,770		$	4.67		2,595			4.53	$	1,339

Vested and expected to vest at December 31	$	1.97		9,210		$	1.95		9,223		$	4.06		3,130			5.21	$	1,998

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between GigaMedia’s closing stock price on the last trading day of 2014 and the fair value of the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on December 31, 2014. This amount changes based on the fair market value of GigaMedia’s stock. The total intrinsic value of options exercised for the years ended December 31, 2012, 2013, and 2014 were $0, $1 thousand, and $1,855 thousand, respectively.

As of December 31, 2014, there was approximately $121 thousand of unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a period of 1.29 years.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The following table sets forth information about stock options outstanding at December 31, 2014:

Options outstanding

Option currently exercisable

Exercise
price

No. of Shares
(in thousands)

Weighted
average
remaining
contractual life

Exercise price

No. of Shares
(in thousands)

Under $1

520

7.88 years

Under $1

264

$1~$10

1,994

5.31 years

$1~$10

1,715

$10~$20

616

2.65 years

$10~$20

616

3,130

2,595

(c) RSUs

The fair value of RSUs is determined and fixed on the grant date based on our stock price. No RSUs were granted during the years ended December 31, 2012, 2013 and 2014.

As of December 31 2013 and 2014, there was no unrecognized compensation cost related to nonvested RSUs. Our Company received no cash from employees as a result of employee stock award vesting and the forfeiture of RSUs during 2012, 2013 and 2014.

NOTE 25. INCOME TAXES

Income (loss) from continuing operations before income taxes by geographic location is as follows:


(in US$ thousands )	2012			2013			2014
Taiwan operations	$	(14,871	)	$	(33,077	)	$	(13,158	)
Non-Taiwan operations		1,946			(1,605	)		8,095

	$	(12,925	)	$	(34,682	)	$	(5,063	)

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The components of income tax expense (benefit) from continuing operations by taxing jurisdiction are as follows:


(in US$ thousands )	2012		2013			2014
Taiwan:
Current	$	410	$	(131	)	$	(74	)
Deferred		46		379			—

	$	456	$	248		$	(74	)

Non-Taiwan:
Current	$	215	$	(187	)	$	1
Deferred		—		—			—

	$	215	$	(187	)	$	1

Total current income tax expense (benefit)	$	625	$	(318	)	$	(73	)

Total deferred income tax expense (benefit)	$	46	$	379		$	—

Total income tax expense (benefit)	$	671	$	61		$	(73	)

Our ultimate parent company is based in Singapore.

A reconciliation of our effective tax rate related to continuing operations to the statutory tax rate in Taiwan, where our major operations are based, is as follows:


	2012			2013			2014
Taiwan statutory rate, including taxes on income and retained earnings		23.85	%		23.85	%		23.85	%
Foreign tax differential		(0.17	%)		(3.71	%)		42.23	%
Non-deductible items - impairment charges on goodwill		(16.43	%)		(11.73	%)		0.00	%
Non-deductible items - bad debts		0.00	%		0.00	%		(5.16	%)
Changes in unrecognized tax benefits		0.00	%		(4.12	%)		(3.15	%)
Tax-exempted income in foreign jurisdictions		0.00	%		3.12	%		0.00	%
Adjustment for prior year payable		0.00	%		0.54	%		1.81	%
Change in valuation allowance		(4.00	%)		(8.83	%)		(52.97	%)
Tax effect of earnings for equity method investees and certain subsidiaries		(4.38	%)		0.00	%		0.00	%
Other		(4.06	%)		0.70	%		(5.16	%)

Effective rate		(5.19	%)		(0.18	%)		1.45	%

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The expense (benefit) for income taxes attributable to discontinued operations was $0 for each of the years ended December 31, 2012, 2013 and 2014, respectively.

Significant components of our deferred tax assets consist of the following:


(in US$ thousands)	December 31
(in US$ thousands)	2013			2014
Net operating loss carryforwards	$	3,610		$	5,895
Share-based compensation		267			242
Intangible assets and goodwill		738			509
Property, plant and equipment		86			6
Prepaid licensing and royalty fees		1			369
Other		108			126

		4,810			7,147
Less: valuation allowance		(4,754	)		(7,147	)

Deferred tax assets—net	$	56		$	—

As of December 31, 2013 and 2014, $0 and $0, respectively, of the net deferred tax assets were reported as current and included in other current assets on the balance sheet.

Significant components of our deferred tax liabilities consist of the following:


(in US$ thousands)	December 31
(in US$ thousands)	2013		2014
Investment in affiliated companies, principally due to undistributed income	$	1,987	$	1,928
Capitalized software development costs		56		—

Deferred tax liabilities	$	2,043	$	1,928

As of December 31, 2013 and 2014, $0 and $1.9 million, respectively, of deferred tax liabilities were reported as non-current deferred tax liabilities and included in other liabilities.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

A reconciliation of the beginning and ending amounts of our valuation allowance on deferred tax assets for the years ended December 31, 2012, 2013 and 2014 are as follows:


(in US$ thousands)	2012			2013			2014
Balance at beginning of year	$	25,256		$	18,333		$	4,754
Subsequent utilization of valuation allowance		(4	)		(7	)		—
Additions to valuation allowance		214			3,063			2,682
Divestitures		(7,026	)		(16,616	)		—
Exchange differences		(107	)		(19	)		(289	)

Balance at end of year	$	18,333		$	4,754		$	7,147

Under ROC Income Tax Acts, the tax loss carryforward in the preceding ten years would be deducted from income tax for Taiwan operations. The Statutory losses would be deducted from undistributed earnings tax and were not subject to expiration from Taiwan operations. As of December 31, 2014, we have net operating loss carryforward of our Taiwan operations for undistributed earnings tax purpose of $21.1 million which are available to reduce future undistributed earnings, if any, over an indefinite period.

As of December 31, 2014, we had net operating loss carryforwards available to offset future income, amounting to $28.0 million. Below is the breakdown of the expiration of the net operating loss carryforwards in major jurisdictions:


Jurisdiction	Amount		Expiring year
Hong Kong		10,551		indefinite
Taiwan		17,417		2020~2024

		27,968

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding the effects of accrued interest) for the years 2012, 2013 and 2014 are as follows:


(in US$ thousands)	2012			2013		2014
Balance at beginning of year	$	4,714		$	4,202	$	8,798
Current year increase (decrease)		—			4,173		—
Increase (decrease) related to prior year tax positions		573			375		—
Deconsolidation of IAHGames		(1,072	)		—		—
Exchange differences		(13	)		48		(511	)

Balance at end of year	$	4,202		$	8,798	$	8,287

As of December 31, 2012, 2013 and 2014, there were $4.2 million, $8.8 million and $8.3 million of unrecognized tax benefits that if recognized would affect the effective tax rate. As of December 31, 2012, 2013 and 2014, $2.8 million, $6.7 million and $6.4 million of the total unrecognized tax benefit were presented as a reduction of a deferred tax asset that, if recognized, would be offset by a valuation allowance.

There were no interest and penalties related to income tax liabilities recognized for the years ended December 31, 2012, 2013 and 2014.

Our major tax paying components are all located in Taiwan. As of December 31, 2014, the income tax filings in Taiwan have been examined for the years through 2012, but we have filed appeals for the 2008, 2009, 2011 and 2012 tax filings.

In 2012, 2013 and 2014, our unrecognized tax benefits were related to amortization of goodwill and intangible assets resulting from the acquisition of FunTown in 2006. The income tax authority has made decisions on the amortization for our tax filings through 2012. We have filed appeals against the unfavorable parts of the decision regarding these amortization adjustments, pending further response from the tax authority.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons such as current year tax positions, expiration of statutes of limitations, litigation, legislative activity, or other changes in facts regarding realizability. Taiwanese entities are customarily examined by the tax authorities and it is reasonably possible that a future examination may result in positive or negative adjustment to our unrecognized tax benefit within the next 12 months; however management does not expect that the total amount of unrecognized tax benefit will change significantly within the next 12 months of December 31, 2014.

NOTE 26. RELATED-PARTY TRANSACTIONS

During 2014, we have outsourced certain development of software to Double2 Network Technology Co., Ltd., an equity-method investee. The operating costs amounted to $113 thousand for the year ended December 31, 2014.

NOTE 27. COMMITMENTS AND CONTINGENCIES

Commitments

(a) Operating Leases

We rent certain properties which are used as office premises under lease agreements that expire at various dates through 2017. The following table sets forth our future aggregate minimum lease payments required under these operating leases, as of December 31, 2014:


(in US$ thousands)	Amount
2015		910
2016		235
2017		4

	$	1,149

Rental expense for operating leases amounted to $1.8 million, $1.0 million and $1.0 million for the years ended December 31, 2012, 2013 and 2014, respectively.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(b) License Agreements

We have contractual obligations under various license agreements to pay the licensors license fees and minimum guarantees against future royalties. The following table summarizes the committed license fees and minimum guarantees against future royalties set forth in our significant license agreements as of December 31, 2014.


(in US$ thousands)	License fees		Minimum guarantees against future royalties		Total
Minimum required payments:
In 2015	$	1,129	$	1,300	$	2,429
After 2015		5,000		1,500		6,500

	$	6,129	$	2,800	$	8,929

The initial minimum guarantees against future royalties and license fees are not required to be paid until the licensed games are commercially released or until certain milestones are achieved, as stipulated in the individual license agreements. The remaining minimum guarantees are generally required to be paid within three years subsequent to the commercial release dates of the licensed games.

Contingencies

We are subject to legal proceedings and claims that arise in the normal course of business. Currently there are no outstanding claims or litigations against us.

NOTE 28. SEGMENT, PRODUCT, GEOGRAPHIC AND OTHER INFORMATION

We currently have two operating segments: an Asian online game and service business segment, and a cloud service business segment (began in 2013). The Asian online game and service business segment mainly derives its revenues from recognizing the usage of game playing time or in-game items by the end-users. The cloud service business segment mainly derives its revenues from providing cloud products and services to medium-to-larger enterprises as well as public sectors.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Financial information for each operating segment was as follows for the years ended December 31, 2012, 2013, and 2014:


	Asian online
(in US$ thousands)	game and service
2012:
Net revenue from external customers	$	27,470

Loss from operations	$	(12,271	)

Share-based compensation	$	199

Impairment loss on intangible assets	$	15

Impairment loss on prepaid licensing and royalty fees	$	702

Impairment loss on goodwill	$	12,489

Contract termination costs	$	49

Interest income	$	9

Interest expense	$	44

Gain on sales of marketable securities	$	5,665

Foreign exchange gain	$	55

Gain on equity method investments—net	$	234

Impairment loss on marketable securities and investments	$	1,193

Depreciation	$	1,059

Amortization, including intangible assets	$	2,181

Income tax expense	$	710

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014


(in US$ thousands)	Asian online game and service			Cloud service business			Total
2013:
Net revenue from external customers	$	14,106		$	926		$	15,032

Loss from operations	$	(33,677	)	$	(1,218	)	$	(34,895	)

Share-based compensation	$	(225	)	$	69		$	(156	)

Impairment loss on intangible assets	$	13,251		$	—		$	13,251

Impairment loss on prepaid licensing and royalty fees	$	2,752		$	—		$	2,752

Impairment loss on goodwill	$	17,054		$	—		$	17,054

Interest income	$	9		$	—		$	9

Interest expense	$	8		$	—		$	8

Gain on sales of marketable securities	$	1,739		$	—		$	1,739

Foreign exchange gain	$	236		$	—		$	236

Gain on equity method investments - net	$	526		$	—		$	526

Depreciation	$	336		$	8		$	344

Amortization, including intangible assets	$	1,862		$	42		$	1,904

Income tax expense	$	150		$	78		$	228

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014


(in US$ thousands)	Asian online game and service			Cloud service business			Total
2014:
Net revenue from external customers	$	8,199		$	1,580		$	9,779

Loss from operations	$	(8,639	)	$	(1,510	)	$	(10,149	)

Share-based compensation	$	93		$	7		$	100

Impairment loss on property, plant and equipment	$	—		$	28		$	28

Impairment loss on intangible assets	$	—		$	115		$	115

Impairment loss on prepaid licensing and royalty fees	$	1,259		$	—		$	1,259

Interest income	$	31		$	—		$	31

Interest expense	$	243		$	—		$	243

Gain on sales of marketable securities - net	$	8,792		$	—		$	8,792

Foreign exchange gain (loss)	$	(306	)	$	—		$	(306	)

Gain (loss) on equity method investments - net	$	(531	)	$	—		$	(531	)

Depreciation	$	239		$	28		$	267

Amortization, including intangible assets	$	1,124		$	71		$	1,195

Income tax expense (benefits)	$	(92	)	$	—		$	(92	)

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

The reconciliations of segment information to GigaMedia’s consolidated totals are as follows:


(in US$ thousands)	2012			2013			2014
Income (loss) from operations:
Total segments	$	(12,271	)	$	(34,895	)	$	(10,149	)
Other**		7			—			—
Adjustment*		(8,310	)		(3,592	)		(3,324	)

Total GigaMedia consolidated	$	(20,574	)	$	(38,487	)	$	(13,473	)

Share-based compensation
Total segments	$	199		$	(156	)	$	100
Adjustment*		(20	)		375			(79	)

Total GigaMedia consolidated	$	179		$	219		$	21

Impairment loss on property, plant and equipment:
Total segments	$	—		$	—		$	28
Adjustment*		—			—			—

Total GigaMedia consolidated	$	—		$	—		$	28

Impairment loss on intangible assets:
Total segments	$	15		$	13,251		$	115
Adjustment*		—			—			—

Total GigaMedia consolidated	$	15		$	13,251		$	115

Impairment loss on prepaid licensing and royalty fees:
Total segments	$	702		$	2,752		$	1,259
Adjustment*		—			—			—

