Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172018
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number 001-35971

 
logoallea02.jpg
ALLEGION PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)

Ireland98-1108930
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Block D
Iveagh Court
Harcourt Road
Dublin 2, Ireland
(Address of principal executive offices, including zip code)
+(353) (1) 2546200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x   NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitiondefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerx Accelerated filer¨
     
Non-accelerated filer
¨

(Do not check if a smaller reporting company)
 Smaller reporting company¨
     
   Emerging growth company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES  ¨    NO  x
The number of ordinary shares outstanding of Allegion plc as of October 23, 201722, 2018 was 95,042,640.95,055,763.

ALLEGION PLC
FORM 10-Q
INDEX

   
   
Item 1 -
 
   
 
   
 
   
 
   
Item 2 -
   
Item 3 -
   
Item 4 -
  
   
Item 1 -
   
Item 1A -
   
Item 2 -
   
Item 6 -
  


PART I-FINANCIAL INFORMATION

Item 1.Financial Statements

ALLEGION PLC
CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three months ended Nine months ended
 September 30, September 30,
In millions, except per share amounts2018 2017 2018 2017
Net revenues$711.5
 $609.4
 $2,029.3
 $1,785.1
Cost of goods sold402.1
 335.0
 1,156.5
 988.2
Selling and administrative expenses167.1
 147.3
 488.4
 435.3
Operating income142.3
 127.1
 384.4
 361.6
Interest expense14.0
 17.8
 40.3
 49.7
Other income, net(1.9) (2.7) (3.9) (5.6)
Earnings before income taxes130.2
 112.0
 348.0
 317.5
Provision for income taxes14.1
 21.9
 45.5
 52.9
Net earnings116.1
 90.1
 302.5
 264.6
Less: Net earnings attributable to noncontrolling interests0.1
 0.3
 0.4
 0.9
Net earnings attributable to Allegion plc$116.0
 $89.8
 $302.1
 $263.7
Earnings per share attributable to Allegion plc ordinary shareholders:       
Basic net earnings$1.22
 $0.95
 $3.18
 $2.77
Diluted net earnings$1.21
 $0.94
 $3.15
 $2.75
Weighted-average shares outstanding       
Basic95.1
 95.0
 95.1
 95.2
Diluted95.8
 95.8
 95.8
 96.0
        
Dividends declared per ordinary share$0.21
 $0.16
 $0.63
 $0.48
        
Total comprehensive income$103.3
 $112.7
 $265.3
 $347.5
Less: Total comprehensive (loss) income attributable to noncontrolling interests(0.6) 0.8
 (1.6) 2.0
Total comprehensive income attributable to Allegion plc$103.9
 $111.9
 $266.9
 $345.5
 Three months ended Nine months ended
 September 30, September 30,
In millions, except per share amounts2017 2016 2017 2016
Net revenues$609.4
 $581.1
 $1,785.1
 $1,668.3
Cost of goods sold335.5
 317.6
 989.3
 921.1
Selling and administrative expenses147.8
 142.0
 436.8
 418.9
Operating income126.1
 121.5
 359.0
 328.3
Interest expense17.8
 15.6
 49.7
 48.4
Loss on divestitures
 84.4
 
 84.4
Other (income) expense, net(3.7) 0.4
 (8.2) (17.0)
Earnings before income taxes112.0
 21.1
 317.5
 212.5
Provision for income taxes21.9
 19.1
 52.9
 56.3
Net earnings90.1
 2.0
 264.6
 156.2
Less: Net earnings attributable to noncontrolling interests0.3
 0.4
 0.9
 1.9
Net earnings attributable to Allegion plc$89.8
 $1.6
 $263.7
 $154.3
Earnings per share attributable to Allegion plc ordinary shareholders:       
Basic net earnings$0.95
 $0.02
 $2.77
 $1.61
Diluted net earnings$0.94
 $0.02
 $2.75
 $1.59
Weighted-average shares outstanding       
Basic95.0
 96.0
 95.2
 95.9
Diluted95.8
 96.9
 96.0
 96.8
        
Dividends declared per ordinary share$0.16
 $0.12
 $0.48
 $0.36
        
Total comprehensive income$112.7
 $16.2
 $347.5
 $172.1
Less: Total comprehensive income attributable to noncontrolling interests0.8
 0.2
 2.0
 2.4
Total comprehensive income attributable to Allegion plc$111.9
 $16.0
 $345.5
 $169.7

See accompanying notes to condensed and consolidated financial statements.

ALLEGION PLC
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(Unaudited)
In millionsSeptember 30,
2017
 December 31,
2016
September 30,
2018
 December 31,
2017
ASSETS      
Current assets:      
Cash and cash equivalents$334.9
 $312.4
$189.7
 $466.2
Restricted cash6.8
 
Accounts and notes receivable, net302.8
 260.0
361.4
 296.6
Inventories257.1
 220.6
278.3
 239.8
Other current assets29.8
 36.3
37.1
 30.1
Total current assets924.6
 829.3
873.3
 1,032.7
Property, plant and equipment, net246.1
 226.6
273.3
 252.2
Goodwill755.9
 716.8
878.0
 761.2
Intangible assets, net393.2
 357.4
558.4
 394.3
Other noncurrent assets127.5
 117.3
147.1
 101.6
Total assets$2,447.3
 $2,247.4
$2,730.1
 $2,542.0
LIABILITIES AND EQUITY      
Current liabilities:      
Accounts payable$177.7
 $179.9
$208.0
 $188.3
Accrued expenses and other current liabilities219.5
 201.5
243.9
 237.5
Short-term borrowings and current maturities of long-term debt35.0
 48.2
35.0
 35.0
Total current liabilities432.2
 429.6
486.9
 460.8
Long-term debt1,412.0
 1,415.6
1,417.7
 1,442.3
Other noncurrent liabilities231.0
 285.8
226.5
 233.4
Total liabilities2,075.2
 2,131.0
2,131.1
 2,136.5
Equity:      
Allegion plc shareholders’ equity:      
Ordinary shares, $0.01 par value (95,025,612 and 95,273,927 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively)1.0
 1.0
Ordinary shares, $0.01 par value (95,051,627 and 95,062,385 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)1.0
 1.0
Capital in excess of par value5.2
 
12.2
 9.1
Retained earnings543.5
 376.6
771.9
 544.4
Accumulated other comprehensive loss(182.5) (264.3)(188.2) (152.9)
Total Allegion plc shareholders’ equity367.2
 113.3
596.9
 401.6
Noncontrolling interests4.9
 3.1
2.1
 3.9
Total equity372.1
 116.4
599.0
 405.5
Total liabilities and equity$2,447.3
 $2,247.4
$2,730.1
 $2,542.0
See accompanying notes to condensed and consolidated financial statements.


ALLEGION PLC
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months endedNine months ended
September 30,September 30,
In millions2017 20162018 2017
Cash flows from operating activities:      
Net earnings$264.6
 $156.2
$302.5
 $264.6
Adjustments to arrive at net cash provided by operating activities:      
Loss on divestitures
 84.4
Depreciation and amortization49.9
 50.7
65.8
 49.9
Discretionary pension plan contribution(50.0) 

 (50.0)
Changes in assets and liabilities and other non-cash items(94.5) (112.9)(107.9) (94.5)
Net cash provided by operating activities170.0
 178.4
260.4
 170.0
Cash flows from investing activities:      
Capital expenditures(33.7) (26.4)(31.8) (33.7)
Acquisition of and equity investments in businesses, net of cash acquired(20.8) (31.4)(375.8) (20.8)
Proceeds from sale of marketable securities
 14.1
Proceeds from sale of equity investment15.5
 

 15.5
Other investing activities, net2.9
 (5.6)(1.1) 2.9
Net cash used in investing activities(36.1) (49.3)(408.7) (36.1)
Cash flows from financing activities:      
Short-term borrowings, net(1.3) 
(0.7) (1.3)
Borrowings from revolving facility165.0
 
Proceeds from revolving facility115.0
 165.0
Repayments of revolving facility(115.0) 
Issuance of term facility700.0
 

 700.0
Settlement of second amended credit facility(856.3) 

 (856.3)
Payments of long-term debt(23.5) (53.6)
Payments of other long-term debt(26.7) (23.5)
Debt repayments, net(16.1) (53.6)(27.4) (16.1)
Debt issuance costs(3.0) (0.3)
 (3.0)
Dividends paid to ordinary shareholders(45.6) (34.5)(59.6) (45.6)
Acquisition/divestiture of noncontrolling interests
 (0.4)
Repurchase of ordinary shares(60.0) (30.0)(30.0) (60.0)
Other financing activities, net6.0
 2.8
0.1
 6.0
Net cash used in financing activities(118.7) (116.0)(116.9) (118.7)
Effect of exchange rate changes on cash and cash equivalents7.3
 1.7
Net increase in cash and cash equivalents22.5
 14.8
Cash and cash equivalents - beginning of period312.4
 199.7
Cash and cash equivalents - end of period$334.9
 $214.5
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(4.5) 7.3
Net (decrease) increase in cash, cash equivalents, and restricted cash(269.7) 22.5
Cash, cash equivalents, and restricted cash - beginning of period466.2
 312.4
Cash, cash equivalents, and restricted cash - end of period$196.5
 $334.9
See accompanying notes to condensed and consolidated financial statements.


ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
The accompanying condensedCondensed and consolidated financial statementsConsolidated Financial Statements of Allegion plc, an Irish public limited company, and its consolidated subsidiaries ("Allegion" or the "Company"), reflect the consolidated operations of the Company and have been prepared in accordance with United States Securities and Exchange Commission ("SEC") interim reporting requirements. Accordingly, the accompanying condensedCondensed and consolidated financial statementsConsolidated Financial Statements do not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for full financial statements and should be read in conjunction with the consolidated financial statements included in the Allegion Annual Report on Form 10-K for the year ended December 31, 20162017. In the opinion of management, the accompanying condensedCondensed and consolidated financial statementsConsolidated Financial Statements contain all adjustments, which include normal recurring adjustments, necessary to state fairly the consolidated unaudited results for the interim periods presented.


Note 2 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements:

In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." ASU 2015-11 changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. The standard defines net realizable value as estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The Company adopted the provisions of ASU 2015-11 on January 1, 2017. The adoption of ASU 2015-11 did not have a material impact on the condensed and consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This update addresses the income tax consequences of intra-entity transfers of assets other than inventory. Previously, GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. In addition, interpretations of this guidance have developed in practice over the years for transfers of certain intangible and tangible assets. The amendments in the update will require recognition of current and deferred income taxes resulting from an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company elected to early adopt on January 1, 2017. As a result, during the first quarter of 2017, the Company recognized a cumulative effect within retained earnings of $5.0 million with an offset to other current assets and other noncurrent assets.

