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that would occur if stock options or other contracts to issue common stock were exercised. Diluted EPS is calculated by divid- ing net income by weighted average common and common equivalent shares outstanding. Common equivalent shares are calculated using the treasury stock method. 

RECLASSIFICATIONS: Certain reclassifications have been made to the 2009 and 2008 financial statements to conform to the presentation adopted in 2010. 

## NOTE 2 Discontinued Operations 

The Company sold certain assets and liabilities of TPOS on September 30, 2010. The sale of certain assets and liabilities of TPOS was the result of management’s decision during the third quarter of 2010 to divest non-strategic businesses and focus resources on core products and services. The Company had a pre-tax goodwill impairment of $2.2 million (approximately $1.5 million after-tax) related to TPOS, which was included in discontinued operations as part of the sale. This transaction resulted in the assumed lease of its Sacramento, California, facility and the closure of its Columbus, Georgia-based distribution center. 

TSYS will continue to use the buyer in a referral arrangement for customers who approach TSYS Acquiring Solutions for terminal services, and will also subcontract existing relationships to the buyer for a period no longer than two years. However, TSYS will not have significant continuing involvement after the sale to the buyer. 

TPOS was not a significant component of the Merchant Services segment, nor TSYS’ consolidated results. 

The Company sold TDM on August 31, 2009. The sale of the TDM business was the result of management’s decision to divest non- strategic businesses and focus resources on core products and services. TDM was part of the North America Services segment. 

In accordance with the provisions of ASC 205, the Company determined the TPOS business became a discontinued operation in the third quarter of 2010 and the TDM business became a discontinued operation in the first quarter of 2009. 

The following table presents the summarized results of discon- tinued operations for the years ended December 31, 2010, 2009 and 2008: 

<img src='content_image/275049.jpg'>

The Consolidated Statements of Cash Flows include TPOS and TDM through the respective dates of disposition. 

## NOTE 3 Fair Value Measurement 

ASC 820, “Fair Value Measurements and Disclosure,” requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant level of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows: 

Level 1 — Quoted prices for identical assets and liabilities in active markets. 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. 

Level 3 — Unobservable inputs for the asset or liability. 

In February 2007, the FASB issued authoritative guidance under ASC 825, “Financial Instruments.” ASC 825 permits the Company to choose to measure many financial instruments and certain other items at fair value. Upon adoption of the guidance on January 1, 2008, TSYS did not elect the fair value option for any financial instrument it did not currently report at fair value. 

Goodwill is assessed annually for impairment in the second quar- ter of each year using fair value measurement techniques. Spe- cifically, goodwill impairment is determined using a two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds its book value, goodwill is considered not impaired and the second step of the impairment test is unnec- essary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to 