Total GigaMedia consolidated	$	702		$	2,752		$	1,259

Interest income:
Total segments	$	9		$	9		$	31
Adjustment*		274			229			651

Total GigaMedia consolidated	$	283		$	238		$	682

Interest expense:
Total segments	$	44		$	8		$	243
Adjustment*		203			41			—

Total GigaMedia consolidated	$	247		$	49		$	243

Gain (loss) on sales of marketable securities - net:
Total segments	$	5,665		$	1,739		$	8,792
Adjustments*		—			—			(171	)

Total GigaMedia consolidated	$	5,665		$	1,739		$	8,621

Foreign exchange gain (loss):
Total segments	$	55		$	236		$	(306	)
Adjustments*		379			(191	)		(250	)

Total GigaMedia consolidated	$	434		$	45		$	(556	)

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014


(in US$ thousands)	2012			2013			2014
Gain (loss) on equity method investments—net:
Total segments	$	234		$	526		$	(531	)
Other**		—			—			—
Adjustment*		—			—			—

Total GigaMedia consolidated	$	234		$	526		$	(531	)

Impairment loss on marketable securities and investments:
Total segments	$	1,193		$	—		$	—
Adjustment*		—			—			—

Total GigaMedia consolidated	$	1,193		$	—		$	—

Depreciation:
Total segments	$	1,059		$	344		$	267
Adjustments*		165			64			39

Total GigaMedia consolidated	$	1,224		$	408		$	306

Amortization:
Total segments	$	2,181		$	1,904		$	1,195
Adjustments*		23			3			16

Total GigaMedia consolidated	$	2,204		$	1,907		$	1,211

Income tax expense (benefit):
Total segments	$	710		$	228		$	(92	)
Other**		37			—			—
Adjustments*		(76	)		(167	)		19

Total GigaMedia consolidated	$	671		$	61		$	(73	)

Adjustment items include corporate and certain back-office costs and expenses not attributable to any specific segment. As of December 31, 2012, 2013 and 2014, the compensation related was approximately $4.2 million, $2.1 million and $1.7 million, respectively; accrued professional fees was approximately $911 thousand, $125 thousand and $174 thousand, respectively.

**	Other items relate to the results of operations arising from our non-controlling interest in the online gaming software and service business before we disposed of it in July 2012.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Major Product Lines

Revenues from the Company’s major product lines are summarized as follow:


(in US$ thousands)	2012		2013		2014
MahJong and casino casual games	$	13,120	$	7,065	$	4,301
MMOs*		8,550		6,968		1,908
RPGs**		—		—		1,914
Cloud computing services		—		926		1,580
Others		5,800		73		76

	$	27,470	$	15,032	$	9,779

*	MMOs: Massively multiplayer online games

**	RPGs: Role playing games

Major Customers

No single customer represented 10 percent or more of GigaMedia’s consolidated total net revenues in any period presented.

GIGAMEDIA LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

Geographic Information

Revenues by geographic area are attributed by country of the server location. Revenue from by geographic region is as follows:


(in US$ thousands) Geographic region / country	2012		2013		2014
Taiwan	$	18,744	$	11,793	$	7,413
Hong Kong		4,703		3,239		2,366
Singapore		2,004		—		—
Malaysia		1,550		—		—
Thailand		204		—		—
Others		265		—		—

	$	27,470	$	15,032	$	9,779

Net tangible long-lived assets by geographic region are as follows:


(in US$ thousands) Geographic region / country	December 31,
(in US$ thousands) Geographic region / country	2012		2013		2014
Taiwan	$	1,932	$	1,657	$	1,641
Hong Kong		17		20		22

	$	1,949	$	1,677	$	1,663

NOTE 29. SUBSEQUENT EVENT

We completed the disposal of an equity securities investment during the period between April 13, 2015 and April 15, 2015 in the Taiwan open market through block sales. The total selling price of this investment was slightly higher than its 2014 acquisition cost. Upon settlement, we received approximately US$18 million in cash.

Exhibit 99.4

GigaMedia Limited

and its subsidiaries

Registration Number: 199905474H

Annual Report

Year ended 31 December 2014

GigaMedia Limited and its subsidiaries

Directors’ report

Year ended 31 December 2014

Directors’ report

We are pleased to submit this annual report to the members of the Company together with the audited financial statements for the financial year ended 31 December 2014.

Directors

The directors in office at the date of this report are as follows:


		Chen, Dirk Chi-Ching
		Chien, Mo-Na
		Hong, Chin Fock (Damian)
		Huang, John Ping Chang
		Huang, Billy Bing-Yuan
		Hwang, Collin
		Liu, Nick Chia-En
		Tung, Casey Kuo Chong
		Wong, King Wai Alfred

Directors’ interests

According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50 (the Act), the particulars of interests of directors who held office at the end of the financial year (including those held by their spouses and infant children) in shares, debentures, warrants and share options in the Company and in related corporations (other than wholly-owned subsidiaries) are as follows:


Name of director and corporation in which interests are held	Holdings at beginning of the financial year		Holdings at end of the financial year
Hwang, Collin
*GigaMedia Limited*
- ordinary shares
- interests held		961,200		1,458,138
- option to subscribe for ordinary shares		1,000,000		500,000
Chien, Mo-Na
*GigaMedia Limited*
- option to subscribe for ordinary shares		20,000		20,000

GigaMedia Limited and its subsidiaries

Directors’ report

Year ended 31 December 2014


Name of director and corporation in which interests are held	Holdings at beginning of the financial year		Holdings at end of the financial year
Huang, John Ping Chan
*GigaMedia Limited*
- option to subscribe for ordinary shares		20,000		20,000
Huang, Billy Bing-Yuan
*GigaMedia Limited*
- option to subscribe for ordinary shares		20,000		20,000
Liu, Nick Chia-En
*GigaMedia Limited*
- option to subscribe for ordinary shares		20,000		20,000
Tung, Casey Kuo Chong
*GigaMedia Limited*
- option to subscribe for ordinary shares		20,000		20,000
Wong, King Wai Alfred
*GigaMedia Limited*
- option to subscribe for ordinary shares		—		20,000
Hong, Chin Fock (Damian)
*GigaMedia Limited*
- option to subscribe for ordinary shares		—		20,000

Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, debentures, warrants or share options of the Company or of related corporations either at the beginning of the financial year, or at the end of the financial year.

Except as disclosed under the “Share Options” section of this report, neither at the end of, nor at any time during the financial year, was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Except for salaries, bonuses and fees and those benefits that are disclosed in this report and in note 29 to the financial statements, since the end of the last financial year, no director has received or become entitled to receive, a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which he is a member, or with a company in which he has a substantial financial interest.

GigaMedia Limited and its subsidiaries

Directors’ report

Year ended 31 December 2014

Share options

2002 Employee Share Option Plan

At the June 2002 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2002 Employee Share Option Plan (the “2002 Plan”) under which up to three million common shares of the Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of the Group are eligible to participate in the 2002 Plan. The 2002 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2002 Plan is 10 years.

2004 Employee Share Option Plan

At the June 2004 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2004 Employee Share Option Plan (the “2004 Plan”) under which up to seven million common shares of the Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of the Group are eligible to participate in the 2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2004 Plan is 10 years.

2006 Equity Incentive Plan

At the June 2006 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2006 Equity Incentive Plan (the “2006 Plan”) under which up to one million common shares of the Company have been reserved for issuance. The 2006 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2006 Plan. The maximum contractual term for the options under the 2006 Plan is 10 years.

2007 Equity Incentive Plan

At the June 2007 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2007 Equity Incentive Plan (the “2007 Plan”) under which up to two million common shares of the Company have been reserved for issuance. The 2007 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2007 Plan. The maximum contractual term for the options under the 2007 Plan is 10 years.

2008 Equity Incentive Plan

At the June 2008 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2008 Equity Incentive Plan (the “2008 Plan”) under which up to one million common shares of the Company have been reserved for issuance. The 2008 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2008 Plan. The maximum contractual term for the options under the 2008 Plan is 10 years.

GigaMedia Limited and its subsidiaries

Directors’ report

Year ended 31 December 2014

2008 Employee Share Purchase Plan

At the June 2008 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2008 Employee Share Purchase Plan (the “2008 ESPP”) under which up to two hundred thousand common shares of the Company were reserved for issuance. Any person who is regularly employed by the Company or its designated subsidiaries shall be eligible to participate in the 2008 ESPP. Pursuant to the 2008 ESPP, the Company would offer the shares to qualified employees on favorable terms. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2008 ESPP. The 2008 ESPP is administered by a committee designated by the board of directors. As of the date of this annual report, no shares have been subscribed by qualified employees under the 2008 ESPP.

2009 Equity Incentive Plan

At the June 2009 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2009 Equity Incentive Plan (the “2009 Plan”) under which up to one and a half million common shares of the Company have been reserved for issuance. The 2009 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2009 Plan. The maximum contractual term for the options under the 2009 Plan is 10 years.

2009 Employee Share Purchase Plan

At the June 2009 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2009 Employee Share Purchase Plan (the “2009 ESPP”) under which up to two hundred thousand common shares of the Company have been reserved for issuance. To be eligible, employees must be regularly employed by the Company or its designated subsidiaries. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2009 ESPP. The 2009 ESPP is administered by a committee designated by the board of directors. As of the date of this annual report, no shares have been subscribed by qualified employees under the 2009 ESPP.

2010 Equity Incentive Plan

At the June 2010 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2010 Equity Incentive Plan (the “2010 Plan”) under which up to one million common shares of the Company have been reserved for issuance. The 2010 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2010 Plan. The maximum contractual term for the options under the 2010 Plan is 10 years.

GigaMedia Limited and its subsidiaries

Directors’ report

Year ended 31 December 2014

2010 Employee Share Purchase Plan

At the June 2010 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2010 Employee Share Purchase Plan (the “2010 ESPP”) under which up to two hundred thousand common shares of the Company have been reserved for issuance. To be eligible, employees must be regularly employed by the Company or its designated subsidiaries. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2010 ESPP. The 2010 ESPP is administered by a committee designated by the board of directors. As of the date of this annual report, no shares have been subscribed by qualified employees under the 2010 ESPP.

Summarised below are the general terms of its share-based compensation plans as of 31 December 2014.


Share-based compensation plan	Granted awards			Vesting schedule	Options’ exercise price US$
2002 plan		3,000,000		Immediately upon granting	$0.79
2004 plan		7,875,185	*	Immediately upon granting to four years	$0.79 ~ $2.55
2006 plan		1,223,333	**	Immediately upon granting to four years	$0.81 ~ $16.60
2007 plan		3,355,217	***	Immediately upon granting to four years	$1.20 ~ $18.17
2008 plan		1,000,000		Immediately upon granting to six years	$2.47 ~ $4.24
2009 plan		2,500,000	****	Immediately upon granting to four years	$0.96 ~ $2.47
2010 plan		2,200,000	*****	Three years	$0.81 ~ $1.14

*	The granted awards, net of forfeited or cancelled shares, were within reserved shares of seven million common shares.

**	The granted awards, net of forfeited or cancelled shares, were within reserved shares of one million common shares.

***	The granted awards, net of forfeited or cancelled shares, were within reserved shares of two million common shares.

****	The granted awards, net of forfeited or cancelled shares, were within reserved shares of one and a half million common shares.

*****

The granted awards, net of forfeited or cancelled shares, were within reserved shares of one million common shares.

All options are expected to be settled by issuing new shares.

GigaMedia Limited and its subsidiaries

Directors’ report

Year ended 31 December 2014

Auditors

The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.


		On behalf of the Board of Directors

		CHIEN, MO-NA
		Director


		HWANG, COLLIN
		Director

		28 April 2015

GigaMedia Limited and its subsidiaries

Statement by Directors

Year ended 31 December 2014

Statement by Directors

In our opinion:

(a)

the financial statements set out on pages FS1 to FS66 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2014 and the results, changes in equity and cash flows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and

(b)

at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

The Board of Directors has, on the date of this statement, authorised these financial statements for issue.


		On behalf of the Board of Directors

		CHIEN, MO-NA
		Director


		HWANG, COLLIN
		Director

		28 April 2015

Independent auditors’ report

Members of the Company

GigaMedia Limited

Report on the financial statements

We have audited the accompanying financial statements of GigaMedia Limited (the “Company”) and its subsidiaries (the “Group”), which comprise the statements of financial position of the Group and the Company as at 31 December 2014, the statement of profit or loss, statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages FS1 to FS66.

Management’s responsibility for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

GigaMedia Limited and its subsidiaries

Independent auditors’ report

Year ended 31 December 2014

Opinion

In our opinion, the consolidated financial statements of the Group and the statement of financial position of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2014 and the results, changes in equity and cash flows of the Group for the financial year ended on that date.

Report on other legal and regulatory requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act.

KPMG LLP

Public Accountants and

Chartered Accountants

Singapore

28 April 2015

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Statements of financial position

As at 31 December 2014


		Group						Company
	Note	31/12/2014			31/12/2013			31/12/2014			31/12/2013
		US$’000			US$’000			US$’000			US$’000
Assets
Property, plant and equipment	4		1,835			1,863			—			—
Intangible assets and goodwill	5		222			1,461			—			—
Subsidiaries	6		—			—			79,201			88,487
Associates	7		5,781			5,822			—			—
Other investments	8		4,744			6,048			—			—
Other assets (non-current)	9		4,736			4,982			—			—
Deferred tax assets	10		—			56			—			—

Non-current assets			17,318			20,232			79,201			88,487

Trade and other receivables	11		1,427			2,238			5,148			2,671
Other investments	8		29,340			21,460			—			—
Other assets (current)	12		760			832			—			—
Cash and cash equivalents	13		59,631			58,801			668			62

Current assets			91,158			83,331			5,816			2,733

Total assets			108,476			103,563			85,017			91,220

Equity
Share capital	14		213,238			209,645			213,238			209,645
Reserves	15		6,271			13,839			(3,434	)		1,819
Accumulated losses			(140,318	)		(134,850	)		(124,973	)		(120,435	)

Equity attributable to owners of the Company			79,191			88,634			84,831			91,029
Non-controlling interests			10			(147	)		—			—

Total equity			79,201			88,487			84,831			91,029

The accompanying notes form an integral part of these financial statements.