In January 2017, the FASB issued ASU 2017-04, "Intangibles– Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment." The amended guidance simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to perform a hypothetical purchase price allocation. A goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.
The ASU will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment tests after January 1, 2017. The Company elected to early adopt on October 1, 2017 and will apply the new standard, if applicable, to our annual impairment test on goodwill as of October 1, 2017.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (ASC 606). ASC 606 is a single, comprehensive revenue recognition model for all contracts with customers. The model is based on changes in contract assets (rights to receive consideration) and liabilities (obligations to provide a good or perform a service). Revenue is recognized based on the satisfaction of performance obligations, which occurs when control of a good or service transfers to a customer. ASC 606
contains expanded disclosure requirements relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Entities may useASC 606 allows entities to adopt the standard on either a full retrospective approach or report the cumulative effect as of the date of adoption ("modified retrospective method"). This guidance will be effective for the Company January 1, 2018. The FASB has also issued the following standards which clarify ASU 2014-092014-09: ASU 2017-14, Revenue Recognition, Revenue from Contracts with Customers: Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and haveSEC Release No. 33-10403, ASU 2017-13, Revenue Recognition, Revenue from Contracts with Customers: Amendments to SEC Paragraphs Pursuant to the same effective date asStaff Announcement at the original standard:July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, ASU 2016-20, Revenue from Contracts with Customers: Technical Corrections and Improvements, ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients and ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. The Company has completed an assessmentadopted each of the new standard’s impact and a technical assessment of material customer contracts. The Company will choose the modified retrospective method upon adoption in 2018. The adoption of the new standard will not have a material impact on the Company's condensed and consolidated
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


statements of comprehensive income, balance sheets or statements of cash flows. The Company will expand the condensed and consolidated financial statement disclosures in order to comply with ASU 2014-09.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve month term, these arrangements will be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, although we currently plan to adopt this ASUstandards on January 1, 2019. ASU 2016-02 is required to be applied with2018 on a modified retrospective approachbasis. The impact of adopting the new standards was not material to each prior reporting periodthe Company’s Condensed and Consolidated Financial Statements at January 1, 2018 or for the three or nine months ended September 30, 2018, and no cumulative effect adjustment was recorded to opening retained earnings. Expanded disclosure as required by the new standards is presented with various optional practical expedients. The Company is continuingwithin Note 17 to assess what impact ASU 2016-02 will have on the condensedCondensed and consolidated financial statements; however, the Company anticipates that this adoption will result in a significant gross-up of assets and liabilities on its condensed and consolidated balance sheets and will require changes to its systems and processes.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses onConsolidated Financial Instruments." The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing what impact ASU 2016-13 will have on the condensed and consolidated financial statements.Statements.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments." ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. The ASU will beis effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted.and as such, the Company adopted ASU 2016-15 on January 1, 2018. The amendments in this update willare required to be applied retrospectively to all periods presented, unless deemed impracticable,presented. The adoption of ASU 2016-15 did not have a material impact on the Condensed and Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." This update provides guidance to assist companies in which case,evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update provides a more robust framework to use in determining when a set of transferred assets and activities is a business. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, and requires prospective application is permitted.adoption. The Company is assessing whatadopted ASU 2017-01 on January 1, 2018. The adoption of ASU 2017-01 did not have a material impact ASU 2016-15 will have on the condensedCondensed and consolidated financial statements.Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of comprehensive income separately from the service cost component and outside a subtotal of operating income. ASU 2017-07 also allows only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


inventory or a self-constructed asset). The ASU is effective for annual periods beginning after December 15, 2017.2017, and as such, the Company adopted ASU 2017-07 on January 1, 2018. The Company has applied ASU should be applied2017-07 retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statementCondensed and prospectively, onConsolidated Statements of Comprehensive Income and after the effective date,prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. Upon adoption, the Company intends to apply these practical expedients for prior period presentation. The Company does not believe the adoption of the new standard willASU 2017-07 did not have a material impact on the Company's condensedCondensed and consolidated financial statements.Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 addresses previous limitations on how an entity can designate the hedged risk in certain cash flow and fair value hedging relationships by expanding and refining hedge accounting for both nonfinancial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company elected to early adopt the provisions of ASU 2017-12 on January 1, 2018. The amendments in this update should behave been applied to hedging relationships existing on the date of adoption. The adoption of ASU 2017-12 did not have a material impact on the Condensed and Consolidated Financial Statements.

In March 2018, the FASB issued ASU 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118". The overarching purpose of ASU 2018-05 is to codify the guidance issued by the SEC related to income tax accounting implications due to the comprehensive U.S. tax legislation commonly referred to as the Tax Cuts and Jobs Act enacted on December 22, 2017 (the "Tax Reform Act"), as originally discussed within Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) within ASC 740, Income Taxes. SAB 118, and now ASC 740 provide a measurement period, which includesin no case should extend beyond one year from the Tax Reform Act enactment date, during which a cumulative-effect adjustmentcompany acting in good faith may complete the accounting for the impacts of the Tax Reform Act. To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete, the company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined. If a company cannot determine a provisional estimate to eliminate any ineffectivenessbe included in the financial statements, the company should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the Tax Reform Act being enacted. At December 31, 2017, the Company recorded a provisional valuation allowance related to accumulatedinterest limitation carryforwards and other comprehensive income or lossadjustments to the net deferred tax assets, with a corresponding discrete net tax charge of $22.8 million. On April 2, 2018, IRS Notice 2018-28 was issued to provide guidance to assist taxpayers in complying with providing transition guidance related to interest limitation carryforwards recorded at the enactment date. Management is in process of evaluating IRS Notice 2018-28 and assessing its impact on the provisional valuation allowance recorded at December 31, 2017. During the three-month period ended September 30, 2018, an adjustment resulting in a $3.3 million tax benefit was made to the provisional amounts previously recognized related to the Tax Reform Act, primarily relating to clarified guidance received during the quarter around the deductibility of certain executive compensation. The Company will continue to analyze impacts from the enactment of the Tax Reform Act on its Condensed and Consolidated Financial Statements, and any additional impacts will be recorded as they are identified during the measurement period as provided for in SAB 118, which extends up to one year from the enactment date.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve month term, these arrangements will be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. In July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842 (Leases)", which provides narrow amendments to clarify how to apply certain aspects of ASU 2016-02, and ASU 2018-11, "Leases (Topic 842): Targeted Improvements", which provides adopters an additional transition method by allowing entities to initially apply ASU 2016-02, and subsequent related standards, at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings asin the period of theadoption. These ASUs are effective for annual periods beginning of the fiscal year in whichafter December 15, 2018, and interim periods within those annual periods. Early adoption occurred. Presentation and disclosure amendments are required to be applied prospectively.is permitted. The Company is assessing what impactin the process of updating its systems, policies, and internal controls over financial reporting in anticipation of adopting these standards on January 1, 2019. The Company will utilize the new cumulative-effect adjustment transition method allowed per ASU 2017-12 will have on2018-11. The Company also currently anticipates electing the condensed and consolidated financial statements.following practical expedients available within these standards:

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The Company will elect to not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component.

If at the lease commencement date a lease has a lease term of 12 months or less and does not include a purchase option that is reasonably certain to exercise, the Company will elect not to apply ASC 842 recognition requirements. Nonetheless, the Company intends to include leases of less than 12 months within the updated footnote disclosures.

If the Company enters into a large number of leases in the same month with the same terms and conditions, these will be looked at as a group (portfolio) assuming the lease model under this approach will not materially differ from applying to each individual lease.

If available, the rate implicit in the lease will be used as the discount rate. However, if this is not available, the Company will use it's incremental borrowing rate as the discount rate, defined as the weighted average rate of total outstanding debt, gross of any hedging contracts.

As the Company will apply the new transition method allowed per ASU 2018-11, the Company will elect to not reassess arrangements entered into prior than January 1, 2019 for whether an arrangement is or contains a lease, the lease classification applied, or to separate initial direct costs.
The Company is continuing to assess what the complete impact these ASUs and the related practical expedients will have on the Condensed and Consolidated Financial Statements; however, the Company anticipates that adoption will result in the recognition of a significant right-of-use asset and lease liability on its Condensed and Consolidated Balance Sheets. Changes to processes and internal controls to meet the new standards' reporting and disclosure requirements have been identified and are being implemented. Software has been implemented that will assist in the recognition of the right-to-use asset and lease liability to be included on the Condensed and Consolidated Balance Sheets related to leases currently classified as operating leases with durations greater than twelve months, with certain allowable exceptions. The Company is in the process of reviewing its lease portfolio, as well as other agreements not currently classified as leases, for embedded leases and to ensure appropriate classification and disclosure under the new standards.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing what impact ASU 2016-13 will have on the Condensed and Consolidated Financial Statements.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The new guidance permits entities to reclassify tax effects stranded in accumulated other comprehensive income (AOCI) as a result of the Tax Reform Act. ASU 2018-02 provides this option not only for the impact to deferred tax assets and liabilities due to the reduction in the U.S. tax rate, but also for tax effects stranded in AOCI for other reasons specific to the Tax Reform Act, such as state taxes or transitioning to a territorial tax system. Tax effects that are stranded in AOCI for reasons not relating to the Tax Reform Act may not be reclassified under ASU 2018-02. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Entities that adopt the ASU in an annual or interim period after the period of enactment are able to choose whether to apply the amendments retrospectively to each period in which the effect of the Tax Reform Act is recognized or to apply the amendments in the period of adoption. The Company is assessing what impact ASU 2018-02 will have on the Condensed and Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." The new guidance modifies the disclosure requirements related to fair value measurements in Topic 820, Fair Value Measurement, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and modifying certain other disclosure requirements. The ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2018-13 on October 1, 2018. The adoption is not expected to have a material impact on the Condensed and Consolidated Financial Statements.

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans." The new guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and clarifying certain other disclosure requirements. The ASU will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2018-14 on October 1, 2018. The adoption is not expected to have a material impact on the Condensed and Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new guidance aligns the requirements for capitalizing implementation costs incurred in a cloud-based hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing what impact ASU 2018-15 will have on the Condensed and Consolidated Financial Statements.

Note 3 – Inventories
Inventories are stated at the lower of cost orand net realizable value using the first-in first-out (FIFO) method.
The major classes of inventory were as follows:
In millionsSeptember 30,
2017
 December 31,
2016
September 30,
2018
 December 31,
2017
Raw materials$71.3
 $56.7
$60.5
 $66.6
Work-in-process30.5
 23.6
25.7
 29.8
Finished goods155.3
 140.3
192.1
 143.4
Total$257.1
 $220.6
$278.3
 $239.8

Note 4 – Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 20172018 were as follows:
In millionsAmericas EMEIA Asia Pacific Total
December 31, 2016 (gross)$372.9
 $736.1
 $93.3
 $1,202.3
Accumulated impairment
 (478.6) (6.9) (485.5)
December 31, 2016 (net)372.9
 257.5
 86.4
 716.8
Acquisitions and settlements3.1
 (1.7) 1.3
 2.7
Currency translation
 31.1
 5.3
 36.4
September 30, 2017 (net)$376.0
 $286.9
 $93.0
 $755.9
In millionsAmericas EMEIA Asia Pacific Total
December 31, 2017 (gross)$375.2
 $769.8
 $101.7
 $1,246.7
Accumulated impairment
 (478.6) (6.9) (485.5)
December 31, 2017 (net)375.2
 291.2
 94.8
 761.2
Acquisitions107.5
 9.2
 15.8
 132.5
Currency translation0.2
 (9.6) (6.3) (15.7)
September 30, 2018 (net)$482.9
 $290.8
 $104.3
 $878.0

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Note 5 – Intangible Assets
The gross amount of the Company’s intangible assets and related accumulated amortization were as follows:
 September 30, 2017 December 31, 2016 September 30, 2018 December 31, 2017
In millions Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount
Completed technologies/patents $32.4
 $(9.3) $23.1
 $48.0
 $(25.3) $22.7
 $59.0
 $(13.1) $45.9
 $32.6
 $(10.0) $22.6
Customer relationships 319.0
 (69.1) 249.9
 278.9
 (51.6) 227.3
 423.6
 (84.5) 339.1
 324.5
 (74.1) 250.4
Trademarks (finite-lived) 87.7
 (44.5) 43.2
 78.5
 (37.3) 41.2
Trade names (finite-lived) 87.9
 (47.1) 40.8
 89.0
 (46.1) 42.9
Other 7.1
 (4.5) 2.6
 11.0
 (9.4) 1.6
 9.1
 (6.1) 3.0
 7.9
 (4.9) 3.0
Total finite-lived intangible assets 446.2
 $(127.4) 318.8
 416.4
 $(123.6) 292.8
 579.6
 $(150.8) 428.8
 454.0
 $(135.1) 318.9
Trademarks (indefinite-lived) 74.4
   74.4
 64.6
   64.6
Trade names (indefinite-lived) 129.6
   129.6
 75.4
   75.4
Total $520.6
   $393.2
 $481.0
   $357.4
 $709.2
   $558.4
 $529.4
   $394.3

Intangible asset amortization expense was $16.4$28.6 million and $15.5$16.4 million for the nine months ended September 30, 20172018 and 20162017., respectively. Future estimated amortization expense on existing intangible assets in each of the next five years amounts to approximately $22.334.4 million for full year 2017, $22.32018, $28.7 million for 2018, $21.4 million for 2019, $21.428.7 million for 2020, and $21.428.7 million for 2021.2021, and $28.7 million for 2022.


Note 6 – Acquisitions and Investments in Unconsolidated Entities

2018

During the nine months ended September 30, 2018, the Company completed six acquisitions:
BusinessDate
Technical Glass Products, Inc. ("TGP")January 2018
Hammond Enterprises, Inc. ("Hammond")January 2018
Qatar Metal Industries LLC ("QMI")February 2018
AD Systems, Inc. ("AD Systems")March 2018
Gainsborough Hardware and API Locksmiths ("Door and Access Systems")July 2018
ISONAS Security Systems, Inc. ("ISONAS")July 2018

In January 2018, the Company acquired 100% of TGP through one of its subsidiaries. TGP provides fire-rated architectural glass and framing solutions for commercial buildings, as well as non-fire rated architectural glass and framing, including channel glass systems and curtain walls throughout the United States, Canada, and select markets in the Middle East. TGP has been integrated into the Company's Americas and EMEIA segments.

