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 resale distributors and to ceiling systems contractors. 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 or headcount. The remaining items, which cannot be attributed to the other 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 2013
Net sales to external customers	$ 1,264.6	$ 921.3	$ 534.0	-	$ 2,719.9
Equity (earnings) from joint venture	(59.4)	-	-	-	(59.4)
Segment operating income (loss)	263.1	44.1	6.0	($74.6)	238.6
Restructuring charges	-	(0.2)	-	-	(0.2)
Segment assets	1,071.9	635.2	335.2	874.3	2,916.6
Depreciation and amortization	56.3	32.3	11.4	9.0	109.0
Investment in joint venture	132.0	-	-	-	132.0
Purchases of property, plant and equipment	134.5	55.4	8.0	15.8	213.7


	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)	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 (1)	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
Purchases of property, plant and equipment (1)	98.5	76.0	14.4	9.2	198.1


	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)	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 (1)	57.8	32.3	10.5	11.0	111.6
Asset impairment (1)	-	2.2	0.7	-	2.9
Investment in joint venture	141.0	-	-	-	141.0
Purchases of property, plant and equipment (1)	94.8	38.9	9.8	6.6	150.1

(1) – Totals for 2012 and 2011 will differ from the totals on our Consolidated Statement of Cash Flow by the amounts that have been classified as discontinued operations.

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:


	2013	2012	2011
Segment operating income	$ 238.6	$ 271.2	$ 239.8
Interest expense	68.8	53.7	48.5
Other non-operating expense	1.8	0.5	1.3
Other non-operating income	(3.9)	(3.5)	(3.8)
Earnings from continuing operations before income taxes	$ 171.9	$ 220.5	$ 193.8

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.


	2013	2012	2011
Geographic Areas
Net trade sales
Americas:
United States	$ 1,744.1	$ 1,646.9	$ 1,672.1
Canada	176.6	187.9	179.6
Other	35.1	38.1	42.9
Total Americas	1,955.8	1,872.9	1,894.6

Europe, Middle East & Africa:
Germany	120.4	119.9	147.8
United Kingdom	83.7	81.2	85.6
Russia	72.4	63.2	51.2
France	60.7	61.4	71.2
Other	203.7	181.1	228.2
Total Europe, Middle East & Africa	540.9	506.8	584.0

Pacific Rim:
Australia	66.2	80.4	86.1
China	81.3	74.5	73.6
India	40.6	38.8	42.2
Other	35.1	45.5	42.6
Total Pacific Rim	223.2	239.2	244.5
Total net trade sales	$ 2,719.9	$ 2,618.9	$ 2,723.1


	2013	2012
Property, plant and equipment, net at December 31,
Americas:
United States	$ 668.6	$ 648.4
Other	9.5	7.9
Total Americas	678.1	656.3

Europe, Middle East & Africa:
Germany	126.1	119.6
Russia	49.2	7.2
France	20.9	19.7
Other	27.5	22.7
Total Europe, Middle East & Africa	223.7	169.2

Pacific Rim:
China	185.6	147.5
Other	19.8	32.0
Total Pacific Rim	205.4	179.5
Total property, plant and equipment, net	$ 1,107.2	$ 1,005.0

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, we recorded accelerated depreciation of $11.0 million for machinery and equipment and a $4.6 million impairment charge for the buildings in cost of goods sold in 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 18 to the Consolidated Financial Statements). We sold this facility in the third quarter of 2013.

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 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).