NOTE 3. NATURE OF OPERATIONS

Building Products — produces suspended mineral fiber, soft fiber and metal ceiling systems for use in commercial, institutional and residential settings. In addition, our Building Products segment sources complementary ceiling products. Our products, which are sold worldwide, are available in numerous colors, performance characteristics and designs, and offer attributes such as acoustical control, rated fire protection and aesthetic appeal. Commercial ceiling materials and accessories are sold to ceiling systems contractors and to resale distributors. Residential ceiling products are sold in North America primarily to wholesalers and retailers (including large home centers). Suspension system (grid) products manufactured by Worthington Armstrong Venture (“WAVE”) are sold by both us and WAVE.

Resilient Flooring — produces and sources a broad range of floor coverings primarily for homes and commercial and institutional buildings. Manufactured products in this segment include vinyl sheet, vinyl tile and linoleum flooring. In addition, our Resilient Flooring segment sources and sells laminate flooring products, vinyl tile products, vinyl sheet products, adhesives, and installation and maintenance materials and accessories. Resilient Flooring products are offered in a wide variety of types, designs, and colors. We sell these products worldwide to wholesalers, large home centers, retailers, contractors and to the manufactured homes industry.

Wood Flooring — produces and sources wood flooring products for use in new residential construction and renovation, with some commercial applications in stores, restaurants and high-end offices. The product offering includes pre-finished solid and engineered wood floors in various wood species, and related accessories. Virtually all of our Wood Flooring sales are in North America. Our Wood Flooring products are generally sold to independent wholesale flooring distributors and large home centers.

Unallocated Corporate — includes assets, liabilities, income and expenses that have not been allocated to the business units. Balance sheet items classified as Unallocated Corporate are primarily income tax related accounts, cash and cash equivalents, the Armstrong brand name, the U.S. prepaid pension cost and long-term debt. Expenses for our corporate departments and certain benefit plans are allocated to the reportable segments based on known metrics, such as specific activity, headcount, or net sales. The remaining items, which cannot be attributed to the reportable segments without a high degree of generalization, are reported in Unallocated Corporate.


	Building Products	Resilient Flooring	Wood Flooring	Unallocated Corporate	Total
For the year ended 2012
Net sales to external customers	$ 1,218.9	$ 939.4	$ 460.6	-	$ 2,618.9
Equity (earnings) from joint venture	(55.9)	-	-	-	(55.9)
Segment operating income (loss)⁽¹⁾	230.4	56.9	37.3	($53.4)	271.2
Restructuring charges	-	(0.4)	-	-	(0.4)
Segment assets	975.1	617.6	326.4	935.2	2,854.3
Depreciation and amortization	62.2	28.7	11.1	9.0	111.0
Asset impairment	4.6	0.5	0.6	-	5.7
Investment in joint venture	133.5	-	-	-	133.5
Capital additions	107.9	81.5	14.4	9.2	213.0


	Building Products	Resilient Flooring	Wood Flooring	Unallocated Corporate	Total
For the year ended 2011
Net sales to external customers	$ 1,237.5	$ 1,002.3	$ 483.3	-	$ 2,723.1
Equity (earnings) from joint venture	(54.9)	-	-	-	(54.9)
Segment operating income (loss)⁽¹⁾	226.1	15.7	43.4	($45.4)	239.8
Restructuring charges	1.5	6.8	(0.2)	0.9	9.0
Segment assets	935.6	575.9	329.5	1,153.7	2,994.7
Depreciation and amortization	57.8	32.3	10.5	11.0	111.6
Asset impairment	-	2.2	0.7	-	2.9
Investment in joint venture	141.0	-	-	-	141.0
Capital additions	101.6	43.1	9.8	6.6	161.1


	Building Products	Resilient Flooring	Wood Flooring	Unallocated Corporate	Total
For the year ended 2010
Net sales to external customers	$ 1,135.5	$ 1,013.2	$ 479.1	-	$ 2,627.8
Equity (earnings) from joint venture	(45.0)	-	-	-	(45.0)
Segment operating income (loss)⁽¹⁾	171.0	13.1	(45.8)	($50.8)	87.5
Restructuring charges	3.2	13.9	0.9	4.0	22.0
Segment assets	931.4	582.6	340.7	1,067.7	2,922.4
Depreciation and amortization	62.5	38.6	26.4	13.8	141.3
Asset impairment	-	2.1	22.4	6.1	30.6
Investment in joint venture	188.6	-	-	-	188.6
Capital additions	47.7	24.0	12.2	5.8	89.7

