NOTE 3. NATURE OF OPERATIONS

Effective April 1, 2016 and in connection with our separation of AFI, our former Resilient Flooring and Wood Flooring segments have been excluded from our results of continuing operations. In addition, effective April 1, 2016, we disaggregated our former Building Products operating segment into the following three distinct geographical segments: Americas (including Canada); Europe, Middle East and Africa (including Russia) (“EMEA”); and Pacific Rim.

Each of our geographical segments produces suspended fiber and metal ceilings for use in commercial and institutional settings in addition to sourcing complementary ceiling products. Commercial ceiling materials and accessories are sold to resale distributors and to ceiling systems contractors. Residential ceiling products are sold in the Americas primarily to wholesalers and retailers (including large home centers). Each segment also includes the results of our Worthington Armstrong Venture (“WAVE”) joint venture with Worthington Industries, Inc., which manufactures suspension system (grid) products that are invoiced by both us and WAVE. Segment results relating to WAVE consist primarily of equity earnings and reflect our 50% equity interest in the joint venture. In each of our segments, WAVE primarily sells its suspension system products directly to customers, for which we provide sales and administrative support. To a lesser extent, however, in some markets, WAVE sells its suspension systems products to us for resale to customers. Our segment results reflect those sales transactions.

Effective April 1, 2016, we reclassified the majority of the assets and liabilities formally reported in our Unallocated Corporate segment to our Americas segment. The assets and liabilities reclassified to our Americas segment most notably included the Armstrong trade name intangible asset, property, plant and equipment comprised primarily of Corporate campus facilities, the cash surrender value of life insurance supporting deferred compensation liabilities, income tax assets and liabilities, and pension and postretirement assets and liabilities.

Balance sheet items classified as Unallocated Corporate for all periods presented primarily include cash and cash equivalents and outstanding borrowings under our senior credit facilities.

Segment results below have been restated for all periods presented as a result of the disaggregation of our former Building Products segment and the reclassification of Unallocated Corporate assets. These revisions did not impact any previously reported consolidated revenues, gross profit, results of continuing operations, or asset or liability balances.

	Americas			EMEA			Pacific Rim			Unallocated Corporate			Total
For the year ended 2016
Net sales to external customers	$	837.3		$	263.1		$	134.1		$	-		$	1,234.5
Equity (earnings) from joint venture		(70.2	)		(2.2	)		(0.7	)		-			(73.1	)
Segment operating income (loss)		232.1			(8.2	)		(0.5	)		(38.8	)		184.6
Segment assets		1,186.7			275.5			145.0			150.8			1,758.0
Depreciation and amortization⁽¹⁾		52.9			16.7			8.1			0.1			77.8
Investment in joint venture		106.2			-			-			-			106.2
Purchases of property, plant and equipment ⁽¹⁾		66.4			19.1			6.6			-			92.1

	Americas			EMEA			Pacific Rim			Unallocated Corporate			Total
For the year ended 2015
Net sales to external customers	$	805.1		$	289.9		$	136.3		$	-		$	1,231.3
Equity (earnings) from joint venture		(63.5	)		(2.3	)		(0.3	)		-			(66.1	)
Segment operating income (loss)		283.5			(11.9	)		(6.8	)		(124.3	)		140.5
Segment assets		1,137.3			283.2			154.4			238.0			1,812.9
Depreciation and amortization⁽¹⁾		43.2			15.6			8.8			11.6			79.2
Investment in joint venture		130.8			-			-			-			130.8
Purchases of property, plant and equipment ⁽¹⁾		52.2			30.5			4.0			22.4			109.1

	Americas			EMEA			Pacific Rim			Unallocated Corporate			Total
For the year ended 2014
Net sales to external customers	$	798.3		$	353.4		$	142.6		$	-		$	1,294.3
Equity (earnings) from joint venture		(61.6	)		(3.4	)		(0.1	)		-			(65.1	)
Segment operating income (loss)		272.1			(5.4	)		(2.0	)		(66.6	)		198.1
Segment assets		1,127.4			296.6			166.3			165.1			1,755.4
Depreciation and amortization⁽¹⁾		44.7			12.9			8.4			10.8			76.8
Asset impairment ⁽¹⁾		-			-			0.4			-			0.4
Investment in joint venture		129.0			-			-			-			129.0
Purchases of property, plant and equipment ⁽¹⁾		42.5			75.2			10.4			11.4			139.5

⁽¹⁾ – Totals for 2016, 2015 and 2014 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 Consolidated Statements of Earnings and Comprehensive Income (Loss). 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:

	2016			2015			2014
Segment operating income	$	184.6		$	140.5		$	198.1
Interest expense		49.8			45.3			46.0
Other non-operating expense		0.1			20.1			5.9
Other non-operating income		(9.6	)		(5.0	)		(2.2	)
Earnings from continuing operations before income taxes	$	144.3		$	80.1		$	148.4

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 on the location of our selling entities.

	2016		2015		2014
Geographic Areas
Net trade sales
Americas:
United States	$	775.9	$	745.9	$	726.0
Canada		61.4		59.2		72.3
Total Americas		837.3		805.1		798.3

EMEA:
United Kingdom		87.9		112.0		113.8
France		54.0		54.9		69.7
Netherlands		43.3		42.1		53.3
Russia		40.2		37.4		62.0
Other		37.7		43.5		54.6
Total EMEA		263.1		289.9		353.4

Pacific Rim:
India		40.0		43.7		39.6
China	38.7			39.1		47.6
Australia	35.5			32.4		35.6
Other		19.9		21.1		19.8
Total Pacific Rim		134.1		136.3		142.6
Total net trade sales	$	1,234.5	$	1,231.3	$	1,294.3

	2016		2015
Property, plant and equipment, net at December 31,
Americas:
United States	$	426.7	$	403.8
Canada		34.8		28.9
Other		0.1		0.1
Total Americas		461.6		432.8

EMEA:
Russia		54.6		48.3
France		31.4		27.6
Germany		25.5		28.5
United Kingdom		18.0		21.8
Austria		17.4		17.6
Other		1.2		1.3
Total EMEA		148.1		145.1

Pacific Rim:
China		58.5		69.1
Other		1.4		1.1
Total Pacific Rim		59.9		70.2
Total property, plant and equipment, net	$	669.6	$	648.1

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.

Effective January 1, 2016, in anticipation of the April 1, 2016 AFI separation, the majority of our historical corporate support functions, representing costs of approximately $85 million for 2016 were incorporated into our Americas segment. As a result, Unallocated Corporate support expenses have decreased significantly during 2016 in comparison to 2015 and 2014.

For 2016, 2015 and 2014, Unallocated Corporate segment operating (loss) was comprised of the following:

	2016			2015			2014
Corporate expenses	$	(4.3	)	$	(90.0	)	$	(66.6	)
Separation costs		(34.5	)		(34.3	)		-
Total Unallocated Corporate segment operating (loss)	$	(38.8	)	$	(124.3	)	$	(66.6	)