In January 2018, the Company acquired 100% of the machinery, equipment, and intellectual property of a division of Hammond through one of its subsidiaries. The assets acquired have been integrated into the Company's existing production facilities and are specific to the Company's Schlage-branded products.

In February 2018, the Company acquired 100% of QMI through one of its subsidiaries. QMI specializes in fire rated and non-fire rated steel and wooden doors, acoustic doors, and wooden cabinets, as well as fire rated curtain wall systems and access panels in Qatar, Saudi Arabia, Bahrain, Oman, Kuwait, the United Arab Emirates, and Africa. QMI has been integrated into the Company's EMEIA segment.

In March 2018, the Company acquired 100% of AD Systems through one of its subsidiaries. AD Systems designs and manufactures high-performance interior and storefront door systems, specializing in sliding and acoustic solutions. AD Systems' portfolio includes sliding and swinging doors, perimeter frames, door hardware, gasketing, seals and sidelite panels. AD Systems has been integrated into the Company's Americas segment.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Note 6 – AcquisitionsIn July 2018, the Company acquired Door and Access Systems, based in Australia, through one of its subsidiaries. This business includes the brands Gainsborough Hardware, the market-leading residential door hardware brand in Australia, and API Locksmiths, which serves the Australian market with its keying, installation and access control services. Door and Access Systems has been integrated into the Company's Asia Pacific segment.

In July 2018, the Company acquired 100% of ISONAS through one of its subsidiaries. ISONAS designs and manufactures edge-computing technology that produces Power over Ethernet access control solutions for non-residential end-markets. ISONAS has been integrated into the Company's Americas segment.

Total consideration paid for these six acquisitions to date was approximately $368 million (net of cash acquired). The Company estimates the fair value of future consideration to be paid, including contingent consideration, to be approximately $6 million. Cash on hand and $75 million of borrowings on the Revolving Facility in July, which has since been repaid, were utilized to fund these acquisitions. The preliminary allocation of the aggregate purchase price to assets acquired and liabilities assumed for the acquisitions described above is as follows:
In millions 
Accounts receivable, net$29.8
Inventories28.7
Other current assets1.3
Property, plant and equipment, net27.6
Goodwill132.5
Intangible assets, net204.3
Other noncurrent assets0.9
Accounts payable(11.1)
Accrued expenses and other current liabilities(35.2)
Other noncurrent liabilities(4.7)
Total consideration$374.1

Intangible assets are primarily comprised of approximately $59 million of indefinite-lived trade names, $112 million of customer relationships, and $33 million of completed technologies and other intangibles, which includes approximately $6 million of acquired backlog revenue. The customer relationships have a 17-year weighted average useful life, while the completed technologies and other intangibles, excluding the backlog revenue, have a 16-year weighted average useful life. The backlog revenue was fully amortized as of June 30, 2018.

Goodwill results from several factors including Allegion-specific synergies that were excluded from the cash flow projections used in the valuation of intangible assets and intangible assets that do not qualify for separate recognition, for example, assembled workforce. The majority of the goodwill is expected to be deductible for tax purposes. The preliminary purchase price allocations for the acquisitions are pending completion of valuations. These acquisitions are accounted for as business combinations.
The following unaudited pro forma financial information for the three and nine months ended September 30, 2018 and 2017 reflects the consolidated results of operations of the Company as if these acquisitions had taken place on January 1, 2017:
 Three months ended Nine months ended
In millions, except per share amounts2018 2017 2018 2017
Net revenues$711.5
 $663.6
 $2,071.8
 $1,939.3
Net earnings attributable to Allegion plc$119.3
 $93.4
 $313.1
 $263.2
Basic net earnings per share$1.25
 $0.98
 $3.29
 $2.76
Diluted net earnings per share$1.25
 $0.97
 $3.27
 $2.74

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of results of operations that would have occurred had the pro forma events taken place on the date indicated or the future consolidated results of operations of the combined company. The unaudited pro forma financial information has been calculated after applying the Company's accounting policies and adjusting the historical financial results to reflect additional items directly attributable to the acquisitions that would have been incurred assuming the acquisitions had occurred on January 1, 2017. Adjustments to historical financial information include additional amortization of approximately $1.5 million (net of tax) and $8.3 million (net of tax) included in the three and nine months ended September 30, 2017, respectively, in the pro forma table above. Approximately $3.9 million (net of tax) of the additional amortization included in the nine months ended September 30, 2017 relates to backlog revenue acquired by the Company, which is recorded in Cost of goods sold.

The following financial information reflects Net revenues and Earnings before income taxes of the acquisitions for the three and nine months ended September 30, 2018 since their respective acquisition dates included in the Condensed and Consolidated Statement of Comprehensive Income:
In millionsThree months ended September 30, 2018 Nine months ended September 30, 2018
Net revenues$55.0
 $115.0
    
Earnings before income taxes$0.9
 $(0.7)

During the three months ended September 30, 2018 and 2017, the Company incurred $4.1 million and $1.2 million, respectively, of acquisition and integration related exenses. During the nine months ended September 30, 2018 and 2017, the Company incurred $8.6 million and $2.4 million, respectively, of acquisition and integration related expenses. These expenses are included in Selling and administrative expenses in the Condensed and Consolidated Statements of Comprehensive Income.

During the nine months ended September 30, 2018, the Company also made $8 million of investments in three unconsolidated entities, Yonomi Inc., a U.S. based mobile application and cloud platform provider for connected living, Nuki GmbH, a European retrofit residential smart lock innovator, and Conneqtech, a European based IoT platform developer specializing in connected mobility and tracking features for bicycles and healthcare. These investments are accounted for using the equity method.

2017

OnIn January 3, 2017, the Company acquired Republic Doors & Frames, LLC ("Republic") through one of its subsidiaries. In 2016, we completed one businessThis acquisition (Trelock GmbH).These acquisitions did not have a material impact on the condensedCondensed and consolidated financial statements.Consolidated Financial Statements.


Note 7 – Divestitures

OnIn April 5, 2017, iDevices LLC, including the Company's equity investment, was acquired by a third party. The Company recorded a $4.9cumulative gain of $5.3 million gain induring the second quarter of 2017 within Other (income) expense, net.

As previously disclosed, the Company sold a majority stake of Bocom Wincent Technologies Co., Ltd. ("Systems Integration") in the fourth quarter of 2015, retaining 15% of the shares. Under the terms of the transaction, the Company was to receive consideration of up to $75 million based on the future cash collection performance of Systems Integration and additional payments of approximately $8.3 million related to working capital transferred with the sale.  In the threenine months ended September 30, 2016, the Company recorded a charge of $84.4 million to write the carrying value of Systems Integration's assets and liabilities down to their estimated fair value less costs to complete the transaction. As of September 30, 2017 the Company currently estimates the fair value of the consideration to be $2.7 million, which is classified within Other noncurrent assets within the Condensed and Consolidated Balance Sheets. The Company does not expect to incur any material charges in future periods related to Systems Integration.income, net (see Note 14).



Note 87 – Debt and Credit Facilities

Long-term debt and other borrowings consisted of the following:
In millionsSeptember 30,
2017
 December 31,
2016
Term Loan A Facility$
 $879.8
Term Facility700.0
 
Revolving Facility165.0
 
5.75% Senior notes due 2021300.0
 300.0
5.875% Senior notes due 2023300.0

300.0
Other debt, including capital leases, maturing in various amounts through 2024

1.0

2.3
Unamortized debt issuance costs, net(19.0) (18.3)
Total debt1,447.0
 1,463.8
Less current portion of long-term debt35.0
 48.2
Total long-term debt$1,412.0
 $1,415.6

Unsecured Credit Facilities

On September 12, 2017, the Company entered into a new Credit Agreement (the “Credit Agreement”), which refinanced in full the Company's previously outstanding credit facility, the Second Amended and Restated Credit Agreement, dated as of September 30, 2015 (the “Second Amended Credit Agreement”). The Credit Agreement provides for $1,200.0 million in unsecured financing, consisting of a $700.0 million term loan facility maturing on September 12, 2022 (the “Term Facility”) and a $500.0 million revolving credit facility maturing on September 12, 2022 (the “Revolving Facility” and, together with the Term Facility, the “Credit Facilities”). All obligations under the Second Amended Credit Agreement were satisfied, all commitments thereunder were terminated, and all guarantees and security interests that had been granted in connection therewith were released.

The full amount of the Term Facility was drawn at closing. Amounts borrowed under the Term Facility that are repaid or prepaid may not be reborrowed. The proceeds from the Term Facility along with the initial borrowings of $165.0 million under the Revolving Facility were used primarily to repay the then outstanding borrowing under the Second Amended Credit Agreement. The Term
In millionsSeptember 30,
2018
 December 31,
2017
Term Facility$665.0
 $691.3
Revolving Facility
 
3.200% Senior Notes due 2024400.0

400.0
3.550% Senior Notes due 2027400.0
 400.0
Other debt

1.0
 1.0
Total borrowings outstanding1,466.0
 1,492.3
Less discounts and debt issuance costs, net(13.3) (15.0)
Total debt1,452.7
 1,477.3
Less current portion of long-term debt35.0
 35.0
Total long-term debt$1,417.7
 $1,442.3
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Unsecured Credit Facilities

As of September 30, 2018, the Company has an unsecured Credit Agreement in place that provides for up to $1,200.0 million in unsecured financing, consisting of a $700.0 million term loan facility (the “Term Facility”) and a $500.0 million revolving credit facility (the “Revolving Facility” and, together with the Term Facility, will amortizethe “Credit Facilities”). The Credit Facilities mature on September 12, 2022 and are unconditionally guaranteed jointly and severally on an unsecured basis by the Company and Allegion US Holding Company Inc. ("Allegion US Hold Co"), the Company's wholly-owned subsidiary.

The Term Facility amortizes in quarterly installments at the following rates: 1.25% per quarter starting December 31, 2017 through December 31, 2020, 2.5% per quarter from March, 31, 2021 through June 30, 2022, with the balance due on September 12, 2022. The Company repaid $26.3 million of principal on its Term Facility during the nine months ended September 30, 2018.

The Revolving Facility consists of a five-year revolving credit facility withprovides aggregate commitments in an amount equalof up to $500.0 million, of which includes up to $100.0 million is available for the issuance of letters of credit, and including a swingline facility in an amount equal to $50.0 million. Certain ofcredit. At September 30, 2018, the commitments underCompany had $0.0 million outstanding on the Revolving Facility are available to be drawn in currencies other than US dollars, including euros and pounds sterling. Amounts repaid under the Revolving Facility may be reborrowed. As discussed further below, the Company repaid in full the outstanding borrowings under the Revolving Facility on October 2, 2017, with proceeds from the issuance$17.2 million of Senior Notes due 2024 and 2027 on the same date.

The indebtedness, obligations and liabilities under the Credit Facilities are unconditionally guaranteed jointly and severally on an unsecured basis by Allegion plc and Allegion US Holding Company.letters of credit outstanding.

Outstanding borrowings under the Credit Facilities will accrue interest, at the option of the Borrowers, at a per annum rateCompany of (i) a LIBOR rate plus the applicable margin or (ii) a base rate plus the applicable margin. The applicable margin for borrowings under the Credit Facilities is subject to a ratings-based pricing grid with the margin rangingranges from 1.125% to 1.500% depending on the Borrowers’Company's credit ratings.

Outstanding At September 30, 2018, the outstanding borrowings under the Term Facility currentlyCredit Facilities accrue interest at LIBOR plus an applicable margin. Thea margin for the Term Facility borrowing was 1.25% as of September 30, 2017.

The Borrower will pay certain fees with respect to the Credit Facilities, including an unused commitment fee on the undrawn portion of the Revolving Facility of between 0.125% and 0.200%, depending on the Borrowers’ credit rating, as well as certain other fees.

During the three month period ending September 30, 2017, the Company incurred a non-cash charge of approximately $0.4 million associated with the write-off of previously unamortized deferred financing costs on the Second Amended Credit Agreement, expensed $1.2 million of third party costs to Interest expense, and recorded deferred financing costs of $2.6 million as part of the new Credit Facilities transaction which will be amortized over the duration of the Credit Facilities.