FS1

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Statements of financial position (cont’d)

As at 31 December 2014


		Group				Company
	Note	31/12/2014		31/12/2013		31/12/2014		31/12/2013
		US$’000		US$’000		US$’000		US$’000
Liabilities
Employee benefits	16		—		170		—		—
Deferred tax liabilities	10		1,928		2,043		—		—
Other liabilities			10		11		—		—

Non-current liabilities			1,938		2,224		—		—

Trade and other payables	17		5,032		4,175		186		191
Loans and borrowings	18		18,641		4,361		—		—
Other current liabilities	19		2,122		2,756		—		—
Current tax liabilities			1,542		1,560		—		—

Current liabilities			27,337		12,852		186		191

Total liabilities			29,275		15,076		186		191

Total equity and liabilities			108,476		103,563		85,017		91,220

The accompanying notes form an integral part of these financial statements.

FS2

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Consolidated statement of profit or loss

Year ended 31 December 2014


	Note	2014 US$’000			2013 US$’000
Continuing operations
Revenue	20		9,779			15,032
Cost of sales			(7,835	)		(7,584	)

Gross profit			1,944			7,448
Other income	21		115			1,095

Product development and engineering expenses			(892	)		(1,698	)
Selling and marketing expenses			(6,708	)		(4,815	)
General and administrative expenses			(6,381	)		(6,340	)
Other operating expenses	22		(1,439	)		(33,098	)

Results from operating activities			(13,361	)		(37,408	)
Finance income			9,625			1,977
Finance expenses			(1,109	)		(81	)

Net finance income	23		8,516			1,896
Share of (loss)/profit of associates, net of tax	7		(531	)		526

Loss before tax			(5,376	)		(34,986	)
Tax benefit/(expense)	24		73			(61	)

Loss from continuing operations			(5,303	)		(35,047	)

Discontinued operations
Loss from discontinued operations	25		—			(318	)

Loss for the year	26		(5,303	)		(35,365	)

Loss attributable to:
Owners of the Company
- Continuing operations			(5,468	)		(34,766	)
- Discontinued operations			—			(318	)
			(5,468	)		(35,084	)
Non-controlling interests
- Continuing operations			165			(281	)

			(5,303	)		(35,365	)

Loss per share
Basic and diluted loss per share (cents)	27		(0.10	)		(0.69	)

Loss per share—continuing operations
Basic and diluted loss per share (cents)	27		(0.10	)		(0.68	)

The accompanying notes form an integral part of these financial statements.

FS3

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Consolidated statement of comprehensive income

Year ended 31 December 2014


	2014			2013
	US$’000			US$’000
Loss for the year		(5,303	)		(35,365	)
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Defined benefit plan remeasurements		—			37
Items that are or may be reclassified subsequently to profit or loss:
Net change in fair value of available-for-sale financial assets		1,336			4,420
Net change in fair value of available-for-sale financial assets reclassified to profit or loss		(8,741	)		—
Foreign currency translation differences—foreign operations		(182	)		42

		(7,587	)		4,462

Other comprehensive income for the year, net of tax *		(7,587	)		4,499

Total comprehensive income for the year		(12,890	)		(30,866	)

Total comprehensive income attributable to:
Owners of the Company		(13,053	)		(30,579	)
Non-controlling interests		163			(287	)

Total comprehensive income for the year		(12,890	)		(30,866	)

*	There was no tax effect on the components included in other comprehensive income.

The accompanying notes form an integral part of these financial statements.

FS4

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Consolidated statement of changes in equity

Year ended 31 December 2014


			Attributable to owners of the Company
	Note		Share capital		Share option reserve		Statutory reserves		Accumulated losses			Fair value reserve		Foreign currency translation reserve			Total			Non- controlling interests			Total equity
			US$’000		US$’000		US$’000		US$’000			US$’000		US$’000			US$’000			US$’000			US$’000
At 1 January 2013				209,643		12,557		3,022		(99,803	)		15,256		(21,683	)		118,992			(338	)		118,654
Total comprehensive income for the year
Loss for the year				—		—		—		(35,084	)		—		—			(35,084	)		(281	)		(35,365	)
Other comprehensive income
Foreign currency translation				—		—		—		—			—		48			48			(6	)		42
Defined benefit plan remeasurements				—		—		—		37			—		—			37			—			37
Net change in fair value of available-for-sale financial assets				—		—		—		—			4,420		—			4,420			—			4,420

Total other comprehensive income, net of tax				—		—		—		37			4,420		48			4,505			(6	)		4,499
Total comprehensive income for the year				—		—		—		(35,047	)		4,420		48			(30,579	)		(287	)		(30,866	)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issuance of ordinary shares		14		2		—		—		—			—		—			2			—			2
Share-based payment transactions		15		—		219		—		—			—		—			219			—			219

Total contributions by and distributions to owners				2		219		—		—			—		—			221			—			221

Changes in ownership interest in subsidiary
Acquisition of subsidiary with non-controlling interests		32		—		—		—		—			—		—			—			478			478

Total changes in ownership interest in subsidiary				—		—		—		—			—		—			—			478			478

Total transactions with owners				2		219		—		—			—		—			221			478			699

At 31 December 2013				209,645		12,776		3,022		(134,850	)		19,676		(21,635	)		88,634			(147	)		88,487

The accompanying notes form an integral part of these financial statements.

FS5

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Consolidated statement of changes in equity

Year ended 31 December 2014


		Attributable to owners of the Company
	Note	Share capital		Share option reserve		Statutory reserves		Accumulated losses			Fair value reserve			Foreign currency translation reserve			Total			Non- controlling interests			Total equity
		US$’000		US$’000		US$’000		US$’000			US$’000			US$’000			US$’000			US$’000			US$’000
At 1 January 2014			209,645		12,776		3,022		(134,850	)		19,676			(21,635	)		88,634			(147	)		88,487
Total comprehensive income for the year
Loss for the year			—		—		—		(5,468	)		—			—			(5,468	)		165			(5,303	)
Other comprehensive income
Foreign currency translation			—		—		—		—			—			(180	)		(180	)		(2	)		(182	)
Defined benefit plan remeasurements			—		—		—		—			—			—			—			—			—
Net change in fair value of available-for-sale financial assets reclassified to profit or loss			—		—		—		—			(8,741	)		—			(8,741	)		—			(8,741	)
Net change in fair value of available-for-sale financial assets			—		—		—		—			1,336			—			1,336			—			1,336

Total other comprehensive income, net of tax			—		—		—		—			(7,405	)		(180	)		(7,585	)		(2	)		(7,587	)
Total comprehensive income for the year			—		—		—		(5,468	)		(7,405	)		(180	)		(13,053	)		163			(12,890	)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issuance of ordinary shares	14		3,593		—		—		—			—			—			3,593			—			3,593
Share-based payment transactions	15		—		17		—		—			—			—			17			—			17

Total contributions by and distributions to owners			3,593		17		—		—			—			—			3,610			—			3,610

Changes in ownership interest in subsidiary
Liquidation of subsidiary with non-controlling interests			—		—		—		—			—			—			—			(6	)		(6	)

Total changes in ownership interest in subsidiary			—		—		—		—			—			—			—			(6	)		(6	)

Total transactions with owners			3,593		17		—		—			—			—			3,610			(6	)		3,604

At 31 December 2014			213,238		12,793		3,022		(140,318	)		12,271			(21,815	)		79,191			10			79,201

The accompanying notes form an integral part of these financial statements.

FS6

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Consolidated statement of cash flows

Year ended 31 December 2014


	2014			2013
	US$’000			US$’000
Cash flows from operating activities
Loss before tax
- continuing operations		(5,376	)		(34,986	)
- discontinued operations		—			(318	)
Adjustments for:
Allowance for doubtful receivables		37			37
Amortisation—intangible assets		1,201			1,904
Depreciation of property, plant and equipment		310			411
Gain on sale of associate (continued operations)		—			(1,000	)
Gain on sale of available-for-sale financial assets		(8,621	)		(1,739	)
Dividend income		(247	)		—
Net change in fair value of financial assets designated at fair value through profit or loss		(75	)		—
Impairment loss on property, plant and equipment		28			—
Impairment loss on prepaid licensing fees		1,259			2,752
Impairment loss on intangible assets and goodwill		115			30,305
(Gain)/Loss on disposal of property, plant and equipment		(2	)		4
Interest expense		243			49
Interest income		(682	)		(238	)
Share-based compensation		21			219
Share of loss/(profit) of associates, net of tax		531			(526	)
Unrealised foreign exchange loss on other investments		310			77

Operating loss before working capital changes		(10,948	)		(3,049	)
Trade and other receivables		484			595
Other assets		(943	)		961
Trade and other payables		845			(2,218	)
Other liabilities		(562	)		(976	)
Employee benefits		(215	)		(111	)

Cash used in operating activities		(11,339	)		(4,798	)
Tax refunded		80			285

Net cash used in operating activities		(11,259	)		(4,513	)

The accompanying notes form an integral part of these financial statements.

FS7

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Consolidated statement of cash flows (cont’d)

Year ended 31 December 2014


	Note	2014			2013
		US$’000			US$’000
Cash flows from investing activities
Acquisition of business, net of cash acquired	32		—			73
Dividends received			247			—
Acquisition of an associate	7		(667	)		—
Acquisition of financial assets designated at fair value through profit or loss			(18,885	)		—
Interest received			744			261
Net cash inflow from disposal of IAHGames and Spring Asia			—			2,258
Proceeds from disposal of associate (continued operations)			—			1,000
Proceeds from disposal of available-for-sale financial assets			18,692			3,419
Proceeds from disposal of property, plant and equipment			2			35
Purchase of available-for-sale financial assets			(6,490	)		(2,460	)
Purchase of property, plant and equipment			(420	)		(225	)
Purchase of intangible assets			(110	)		(1,229	)
Refundable deposit			(4	)		83

Net cash (used in)/from investing activities			(6,891	)		3,215

Cash flows from financing activities
Proceeds from/(Repayment of) short-term borrowings			15,232			(3,146	)
Cash received from the exercise of stock option			3,593			2
Deposits pledged			(8,991	)		—
Interest paid			(233	)		(53	)

Net cash from/(used in) financing activities			9,601			(3,197	)

Net decrease in cash and cash equivalents			(8,549	)		(4,495	)
Cash and cash equivalents at 1 January			58,801			62,731
Effect of exchange rate fluctuations on cash held in foreign currencies			388			565

Cash and cash equivalents at 31 December	13		50,640			58,801

The accompanying notes form an integral part of these financial statements.

FS8

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Notes to the financial statements

These notes form an integral part of the financial statements.

The financial statements were authorised for issue by the Board of Directors on 28 April 2015.

1	Domicile and activities

GigaMedia Limited (the “Company”) is a limited liability company domiciled and incorporated in Singapore. The address of its registered office is at 80 Robinson Road, #02-00, Singapore 068898. Its principal place of business is at 8th Floor, No.22, Ln. 407, Sec. 2, Tiding Blvd., Taipei, Taiwan, 114 Republic of China.

The financial statements of the Group as at and for the year ended 31 December 2014 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates.

The principal activity of the Company is that of investment holding. The principal activities of the subsidiaries are providing online entertainment software and services and investment holding.

2	Basis of preparation

2.1	Statement of compliance

The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS).

2.2	Basis of measurement

The financial statements have been prepared on the historical cost basis except as otherwise described in the notes below.

2.3	Functional and presentation currency

The Company’s functional currency is New Taiwan dollars. Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates. The financial statements are presented in United States dollars (“US$”) which is the Company’s presentation currency as the Company is listed on the NASDAQ Stock Market at United States. All financial information presented in United States dollars have been rounded to the nearest thousand, unless otherwise stated.

FS9

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

2.4	Use of estimates and judgements

The preparation of financial statements in conformity with FRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following note:


Note 3.4(iii)		-		capitalisation of software development costs as intangible assets

Information about assumption and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:


Note 4	-	measurement of recoverable amounts of property, plant and equipment;
Note 5	-	measurement of recoverable amounts of intangible assets;
Note 6	-	measurement of recoverable amounts of subsidiaries;
Note 7	-	measurement of recoverable amounts of associates;
Note 8	-	measurement of fair values of available-for-sale financial assets;
Note 9	-	assessment of impairment loss on prepaid licensing and royalty fees;
Note 16	-	measurement of defined benefit obligations;
Note 24	-	estimation of provision for current and deferred taxation;
Note 32	-	fair value determination of assets, liabilities and contingent liabilities; and acquired in business combination.

Measurement of fair values

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for all significant fair value measurements, including Level 3 fair values, and reports directly to the Chief Financial Officer.

The Chief Financial Officer regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of FRS, including the level in the fair value hierarchy in which such valuations should be classified.

FS10

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

•

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

•

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement (with Level 3 being the lowest).

Further information about the assumptions made in measuring fair values is included in the following notes:

•

Note 8 – other investments;

•

Note 15 – share option reserve;

•

Note 16 – employee benefits; and

•

Note 30 – financial instruments.

2.5	Changes in accounting policies

(i)

Fair value measurement

FRS 113 Fair Value Measurement establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other FRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other FRSs, including FRS 107 Financial Instruments: Disclosures.

From 1 January 2014, in accordance with the transitional provisions of FRS 113, the Company has applied the new fair value measurement guidance prospectively, and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Company’s assets and liabilities.