⁽¹⁾Segment operating income (loss) is the measure of segment profit or loss reviewed by the chief operating decision maker. The sum of the segments’ operating income (loss) equals the total consolidated operating income as reported on our income statement. The following reconciles our total consolidated operating income to earnings from continuing operations before income taxes. These items are only measured and managed on a consolidated basis::


	2012	2011	2010
Segment operating income	$ 271.2	$ 239.8	$ 87.5
Interest expense	53.7	48.5	21.2
Other non-operating expense	0.5	1.3	1.2
Other non-operating income	(3.5)	(3.8)	(8.0)
Earnings from continuing operations before income taxes	$ 220.5	$ 193.8	$ 73.1

Accounting policies of the segments are the same as those described in the summary of significant accounting policies.

The sales in the table below are allocated to geographic areas based upon the location of the customer.


	2012	2011	2010
Geographic Areas
Net trade sales
Americas:
United States	$ 1,646.9	$ 1,672.1	$ 1,603.7
Canada	187.9	179.6	179.4
Other Americas	38.1	42.9	39.5
Total Americas	$ 1,872.9	$ 1,894.6	$ 1,822.6

Europe, Middle East & Africa:
Germany	$ 119.9	$ 147.8	$ 146.3
United Kingdom	81.2	85.6	79.9
Russia	63.2	51.2	38.6
France	61.4	71.2	77.4
Other Europe, Middle East & Africa	181.1	228.2	247.8
Total Europe, Middle East & Africa	$ 506.8	$ 584.0	$ 590.0

Pacific Rim:
Australia	$ 80.4	$ 86.1	$ 85.3
China	74.5	73.6	57.1
Other Pacific Rim	84.3	84.8	72.8
Total Pacific Rim	$ 239.2	$ 244.5	$ 215.2
Total net trade sales	$ 2,618.9	$ 2,723.1	$ 2,627.8


	2012	2011
Property, plant and equipment, net at December 31,
Americas:
United States	$ 648.4	$ 641.3
Other Americas	7.9	1.9
Total Americas	$ 656.3	$ 643.2

Europe, Middle East & Africa:
Germany	$ 119.6	$ 113.7
Other Europe, Middle East & Africa	49.6	43.1
Total Europe, Middle East & Africa:	$ 169.2	$ 156.8

Pacific Rim:
China	$ 147.5	$ 58.3
Other Pacific Rim	32.0	29.6
Total Pacific Rim	$ 179.5	$ 87.9
Total property, plant and equipment, net	$ 1,005.0	$ 887.9

Impairment testing of our tangible assets occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

During the first quarter of 2012, we made the decision to permanently close a previously idled ceiling tile plant in Mobile, AL. As a result, in the first quarter we recorded accelerated depreciation of $9.3 million for machinery and equipment and a $4.6 million impairment charge for the buildings in cost of goods sold. We also recorded an additional $1.7 million in accelerated depreciation related to the machinery and equipment during the remainder of 2012. The fair values were determined by management estimates and an independent valuation based on information available at that time (considered Level 2 inputs in the fair value hierarchy as described in Note 19 to the Consolidated Financial Statements).

During the fourth quarter of 2012, we made the decision to permanently close a previously idled engineered wood flooring production facility in Statesville, NC. As a result, we recorded accelerated depreciation of $0.6 million for machinery and equipment and a $0.6 million impairment charge for the buildings in cost of goods sold. The preliminary fair values were determined by management estimates and an independent valuation based on information available at that time (considered Level 2 inputs in the fair value hierarchy).

During the third quarter of 2011, we recorded an asset impairment charge of $2.2 million in SG&A expense for a European Resilient Flooring office building. The fair value was determined by management estimates of market prices based upon information available, including offers received from potential buyers of the property (considered Level 3 inputs in the fair value hierarchy).

During the fourth quarter of 2011, we recorded asset impairment charges of $1.1 million in cost of goods sold for two previously occupied manufacturing facilities. The fair values were determined by management estimates and independent market valuations based on information available at that time. The valuation information included sales of similar facilities and estimates of market prices (considered Level 2 inputs in the fair value hierarchy) for these assets. We sold one of the facilities in the fourth quarter of 2012 and the other in the first quarter of 2013.