1.250%. To manage the Company's exposure to fluctuations in LIBOR rates, the Company has forward starting interest rate swaps to fix the interest rate paid during the contract period for $250.0 million of the Company's variable rate Term Facility. These swaps expire in September 2020.outstanding borrowings (see Note 8).

AtThe Credit Facilities contain negative and affirmative covenants and events of default that, among other things, limit or restrict the Company's ability to enter into certain transactions. In addition, the Credit Facilities require the Company to comply with a maximum leverage ratio and a minimum interest expense coverage ratio, as defined within the agreement. As of September 30, 2017,2018, the Company had $18.0 million of letters of credit outstanding.was in compliance with all covenants.

Senior Notes

A wholly-owned subsidiaryAs of September 30, 2018, Allegion US Hold Co has $400.0 million outstanding of its 3.200% Senior Notes due 2024 (the “3.200% Senior Notes”) and $400.0 million outstanding of its 3.550% Senior Notes due 2027 (the “3.550% Senior Notes” and, together with the Company has issued $300.0 million of 5.75% senior notes due 2021 (the "20213.200% Senior Notes"Notes, the “Notes”). The 2021 Senior Notes accruerequire semi-annual interest at the rate of 5.75% per annum, payable semi-annuallypayments on April 1 and October 1 of each year. The 2021 Senior Notesyear, and will mature on October 1, 2021.2024 and October 1, 2027, respectively.

In September 2015, Allegion plc issued $300.0 millionThe Notes are senior unsecured obligations of 5.875% senior notes due 2023 (the "2023 Senior Notes"). The 2023 Senior Notes accrue interest at the rate of 5.875% per annum, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2016. The 2023 Senior Notes mature on September 15, 2023.

On October 2, 2017, Allegion US Holding Company Inc. (“Hold Co and rank equally with all of Allegion US Holding”), a subsidiary of Allegion plc (“Allegion”), issued $400.0 million aggregate principal amount of its 3.200% Senior Notes due 2024Hold Co’s existing and $400.0 million aggregate principal amount of its 3.550% Senior Notes due 2027.
On October 3, 2017 Allegion US Holding used the net proceedsfuture senior unsecured and unsubordinated indebtedness. The guarantee of the offering to redeem in fullNotes is the Company’s 5.75% Senior Notes due 2021 and to redeem in full the Company’s 5.875% Senior Notes due 2023, pay the related redemption premiumssenior unsecured obligation of approximately $33.0 million (will be recorded in Interest expense), and fees of approximately $7.4 million related to the Senior Notes due 2024 and 2027, of which half will be deferred over 7 years and half over 10 years and amortized into interest expense. The Company will also have a loss related to the write off of unamortized debt issue costs from previous issuances of approximately $9.4 million (will be recorded in Interest expense). In addition, on October 2, 2017, the Company repaid in fulland ranks equally with all of the borrowings under the Revolving FacilityCompany's existing and used the remaining proceeds for general corporate purposes.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The Company recorded approximately $7.4 million of deferred debt issue costs related to the Senior Notes due 2024future senior unsecured and 2027, of which $2.3 million was recorded as of September 30, 2017, and $5.1 million was recorded in October 2017.unsubordinated indebtedness.

The weighted-averageweighted average interest rate for borrowings was 2.95%3.24% under the Term Loan FacilityCredit Facilities (including the effect of interest rate swaps), 3.200% under the 3.200% Senior Notes and 3.550% under the 3.550% Senior Notes at September 30, 2017, 5.75% under the 2021 Senior Notes and 5.875% under the 2023 Senior Notes.2018.


Note 98 – Financial Instruments

In the normal course of business, the Company uses various financial instruments, including derivative instruments, to manage the risks associated with interest and currency rate exposures. These financial instruments are not used for trading or speculative purposes.

On the dateWhen a derivative contract is entered into, the Company designates the derivative instrument as a cash flow hedge of a forecasted transaction, a cash flow hedge of a recognized asset or liability, or as an undesignated derivative. The Company formally documents its hedge relationships, including identification of the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivative instruments that are designated as hedges to specific assets, liabilities or forecasted transactions.

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The fair market value of derivative instruments is determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded.

The Company assesses at inception and at least quarterly thereafter, whether the derivatives used in cash flow hedging transactions are highly effective in offsetting the changes in the cash flows of the hedged item. To the extent the derivative is deemed to be a highlyan effective hedge, the fair market value changes of the instrument are recorded to Accumulated other comprehensive income.

Any ineffective portionincome (AOCI), while changes in the fair market value of a derivative instrument’s change in fair value isderivatives not deemed to be an effective hedge are recorded in Net earnings in the period of change. If the hedging relationship ceases to be highly effective subsequent to inception, or it becomes probable that a forecasted transaction is no longer expected to occur, the hedging relationship will be undesignated and any future gains and losses on the derivative instrument will be recorded in Net earnings.
Currency Hedging Instruments
The gross notional amount of the Company’s currency derivatives was $85.2$74.2 million and $132.6$57.7 million at September 30, 20172018 and December 31, 2016,2017, respectively. At September 30, 20172018 and December 31, 2016, a loss2017, gains of $0.5$0.3 million and a gain of $0.8$0.3 million, net of tax, were included in Accumulated other comprehensive loss related to the fair value of the Company’s currency derivatives designated as cash flow hedges. The amount expected to be reclassified into Net earnings over the next twelve months is a lossgain of $0.5$0.3 million. The actual amounts that will be reclassified to Net earnings may vary from this amount as a result of changes in market conditions. Gains and losses associated with the Company’s currency derivatives not designated as hedges are recorded in Net earnings as changes in fair value occur. At September 30, 20172018, the maximum term of the Company’s currency derivatives was less than one year.
Interest Rate Swaps
To manage the Company's exposure to fluctuations in LIBOR rates, theThe Company has forward starting interest rate swaps to fix the interest rate paid during the contract period for $250.0 million of the Company's variable rate Term Facility. These interest rate swaps expire in September 2020.
These interest rate swaps2020 and met the criteria to be accounted for as cash flow hedges of variable rate interest payments. Consequently, the changes in fair value of the interest rate swaps wereare recognized in Accumulated other comprehensive loss. At September 30, 20172018 and December 31, 2016,2017, gains of $2.4$5.4 million and $2.6$3.5 million, net of tax, were recordedincluded in Accumulated other comprehensive loss related to these interest rate swaps. No gains areThe amount expected to be reclassified into Net earnings over the next twelve months.months is a gain of approximately $2 million. The actual amounts that will be reclassified to Net earnings may vary from this amount as a result of changes in market conditions.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The fair values of derivative instruments included within the Condensed and Consolidated Balance Sheets were as follows:
Asset derivatives Liability derivativesAsset derivatives Liability derivatives
In millionsSeptember 30,
2017
 December 31,
2016
 September 30,
2017
 December 31,
2016
September 30,
2018
 December 31,
2017
 September 30,
2018
 December 31,
2017
Derivatives designated as hedges:
 
 
 

 
 
 
Currency derivatives$
 $0.7
 $1.3
 $0.1
$0.2
 $0.2
 $0.4
 $0.3
Interest rate swaps3.7
 4.6
 
 0.4
7.9
 5.3
 
 
Derivatives not designated as hedges:
 
 
 

 
 
 
Currency derivatives0.4
 0.3
 0.1
 0.2

 
 0.1
 0.4
Total derivatives$4.1
 $5.6
 $1.4
 $0.7
$8.1
 $5.5
 $0.5
 $0.7
Asset and liability currency derivatives included in the table above are recorded within Other current assets and Accrued expenses and other current liabilities, respectively. Asset and liability interestInterest rate swap derivatives included in the table above are recorded within Other noncurrent assets and Accrued expenses and other current liabilities.assets.
The amounts associated with derivatives designated as hedges affecting Net earnings and Accumulated other comprehensive loss for the three months ended September 30 were as follows:
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Amount of gain
recognized in Accumulated other comprehensive loss
 Location of gain
(loss) recognized
in Net earnings
 Amount of gain (loss) reclassified from Accumulated other comprehensive loss and
recognized into Net earnings
Amount of gain (loss) recognized in Accumulated other comprehensive loss Location of gain (loss) recognized
in Net earnings
 Amount of gain reclassified from Accumulated other comprehensive loss and
recognized into Net earnings
In millions2017 2016 2017 20162018 2017 2018 2017
Currency derivatives$0.6
 $1.5
 Cost of goods sold $1.0
 $(1.1)$
 $0.6
 Cost of goods sold $1.3
 $1.0
Interest rate swaps0.3
 2.5
 Interest expense 
 
1.5
 0.3
 Interest expense 0.6
 
Total$0.9
 $4.0
 $1.0
 $(1.1)$1.5
 $0.9
 
 $1.9
 $1.0
The amounts associated with derivatives designated as hedges affecting Net earnings and Accumulated other comprehensive loss for the nine months ended September 30 were as follows:
Amount of gain (loss)
recognized in Accumulated other comprehensive loss
 Location of gain (loss)
recognized
in Net earnings
 Amount of gain reclassified from Accumulated other comprehensive loss and
recognized into Net earnings
Amount of gain (loss) recognized in Accumulated other comprehensive loss Location of gain (loss) recognized
in Net earnings
 Amount of gain reclassified from Accumulated other comprehensive loss and
recognized into Net earnings
In millions2017 2016 2017 20162018 2017 2018 2017
Currency derivatives$2.2
 $(0.7) Cost of goods sold $4.0
 $4.2
$2.2
 $2.2
 Cost of goods sold $2.3
 $4.0
Interest rate swaps(0.5) (1.0) Interest expense 
 
4.1
 (0.5) Interest expense 1.5
 
Total$1.7
 $(1.7) $4.0
 $4.2
$6.3
 $1.7
 $3.8
 $4.0

The gains and losses associated with the Company's non-designated currency derivatives, which are offset by changes in the fair value of the underlying transactions, are included within Other (income) expense,income, net in the Condensed and Consolidated Statements of Comprehensive Income.

Concentration of Credit Risk

The counterparties to the Company’s forward contracts and swaps consist of a number of investment grade major international financial institutions. The Company could be exposed to losses in the event of nonperformance by the counterparties. However, the credit ratings and the concentration of risk in these financial institutions are monitored on a continuous basis and present no significant credit risk to the Company.


ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Note 109 – Pensions and Postretirement Benefits Other than Pensions

The Company sponsors several U.S. defined benefit and defined contribution plans covering substantially all of its U.S. employees. Additionally, the Company has non-U.S. defined benefit and defined contribution plans covering eligible non-U.S. employees. Postretirement benefits, other than pensions, provide healthcare benefits, and in some instances, life insurance benefits, for certain eligible employees.
Pension Plans
The noncontributory defined benefit pension plans covering non-collectively bargained U.S. employees provide benefits on an average pay formula while most plans for collectively bargained U.S. employees provide benefits on a flat dollar benefit formula. The non-U.S. pension plans generally provide benefits based on earnings and years of service. The Company also maintains additional other supplemental plans for officers and other key employees.
The components of the Company’s netNet periodic pension benefit costscost (income) for the three and nine months ended September 30 were as follows:
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

 U.S.
 Three months ended Nine months ended
In millions2017 2016 2017 2016
Service cost$2.1
 $2.6
 $6.5
 $7.3
Interest cost2.7
 2.6
 7.8
 7.6
Expected return on plan assets(3.0) (2.6) (8.9) (7.7)
Net amortization of:
 
 
 
Prior service costs
 0.2
 0.2
 0.5
Plan net actuarial losses1.3
 0.4
 3.6
 3.1
Net periodic pension benefit cost$3.1
 $3.2
 $9.2
 $10.8

Non-U.S.U.S.
Three months ended Nine months endedThree months ended Nine months ended
In millions2017 2016 2017 20162018 2017 2018 2017
Service cost$0.8
 $0.8
 $2.4
 $2.5
$1.7
 $1.7
 $5.2
 $5.3
Interest cost2.1
 2.9
 6.4
 8.7
2.6
 2.7
 7.7
 7.8
Expected return on plan assets(3.4) (3.7) (10.3) (11.1)(3.6) (3.0) (10.9) (8.9)
Amortization of plan net actuarial losses0.4
 0.6
 1.3
 1.7
Net periodic pension benefit (income) cost$(0.1) $0.6
 $(0.2) $1.8
Administrative costs and other0.5
 0.4
 1.4
 1.2
Net amortization of:       
Prior service costs
 
 0.2
 0.2
Plan net actuarial losses1.1
 1.3
 3.0
 3.6
Net periodic pension benefit cost$2.3
 $3.1
 $6.6
 $9.2
 Non-U.S.
 Three months ended Nine months ended
In millions2018 2017 2018 2017
Service cost$0.4
 $0.3
 $1.4
 $1.1
Interest cost2.2
 2.1
 6.4
 6.4
Expected return on plan assets(3.9) (3.4) (11.7) (10.3)
Administrative costs and other0.4
 0.5
 1.2
 1.3
Amortization of plan net actuarial losses0.3
 0.4
 0.7
 1.3
Net periodic pension benefit income$(0.6) $(0.1) $(2.0) $(0.2)

The Service cost component of Net periodic pension benefit cost (income) is recorded in Cost of goods sold and Selling and administrative expenses within the Condensed and Consolidated Statements of Comprehensive Income. The remaining components of Net periodic pension benefit cost (income), including Administrative costs and other, are recorded within Other income, net within the Condensed and Consolidated Statements of Comprehensive Income.