(ii)

Disclosure of interests in other entities

From 1 January 2014, as a result of FRS 112 Disclosure of Interests in Other Entities, the Group has expanded its disclosures about its interests in associates (see note 7).

FS11

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

(iii)

Offsetting of financial assets and financial liabilities

Under the Amendments to FRS 32 Financial Instruments: Presentation—Offsetting Financial Assets and Financial Liabilities, to qualify for offsetting, the right to set off a financial asset and a financial liability must not be contingent on a future event and must be enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties.

(iv)

Subsidiaries

As a result of FRS 110 Consolidated Financial Statements, the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. FRS 110 introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.

In accordance with the transitional provisions of FRS 110, the Group reassessed the control conclusion for its investees at 1 January 2014 and there is no change in control conclusion for its investment in subsidiaries.

Except as described above, the adoption of the various new standards and amendments did not have a significant effect on the Group’s financial statements.

3	Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by Group entities, except as explained in note 2.5, which addresses changes in accounting policies.

3.1	Basis of consolidation

Business combinations

Business combinations are accounted for using the acquisition method in accordance with FRS 103 Business Combination as at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as:

•

the fair value of the consideration transferred; plus

•

the recognised amount of any non-controlling interests in the acquiree; plus

•

if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree,

over the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

FS12

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Any contingent consideration payable is recognised at fair value at the acquisition date and included in the consideration transferred. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the acquiree’s net assets in the event of liquidation are measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets, at the acquisition date. The measurement basis taken is elected on a transaction-by-transaction basis. All non-controlling interest are measured at acquisition-date fair value, unless another measurement basis is required by FRSs.

Costs related to the acquisition, other than those associated with the issue of equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners and therefore no adjustments are made to goodwill and no gain or loss is recognised in profit or loss. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is expected to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

Loss of control

Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

Associates

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% or more of the voting power of another entity.

FS13

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Investments in associates are accounted for using the equity method and are recognised initially at cost. The cost of the investments includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of associate, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

When the Group’s share of losses exceeds its interest in an associate, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Subsidiaries in the separate financial statements

Investments in subsidiaries are stated in the Company’s statement of financial position at cost less accumulated impairment losses.

3.2	Foreign currency

(i)

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date on that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in profit or loss.

FS14

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

(ii)

Foreign operations

The assets and liabilities of foreign operations, excluding goodwill and fair value adjustments arising on acquisition, are translated to United States dollars at exchange rates at the end of the reporting period. The income and expenses of foreign operations are translated to United States dollars at exchange rates at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the exchange rates at the end of the reporting period. For acquisitions prior to 1 January 2005, the exchange rates at the date of acquisition were used.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. However, if the foreign operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate that includes a foreign operation while retaining significant influence, the relevant proportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gains and losses arising from such a monetary item that are considered to form part of a net investment in a foreign operation are recognised in other comprehensive income, and are presented in the translation reserve in equity.

3.3	Property, plant and equipment

(i)

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes:

•

the cost of materials and direct labour;

•

any other costs directly attributable to bringing the assets to a working condition for their intended use;

•

when the Group has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and

•

capitalised borrowing costs.

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

FS15

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal with the carrying amount of the item), and is recognised in profit or loss.

(ii)

Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii)

Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognised as an expense in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment, unless it is included in the carrying amount of another asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated.

Depreciation is recognised from the date that the property, plant and equipment are installed and are ready for use.

The estimated useful lives for the current and comparative years are as follows:


		Buildings		50 years
		Leasehold improvements		3 to 5 years
		Information and communication equipment		2 to 5 years
		Office furniture and equipment		3 to 5 years

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and adjusted if appropriate.

3.4	Intangible assets and goodwill

(i)

Goodwill

Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, see note 3.1.

Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses.

FS16

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

(ii)

Trademarks

Trademarks acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. Trademarks are measured initially at cost. The cost of trademarks is their fair value at the acquisition date.

Subsequent to initial recognition, trademarks acquired in a business combination are measured at cost less accumulated amortisation and any accumulated impairment losses, on the same basis as intangible assets acquired separately.

Trademarks with indefinite useful lives are tested for impairment annually, or at the cash-generating unit level. Trademarks are not amortised. The useful life of trademarks with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

(iii)

Other intangible assets

Other intangible assets represents the capitalised software development costs and customer relationship.

Development activities involve a plan or design for the production of new or substantially improved software. Development expenditure is capitalised only if development costs can be measured reliably, the software is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in profit or loss as incurred.

Other intangible assets with finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.

(iv)

Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(v)

Amortisation

Amortisation is calculated based on the cost of the asset, less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative years are as follows:


		Capitalised software costs		0.5 to 3 years
		Customer relationship		9 years

Amortisation methods, useful lives and residual values are reviewed at the end of each reporting period and adjusted if appropriate.

FS17

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

3.5	Financial instruments

(i)

Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the assets and settle the liability simultaneously.

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets.

Financial assets at fair value through profit or loss

A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, which takes into account any dividend income, are recognised in profit or loss.

Financial assets designated at fair value through profit or loss comprise equity securities that otherwise would have been classified as available-for-sale.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise trade and other receivables, other assets and cash and cash equivalents.

FS18

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Cash and cash equivalents comprise cash balances and short-term deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. For the purpose of the consolidated statement of cash flows, pledged deposits are excluded whilst bank overdrafts that are repayable on demand and that form an integral part of the Group’s cash management are included in cash and cash equivalents.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

Available-for-sale financial assets comprise equity securities, debt securities and open-end funds.

(ii)

Non-derivative financial liabilities

All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Other financial liabilities comprise trade and other payables and loans and borrowings.

(iii)

Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

FS19

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

3.6	Impairment

(i)

Non-derivative financial assets

A financial asset not carried at fair value through profit or loss, including an interest in an associate, is assessed at the end of each reporting period to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event(s) has occurred after the initial recognition of the asset, and that the loss event(s) has an impact on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

Loans and receivables

The Group considers evidence of impairment for loans and receivables financial assets at both a specific asset and collective level. All individually significant loans and receivables are assessed for specific impairment.

In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. Interest on the impaired asset continues to be recognised. When a subsequent event (e.g. repayment by a debtor) causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Available-for-sale financial assets

Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in cumulative impairment provisions attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale equity security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed. The amount of the reversal is recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

FS20

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Associates

An impairment loss in respect of an associate is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with note 3.6 (ii). An impairment loss is recognised in profit or loss. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

(ii)

Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.7	Leases payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

FS21

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

3.8	Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other cost incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to make the sale.

3.9	Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

3.10	Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on disposal of available-for-sale financial assets, fair value gains on financial assets at fair value through profit or loss, and reclassifications of net gains previously recognised in other comprehensive income. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted equity securities is normally the ex-dividend date.

Finance costs comprise interest expense on borrowings, losses on disposal of available-for-sale financial assets, impairment losses recognised on financial assets (other than trade receivables), and reclassification of net losses previously recognised in other comprehensive income.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in net gain or net loss position.

3.11	Employee benefits

(i)

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees.

FS22

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Defined benefits plan

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset).

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given o any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities.

Remeasurements from defined benefit plans comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). The Group recognises them immediately in other comprehensive income and all expenses related to defined benefit plans in employee benefits expense in profit or loss.

When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised immediately in profit or loss when the plan amendment or curtailment occurs.

The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. The gain or loss on settlement is the difference between the present value of the defined benefit obligation being settled as determined on the date of settlement and the settlement price, including any plan assets transferred and any payments made directly by the Group in connection with the settlement.

(ii)

Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the share appreciation rights. Any changes in the fair value of the liability are recognised as employee benefits expense in profit or loss.

FS23

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

3.12	Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Revenue comprises the fair value for the sale of goods and rendering of services net of value added tax, rebates and discounts, after eliminating sales within the Group.

Asian online game and service revenues

Online game revenues are earned through the sale of online game points, prepaid cards, game packs and also through the sublicensing of certain games to distributors. Virtual online game points are sold to distributors or end-users who can make the payments through credit cards, internet banking or telecommunication service operators. Physical prepaid cards and game packs are sold through distributors and convenience stores. Proceeds from sales of physical cards and game packs, net of sales discounts, and online game points are deferred when received and revenue is recognised upon the actual usage of the playing time or in-game virtual items by the end-users; over the estimated useful life of virtual items; or when the sold game points expire and are no longer eligible to access the online games or products in accordance with the Group’s published game points expiration policy. Sublicensing revenues from the distributors are recognised based on end users’ activation to the game system and when the performance obligations have been completed. Licensing fee revenues are recognized when the delivery of licensed products has occurred and the fee is fixed or determinable.

The Group reports sales of virtual online game points on a gross basis. In the sales of virtual online game points, the Group acts as principal and the Group has latitude in establishing price. Fixed percentage fees retained by service providers for payment processing related to the Group’s online game services are recognised as cost of online game revenues. The Group reports sublicensing revenues on a net basis. In the sublicense agreements, the Group acts as agent and the distributors are responsible for the operating and the marketing.

Online game and service revenues also include revenues derived from online advertising arrangements, sponsorship arrangements, or a combination of both. These service arrangements allow advertisers to place advertisements on particular areas of the Group’s Web sites and online games platforms over a stated period of time. Service revenues from online advertising arrangements are recognised ratably over the period of the contract when the collectability is reasonably assured.

Cloud product and service revenues

Cloud service revenues are related to cloud computing services provided by the Group. Revenues are recorded net of discounts. Cloud service revenues are recognised for the period of time for which the Group provide services to the customer. Customers have a choice of paying either monthly or in advance for a certain period of time, for which they receive corresponding discounts. The Group records any such advanced payment receipts as other current liabilities and amortises such revenues over the subscription period.

Revenue from the sales of equipment and other related products are recognised upon acceptance. The Group reports the sales of equipment and other related products on a gross basis. In the sales of equipment and other related products, the Group acts as principal as the Group is the primary obligor in the transaction and has the latitude in establishing price.

FS24

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

3.13

Tax

Tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

•

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

•

temporary differences related to investments in subsidiaries and associates entities to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future; and

•

taxable temporary differences arising on the initial recognition of goodwill.

The measurement of deferred taxes reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For investment property that is measured at fair value, the presumption that the carrying amount of the investment property will be recovered through sale has not been rebutted. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

FS25

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

3.14	Discontinued operations

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

•

Represents a separate major line of business of geographical area of operations;

•

Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

•

Is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative statement of profit or loss is re-presented as if the operation had been discontinued from the start of the comparative year.

3.15	Earnings per share

The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

3.16	Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Board of Directors (the chief operating decision maker) to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

Segment results that are reported to the Board of Directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters), head office expenses and tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, investment property, and intangible assets other than goodwill.

3.17	New standards and interpretations not adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014 and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of the Group and the Company. The Group does not plan to adopt these standards early.

FS26

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

4	Property, plant and equipment


	Freehold land			Buildings			Leasehold improvements			Information and communication equipment			Office furniture and equipment			Equipment under installation			Total
	US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000
Group
Cost
At 1 January 2013		765			1,304			455			4,857			288			28			7,697
Additions		—			—			29			183			13			—			225
Disposals		—			—			(351	)		(94	)		(43	)		—			(488	)
Reclassification		—			—			—			27			—			(27	)		—
Currency translation difference		(20	)		(34	)		(10	)		(114	)		(6	)		(1	)		(185	)

At 31 December 2013		745			1,270			123			4,859			252			—			7,249
Additions		—			—			7			289			4			120			420
Disposals		—			—			—			(400	)		(72	)		—			(472	)
Reclassification		—			—			—			44			—			(44	)		—
Currency translation difference		(43	)		(74	)		(7	)		(256	)		(8	)		(3	)		(391	)

At 31 December 2014		702			1,196			123			4,536			176			73			6,806

Accumulated depreciation and impairment losses
At 1 January 2013		218			418			375			4,273			269			—			5,553
Depreciation charge to profit or loss		—			17			46			340			8			—			411
Depreciation capitalised in intangible assets		—			—			—			2			—			—			2
Disposals		—			—			(350	)		(59	)		(40	)		—			(449	)
Currency translation difference		(5	)		(11	)		(8	)		(101	)		(6	)		—			(131	)

At 31 December 2013		213			424			63			4,455			231			—			5,386
Depreciation charge to profit or loss		—			17			35			251			7			—			310
Disposals		—			—			—			(400	)		(72	)		—			(472	)
Impairment loss		—			—			—			28			—			—			28
Currency translation difference		(13	)		(25	)		(5	)		(231	)		(7	)		—			(281	)

At 31 December 2014		200			416			93			4,103			159			—			4,971

Carrying amounts
At 1 January 2013		547			886			80			584			19			28			2,144

At 31 December 2013		532			846			60			404			21			—			1,863

At 31 December 2014		502			780			30			433			17			73			1,835

FS27

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

5	Intangible assets and goodwill


	Goodwill			Trademarks			Others			Total
	US$’000			US$’000			US$’000			US$’000
Group
Cost
At 1 January 2013		29,651			12,211			12,494			54,356
Additions		—			—			1,229			1,229
Disposal		—			—			(1,552	)		(1,552	)
Acquisitions through business combination		496			—			67			563
Effect of movements in exchange rates		(773	)		(316	)		(319	)		(1,408	)

At 31 December 2013		29,374			11,895			11,919			53,188

At 1 January 2014		29,374			11,895			11,919			53,188
Additions		—			—			110			110
Disposals		—			—			(3,133	)		(3,133	)
Effect of movements in exchange rates		(1,707	)		(691	)		(565	)		(2,963	)

At 31 December 2014		27,667			11,204			8,331			47,202

Accumulated amortisation and impairment losses
At 1 January 2013		12,717			—			9,030			21,747
Amortisation for the year		—			—			1,904			1,904
Disposal		—			—			(1,547	)		(1,547	)
Impairment loss		17,054			11,943			1,308			30,305
Effect of movements in exchange rates		(397	)		(48	)		(237	)		(682	)

At 31 December 2013		29,374			11,895			10,458			51,727

At 1 January 2014		29,374			11,895			10,458			51,727
Amortisation for the year		—			—			1,201			1,201
Disposals		—			—			(3,133	)		(3,133	)
Impairment loss		—			—			115			115
Effect of movements in exchange rates		(1,707	)		(691	)		(532	)		(2,930	)

At 31 December 2014		27,667			11,204			8,109			46,980

Carrying amounts
At 1 January 2013		16,934			12,211			3,464			32,609

At 31 December 2013		—			—			1,461			1,461

At 31 December 2014		—			—			222			222

FS28

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Impairment testing for cash-generating units containing goodwill

For the purpose of impairment testing, the entire goodwill is allocated to the Group’s cash-generating unit (CGU)—FunTown Group (“FunTown”), whose operations is that of Asian online game and service operating segment. The carrying amount is as follows:


	2014		2013
	US$’000		US$’000
FunTown		—		—

(The FunTown refers to a sub-group of operating entities held by Funtown World Limited, a wholly owned subsidiary of GigaMedia Limited, incorporated in the British Virgin Islands.)

