39 the carrying value between the valuations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Events or circumstances may include, but are not limited to, a significant change in legal factors or in the business climate, adverse action or assessment by a regulator , unanticipated competition, loss of key personnel, possible sale or disposal of a reporting unit or a significant portion of a reporting unit, significant changes in financial projections or significant changes in the market capitalization. During the evaluation of impairment, the Company compares the fair value of the reporting unit to its carrying amount to determine if there is potential goodwill impairment. Our impairment testing for goodwill and indefinite-lived intangibles is performed separately . If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value of the goodwill. The impairment test for the Company’ s indefinite-lived intangible assets involves comparing the fair value of the intangibles to their carrying values. If the carrying amount of an intangible asset with an indefinite life exceeds its fair value, an impairment loss would be recognized in the amount equal to the excess. If this fair value is less than the reporting unit's carrying value, a second step is required to measure the amount of impairment, if any . If the fair value of a reporting unit exceeds its carrying value, the second step is not required. The Company's market capitalization is a consideration during the annual impairment test.    The reporting unit comprising the goodwill is only a portion of the entire company .  The company must apply assumptions to compare the Company's market capitalization to the reporting unit being assessed.  First, a portion of the market capitalization is allocated  to the reporting unit.  This value is then increased by a control premium. T o develop the control premium assumption, management considered other recent transactions within the industry and the control premium realized in those transactions. The Company performed the first step of the goodwill impairment assessment. In Step 1 of the goodwill impairment test, the Company compared the fair value of the reporting unit, the entities purchased in the October 31, 2007 PDIC acquisition, to its carrying amount, including goodwill of $ 168.6 million . Based on the results of the valuation, the fair value of the reporting unit exceeded the carrying value; therefore, it was determined that no impairment existed. Step 2 was not required. T o determine the fair value of the reporting unit, the Company employs an income and market-based approach with each being weighted equally . Under the income approach, the Company uses a discounted cash flow method to calculate the fair value based on the present value of estimated future cash flows. Assumptions used in the discounted cash flow method, such as forecasted operating results, expected growth rates, working capital needs, tax rates, and cost of capital, are based on the current market conditions and are consistent with internal management projections. The cost of capital rate selected is based on consideration of the risks inherent in the investment and market rates of return available from alternative investments of similar type and quality as of the valuation date. The guideline public company method is used for the market approach. The approach provides an estimate of value using multiples of earnings derived from the market values of publicly traded companies in the cable and wire industry . In addition to the selection of guideline companies, the market approach includes an analysis of the Company’ s financial and operating performance, risk, profitability , and growth as compared to the reporting unit. As noted, our annual impairment test for both goodwill and indefinite lived intangibles assets indicated there was no impairment. While the Company believes that the assumptions and estimates utilized in the testing are appropriate, multiples of earnings, future changes in judgments, assumptions and estimates that are used in our annual impairment testing, including discount and tax rates, future cash flow projections, or the Company’ s stock price, could result in significantly dif ferent estimates of fair value. For the 2012 impairment analysis, the Company used a discount rate of 12% and a residual growth rate of 5%, which is consistent with the assumptions used in 201 1. The discount rate remained consistent as the business or economic fundamentals impacting the reporting unit are consistent with the prior year . The residual growth rate was consistent with the rate utilized in the 201 1 impairment analysis due to consistent expected long-term GDP growth for countries in which the reporting unit operates. As noted, changes in these estimates and assumptions could materially af fect the results of Step 1 of the goodwill impairment tests. For example, an increase in the discount rate or a decrease in the residual growth rate of 100 basis points would result in a decrease to the fair value of $76 million and $33 million, respectively . The fair value would still exceed the carrying value if these changes were made when employing an income and market-based approach. Overall, a decrease of 5% in the estimated fair value of any of the Company’ s reporting units would not result in an impairment. At December 31, 2012, the Company's market capitalization is less than the Company's net assets but consistent with the market capitalization at the goodwill impairment testing performed as of October 31, 2012; therefore, no additional impairment indicators were noted. Shar e-Based Compensation There are certain employees with various forms of share-based payment awards for which the Company recognizes compensation costs for these awards based on their fair values. The fair values of certain awards are estimated on the grant date using the Black- Scholes option pricing formula, which incorporates certain assumptions regarding the expected term of an award and expected stock price volatility . The Company will develop the expected term assumptions based on the vesting period and contractual term of an award, historical exercise and post-vesting cancellation experience, stock price history , plan provisions that require exercise or cancellation of awards after employees terminate, and the extent to which currently available information indicates that the future is reasonably expected to dif fer from past experience. The Company develops the expected volatility assumptions based T able of Contents