The Company made employer contributions of $6.6 million and $56.0 million (of which $50.0 million was discretionary) and $6.7 million during the nine months ended September 30, 2018 and 2017, and 2016respectively, to its defined benefit pension plans. Additional contributions of approximately $3.7$4 million are expected during the remainder of 2017.2018.

Postretirement Benefits Other Than Pensions

The Company sponsors a postretirement plan that provides for healthcare benefits, and in some instances, life insurance benefits, that cover certain eligible retired employees. The Company funds postretirement benefit obligations principally on a pay-as-you- go basis. Generally, postretirement health benefits are contributory with contributions adjusted annually. Life insurance plans for retirees are primarily noncontributory.

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The components Net periodic postretiremenet benefit cost (income) is included within Other income, net within the Condensed and Consolidated Statements of net periodic postretirement benefit income for the three and nine months ended September 30 were as follows:
 Three months ended Nine months ended
In millions2017 2016 2017 2016
Service cost$
 $0.1
 $
 $0.1
Interest cost0.1
 0.1
 0.3
 0.3
Net amortization of:       
Prior service gains(0.4) (0.5) (1.2) (1.3)
Plan net actuarial gains
 
 (0.1) 
Net periodic postretirement benefit income$(0.3) $(0.3) $(1.0) $(0.9)

Comprehensive Income.


Note 1110 – Fair Value Measurement
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a framework that utilizes the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
Level 1 – Inputs based on quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Level 3 – Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Assets and liabilities measured at fair value at September 30, 2018 were as follows:
 Fair value measurements Total
fair value
In millionsQuoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 
Recurring fair value measurements       
Assets:       
Interest rate swaps$
 $7.9
 $
 $7.9
Foreign currency contracts
 0.2
 
 0.2
Total asset recurring fair value measurements
 8.1
 
 8.1
Liabilities:
 
 
 
Foreign currency contracts
 0.5
 
 0.5
Deferred compensation and other retirement plans
 21.3
 
 21.3
Total liability recurring fair value measurements
 21.8
 
 21.8
Financial instruments not carried at fair value       
Total debt
 1,403.1
 
 1,403.1
Total financial instruments not carried at fair value$
 $1,403.1
 $
 $1,403.1
Assets and liabilities measured at fair value at December 31, 2017 were as follows:
 Fair value measurements Total
fair value
In millionsQuoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 
Recurring fair value measurements       
Assets:       
Interest rate swaps$
 $5.3
 $
 $5.3
Foreign currency contracts
 0.2
 
 0.2
Total asset recurring fair value measurements
 5.5
 
 5.5
Liabilities:
 
 
 
Foreign currency contracts
 0.7
 
 0.7
Deferred compensation and other retirement plans
 20.9
 
 20.9
Total liability recurring fair value measurements
 21.6
 
 21.6
Financial instruments not carried at fair value       
Total debt
 1,485.2
 
 1,485.2
Total financial instruments not carried at fair value$
 $1,485.2
 $
 $1,485.2
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Assets and liabilities measured at fair value at September 30, 2017 were as follows:
 Fair value measurements Total
fair value
In millionsQuoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 
Recurring fair value measurements       
Assets:       
Interest rate swaps$
 $3.7
 $
 $3.7
Currency derivatives
 0.4
 
 0.4
Total asset recurring fair value measurements$
 $4.1
 $
 $4.1
Liabilities:
 
 
 
Currency derivatives$
 $1.4
 $
 $1.4
Deferred compensation plans
 19.8
 
 19.8
Total liability recurring fair value measurements$
 $21.2
 $
 $21.2
Nonrecurring fair value measurements       
Financial instruments not carried at fair value       
Total debt$
 $1,494.6
 $
 $1,494.6
Total financial instruments not carried at fair value$
 $1,494.6
 $
 $1,494.6
Assets and liabilities measured at fair value at December 31, 2016 were as follows:
 Fair value measurements Total
fair value
In millionsQuoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 
Recurring fair value measurements       
Assets:       
Interest rate swap$
 $4.6
 $
 $4.6
Currency derivatives
 1.0
 
 1.0
Total asset recurring fair value measurements$
 $5.6
 $
 $5.6
Liabilities:
 
 
 
Currency derivatives$
 $0.3
 $
 $0.3
Interest rate swap
 0.4
 
 0.4
Deferred compensation plans
 16.8
 
 16.8
Total liability recurring fair value measurements$
 $17.5
 $
 $17.5
Financial instruments not carried at fair value       
Total debt$
 $1,510.6
 $
 $1,510.6
Total financial instruments not carried at fair value$
 $1,510.6
 $
 $1,510.6
The Company determines the fair value of its financial assets and liabilities using the following methodologies:
Currency derivativesInterest rate swaps – These instruments include interest rate swap contracts for $250.0 million of the Company's variable rate debt. The fair value of the derivative instruments is determined based on quoted prices for the Company's swaps, which is not considered an active market.
Foreign currency contracts – These instruments include foreign currency contracts for non-functional currency balance sheet exposures. The fair value of the foreign currency contracts areis determined based on a pricing model that uses spot rates and forward prices from actively quoted currency markets that are readily accessible and observable.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Interest rate swaps – These instruments include interest rate swap contracts for up to $250.0 million of the Company's variable rate debt. The fair value of the derivative instruments are determined based on quoted prices for the Company's swaps, which are not considered an active market.
Deferred compensation and other retirement plans - These include obligations related to deferred compensation and other retirement plans adjusted for market performance. The fair value is obtained based on observable market prices quoted on public exchanges for similar instruments.
Debt – These securitiesinstruments are recorded at cost and include debt instrumentssenior notes maturing through 2024.2027. The fair value of the long-term debt instruments is obtained based on observable market prices quoted on public exchanges for similar instruments.
The carrying values of cashCash and cash equivalents, accountsRestricted cash, Accounts receivable, accountsAccounts payable and short-term borrowingsAccrued expenses and Other current liabilities are a reasonable estimate of their fair value due to the short-term nature of these instruments.

These methodologies used by the Company to determine the fair value of its financial assets and liabilities at September 30, 20172018 are the same as those used at December 31, 20162017. There have been no significant transfers between Level 1 and Level 2 categories.


Note 1211 – Equity
The reconciliation of Ordinary shares is as follows:
In millionsTotal
December 31, 2016201795.395.1
Shares issued under incentive plans, net0.50.4
Repurchase of ordinary shares(0.80.4)
September 30, 2017201895.095.1
During the nine months ended September 30, 2017,2018, the Company paid $60.0$30.0 million to repurchase 0.80.4 million ordinary shares on the open market under a share repurchase programauthorization previously approved by its Board of Directors.
The components of Equity for the nine months ended September 30, 20172018 were as follows:
In millionsAllegion plc
shareholders’
equity
 Noncontrolling
interests
 Total
equity
Allegion plc
shareholders’
equity
 Noncontrolling
interests
 Total
equity
Balance at December 31, 2016$113.3
 $3.1
 $116.4
Balance at December 31, 2017$401.6
 $3.9
 $405.5
Net earnings263.7
 0.9
 264.6
302.1
 0.4
 302.5
Currency translation86.8
 1.1
 87.9
(42.2) (2.0) (44.2)
Change in value of derivatives qualifying as cash flow hedges, net of tax(1.5) 
 (1.5)1.9
 
 1.9
Pension and OPEB adjustments, net of tax(3.5) 
 (3.5)5.1
 
 5.1
Total comprehensive income345.5
 2.0
 347.5
Cumulative effect of change in accounting principle(5.0) 
 (5.0)
Total comprehensive income (loss)266.9
 (1.6) 265.3
Share-based compensation12.8
 
 12.8
15.9
 
 15.9
Dividends to noncontrolling interests
 (0.1) (0.1)
 (0.2) (0.2)
Dividends to ordinary shareholders(45.6) 
 (45.6)(59.9) 
 (59.9)
Repurchase of ordinary shares(60.0) 
 (60.0)(30.0) 
 (30.0)
Shares issued under incentive plans, net6.2
 
 6.2
2.4
 
 2.4
Other
 (0.1) (0.1)
Balance at September 30, 2017$367.2
 $4.9
 $372.1
Balance at September 30, 2018$596.9
 $2.1
 $599.0
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The components of Equity for the nine months ended September 30, 20162017 were as follows:
In millionsAllegion plc
shareholders’
equity
 Noncontrolling
interests
 Total
equity
Allegion plc
shareholders’
equity
 Noncontrolling
interests
 Total
equity
Balance at December 31, 2015$25.6
 $4.1
 $29.7
Balance at December 31, 2016$113.3
 $3.1
 $116.4
Net earnings154.3
 1.9
 156.2
263.7
 0.9
 264.6
Currency translation15.5
 0.5
 16.0
86.8
 1.1
 87.9
Change in value of marketable securities and derivatives qualifying as cash flow hedges, net of tax(15.0) 
 (15.0)
Change in value of derivatives qualifying as cash flow hedges, net of tax(1.5) 
 (1.5)
Pension and OPEB adjustments, net of tax14.9
 
 14.9
(3.5) 
 (3.5)
Total comprehensive income169.7
 2.4
 172.1
345.5
 2.0
 347.5
Cumulative effect of change in accounting principle(5.0) 
 (5.0)
Share-based compensation13.1
 
 13.1
12.8
 
 12.8
Acquisition/divestiture of noncontrolling interests(0.4) 
 (0.4)
Dividends to noncontrolling interests
 (2.8) (2.8)
 (0.1) (0.1)
Dividends to ordinary shareholders(34.6) 
 (34.6)(45.6) 
 (45.6)
Repurchase of ordinary shares(60.0) 
 (60.0)
Shares issued under incentive plans, net8.4
 
 8.4
6.2
 
 6.2
Repurchase of ordinary shares(30.0) 
 (30.0)
Balance at September 30, 2016$151.8
 $3.7
 $155.5
Other
 (0.1) (0.1)
Balance at September 30, 2017$367.2
 $4.9
 $372.1
Other Comprehensive Income (Loss)

The changes in Accumulated other comprehensive loss for the nine months ended September 30, 20172018 are as follows:
In millions Cash flow hedges Pension and OPEB Items Foreign Currency Items Total Cash flow hedges Pension and OPEB Items Foreign Currency Items Total
December 31, 2016 $3.4
 $(120.5) $(147.2) $(264.3)
December 31, 2017 $3.8
 $(107.6) $(49.1) $(152.9)
Other comprehensive income (loss) before reclassifications 1.8
 (6.5) 86.8
 82.1
 6.3
 2.4
 (42.2) (33.5)
Amounts reclassified from accumulated other comprehensive loss(a) (4.0) 3.8
 
 (0.2) (3.8) 3.3
 
 (0.5)
Tax benefit (expense) 0.7
 (0.8) 
 (0.1)
September 30, 2017 $1.9
 $(124.0) $(60.4) $(182.5)
Tax expense (0.7) (0.6) 
 (1.3)
September 30, 2018 $5.6
 $(102.5) $(91.3) $(188.2)

(a)Amounts reclassified from Accumulated other comprehensive loss and recognized into Net earnings related to cash flow hedges are recorded in Cost of goods sold and Interest expense. Amounts reclassified from Accumulated other comprehensive loss and recognized into Net earnings related to pension and OPEB items and foreign currency items are recorded in Other income, net.