In 2013, with the acquisition of FingerRockz Co., Ltd. (“FingerRockz”), the Group obtained its mobile platform development team. FingerRockz now constitutes an important complement to FunTown’s research and development capacity in mobile games. Consequently, the Group reassigned its role and developed its estimates of future cash flows from mobile games accordingly. For the purpose of testing goodwill for impairment, the Group has determined that FingerRockz is an integral part of FunTown and goodwill arising from the acquisition of FingerRockz was reassigned to FunTown.

The recoverable amount of a FunTown was determined based on value-in-use calculations. The fair value of the FunTown was determined based on the present value of estimated future net cash flows over a five year period discounted at the weighted average cost of capital. Cash flows beyond the five-year period were extrapolated using the estimated growth rates stated below. The growth rate did not exceed the long-term average growth rate for the business in which the FunTown operates.

Key assumption used in discounted cash flow projection calculations:


	2013
	FunTown
	%
Group
Budgeted operating margin		(26.0	)
Growth rate		0.0
Discount rate		13.0

Management determined budgeted operating margin based on past performance and its expectations of the game market development. The weighted average growth rate used was consistent with the forecasts included in industry reports and the Group’s historical performance. Management recognised that the speed of technological change and the possibility of new entrants can had a significant impact on operating margin and growth rate assumptions.

The discount rate used was a post-tax measure estimated based on past experience, and industry average weighted average cost of capital.

FS29

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

In 2013, due to the continual slowdown in demand for casual online games and loss of a key licensed game, the Group experienced significant decline in revenues and negative operating margin in Taiwan as compared to its previous future cash flow expectations. In 2013, the Group went through an internal restructuring of its operations and made a business decision to transit from PC-based games to browser/mobile games and social casino games. In addition, its market capitalisation had also fallen below its net book value based on the quoted market price of its common stock for a sustained period of time. Based on these qualitative factors, the Group had determined its fair value of FunTown may be less than its carrying value, and the recoverable amount of the remaining goodwill could be impaired. Using the same methodology, the Group developed its expected future net cash flows based on historical data and internally developed estimates. Based on the abovementioned, the Group had assumed a terminal value of zero. Other significant estimates and assumptions used in developing the future net cash flows include an assumed average revenue decline of 28% and a discount rate of 13%. As a result, the carrying value of FunTown exceeded its fair value, and the implied fair value of the goodwill was determined to be US$Nil. Consequently, a goodwill impairment charge of US$17,054,000 was recognised in 2013. Under FRS 36 Impairment of Assets, the impairment loss recognised for goodwill shall not be reversed afterwards.

Trademarks

Trademarks have indefinite useful lives and are not amortised as management expects to continue the related business indefinitely. All conditions required for treatment as an intangible with indefinite useful life has been met.

In 2013, the Group recorded an impairment charge of US$11,943,000 relating to impairment on the trade name arising from the acquisition of FunTown, and the carrying amount of the trademarks was reduced to US$Nil. The impairment for the trademarks of FunTown is a result of the Group’s repositioning itself as described above, and no reversal of the impairment loss was recognised for the trademarks during the current year.

Others

During the year, the Group recorded an impairment loss of US$115,000 (2013: US$1,308,000) relating to impairment on capitalised software development costs as a result of the cessation of development in Cloud product and service segment (2013: certain projects within its Asian online game and service segment).

6	Subsidiaries


	Company
	2014			2013
	US$’000			US$’000
At beginning of year		88,487			118,514
Impairment loss made		(4,324	)		(27,075	)
Currency alignment		(4,962	)		(2,952	)

		79,201			88,487

FS30

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

At the reporting date, the Company has assessed the recoverable amount of its investment in subsidiaries. The recoverable amount has been determined based on the fair value less costs to sell. Fair value is based on the revalued net asset value of the subsidiaries at the reporting date as, in the opinion of the management of the Company, the revalued net asset value of the investment reasonably approximates the fair value. This resulted in an impairment loss of US$4,324,000 (2013: US$27,075,000) being charged to the statement of comprehensive income of the Company.

Details of the subsidiaries are as follows:

Name of subsidiaries

Principal activities

Country of incorporation

Percentage

ownership interest

2014
%

2013
%

Held by the Company

GigaMedia International Holdings Limited

Holding company

British Virgin Islands

100

Held by GigaMedia International Holdings Limited

Cambridge Entertainment Software Limited

Holding company

British Virgin Islands

100

GigaMedia (HK) Limited

Holding company

Hong Kong

100

GigaMedia Online Entertainment Corp.

Holding company

Cayman Islands

100

Held by GigaMedia Online Entertainment Corp.

FunTown World Limited

Holding company

British Virgin Islands

100

GigaMedia Asia Pacific Limited

Holding company

British Virgin Islands

—

100

Skyace Pacific Limited

Online games

British Virgin Islands

—

100

GigaMedia Capital Limited

Holding company

British Virgin Islands

100

Dragon Mark Holdings Limited

Holding company

British Virgin Islands

100

FS31

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Name of subsidiaries

Principal activities

Country of incorporation

Percentage

ownership interest

2014
%

2013
%

Held by GigaMedia Online Entertainment Corp.

Premiere Vantage Holdings Limited

Holding company

British Virgin Islands

—

100

GigaMedia Freestyle Holdings Limited

Holding company

British Virgin Islands

100

Spring Asia Limited

Holding company

Labuan

—

100

GigaMedia (Labuan) Limited

Holding company

Labuan

100

Megabiz Limited

Holding company

British Virgin Islands

100

Held by FunTown World Limited

FunTown Hong Kong Limited

Online games

Hong Kong

100

Held by Skyace Pacific Limited

Dragongate Enterprises Limited

Online games

British Virgin Islands

—

^**

Held by Dragongate Enterprises Limited

GigaMedia Dragongate Limited

Online games

Labuan

—

100

Held by Cambridge Entertainment Software Limited

Cambridge Interactive Development Corporation

Software development and application services

U.S.A.

100

Internet Media Licensing Limited

Software development and application services

British Virgin Islands

—

100

FS32

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Name of subsidiaries

Principal activities

Country of incorporation

Percentage

ownership interest

2014
%

2013
%

Held by Internet Media Licensing Limited

Ultra Internet Media S.A. (“UIM”)

Holding company

Nevis

—

100

Held by Dragon Mark Holdings Limited

Wolverine Holdings Group Limited

Holding company

British Virgin Islands

—

100

Held by GigaMedia (Labuan) Limited

Leisure Alliance Sdn. Bhd.

Holding company

Malaysia

100

Held by Leisure Alliance Sdn. Bhd.

Hoshin GigaMedia Center Inc.

Online games

Taiwan

100

GigaMedia Cloud Services Co., Ltd.

Cloud computing services

Taiwan

100

Giga Development Corporation

Holding company

Taiwan

100

Held by Hoshin GigaMedia Center Inc

Play2gether Digital Technology Co., Ltd.

Online games

Taiwan

100

PerfectPairs Gaming Co., Ltd.

Online games

Taiwan

100

Gaminfinity Publishing Co., Ltd.

Online games

Taiwan

100

FingerRockz Co., Ltd.

Online games

Taiwan

51.6

FS33

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Name of subsidiaries

Principal activities

Country of incorporation

Percentage

ownership interest

2014
%

2013
%

Held by GigaMedia (HK) Limited

Shanghai Pontoon Networking Technology Co., Ltd.

Online games

China

100

—

Held by Giga Development Corporation

Wen He Investment Ltd.

Holding company

Taiwan

100

—

*	Dormant /investment holding companies liquidated or deregistered with no material financial impact during the year.

**	Dormant/investment holding company liquidated with no material financial impact during the year and no longer consolidated in the Group’s financial positions. Deregistration will only be completed in 2015.

#	The fair value of the net assets acquired and the effect of the acquisition to the Group’s financial position is in this note 32.

7	Associates


	Group
	2014 US$’000			2013 US$’000
Equity shares at cost		5,722			5,055

Carrying amount
At 1 January		5,822			5,223
Share of (loss)/profit, net of tax		(531	)		526
Acquisition of an associate		667			—
Currency translation differences		(177	)		73

At 31 December		5,781			5,822

FS34

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

The Group has two (2013: one) associates that are material to the Group. All are equity accounted. The followings are for the material associates:

Name of associates

Nature of

relationship with

the Group

Principal place

of business/

Country of

incorporation

Effective equity

held by the Group

2014
%

2013
%

East Gate Media Contents & Technology Fund (“East Gate”)

Online game business and films

Korea

Double2 Network Technology Co., Ltd. (“Double2”)

Online games

Taiwan

—

The following summarises the financial information of the Group’s material associates based on their respective (consolidated) financial statements prepared in accordance with FRS, modified for fair value adjustments on acquisition and differences in the Group’s accounting policies.


	East Gates			Double2			Total
	US$’000			US$’000			US$’000
2014
Revenue		3,588			202


Loss for the year		(2,771	)		(183	)
Other comprehensive income		—			—

Total comprehensive income		(2,771	)		(183	)


Attributable to non-controlling interest		—			—
Attributable to associate’s shareholders		(2,771	)		(183	)

Non-current assets		25,566			71
Current assets		4,365			1,366
Current liabilities		(532	)		(120	)

Net assets		29,399			1,317


Attributable to non-controlling interest		—			—
Attributable to associate’s shareholders		29,399			1,317

Group’s interest in net assets of investee at beginning of the year		5,822			—			5,822
Group’s share of:
- Loss for the year		(489	)		(42	)
- other comprehensive income		—			—
- total comprehensive income		(489	)		(42	)		(531	)

Group’s contribution during the year		—			667			667
Currency translation differences		(144	)		(33	)		(177	)

Carrying amount of interest in investee at end of the year		5,189			592			5,781

FS35

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014


	East Gates
	US$’000
2013
Revenue		5,530


Profit from the year		2,980
Other comprehensive income		—

Total comprehensive income		2,980


Attributable to non-controlling interest		—
Attributable to associate’s shareholders		2,980

Non-current assets		26,100
Current assets		7,187
Current liabilities		(299	)

Net assets		32,988


Attributable to non-controlling interest		—
Attributable to associate’s shareholders		32,988

Group’s interest in net assets of investee at beginning of the year		5,223
Group’s share of:
- profit for the year		526
- other comprehensive income		—
- total comprehensive income		526

Group’s contribution during the year		—
Currency translation differences		73

Carrying amount of interest in investee at end of the year		5,822

8	Other investments


	Group
	2014		2013
	US$’000		US$’000
Non-current investments
Available-for-sale financial assets
- Debt instrument (unquoted)		4,744		6,048

		4,744		6,048

Current investments
Available-for-sale financial assets:
- Equity instrument (quoted)		11,131		21,124
- Open-end fund		318		336
Financial assets designated at fair value through profit or loss
- Equity instrument (quoted)		17,891		—

		29,340		21,460

FS36

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Debt securities classified as available-for-sale investments of the Group with a carrying amount of US$4,744,000 at 31 December 2014 (2013: US$6,048,000) have stated interest rates of 3.85% to 6.875% (2013: 4% to 6.25%) and will be maturing between 2018 and 2022.

The equity securities have been designated at fair value through profit or loss because they are managed on a fair value basis and their performance is actively managed.

For information on determination of fair value, refer to note 30.

9	Other assets (non-current)


		Group
	Note	2014			2013
		US$’000			US$’000
Refundable deposits			302			306
Prepaid licensing and royalty fees			5,642			7,418
Prepaid pension assets	16		45			—
Others			6			10

			5,995			7,734
Less: Impairment loss on prepaid licensing and royalty fees			(1,259	)		(2,752	)

			4,736			4,982

In 2014, the Group recorded an impairment charge of US$1,259,000 (2013: US$2,752,000) relating to prepaid licensing and royalty fees.

In 2014, the impairment charge for the prepaid licensing and royalty fees related to one licensed Asian online game based on value-in-use calculation. The recoverable amount of the licensed Asian online game was determined based on the present value of estimated future net cash flows over a four year period (the expected launching period one year plus its full licensed period three year), discounted at the weighted average cost of capital. No cash flow beyond the four-year period was estimated. The estimate of value in use was determined using a discount rate of 11.47% based on past experience, and industry average weighted average cost of capital. The estimated of growth rate was assumed using revenue decline rates of 50% and 67% year-over-year for the second and the third years of licensed period, respectively, management determined budgeted operating margin based on past performance and its expectations of the game market development. Management recognised that the speed of technological change and the possibility of new entrants can had a significant impact on operating margin and growth rate assumptions. As a result, the carrying value of the licensed Asian online game exceeded its recoverable amount by approximately US$1,259,000. Consequently, an impairment charge of US$1,259,000 was recognised in 2014.

