ULTRALIFE CORP Fair Value Disclosure
Note 6 - Fair Value of Assets and Liabilities
Our financial instruments include cash and cash equivalents, trade receivables, accounts payable and accrued liabilities. For these short-term instruments, we have concluded that the historical carrying value is a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization.
During 2015 and 2014, there were no transfers of financial assets between Levels 1, 2 or 3 of fair value measurements. There have been no changes in the methodologies used at December 31, 2015 and December 31, 2014.
The table below shows assets measured at fair value on a non-recurring basis. The fair value of goodwill, trademarks and other intangible assets are determined using Level 3 inputs.
| Assets Measured at Fair Value on a Non-recurring Basis | ||||||||||||||||||||
| Balance, December 31, 2015 | Level 1 | Level 2 | Level 3 | Total Gain / (Loss) | ||||||||||||||||
| Goodwill Battery & Energy Products Segment | $ | 4,790 | $ | | $ | | $ | 4,790 | $ | | ||||||||||
| Goodwill Communications Systems Segment | 11,493 | | | 11,493 | | |||||||||||||||
| Trademark Battery & Energy Products Segment | 711 | | | 711 | | |||||||||||||||
| Trademarks Communications Systems Segment | 2,700 | | | 2,700 | (150 | ) | ||||||||||||||
| Total | $ | 19,694 | $ | | $ | | $ | 19,694 | $ | (150 | ) | |||||||||
The quantitative impairment test for goodwill consists of a comparison of the fair value of the reporting unit with the carrying amount of the reporting unit to which it is assigned. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, a second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. At December 31, 2015, we estimate that the fair value of goodwill exceeds the recorded value by more than 50%.
The impairment test for intangible assets with indefinite lives consists of a comparison of the fair value of the intangible assets with their carrying amounts. If the carrying value of the intangible assets exceeds the fair value, an impairment loss is recognized in an amount equal to that excess. We determine the fair value of the reporting unit for goodwill impairment testing based on a discounted cash flow model. We determine the fair value of our intangibles assets with indefinite lives (trademarks) through the royalty relief income valuation approach.
For our impairment tests of both goodwill and trademarks, we use key assumptions that include estimates of future customer orders and revenues. The use of such estimates involves inherent uncertainties, and future impairments may be warranted if such future orders and revenues do not materialize.
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.