The changes in Accumulated other comprehensive loss for the nine months ended September 30, 20162017 are as follows:
In millions Cash flow hedges and marketable securities Pension and OPEB Items Foreign Currency Items Total Cash flow hedges Pension and OPEB Items Foreign Currency Items Total
December 31, 2015 $14.0
 $(139.3) $(106.9) $(232.2)
Other comprehensive income before reclassifications 1.4
 12.1
 15.5
 29.0
December 31, 2016 $3.4
 $(120.5) $(147.2) $(264.3)
Other comprehensive income (loss) before reclassifications 1.8
 (6.5) 86.8
 82.1
Amounts reclassified from accumulated other comprehensive loss(a) (17.8) 4.0
 
 (13.8) (4.0) 3.8
 
 (0.2)
Tax benefit (expense) 1.4
 (1.2) 
 0.2
 0.7
 (0.8) 
 (0.1)
September 30, 2016 $(1.0) $(124.4) $(91.4) $(216.8)
September 30, 2017 $1.9
 $(124.0) $(60.4) $(182.5)

(a)Amounts reclassified from Accumulated other comprehensive loss and recognized into Net earnings related to cash flow hedges are recorded in Cost of goods sold and Interest expense. Amounts reclassified from Accumulated other
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Reclassifications out of Accumulated other comprehensive loss for the three and nine months ended September 30, 2017 were as follows:
  Amount Reclassified from Accumulated Other Comprehensive Loss  
In millions Three months ended Nine months ended Statement of Comprehensive Income Line Item
Reclasses below represent (income) loss to the Statement of Comprehensive Income
       
Gains on cash flow hedges:      
Foreign exchange contracts $(1.0) $(4.0)  Cost of goods sold
  (1.0) (4.0)  Earnings before income taxes
  0.3
 1.1
  Provision for income taxes
  $(0.7) $(2.9)  Net earnings
       
Defined benefit pension items:      
Amortization of:      
Prior-service gains $(0.4) $(1.0)  (a)
Actuarial losses 1.7
 4.8
  (a)
  1.3
 3.8
  Loss before income taxes
  (0.3) (0.9) Tax benefit
  $1.0
 $2.9
 Net loss
       
Total reclassifications for the period $0.3
 $
 Net loss
(a) These accumulated other comprehensive loss componentsrecognized into Net earnings related to pension and OPEB items and foreign currency items are includedrecorded in the computation of net periodic pension cost and net periodic postretirement benefit cost (see Note 10 for additional details).

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Reclassifications out of Accumulated other comprehensive loss for the three and nine months ended September 30, 2016 were as follows:
  Amount Reclassified from Accumulated Other Comprehensive Loss  
In millions Three months ended Nine months ended Statement of Comprehensive Income Line Item
Reclasses below represent (income) loss to the Statement of Comprehensive Income
       
Gains on cash flow hedges:      
Foreign exchange contracts $1.1
 $(4.2)  Cost of goods sold
  1.1
 (4.2) Loss (earnings) before income taxes
  0.6
 1.4
 Provision for income taxes
  $1.7
 $(2.8)  Net loss (earnings)
       
Gains on marketable securities:      
Realized gain on sale of securities $
 $(13.6)  Other, net
  
 (13.6)  Earnings before income taxes
  
 
  Provision for income taxes
  $
 $(13.6) Net earnings
       
Defined benefit pension items:      
Amortization of:      
Prior-service gains $(0.3) $(0.8)  (a)
Actuarial losses 1.0
 4.8
  (a)
  0.7
 4.0
 Loss before income taxes
  (0.4) (1.2) Tax benefit
  $0.3
 $2.8
 Net loss
       
Total reclassifications for the period $2.0
 $(13.6) Net loss (earnings)
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost and net periodic postretirement benefit cost (see Note 10 for additional details).

Other income, net.

Note 1312 – Share-Based Compensation
The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its financial statements. The Company’s share-based compensation plans include programs for stock options, restricted stock units ("RSUs"), performance share units ("PSUs") and deferred compensation.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Compensation Expense

Share-based compensation expense is included in Cost of goods sold and Selling and administrative expenses within Net earnings.expenses. The expenses recognized for the three and nine months ended September 30 were as follows:
Three months ended Nine months endedThree months ended Nine months ended
In millions2017 2016 2017 20162018 2017 2018 2017
Stock options$0.7
 $1.1
 $2.7
 $3.3
$1.0
 $0.7
 $3.9
 $2.7
RSUs1.7
 2.0
 5.9
 6.1
2.6
 1.7
 8.1
 5.9
PSUs1.4
 1.2
 4.5
 3.7
1.1
 1.4
 4.2
 4.5
Deferred compensation0.6
 0.7
 2.0
 1.1
0.6
 0.6
 1.2
 2.0
Pre-tax expense4.4
 5.0
 15.1
 14.2
5.3
 4.4
 17.4
 15.1
Tax benefit(1.5) (1.5) (5.0) (4.2)(1.0) (1.5) (1.9) (5.0)
After-tax expense$2.9
 $3.5
 $10.1
 $10.0
$4.3
 $2.9
 $15.5
 $10.1

Stock Options/RSUs

Eligible participants may receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs. Grants issued during the nine months ended September 30 were as follows:
2017 20162018 2017
Number
granted
 Weighted-
average fair
value per award
 Number
granted
 Weighted-
average fair
value per award
Number
granted
 Weighted-
average fair
value per award
 Number
granted
 Weighted-
average fair
value per award
Stock options165,113
 $18.22
 230,259
 $15.86
160,849
 $21.29
 165,113
 $18.22
RSUs119,695
 $73.37
 113,095
 $58.89
121,928
 $84.86
 119,695
 $73.37

The fair value of each of the Company's stock option and RSU awards is expensed on a straight-line basis over the required service period, which is generally the 3-yearthree-year vesting period. However, for stock options and RSUs granted to retirement eligible employees, the Company recognizes expense for the fair value at the grant date.

The average fair value of the stock options granted is determined using the Black-Scholes option-pricing model. The following assumptions were used during the nine months ended September 30:
2017 20162018 2017
Dividend yield0.89% 0.83%0.97% 0.89%
Volatility24.93% 28.85%22.38% 24.93%
Risk-free rate of return2.08% 1.38%2.75% 2.08%
Expected life6.0 years
 6.0 years
6.0 years
 6.0 years

Expected volatility is based on the weighted average of the implied volatility of a group of the Company’s peers due to the lack of trading history for the Company's ordinary shares.peers. The risk-free rate of return is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected lifeterm of the award. Historical peer data is used to estimate forfeitures within the Company’s valuation model.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The expected life of the Company’s stock option awards is derived from the simplified approach based on the weighted average time to vest and the remaining contractual term and represents the period of time that awards are expected to be outstanding.

Performance Shares

The Company has a Performance Share Program ("PSP") for key employees. The programemployees which provides awards in the form of PSUs based on performance against pre-established objectives. The annual target award level is expressed as a number of the Company's ordinary
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


shares. All PSUs are settled in the form of ordinary shares unless deferred. During the nine months ended September 30, 20172018, the Company granted PSUs with a maximum award level of approximately 0.1 million shares.

In February 2015, 2016, 2017 and 2017,2018, the Company’s Compensation Committee granted PSUs that were earned based 50% upon a performance condition, measured at each reporting period by earnings per share ("EPS") performance in relation to pre-established targets set by the Compensation Committee, and 50% upon a market condition, measured by the Company’s relative total shareholder return ("TSR") against the S&P 400 Capital Goods Index over a three-year performance period based on the change in the 30 day average price for the grant year index to the 30 day average price for the index over the performance period. The fair values of the market condition wereconditions are estimated using a Monte Carlo Simulation approach in a risk-neutral framework to model future stock price movements based upon historical volatility, risk-free rates of return and correlation matrix.

Deferred Compensation

The Company allows key employees to defer a portion of their eligible compensation into a number of investment choices including its ordinary share equivalents. Any amounts invested in ordinary share equivalents will be settled in ordinary shares of the Company at the time of distribution.


Note 1413 – Restructuring Activities

During the three months ended September 30, 20172018 and 2016,2017, the Company incurred costs ofrecorded $2.7 million and $7.4 million, and $1.1 million, respectively, of expenses associated with ongoing restructuring actions.activities. During the nine months ended September 30, 20172018 and 2016,2017, the Company incurred costs ofrecorded $4.1 million and $8.5 million, and $3.0 million, respectively, of expenses associated with ongoing restructuring actions.

Restructuring Plans

Restructuring charges recorded duringactivities. These expenses are included within Cost of goods sold and Selling and administrative expenses within the threeCondensed and nine months ended September 30 as partConsolidated Statements of restructuring plans were as follows:
 Three months ended Nine months ended
In millions2017 2016 2017 2016
Americas$5.4
 $0.7
 $5.4
 $2.0
EMEIA1.5
 0.4
 2.5
 0.8
Asia Pacific
 
 
 0.2
Corporate0.5
 
 0.6
 
Total$7.4
 $1.1
 $8.5
 $3.0
        
Cost of goods sold2.9
 0.7
 3.2
 0.8
Selling and administrative expenses4.5
 0.4
 5.3
 2.2
Total$7.4
 $1.1
 $8.5
 $3.0

The Americas, Corporate and EMEIA restructuring charges primarily related to workforce reductions and the closure and consolidation of manufacturing facilities in an effort to increase efficiencies. Americas restructuring charges also include costs associated with the exit of an immaterial product line.Comprehensive Income.

The changes in the restructuring reserve during the nine months ended September 30, 20172018 were as follows:

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

In millionsTotal
December 31, 2017$4.2
Additions, net of reversals4.1
Cash and non-cash uses(5.2)
Currency translation(0.1)
September 30, 2018$3.0

In millionsAmericas EMEIA Corporate Total
December 31, 2016$0.3
 $3.2
 $
 $3.5
Additions, net of reversals5.4
 2.5
 0.6
 8.5
Cash and non-cash uses(4.6) (4.4) (0.5) (9.5)
Currency translation
 0.2
 
 0.2
September 30, 2017$1.1
 $1.5
 $0.1
 $2.7

The majority of the costsCosts accrued as of September 30, 2017 will2018 are expected to be paid within one year.

The Company did not incur other non-qualified restructuring charges during the three months ended September 30, 2017. The Company did incur other non-qualified restructuring charges of $1.4 million during the nine months ended September 30, 2017, in conjunction with restructuring plans, which represent costs that are directly attributable to restructuring activities, but do not fall into the severance, exit or disposal category.


Note 15 – Other (Income) Expense, Net
The components of Other (income) expense, net for the three and nine months ended September 30 were as follows:
 Three months ended Nine months ended
In millions2017
2016 2017 2016
Interest income$(0.3) $(0.5) $(0.6) $(1.9)
Exchange (gain) loss(0.1) 0.5
 0.4
 2.9
(Earnings) loss from and gains on the sale of equity investments(0.1) 0.1
 (4.7) (3.9)
Other(3.2) 0.3
 (3.3) (14.1)
Other (income) expense, net$(3.7) $0.4
 $(8.2) $(17.0)

Other (income) expense, net for the three months ended September 30, 2017 included a gain of $2.9 million related to a legal entity liquidation. Other (income) expense, net for the nine months ended September 30, 2017 included a gain of $4.9 million from the sale of iDevices, LLC, and a gain of $2.9 million related to a legal entity liquidation.

During the nine months ended September 30, 2016 the Company recorded gains from the sale of marketable securities of $12.4 million, which is included in Other in the table above. Additionally, earnings from equity method investments included a gain recognized by an investment during the nine months ended September 30, 2016.

Note 16 – Income Taxes

The effective income tax rates for the three months ended September 30, 2017 and 2016 were 19.6% and 90.5%. The effective income tax rate for the three months ended September 30, 2016 was negatively impacted by $84.4 million (before and after-tax) primarily due to the write-down of the carrying value of consideration receivable related to the September 2015 divestiture of our Systems Integration business in China. Excluding this write-down, the effective tax rate increased due to unfavorable changes in the mix of income earned in higher rate jurisdictions.

The effective income tax rates for the nine months ended September 30, 2017 and 2016 were 16.7% and 26.5%. The effective income tax rate for the nine months ended September 30, 2017 was impacted by a favorable benefit of vesting and exercise of share based compensation awards and a favorable benefit resulting from the release of valuation allowances, which are partially offset by unfavorable changes in the mix of income earned in higher rate jurisdictions. The effective income tax rate for the nine months ended September 30, 2016 was negatively impacted by $84.4 million (before and after-tax) primarily due to the write-down of the carrying value of consideration receivable related to the September 2015 divestiture of our Systems Integration business in China.