In 2013, the impairment charge for the prepaid licensing and royalty fees related to certain licensed games within its Asian online game and service segment that the Group has stopped operating or for which the carrying amounts of the related assets was determined not to be recoverable from its related future undiscounted cash flows. The Group recorded a full impairment on the games that the Group stopped operating.

The licensed games and related royalties are valued when indication for impairment exists, using unobservable inputs such as discounted cash flows, incorporating available market discount rate information and the Group’s estimates for liquidity risk, and other cash flow model related assumptions.

FS37

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

10	Deferred tax assets

Movement in temporary differences during the year


	At 1/1/2013			Reclassifi- cation			Payment		Recognised in profit or loss (note 24)			Currency translation difference			At 31/12/2013			Reclassifi- cation		Payment		Recognised in profit or loss (note 24)			Currency translation difference		At 31/12/2014
	US$’000			US$’000			US$’000		US$’000			US$’000			US$’000			US$’000		US$’000		US$’000			US$’000		US$’000
Group
Deferred tax assets
Tax loss carry-forward		659			—			—		(650	)		(9	)		—			—		—		—			—		—
Share-based payment transactions		234			—			—		(230	)		(4	)		—			—		—		—			—		—
Others		56			—			—		1			(1	)		56			—		—		(56	)		—		—

		949			—			—		(879	)		(14	)		56			—		—		(56	)		—		—

Deferred tax liabilities
Property, plant and equipment		(255	)		—			—		253			2			—			—		—		—			—		—
Dividend withholding tax from investees		—			(2,207	)		220		—			—			(1,987	)		59		—		—			—		(1,928	)
Intangible assets		(306	)		—			—		247			3			(56	)		—		—		56			—		—

		(561	)		(2,207	)		220		500			5			(2,043	)		59		—		56			—		(1,928	)

During the current year, the Group has reclassified the income tax provisions from current to non-current liabilities in the statement of financial position for certain dividend withholding tax since the distribution of dividends is highly unlikely to happen within a 12-month period, or in case if it happens, it will be immaterial.

FS38

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority. The amounts are shown on the statement of financial position as follows:


	Group
	2014			2013
	US$’000			US$’000
Deferred income tax assets:		—			56
Deferred income tax liabilities:		(1,928	)		(2,043	)

As of 31 December 2014, the Group has net operating losses carried forward, available to offset future income, amounting to US$27,968,000. Below is the breakdown of the expiration of the net operating losses carried forward in major jurisdictions:


Jurisdiction	Amount (US$’000)		Expiring year
Hong Kong		10,551	Indefinite
Taiwan		17,417	2020-2024

		27,968

As of 31 December 2013, the Company has net operating losses carried forward, available to offset future income, amounting to US$20,145,000. Below is the breakdown of the expiration of the net operating losses carried forward in major jurisdictions:


Jurisdiction	Amount (US$’000)		Expiring year
Hong Kong		9,975	Indefinite
Taiwan		10,170	2020-2023

		20,145

Out of the above tax losses, an amount of US$27,968,000 (2013: US$20,145,000) relating to unutilised tax losses, has not been recognised due to the unpredictability of future profit streams. Consequently, the Group did not recognise the deferred tax assets of US$7,147,000 (2013: US$4,754,000).

11	Trade and other receivables


	Group						Company
	2014			2013			2014		2013
	US$’000			US$’000			US$’000		US$’000
Trade receivables
- third parties		1,273			2,061			—		—
Less: Allowance for doubtful receivables		(56	)		(55	)		—		—

		1,217			2,006			—		—

FS39

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014


	Group				Company
	2014		2013		2014		2013
	US$’000		US$’000		US$’000		US$’000
Notes receivable
- third parties		81		21		—		—

Other receivables
- subsidiaries		—		—		5,148		2,669
- third parties		129		211		—		2

		129		211		5,148		2,671

Trade and other receivables		1,427		2,238		5,148		2,671

The non-trade amounts due from subsidiaries are unsecured, interest-free and repayable on demand.

The Group and the Company’s exposure to credit and currency risks, and impairment losses related to trade and other receivables are disclosed in note 30.

12	Other assets (current)


	Group
	2014		2013
	US$’000		US$’000
Prepayments		564		750
Others		196		82

		760		832

13	Cash and cash equivalents


	Group					Company
	2014			2013		2014		2013
	US$’000			US$’000		US$’000		US$’000
Bank balances		38,529			44,163		668		62
Short-term deposits		21,102			14,638		—		—

Cash and cash equivalents in the statements of financial position		59,631			58,801		668		62


Less: Restricted cash		(8,991	)		—

Cash and cash equivalents in the statement of cash flows		50,640			58,801

The weighted average effective interest rate per annum relating to the fixed deposits at the reporting date for the Group is 1.81% (2013: 1.48%). Depending on the terms of the deposit, interest rates reprice every quarterly and half-yearly.

Restricted cash of US$7,481,000 relates to funds pledged to bank as securities other loans and borrowings (see note 18). Restricted cash of US$1,510,000 relates to deposits pledged for unutilised game point cards.

FS40

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

14	Share capital


	2014		2013
	No. of shares		No. of shares
	’000		’000
Company
In issue at beginning of the year		50,723		50,720
Issuance under option exercised		4,539		3

In issue at end of the year		55,262		50,723

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.

All issued shares are fully paid, with no par value.

Ordinary shares

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All rights attached to the Company’s shares held by the Group are suspended until those shares are reissued.

Issue of ordinary shares

In 2014, 4,539,000 (2013: 3,000) ordinary shares were issued as a result of the exercise of vested options arising from 4,539,000 (2013: 3,000) share option programme granted to employee. Options were exercised at an average price of US$0.79 (2013: US$0.79).

Capital management

The Group’s primary objective when managing capital is to safeguard the Group’s ability to continue as a going concern while looking for appropriate opportunities to expand its business. In order to do so, the Group may obtain new borrowings or issue new shares.

The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Group currently does not adopt any formal dividend policy.

The Group’s policy is to keep its debt-to-equity ratio below 1.00 and with sufficient current assets to cover its current liabilities. The Group’s debt-to-equity ratio and current ratio at the end of the reporting period were as follows:


	Group
	2014		2013
Debt-to-equity ratio		0.37		0.17
Current ratio		3.33		6.48

There were no changes in the Group’s approach to capital management during the year.

FS41

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

15	Reserves


	Group						Company
	2014			2013			2014			2013
	US$’000			US$’000			US$’000			US$’000
Share option reserve		12,793			12,776			12,793			12,776
Statutory reserve		3,022			3,022			—			—
Fair value reserve		12,271			19,676			—			—
Translation reserve		(21,815	)		(21,635	)		(16,227	)		(10,957	)

		6,271			13,839			(3,434	)		1,819

Share option reserve

Employee share options represent the equity-settled share option granted to employees and executive director of the Group, the details of which are disclosed in the directors’ report. The reserve is made up of the cumulative value of services received from employee and executive directors recorded over the vesting period commencing from the grant date of share options, and is reduced by the expiry or exercise of the share options.

At the end of the financial year, details of the options granted are as follow:


	Number of outstanding share options
Range of	At beginning		Granted during the		Expired/ forfeited during			Exercised during			At end of		Weighted average remaining
exercise price	of the year		year		the year			the year			the year		exercise
	’000		’000		’000			’000			’000		period
2014
Under US$1		6,188		150		(1,279	)		(4,539	)		520		7.88 years
US$1-US$10		2,419		178		(603	)		—			1,994		5.31 years
US$10-US$20		616		—		—			—			616		2.65 years

		9,223		328		(1,882	)		(4,539	)		3,130

2013
Under US$1		6,211		—		(20	)		(3	)		6,188		1.88 years
US$1-US$10		2,383		620		(584	)		—			2,419		5.72 years
US$10-US$20		616		—		—			—			616		3.65 years

		9,210		620		(604	)		(3	)		9,223

2,595,000 options (2013: 7,770,000) out of 3,130,000 options (2013: 9,223,000) are exercisable at the end of the year.

The weighted average share price at the date of exercise of share options exercised in 2014 was US$0.79 (2013: US$0.79).

FS42

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

As at 31 December 2014, approximately US$121,000 (2013: US$348,000) of unrecognised compensation cost relates to non-vested options. That cost is expected to be recognised over a period of 1.29 years (2013: 2.16 years).

The Company has used the Black-Scholes option-pricing model to derive the fair value of share options granted to employees. The following summarises the assumptions used:


	31/12/2014		31/12/2013
Option term (years)		5.9		5.8
Volatility		58.75% – 59.27%		59.46% – 61.84%
Weighted average volatility		59%		61%
Weighted average share price		US$1.23		US$1.09
Risk- free interest rate		1.968% – 2.065%		0.930% – 1.610%
Dividend yield		0%		0%
Weighted-average fair value of option granted during the year		US$0.68		US$0.60

Option term

Option term represents the period of time that they are expected to be outstanding. Management estimates this based on historical trends.

Expected volatility rate

An analysis of historical volatility was used to develop the estimate of expected volatility.

Risk-free interest rate

The risk-free interest rate is based on yields of U.S. Treasury bonds for the expected term of the options.

Expected dividend yield

Expected dividend yield is based on the Company’s current dividend yield.

Statutory reserves

In accordance with R.O.C. law, an appropriation for legal reserve amounting to 10% of a company’s net profit is required until the reserve equals the aggregate par value of such Taiwan company’s issued capital stock. As of 31 December 2014 and 2013, the legal reserves of Hoshin GigaMedia Center Inc. (“Hoshin GigaMedia”), were both US$3.0 million. The reserve can only be used to offset a deficit or be distributed as a stock dividend of up to 50% of the reserve balance when the reserve balance has reached 50% of the aggregate paid-in capital of Hoshin GigaMedia.

Under PRC laws and regulations, there were certain foreign exchange restrictions on the Group’s PRC subsidiaries with respect to transferring certain of their net assets to the Group either in the form of dividends, loans or advances. As of 31 December 2014 and 2013, the Group’s total restricted net assets, which include paid up capital and the net assets of those subsidiaries in which the Group has no legal ownership, were approximately US$Nil and US$Nil, respectively.

Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired.

FS43

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

16	Employee benefits

The Group has defined benefit and defined contribution pension plans that covered substantially all of the Group’s employees.

Defined benefit pension plan

In accordance with the Labor Standards Law of the Republic of China, the Group has a defined benefit pension plan for its employees in Taiwan. The pension plan covers substantially all full-time employees for services provided prior to 1 July 2005, and employees who have elected to remain in the defined benefit pension plan subsequent to the enactment of the Labor Pension Act on 1 July 2005. Under the defined benefit pension plan, employees are entitled to twice the monthly salary for each year of service for the first 15 years, and an additional one month for every additional year of service, up to a maximum of 45 months. The pension payment to employees is computed based on the average monthly salary for the six months prior to approved retirement.

The Group has contributed an amount equal to 2 percent of the salaries and wages paid to all qualified employees located in Taiwan to a pension fund (the “Fund”). The Fund is administered by a pension fund monitoring committee (the “Committee”) and deposited in the Committee’s name in the Bank of Taiwan. The Group makes pension payments from its account in the Fund unless the Fund is insufficient, in which case the Group makes payments from internal funds as payments become due. The Group seeks to maintain a normal, highly liquid working capital balance to ensure payments are made timely.

The following provides fund status of the plan and a reconciliation of employee benefits.


	Group
	2014			2013
	US$’000			US$’000
Fair value of plan assets		(303	)		(300	)
Projected benefit obligation		258			470

(Other assets)/Employee benefits		(45	)		170

*Expense recognised in profit or loss*
Current service costs		15			14
Net interest on net defined benefit liability		3			5
Past service cost		—			73
Gain on curtailments and settlements		(248	)		(73	)

Employee benefits		(230	)		19

*Movement in the present value of the defined benefit obligations*
Projected benefit obligation at 1 January		470			572
Service cost		15			15
Interest cost		9			10
Actuarial loss/(gain)		32			(39	)
Curtailment gain		(248	)		(73	)
Currency translation difference		(20	)		(15	)

Defined benefit obligation at 31 December		258			470

FS44

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014


	Group
	2014			2013
	US$’000			US$’000
*Movement in the fair value of plan assets*
Fair value of plan assets at 1 January		300			291
Expected return on plan assets		6			5
Actuarial losses		1			(1	)
Contributions by employer		15			13
Currency translation difference		(19	)		(8	)

Fair value of plan assets at 31 December		303			300

*Return on plan assets*
Expected return on plan assets		6			5
Actuarial losses		1			(1	)

Actual return on plan assets		7			4

*Assets Categories*
Cash		100	%		100	%

Actuarial assumptions

Weighted-average assumptions used to determine defined benefit obligations as at 31 December 2014 and 2013 were as follows:


	2014			2013
Discount rate		2.00	%		2.00	%
Rate of compensation increase		1.50	%		1.50	%

Weighted-average assumptions used to determine defined benefit costs for the year ended 31 December 2014 and 2013 were as follows:


	2014			2013
Discount rate		2.00	%		1.75	%
Rate of return on plan assets		2.00	%		1.75	%
Rate of compensation increase		1.50	%		1.50	%

The Group expects to make a contribution of US$14,000 to the Fund in 2015. The Group expect to make benefit payments of US $1,000 from 2015 to 2024.

Defined contribution pension plan

The Group has provided defined contribution plans for employees located in Taiwan and Hong Kong. Contributions to the plans are expensed as incurred.

FS45

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Taiwan

Pursuant to the new “Labor Pension Act” enacted on 1 July 2005, the Group set up a defined contribution pension plan for its employees located in Taiwan. For eligible employees who elect to participate in the defined contribution pension plan, the Group contribute no less than 6% of the employees’ salaries and wages paid each month, up to the maximum amount of NT$9,000 (approximately US$284 per individual), to the employees’ individual pension accounts at the Bureau of Labor Insurance. Pension payments to employees are made either by monthly installments or in a lump sum from the accumulated contributions and earnings in employees’ individual accounts.

Hong Kong

According to the relevant Hong Kong regulations, the Group provides a contribution plan for the eligible employees in Hong Kong. The Group must contribute at least 5 percent of their total salaries, up to the maximum amount of HK$1,500 (approximately US$193 per individual), to their individual contribution accounts of the authorities monthly. After the termination of employment, the benefits still belong to the employees in any circumstances.

The total amount of defined contribution pension expenses pursuant to defined contribution plans for the years ended 31 December 2014 were US$364,000 (2013: US$357,000).

17	Trade and other payables


	Group				Company
	2014		2013		2014		2013
	US$’000		US$’000		US$’000		US$’000
Trade payables
- third parties		771		1,178		—		—
Accrued expenses
- third parties		4,261		2,997		186		191

Trade and other payables		5,032		4,175		186		191

The Group and the Company’s exposure to currency and liquidity risks related to trade and other payables are disclosed in note 30.

18	Loans and borrowings


	Group
	2014		2013
	US$’000		US$’000

Current liabilities
Secured bank loans		6,319		—
Unsecured bank loans		12,322		4,361

		18,641		4,361

FS46

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Terms and debt repayment schedule

Terms and conditions of outstanding loans and borrowings are as follows:


	Currency	Nominal interest rate	Year of maturity		Face value		Carrying amount
					US$’000		US$’000
At 31 December 2014
Secured bank loans	TWD	1.35%		2015		6,319		6,319
Unsecured bank loans	TWD	1.89% – 1.95%		2015		12,322		12,322

						18,641		18,641

At 31 December 2013
Unsecured bank loans	TWD	1.5% – 1.6%		2014		4,361		4,361

The secured bank loans of the Group are secured over deposits pledged of US$7,481,000 (2013: Nil) (see note 13).

Intra-group financial guarantee

Intra-group financial guarantee comprises guarantees given by the Company to banks in respect of unsecured bank loans. The details are as follows:

2014

2013

Amount

Expiry date

Amount

Expiry date

US$’000

Intra-group financial guarantee

Unsecured bank loans

6,319

31 May 2015

6,709

31 May 2014

Unsecured bank loans

7,109

31 August 2015

7,548

31 August 2014

13,428

14,257

At the reporting date, the Company does not consider it probable that a claim will be made against the Company under the guarantee.

19	Other liabilities (current)


	Group
	2014		2013
	US$’000		US$’000
Deferred revenue		1,946		2,441
Others		176		315

		2,122		2,756

FS47

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

20	Revenue


	Group
	2014		2013
	US$’000		US$’000
Asian online game and service revenues		8,199		14,106
Others		1,580		926

		9,779		15,032

21	Other operating income


		Group
	Note	2014		2013
		US$’000		US$’000
Gain on disposal of associate			—		1,000
Gain on disposal of property, plant and equipment			2		—
Others			113		95

			115		1,095

22	Other operating expenses


	Group
	2014		2013
	US$’000		US$’000
Loss on disposal of property, plant and equipment		—		4
Impairment loss on prepaid licensing fees		1,259		2,752
Impairment loss on intangible assets and goodwill		115		30,305
Impairment loss on property, plant and equipment		28		—
Allowance for doubtful receivables		37		37

		1,439		33,098

23	Net finance income


	Group
	2014			2013
	US$’000			US$’000
Recognised in profit or loss
Interest income		682			238
Dividend income on financial assets designated at fair value through profit or loss		247			—
Net change in fair value of financial assets designated at fair value through profit or loss		75			—
Net gain on sale of available-for-sale financial assets reclassified from equity		8,621			1,739

Finance income		9,625			1,977

Interest expense		(243	)		(49	)
Net foreign exchange loss		(866	)		(32	)

Finance costs		(1,109	)		(81	)

Net finance income		8,516			1,896

FS48

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

24	Tax benefit/(expense)


	Group
	2014			2013
	US$’000			US$’000
Current tax benefit/(expense)
Current year		(19	)		120
Adjustment for prior years		92			198

		73			318

Deferred tax expense
Origination and reversal of temporary differences		—			(379	)

Tax benefit/(expense) from continuing operations		73			(61	)

Reconciliation of effective tax rate
Loss before tax
- continuing operations		(5,376	)		(34,986	)
- discontinued operations		—			(318	)

		(5,376	)		(35,304	)

Tax calculated at 17% (2013: 17%)		914			6,001
Effect of tax rates in foreign jurisdictions		2,433			884
Non-deductible expenses		60			(4,490	)
Tax exempt income		—			694
Current year losses for which no deferred tax asset was recognised		(3,111	)		(3,526	)
Over provided in prior years		92			198
Others		(315	)		178

		73			(61	)

Source of estimation uncertainty

The Group has exposure to income taxes in several jurisdictions. Significant judgment is involved in determining the group-wide provision for income taxes. These are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognised liabilities for expected tax issues based on estimation of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

FS49

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

25	Loss from discontinued operations

JIDI Network Technology (Shanghai) Co., Ltd. (JIDI)

In June 2012, the board of directors approved the plan to liquidate and dissolve JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”), a wholly-owned subsidiary in the People’s Republic of China, and Shanghai JIDI Network Technology Co., Ltd. (“Shanghai JIDI”), a variable interest entity (“VIE”) controlled through a series of contractual arrangements. Accordingly, results of JIDI and Shanghai JIDI operations are reported as discontinued operations since 31 December 2013. As at 31 December 2013, Shanghai JIDI had completed the dissolution procedure and was duly deregistered.

The carrying amounts of the remaining assets and liabilities, if any, of JIDI and Shanghai JIDI are insignificant to the Group as 31 December 2013.


	Group
	2013
	US$’000
Results of discontinued operation
Revenue		—
Expenses		(318	)

Results from operating activities, net of tax		(318	)
Gain on sale of discontinued operation		—

Loss for the year		(318	)

Basic loss per share (cents)		(0.01	)

Diluted loss per share (cents)		(0.01	)

Cash flows from discontinued operations
Net cash used in operating activities		(168	)
Net cash from investing activities		—
Net cash from financing activities		(468	)

Net cash flows for the year		(636	)

There is no effect of disposal on the financial position of the Group as at 31 December 2013.

26	Loss for the year

The following items have been included in arriving at loss for the year:


	Group
	2014		2013
	US$’000		US$’000
Employee benefits expense (see below)		8,712		8,484
Amortisation charge on intangible assets		1,201		1,904
Depreciation of property, plant and equipment		310		411
Rental expenses		895		882

FS50

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014


	Group
	2014		2013
	US$’000		US$’000
Employee benefits expense
Wages and salaries		8,197		7,596
Employee equity-settled share-based payment		21		219
Employee expense relating to defined benefit and contribution pension plans		165		280
Termination benefits		329		389

		8,712		8,484

27	Loss per share

The calculation of basic loss per share at 31 December 2014 was based on the loss attributable to ordinary shareholders of US$5,468,000 (2013: US$35,084,000), and a weighted average number of ordinary shares outstanding of 53,927,000 (2013: 50,720,000), calculated as follows:

Loss attributable to ordinary shareholders


				2014								2013
	Continuing operations			Discontinued operation		Total			Continuing operations			Discontinued operation			Total
	US$’000			US$’000		US$’000			US$’000			US$’000			US$’000
Loss for the year		(5,468	)		—		(5,468	)		(34,766	)		(318	)		(35,084	)

Weighted average number of ordinary shares:


	Group
	31/12/2014		31/12/2013
	’000		’000
Issued ordinary shares at 1 January		50,723		50,720
Effect of share options exercised		3,204		—

Weighted average number of ordinary shares during the year		53,927		50,720

28	Commitments

(a)

Operating leases

The Group leases offices premises under operating leases, where the lease agreements expire in 2017. The following table sets forth the future minimum lease payments required under these operating leases:


	2014		2013
	US$’000		US$’000
Payable:
Within 1 year		910		941
After 1 year but within 5 years		239		892

		1,149		1,833

FS51

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

(b)

License agreements

The Group has contractual obligations under various license agreements to pay the licensors license fees and minimum guarantees against future royalties. The following table summarises the committed licensing fees and minimum guarantees against future royalties set forth in the major licenses agreements as at year end.


	License fees		Minimum guarantees against future royalties		Total
	US$’000		US$’000		US$’000
31 December 2014
Minimum required payments:
Within 1 year		1,129		1,300		2,429
After 1 year		5,000		1,500		6,500

		6,129		2,800		8,929

31 December 2013
Minimum required payments:
Within 1 year		100		100		200
After 1 year		5,300		1,500		6,800

		5,400		1,600		7,000

29	Related party transactions

Except for the following transactions, the Group was not a party to any transaction with any related party that did not arise in the ordinary course of business or that was material to it.

Share options granted to key management

As at the end of the financial year, the total outstanding number of share options granted to key management of the Group was 840,000 (2013: 1,646,000).

Transaction with key management personnel

Key management personnel of the Group are those persons having the authority and responsibility for planning, directing and controlling the activities of the entity. The directors are considered as key management personnel of the Group.

FS52

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Key management personnel compensation comprised:


	Group
	2014			2013
	US$’000			US$’000
Wages and salaries		1,026			1,088
Director fee		155			159
Share-based payments		(90	)		488
Other benefit		18			17

		1,109			1,752

Other related party transactions

During 2014, the Group have outsourced certain development of software to its associate, Double2. The operating costs amounted to US$113,000 (2013: Nil) for the year ended 31 December 2014.

30	Financial instruments

Financial risk management

The Group has exposure to the following risks from its use of financial instruments:

•

Credit risk

•

Liquidity risk

•

Market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Audit Committee, which is responsible for overseeing the Group’s risk management policies. The Audit Committee reports regularly to the Board of Directors on its activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

FS53

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Credit risk

The customers of the Group settle the payments in accordance with one of the following ways: (1) by bank transfer or credit card and (2) by advanced payment. The Group is subject to credit risk only for those receivables with credits granted.

None of the Group’s customers accounted for over 10 percent of net operating revenues in 2014 and 2013 or of the balance of notes and trade receivables as of 31 December 2014 and 2013. The Group has provided for trade receivables based on estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience.

The credit risk of the Group’s and the Company’s other financial assets, which comprise bank deposits and other receivables, the maximum exposure to credit risk is the carrying amounts of these instruments.

Trade and other receivables

The quantitative data in respect of the Group’s exposure to credit risk arising from trade and other receivables (including notes receivables) is as follows:


	Group										Company
	Gross		Impairment losses			Gross		Impairment losses			Gross		Impairment losses		Gross		Impairment losses
	2014		2014			2013		2013			2014		2014		2013		2013
	US$’000		US$’000			US$’000		US$’000			US$’000		US$’000		US$’000		US$’000
Not past due		1,279		(40	)		2,009		(55	)		5,148		—		2,671		—
Past due 0 – 90 days		80		—			265		—			—		—		—		—
Past due 91 – 180 days		12		—			16		—			—		—		—		—
More than 180 days		112		(16	)		3		—			—		—		—		—

		1,483		(56	)		2,293		(55	)		5,148		—		2,671		—

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The allowance is a specific loss component that rebates to individual significant exposures. Based on historical default rates, the Group believes that no additional impairment is necessary.

Movements in allowance for impairment losses on loans and receivables during the year were as follows:


	Group						Company
	2014			2013			2014		2013
	US$’000			US$’000			US$’000		US$’000
At 1 January		55			130			—		—
Impairment loss recognised		37			37			—		—
Amounts utilised		(33	)		(109	)		—		—
Translation difference		(3	)		(3	)		—		—

At 31 December		56			55			—		—

FS54

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Cash and cash equivalents

The Group held cash and cash equivalents of US$59,631,000 as at 31 December 2014 (2013: US$58,801,000), which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with banks, which are regulated.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:


	Carrying amount		Within 1 year		After 1 year but within 5 years		Total
	US$’000		US$’000		US$’000		US$’000
Group
2014
Other liabilities (non-current)		10		—		10		10
Trade and other payables		5,032		5,032		—		5,032
Loans and borrowings		18,641		18,641		—		18,641
Other current liabilities (current)#		176		176		—		176

		23,859		23,849		10		23,859

2013
Other liabilities (non-current)		11		—		11		11
Trade and other payables		4,175		4,175		—		4,175
Loans and borrowings		4,361		4,366		—		4,366
Other current liabilities (current)#		315		315		—		315

		8,862		8,856		11		8,867

Company
2014
Trade and other payables		186		186		—		186

Recognised financial liabilities		186		186		—		186
Intra-group financial guarantee		—		12,322		—		12,322

		186		12,508		—		12,508

2013
Trade and other payables		191		191		—		191

Recognised financial liabilities		191		191		—		191
Intra-group financial guarantee		—		4,361		—		4,361

		191		4,552		—		4,552

#	Excludes deferred revenue.

FS55

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income of the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising returns.

Foreign currency risk

The subsidiaries of the Group assessed and concluded that most of its business transactions are denominated in its own functional currencies; therefore the foreign currency risks derived from operations are not significant. However, the Group holds some assets or liabilities in foreign currency other than functional currency and the value of these assets and liabilities are subject to foreign currency risks resulting from fluctuations in exchange rates between the foreign currency and the functional currency. The currencies in which these assets are denominated are the US dollar (USD), Korean on (KRW), Taiwan dollar (TWD), Renminbi (RMB), Hong Kong dollar (HKD).