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Note 1714 – Other Income, Net
The components of Other income, net for the three and nine months ended September 30 were as follows:
 Three months ended Nine months ended
In millions2018
2017 2018 2017
Interest income$(0.4) $(0.3) $(0.7) $(0.6)
Foreign currency exchange (gain) loss(0.8) (0.1) (1.0) 0.4
Earnings from and gains on the sale of equity investments
 (0.1) (0.1) (4.7)
Net periodic pension and postretirement benefit (income) cost, less service cost(0.7) 1.0
 (2.3) 2.6
Other
 (3.2) 0.2
 (3.3)
Other income, net$(1.9) $(2.7) $(3.9) $(5.6)

Other income, net for the three and nine months ended September 30, 2018 was primarily related to Net periodic pension and postretirement benefit income, less service cost, and foreign currency exchange gains.

Other income, net for the three months ended September 30, 2017 was primarily related to a gain of $2.9 million related to a legal entity liquidation. Other income, net for the nine months ended September 30, 2017 also included a cumulative gain of $5.3 million from the sale of an equity method investment. These gains were partially offset by Net periodic pension and postretirement benefit cost, less service cost.

Note 15 – Income Taxes

The effective income tax rates for the three months ended September 30, 2018 and 2017 were 10.8% and 19.6%, respectively. The decrease in the effective tax rate compared to 2017 is primarily due to the favorable impact of the Tax Reform Act, including the reduction of the US statutory tax rate and the adjustment recorded to provisional tax amounts previously recognized (see Note 2). The decrease in the effective tax rate is also driven by the year over year change in the recognition of uncertain tax positions, and changes in the mix of income earned in lower rate jurisdictions.

The effective income tax rates for the nine months ended September 30, 2018 and 2017 were 13.1% and 16.7%, respectively. The decrease in the effective tax rate compared to 2017 is primarily due to the favorable impact of the Tax Reform Act, changes in taxes accrued on unremitted earnings and changes in the mix of income earned in lower rate jurisdictions. The favorable impact is partially offset by unfavorable year over year changes in the recognition of both uncertain tax positions and valuation allowances.

Note 16 – Earnings Per Share (EPS)

Basic EPS is calculated by dividing Net earnings attributable to Allegion plc by the weighted-averageweighted average number of ordinary shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the denominator of the basic EPS calculation for the effect of all potentially dilutive ordinary shares, which in the Company’s case, includes shares issuable under share-based compensation plans.

The following table summarizes the weighted-average number of ordinary shares outstanding for basic and diluted earnings per shareEPS calculations for the three and nine months ended September 30:
Three months ended
Nine months endedThree months ended
Nine months ended
In millions2017 2016 2017 20162018 2017 2018 2017
Weighted-average number of basic shares95.0
 96.0
 95.2
 95.9
95.1
 95.0
 95.1
 95.2
Shares issuable under incentive stock plans0.8
 0.9
 0.8
 0.9
0.7
 0.8
 0.7
 0.8
Weighted-average number of diluted shares95.8
 96.9
 96.0
 96.8
95.8
 95.8
 95.8
 96.0

At September 30, 2017,2018, 0.1 million stock options were excluded from the computation of weighted average diluted shares outstanding because the effect of including these shares would have been anti-dilutive.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Note 17 – Net Revenues
Net revenues are recognized based on the satisfaction of performance obligations under the terms of a contract. Generally, this occurs when control of a product or service transfers to a customer. Transfer of control typically occurs when goods are shipped from our facilities or at other predetermined control transfer points (for instance, destination terms). Net revenues are measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Persuasive evidence of a sales arrangement and fixed or determinable price are deemed to be satisfied upon receipt of an executed and legally binding sales agreement or contract that clearly defines the terms and conditions of the transaction including the respective obligations of the parties. If the defined terms and conditions allow variability in all or a component of the price, revenue is not recognized until such time that the price becomes fixed or determinable. At the point of sale, the existence of an enforceable claim that requires payment within a reasonable amount of time is validated and the collectability of that claim is assessed. If collectability is not deemed to be reasonably assured, then revenue recognition is deferred until such time that collectability becomes probable or cash is received. Service and installation revenues are recognized when earned. In some instances, customer acceptance provisions are included in sales arrangements to give the buyer the ability to ensure the delivered product or service meets the criteria established in the order. In these instances, revenue recognition is deferred until the acceptance terms specified in the arrangement are fulfilled through customer acceptance or a demonstration that established criteria have been satisfied. If uncertainty exists about customer acceptance, revenue is not recognized until acceptance has occurred. We do not adjust the transaction price for the effects of a significant financing component, as the time period between control transfer of goods and services is less than one year. The Company’s payment terms are generally consistent with the industries in which their businesses operate.

The Company has two principal revenue streams, tangible product sales and services. Approximately 99% of consolidated Net revenues involve contracts with a single performance obligation, the shipment of tangible products. The remaining Net revenues involve services including installation and consulting. Unlike the single performance obligation to ship a tangible product, the service revenue stream delays revenue recognition until the service performance obligation is satisfied.

Net revenues for tangible product sales and services by business segment for the three and nine months ended September 30, 2018 and 2017 are as follows:
 Three months ended September 30, 2018 Nine months ended September 30, 2018
in millionsAmericasEMEIAAsia PacificConsolidated AmericasEMEIAAsia PacificConsolidated
Net revenues         
Products$530.1
$129.5
$44.8
$704.4
 $1,495.9
$419.6
$98.7
$2,014.2
Services
4.9
2.2
7.1
 
12.9
2.2
15.1
Total Net Revenues$530.1
$134.4
$47.0
$711.5
 $1,495.9
$432.5
$100.9
$2,029.3

 
Three months ended September 30, 2017(a)
 
Nine months ended September 30, 2017(a)
in millionsAmericasEMEIAAsia PacificConsolidated AmericasEMEIAAsia PacificConsolidated
Net revenues         
Products$455.2
$120.6
$29.1
$604.9
 $1,331.4
$360.2
$81.0
$1,772.6
Services
4.5

4.5
 
12.5

12.5
Total Net Revenues$455.2
$125.1
$29.1
$609.4
 $1,331.4
$372.7
$81.0
$1,785.1

(a)The Company adopted ASU 2014-09 and related updates as of January 1, 2018 on a modified retrospective basis, and as such, amounts presented for the three and nine months ended September 30, 2017 are based on ASC 605.

Tangible product sales are recognized at a point in time at which transfer of control has occurred. Service revenues are recognized over time using a time-based output method applied over the contract term beginning on the date that the service or installation is either provided or made available to the customer. We used the practical expedients to omit the disclosure of remaining performance obligations for contracts with an original expected duration of one year or less and for contracts where we have the right to invoice for performance completed to date. As of September 30, 2018, the contract liability associated with contract revenue is not material. As a practical expedient, we recognize incremental costs of obtaining a contract, if any, as an expense when incurred if the
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


amortization period of the asset would have been one year or less. We do not have any costs to obtain or fulfill a contract that are capitalized under ASC 606.

The Company does offer various sales incentive programs to customers, dealers, and distributors that do not preclude revenue recognition, but do require an accrual for the best estimate of expected activity. These items are accrued for over time based on the Company's historical rates of providing these incentives and annual forecasted sales volumes. During the three and nine months ended September 30, 2018, no adjustments related to performance obligations satisfied in previous periods were recorded. Examples of the sales incentives that are accrued for as a contra receivable and sales deduction at the point of sale include, but are not limited to, discounts (i.e. net 30 type), coupons, and rebates where the customer does not have to provide any additional requirements to receive the discount. Sales returns and customer disputes involving a question of quantity or price are also accounted for as a reduction in revenue and a contra receivable. All other incentives or incentive programs where the customer is required to reach a certain sales level, remain a customer for a certain period, provide a rebate form or is subject to additional requirements are accounted for as a reduction of revenue and establishment of a liability. The Company also offers a standard warranty with most product sales and the value of such warranty is included in the contractual price. The corresponding cost of the warranty obligation is accrued as a liability (see Note 19).

Sales, value-added and other similar taxes that we collect are excluded from revenue. We have elected to account for shipping and handling activities that occur after control of the related goods transfers as fulfillment activities instead of performance obligations.

Note 18 – Business Segment Information

The Company classifies its businesses into the following three reportable segments based on industry and market focus: Americas, EMEIA and Asia Pacific.

The Company largely evaluates performance based on Segment operating income and Segment operating margins. Segment operating income is the measure of profit and loss that the Company’s chief operating decision maker uses to evaluate the financial performance of the business and as the basis for resource allocation, performance reviews, and compensation. For these reasons, the Company believes that Segment operating income represents the most relevant measure of segment profit and loss. The Company’s chief operating decision maker may exclude certain charges or gains, such as corporate charges and other special charges, from Operating income to arrive at a Segment operating income that is a more meaningful measure of profit and loss upon which to base the Company'sits operating decisions. The Company defines Segment operating margin as Segment operating income as a percentage of Net revenues.

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


A summary of operations by reportable segment for the three and nine months ended September 30 was as follows:
Three months ended
Nine months endedThree months ended
Nine months ended
In millions2017 2016 2017 20162018 2017 2018 2017
Net revenues              
Americas$455.2
 $436.2
 $1,331.4
 $1,235.7
$530.1
 $455.2
 $1,495.9
 $1,331.4
EMEIA125.1
 116.4
 372.7
 356.5
134.4
 125.1
 432.5
 372.7
Asia Pacific29.1
 28.5
 81.0
 76.1
47.0
 29.1
 100.9
 81.0
Total$609.4
 $581.1
 $1,785.1
 $1,668.3
$711.5
 $609.4
 $2,029.3
 $1,785.1
Segment operating income              
Americas$131.8
 $131.5
 $379.7
 $351.7
$153.8
 $133.2
 $415.5
 $383.6
EMEIA9.1
 3.4
 24.5
 20.3
7.6
 8.6
 27.3
 23.1
Asia Pacific2.2
 1.8
 5.1
 3.8
1.5
 2.2
 0.8
 5.1
Total143.1
 136.7
 409.3
 375.8
162.9
 144.0
 443.6
 411.8
Reconciliation to Operating income              
Unallocated corporate expense(17.0) (15.2) (50.3) (47.5)(20.6) (16.9) (59.2) (50.2)
Operating income$126.1
 $121.5
 $359.0
 $328.3
142.3
 127.1
 384.4
 361.6
Reconciliation to earnings before income taxes              
Interest expense17.8
 15.6
 49.7
 48.4
14.0
 17.8
 40.3
 49.7
Loss on divestitures
 84.4
 
 84.4
Other (income) loss, net(3.7) 0.4
 (8.2) (17.0)
Other income, net(1.9) (2.7) (3.9) (5.6)
Earnings before income taxes$112.0
 $21.1
 $317.5

$212.5
$130.2
 $112.0
 $348.0

$317.5

Note 19 – Commitments and Contingencies

The Company is involved in various litigations, claims and administrative proceedings, including those related to environmental and product warranty matters. Amounts recorded for identified contingent liabilities are estimates, which are reviewed periodically and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, except as expressly set forth in this note, management believes that any liability which may result from these legal matters would not have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

Environmental Matters

The Company is dedicated to an environmental program to reduce the utilization and generation of hazardous materials during the manufacturing process and to remediate identified environmental concerns. As to the latter, the Company is currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at current and former production facilities. The Company regularly evaluates its remediation programs and considers alternative remediation methods that are in addition to, or in replacement of, those currently utilized by the Company based upon enhanced technology and regulatory changes. Changes to the Company's remediation programs may result in increased expenses and increased environmental reserves.

The Company is sometimes a party to environmental lawsuits and claims and from time to time receives notices of potential violations of environmental laws and regulations from the U.S. Environmental Protection Agency and similar state authorities. It has also been identified as a potentially responsible party ("PRP") for cleanup costs associated with off-site waste disposal at federal Superfund and state remediation sites. For all such sites, there are other PRPs and, in most instances, the Company’s involvement is minimal.

In estimating its liability, the Company has assumed it will not bear the entire cost of remediation of any site to the exclusion of other PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


on our understanding of the parties’ financial condition and probable contributions on a per site basis. Additional lawsuits and claims involving environmental matters are likely to arise from time to time in the future.