The Group’s and Company’s exposures to foreign currencies in US dollar equivalent are as follows:


	USD			KRW		TWD			RMB			HKD			Other			Total
	US$’000			US$’000		US$’000			US$’000			US$’000			US$’000			US$’000
Group
2014
Cash and cash equivalents		48,690			152		2,883			5,542			2,308			56			59,631
Other investments (current)		—			11,131		18,209			—			—			—			29,340
Trade and other receivables		87			—		1,230			4			106			—			1,427
Other investments (non-current)		—			4,744		—			—			—			—			4,744
Refundable deposits		—			—		263			—			39			—			302
Trade and other payables		(1,151	)		—		(3,210	)		(306	)		(365	)					(5,032	)
Short-term borrowings		—			—		(18,641	)		—			—			—			(18,641	)

Net financial assets/ (liabilities)		47,626			16,027		734			5,240			2,088			56			71,771
Less: Net financial (assets)/liabilities denominated in the respective entities’ functional currencies		(45,894	)		—		(743	)		—			(2,100	)		(56	)		(48,793	)

Foreign currency exposure		1,732			16,027		(9	)		5,240			(12	)		—			22,978

FS56

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014


	USD			KRW		TWD			RMB			HKD			Other			Total
	US$’000			US$’000		US$’000			US$’000			US$’000			US$’000			US$’000
Group
2013
Cash and cash equivalents		42,180			51		10,145			3,553			2,808			64			58,801
Other investments (current)		—			21,124		336			—			—			—			21,460
Trade and other receivables		209			—		1,865			—			164			—			2,238
Other investments (non-current)		2,109			3,939		—			—			—			—			6,048
Refundable deposits		—			—		267			—			39			—			306
Trade and other payables		(1,043	)		—		(2,906	)		(3	)		(223	)		—			(4,175	)
Short-term borrowings		—			—		(4,361	)		—			—			—			(4,361	)

Net financial assets/ (liabilities)		43,455			25,114		5,346			3,550			2,788			64			80,317
Less: Net financial (assets)/liabilities denominated in the respective entities’ functional currencies		(42,140	)		—		(5,346	)		—			(2,788	)		(61	)		(50,335	)

Foreign currency exposure		1,315			25,114		—			3,550			—			3			29,982


	USD			TWD			Total
	US$’000			US$’000			US$’000
Company
2014
Cash and cash equivalents		668			—			668
Trade and other receivables		2,502			2,646			5,148
Trade and other payables		(22	)		(164	)		(186	)

Net financial assets		3,148			2,482			5,630
Less: Net financial assets denominated in the respective entities’ functional currencies		—			(2,482	)		(2,482	)

Foreign currency exposure		3,148			—			3,148

2013
Cash and cash equivalents		62			—			62
Trade and other receivables		1,875			796			2,671
Trade and other payables		(32	)		(159	)		(191	)

Net financial assets		1,905			637			2,542
Less: Net financial assets denominated in the respective entities’ functional currencies		—			(637	)		(637	)

Foreign currency exposure		1,905			—			1,905

FS57

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Sensitivity analysis

A 10% strengthening of the foreign currencies against USD at 31 December would have decreased/ (increased) loss before tax or increased/(decreased) equity by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for the previous financial year ended 31 December 2013. Similarly, a 10% weakening would have the equal but opposite effect.

Group

Company

Loss before tax

Equity

Loss before tax

Equity

US$’000

31 December 2014

KRW (10% strengthening)

490

1,113

RMB (10% strengthening)

524

—

31 December 2013

KRW (10% strengthening)

399

2,112

RMB (10% strengthening)

355

—

*	The amount is less than US$1,000.

Interest rate risk

The Group and Company are not exposed to significant interest rate risk.

Equity price risk

The Group has investment in quoted equity securities which are listed in Korea. A 10% increase/(decrease) in the underlying equity prices at the reporting dates would increase/(decrease) equity by the following amounts:


	Group
	2014		2013
	Equity		Equity
	US$’000		US$’000
Quoted equity investments available-for-sale		1,113		2,112

This analysis assumes that all other variables remain constant.

FS58

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Accounting classifications and fair values

The carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy are as follows. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.


		Carrying amount												Fair value
	Note	Loans and receivables		Designated at fair value		Available- for-sale		Liabilities at amortised cost			Total carrying amount			Level 1		Level 2		Level 3		Total
		US$’000		US$’000		US$’000		US$’000			US$’000			US$’000		US$’000		US$’000		US$’000
Group
31 December 2014
Financial assets measured at fair value
Available-for-sale debt securities (non-current)	8		—		—		4,744		—			4,744			—		—		4,744		4,744
Available-for-sale equity securities (current)	8		—		—		11,449		—			11,449			11,449		—		—		11,449
Designated at fair value through profit or loss equity securities	8		—		17,891		—		—			17,891			17,891		—		—		17,891

			—		17,891		16,193		—			34,084


Financial assets not measured at fair value
Trade and other receivables	11		1,427		—		—		—			1,427
Other assets (current)#	12		196		—		—		—			196
Cash and cash equivalents	13		59,631		—		—		—			59,631

			61,254		—		—		—			61,254


Financial liabilities not measured at fair value
Other liabilities (non-current)			—		—		—		(10	)		(10	)
Trade and other payables	17		—		—		—		(5,032	)		(5,032	)
Loans and borrowings	18		—		—		—		(18,641	)		(18,641	)
Other liabilities (current)##	19		—		—		—		(176	)		(176	)

			—		—		—		(23,859	)		(23,859	)

FS59

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014


		Carrying amount												Fair value
	Note	Loans and receivables		Designated at fair value		Available- for-sale		Liabilities at amortised cost			Total carrying amount			Level 1		Level 2		Level 3		Total
		US$’000		US$’000		US$’000		US$’000			US$’000			US$’000		US$’000		US$’000		US$’000
Group
31 December 2013
Financial assets measured at fair value
Available-for-sale debt securities (non-current)	8		—		—		6,048		—			6,048			—		2,109		3,939		6,048
Available-for-sale equity securities (current)	8		—		—		21,460		—			21,460			21,460		—		—		21,460

			—		—		27,508		—			27,508


Financial assets not measured at fair value
Trade and other receivables	11		2,238		—		—		—			2,238
Other assets (current)#	12		82		—		—		—			82
Cash and cash equivalents	13		58,801		—		—		—			58,801

			61,121		—		—		—			61,121


Financial liabilities not measured at fair value
Other liabilities (non-current)			—		—		—		(11	)		(11	)
Trade and other payables	17		—		—		—		(4,175	)		(4,175	)
Loans and borrowings	18		—		—		—		(4,361	)		(4,361	)
Other liabilities (current)##	19		—		—		—		(315	)		(315	)

			—		—		—		(8,862	)		(8,862	)

#	Excludes prepayments

##	Excludes deferred revenue

FS60

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014


		Carrying amount
	Note	Loans and receivables		Available- for-sale		Liabilities at amortised cost			Total carrying amount
		US$’000		US$’000		US$’000			US$’000
Company
31 December 2014
Financial assets not measured at fair value
Trade and other receivables	11		5,148		—		—			5,148
Cash and cash equivalents	13		668		—		—			668

			5,816		—		—			5,816


Financial liabilities not measured at fair value
Trade and other payables	17		—		—		(186	)		(186	)


31 December 2013
Financial assets not measured at fair value
Trade and other receivables	11		2,671		—		—			2,671
Cash and cash equivalents	13		62		—		—			62

			2,733		—		—			2,733


Financial liabilities not measured at fair value
Trade and other payables	17		—		—		(191	)		(191	)

Measurement of fair values

(i)

Valuation techniques and significant unobservable inputs

The following tables show the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used.

Financial instruments measured at fair value

FS61

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Financial instruments not measured at fair value


Type	Valuation technique	Significant unobservable inputs

Group
Loans and borrowings	Discounted cash flows	Not applicable

(ii)

Transfers between the levels

There were no transfers between the levels during the year.

(iii)

Level 3 fair values

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy:


	Group
	Available-for-sale debt securities
	2014			2013
	US$’000			US$’000
At 1 January		3,939			3,082
Total gains and losses for the period included in other comprehensive income		1,115			934
Currency translation difference		(310	)		(77	)

At 31 December		4,744			3,939

Management considers that changing one or more of the significant unobservable inputs used to other reasonably possible alternative assumptions would not result in a significant change in the estimated fair value.

31	Segment information

Business segments

The Group has 2 reportable segments as described below. For each of the reportable segment, the Group’s chief operating decision maker reviews internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Group’s reportable segments:


Asian online game and service:		The development and licensure of online games and investment in associates and available-for-sale financial assets.

Cloud service business:		The provision of cloud products and services to small-to-medium and larger enterprises

FS62

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before tax, as included in the internal management reports that are reviewed by the Group’s chief operating decision maker. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm’s length basis.


	Asian online game and service**			Cloud service business			Total
	US$’000			US$’000			US$’000
2014
External revenues		8,199			1,580			9,779

Interest income		31			—			31
Interest expense		243			—			243
Depreciation and amortisation		1,363			99			1,462

Reportable segment loss before tax		(918	)		(1,515	)		(2,433	)

Share of loss of associates		531			—			531
Tax benefit		(92	)		—			(92	)
Other material non-cash items:
Impairment loss on prepaid licensing fees		1,259			—			1,259
Impairment loss on intangible assets and goodwill		—			115			115
Impairment loss on property, plant and equipment		—			28			28
Reportable segment assets		52,257			806			53,063
Investment in associates		5,781			—			5,781
Capital expenditure		445			72			517
Reportable segment liabilities		25,696			899			26,595

2013
External revenues		14,106			926			15,032

Interest income		9			—			9
Interest expense		8			—			8
Depreciation and amortisation		2,198			50			2,248

Reportable segment loss before tax		(29,398	)		(1,218	)		(30,616	)

Share of profit of associates		526			—			526
Tax expense		150			—			150
Other material non-cash items:
Impairment loss on prepaid licensing fees		2,752			—			2,752
Impairment loss on intangible assets and goodwill		30,305			—			30,305
Reportable segment assets		50,829			1,261			52,090
Investment in associates		5,822			—			5,822
Capital expenditure		1,657			257			1,914
Reportable segment liabilities		12,539			1,354			13,893

**	The discontinued operation JIDI was taken out of the Asian online game and service segment.

FS63

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items:


	2014			2013
	US$‘000			US$‘000
Interest income
Total segments		31			9
Adjustments *		651			229

Total for continuing operations		682			238

Interest expense
Total segments		243			8
Adjustments *		—			41

Total for continuing operations		243			49

Loss before tax
Total segments		(2,433	)		(30,616	)
Adjustments *		(2,943	)		(4,370	)

Consolidated loss before tax		(5,376	)		(34,986	)

Tax benefit/(expense)
Total segments		92			(150	)
Adjustments *		(19	)		89

Total for continuing operations		73			(61	)

Assets
Total assets for reportable segments		53,063			52,090
Unallocated corporate assets
- Cash and cash equivalents		53,677			47,326
- Property, plant and equipment		1,311			1,436
- Others		425			2,711

Consolidated total assets		108,476			103,563

Liabilities
Total liabilities for reportable segments		26,595			13,893
Unallocated corporate liabilities
- Accrued expense		831			1,147
- Others		1,849			36

Consolidated total liabilities		29,275			15,076

*	Adjustment items relate to other business operations such as investment holding which is included as corporate and certain back-office costs and expenses not attributable to any specific segment.

Major Customers

No single customer represented 10 percent or more of GigaMedia’s total net revenues in 2014 and 2013.

FS64

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

Geographic Information

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of revenue sources. Segment assets are based on the geographical location of the assets.

Revenue


	2014		2013
	US$’000		US$’000
Taiwan		7,413		11,793
Hong Kong		2,366		3,239

Consolidated revenue		9,779		15,032

Non-current assets^#
Taiwan		7,125		8,136
Hong Kong		260		226
Korea		5,189		5,822

Total		12,574		14,184

#	Excludes other investments

32	Acquisition

On 18 October 2013, the Group obtained control of FingerRockz Co., Ltd. (“FingerRockz”), by acquiring in cash 405,000 common shares of the Company, which represents 51.6% of voting interests. FingerRockz is a mobile game developer and publisher based in Taiwan, and the Group acquired it so as to enhance the research and development capacity of mobile games. This primary factor among others, contributed to a purchase price in excess of the fair value of the net identifiable assets acquired and liabilities assumed, and intangible assets.

The following summarises the major class of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date:

Identifiable assets acquired and liabilities assumed


	Note	US$’000
Trade receivables and other receivables			2
Cash and cash equivalents			583
Intangible assets			67
Trade and other payables			(160	)

			492
Goodwill	5		496

			988

Net cash inflow from acquisition of subsidiary
Consideration paid in cash			(510	)
Cash and cash equivalents			583

			73

FS65

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2014

The trade receivables comprise gross contractual amounts due of US$2,000 and were expected to be collectible at the acquisition date.

From the date of acquisition to 31 December 2013, FingerRockz contributed revenue of US$308 and loss for the period of US$300,000 to the Group’s results. If the acquisition had occurred on 1 January 2013, the Group’s revenue for the period ended 31 December 2013 would have increased by US$17,000 and loss for the period would have increased by US$64,000.

Goodwill

Goodwill was recognised as a result of the acquisition as follows:


	US$’000
Total cash consideration transferred		510
Non-controlling interests, based on their proportionate interest in the recognised amounts of the asset and liabilities of the acquiree		478
Fair value of identifiable net assets		(492	)

Goodwill		496

In the acquisition, the most appealing asset to the Group was FingerRockz’s creative team. However, the assembled workforce was not an identifiable asset to be recognised separately from goodwill so that the value attributed to it was subsumed into goodwill. The goodwill related to this acquisition is not expected to be deductible for tax purpose.

33	Subsequent event

The Group completed the disposal of financial assets designated at fair value through profit or loss during the period between 13 April 2015 and 15 April 2015 in the Taiwan open market through block sales. The total selling price of this investment approximates US$18 million.

FS66

GigaMedia (NASDAQ:GIGM)
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