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


During the three months ended September 30, 20172018 and 20162017, the Company recorded $0.5$0.4 million and $0.5 million of expenses for environmental remediation at sites presently or formerly owned or leased by the Company. During the nine months ended September 30, 2018 and 2017, the Company recorded $1.7 million and $1.8$2.0 million of expenses for environmental remediation at sites presently or formerly owned or leased by us. During the nine months ended September 30, 2017 and 2016, the Company recorded $2.0 million and $6.8 million of expenses for environmental remediation at sites presently or formerly owned or leased by it.Company.

As of September 30, 20172018 and December 31, 2016,2017, the Company has recorded reserves for environmental matters of $29.0$24.1 million and $30.6 million. Of the$28.9 million, respectively. The total reserve $8.8at September 30, 2018 and December 31, 2017, included $6.7 million and $9.6$8.9 million relate, respectively, related to remediation of sites previously disposed by the Company. Environmental reserves are classified as Accrued expenses and other current liabilities or Other noncurrent liabilities based on their expected term. The Company's total current environmental reserve at September 30, 20172018 and December 31, 20162017 was $12.9$6.4 million and $6.1$12.6 million, respectively, and the remainder is classified as non-current.noncurrent. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.

Warranty Liability

Standard product warranty accruals are recorded at the time of sale and are estimated based upon product warranty terms and historical experience. The Company assesses the adequacy of its liabilities and will make adjustments as necessary based on known or anticipated warranty claims, or as new information becomes available.

The changes in the standard product warranty liability for the nine months ended September 30 were as follows:
In millions2017 20162018 2017
Balance at beginning of period$13.3
 $11.7
$14.1
 $13.3
Reductions for payments(5.5) (4.6)(5.9) (5.5)
Accruals for warranties issued during the current period6.2
 6.2
6.1
 6.2
Changes to accruals related to preexisting warranties(0.7) 
(0.1) (0.7)
Acquisitions0.5
 
Translation0.4
 
(0.1) 0.4
Balance at end of period$13.7
 $13.3
$14.6
 $13.7

Standard product warranty liabilities are classified as Accrued expenses and other current liabilities.
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)





Note 20 – Guarantor Financial Information

Allegion US Holding Company, Inc. ("Allegion US Holding")Hold Co is the issuer of the 2021 Senior Notes3.200% and a guarantor of the 20233.550% Senior Notes. Allegion plc is the issuer of the 2023 Senior Notes and a guarantor of the 2021 Senior Notes. Schlage Lock Company LLC3.200% and Von Duprin LLC (together, the “Other Subsidiary Guarantors”) are guarantors of the 2021 Senior Notes and the 20233.550% Senior Notes. The following condensed and consolidated financial information of Allegion plc, Allegion US Holding, the Other Subsidiary GuarantorsHold Co, and the other Allegion subsidiaries that are not guarantors (the “Other Subsidiaries”"Other Subsidiaries") on a combined basis as of September 30, 2017 and December 31, 2016,2018 and for the three and nine months ended September 30, 20172018 and 2016,2017, is being presented in order to meet the reporting requirements under the 2021 Senior Notes and 2023 Senior Notes indenturesindenture and Rule 3-10 of Regulation S-X. In accordance with Rule 3-10(d) of Regulation S-X, separate financial statements for the Issuer, Allegion plc, Allegion US Holding andwhom is the Other Subsidiary Guarantorsguarantor, are not required to be filed with the SEC as the subsidiary debt issuer and the guarantors areis directly or indirectly 100% owned by the Parent, whom is the guarantor, and the guarantees are full and unconditional and joint and several.

As disclosed within Note 8,During the 2021 and 2023 Senior Notes were redeemed bynine months ended September 30, 2018, an entity previously presented in the respective issuers on October 3, 2017. On October 2, 2017,"Other Subsidiaries" column merged with Allegion US Holding issued Senior Notes due 2024 and Senior Notes due 2027 (together the “Notes”).Hold Co. The Notes are guaranteed by Allegion plc (the “Guarantor”) pursuant to an Indenture dated October 2, 2017, and are jointly, severally, and fully and unconditionally guaranteed on an unsecured senior basis by the Guarantor.
The Notes are not guaranteed by the Company's current and future subsidiaries presented in this periodic report, although the Notes are the direct obligations ofentity merged with Allegion US Holding.Hold Co primarily includes intercompany investments and related equity; there is no material statement of comprehensive income or cash flow activity related to this entity. As a result, the guarantor financial information presented under Rule 3-10 of Regulation S-X included in this periodic report does not reflect the guarantor structure of the Notes. In future periodic filings beginning with the Company's 2017 consolidated financial statements included in Form 10-K, thefollowing condensed and consolidatingconsolidated financial information presented below will be modifiedas of December 31, 2017, and for the three and nine months ended September 30, 2017 has been updated to present the guarantor financial information consistent with the guarantor structure of the Notes. Specifically, the “Allegion US Holding” column will be labeled as the “Issuer”, the “Allegion plc” column will be labeled as the “Guarantor” and the “Other Subsidiary Guarantors” column will be combined with the “Other Subsidiaries” column and be labeled “Non-Guarantor Subsidiaries”. Consolidating adjustments will also be modified to eliminate previously disclosed activity between the subsidiary guarantors and the other subsidiaries as applicable.



reflect this new structure.























ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Condensed and Consolidated Statement of Comprehensive Income
For the three months ended September 30, 20172018

In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors 
Other
Subsidiaries
 
Consolidating
Adjustments
 TotalAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Net revenues$
 $
 $432.6
 $273.0
 $(96.2) $609.4
$
 $
 $711.5
 $
 $711.5
Cost of goods sold
 
 241.3
 190.4
 (96.2) 335.5

 
 402.1
 
 402.1
Selling and administrative expenses1.3
 
 87.5
 59.0
 
 147.8
1.3
 
 165.8
 
 167.1
Operating income (loss)(1.3) 
 103.8
 23.6
 
 126.1
(1.3) 
 143.6
 
 142.3
Equity earnings (loss) in affiliates, net of tax104.1
 47.4
 0.5
 88.0
 (240.0) 
124.5
 73.2
 
 (197.7) 
Interest expense13.0
 4.6
 
 0.2
 
 17.8
7.2
 6.4
 0.4
 
 14.0
Intercompany interest and fees
 28.3
 (38.8) 10.5
 
 

 26.3
 (26.3) 
 
Other income, net
 
 (0.4) (3.3) 
 (3.7)
 
 (1.9) 
 (1.9)
Earnings (loss) before income taxes89.8
 14.5
 143.5
 104.2
 (240.0) 112.0
116.0
 40.5
 171.4
 (197.7) 130.2
Provision (benefit) for income taxes
 (12.7) 55.1
 (20.5) 
 21.9

 (7.7) 21.8
 
 14.1
Net earnings (loss)89.8
 27.2
 88.4
 124.7
 (240.0) 90.1
116.0
 48.2
 149.6
 (197.7) 116.1
Less: Net earnings attributable to noncontrolling interests
 
 
 0.3
 
 0.3
Less: Net loss attributable to noncontrolling interests
 
 0.1
 
 0.1
Net earnings (loss) attributable to Allegion plc$89.8
 $27.2
 $88.4
 $124.4
 $(240.0) $89.8
$116.0
 $48.2
 $149.5
 $(197.7) $116.0
                    
Total comprehensive income (loss)$111.9
 $27.4
 $89.5
 $146.5
 $(262.6) $112.7
$103.9
 $48.1
 $142.5
 $(191.2) $103.3
Less: Total comprehensive income attributable to noncontrolling interests
 
 
 0.8
 
 0.8
Less: Total comprehensive loss attributable to noncontrolling interests
 
 (0.6) 
 (0.6)
Total comprehensive income (loss) attributable to Allegion plc$111.9
 $27.4
 $89.5
 $145.7
 $(262.6) $111.9
$103.9
 $48.1
 $143.1
 $(191.2) $103.9


ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Condensed and Consolidated Statement of Comprehensive Income
For the nine months ended September 30, 20172018
In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors Other
Subsidiaries
 Consolidating
Adjustments
 TotalAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Net revenues$
 $
 $1,271.5
 $835.3
 $(321.7) $1,785.1
$
 $
 $2,029.3
 $
 $2,029.3
Cost of goods sold
 
 715.2
 595.8
 (321.7) 989.3

 
 1,156.5
 
 1,156.5
Selling and administrative expenses3.8
 
 262.1
 170.9
 
 436.8
4.6
 
 483.8
 
 488.4
Operating income (loss)(3.8) 
 294.2
 68.6
 
 359.0
(4.6) 
 389.0
 
 384.4
Equity earnings (loss) in affiliates, net of tax302.8
 114.2
 2.4
 245.7
 (665.1) 
327.0
 146.4
 
 (473.4) 
Interest expense35.3
 14.2
 
 0.2
 
 49.7
20.3
 19.4
 0.6
 
 40.3
Intercompany interest and fees
 77.7
 (100.9) 23.2
 
 

 78.2
 (78.2) 
 
Other income, net
 
 (4.5) (3.7) 
 (8.2)
 
 (3.9) 
 (3.9)
Earnings (loss) before income taxes263.7
 22.3
 402.0
 294.6
 (665.1) 317.5
302.1
 48.8
 470.5
 (473.4) 348.0
Provision (benefit) for income taxes
 (35.4) 153.9
 (65.6) 
 52.9

 (20.0) 65.5
 
 45.5
Net earnings (loss)263.7
 57.7
 248.1
 360.2
 (665.1) 264.6
302.1
 68.8
 405.0
 (473.4) 302.5
Less: Net earnings attributable to noncontrolling interests
 
 
 0.9
 
 0.9

 
 0.4
 
 0.4
Net earnings (loss) attributable to Allegion plc$263.7
 $57.7
 $248.1
 $359.3
 $(665.1) $263.7
$302.1
 $68.8
 $404.6
 $(473.4) $302.1
                    
Total comprehensive income345.5
 57.2
 250.6
 441.9
 (747.7) 347.5
Less: Total comprehensive income attributable to noncontrolling interests
 
 
 2.0
 
 2.0
Total comprehensive income attributable to Allegion plc$345.5
 $57.2
 $250.6
 $439.9
 $(747.7) $345.5
Total comprehensive income (loss)$266.9
 $70.7
 $365.8
 $(438.1) $265.3
Less: Total comprehensive loss attributable to noncontrolling interests
 
 (1.6) 
 (1.6)
Total comprehensive income (loss) attributable to Allegion plc$266.9
 $70.7
 $367.4
 $(438.1) $266.9

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)




Condensed and Consolidated Statement of Comprehensive Income

For the three months ended September 30, 2017

























In millionsAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Net revenues$
 $
 $609.4
 $
 $609.4
Cost of goods sold
 
 335.0
 
 335.0
Selling and administrative expenses1.2
 
 146.1
 
 147.3
Operating income (loss)(1.2) 
 128.3
 
 127.1
Equity earnings (loss) in affiliates, net of tax104.2
 (16.5) 
 (87.7) 
Interest expense (income)13.2
 4.7
 (0.1) 
 17.8
Intercompany interest and fees
 (75.2) 75.2
 
 
Other income, net
 
 (2.7) 
 (2.7)
Earnings (loss) before income taxes89.8
 54.0
 55.9
 (87.7) 112.0
Provision (benefit) for income taxes
 27.2
 (5.3) 
 21.9
Net earnings (loss)89.8
 26.8
 61.2
 (87.7) 90.1
Less: Net earnings attributable to noncontrolling interests
 
 0.3
 
 0.3
Net earnings (loss) attributable to Allegion plc$89.8
 $26.8
 $60.9
 $(87.7) $89.8
          
Total comprehensive income (loss)$111.9
 $27.1
 $84.0
 $(110.3) $112.7
Less: Total comprehensive income attributable to noncontrolling interests
 
 0.8
 
 0.8
Total comprehensive income (loss) attributable to Allegion plc$111.9
 $27.1
 $83.2
 $(110.3) $111.9
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Condensed and Consolidated Statement of Comprehensive Income
For the threenine months ended September 30, 2016

2017
In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors Other
Subsidiaries
 Consolidating
Adjustments
 Total
Net revenues$
 $
 $424.6
 $265.2
 $(108.7) $581.1
Cost of goods sold
 
 234.7
 191.6
 (108.7) 317.6
Selling and administrative expenses0.9
 
 83.6
 57.5
 
 142.0
Operating income (loss)(0.9) 
 106.3
 16.1
 
 121.5
Equity earnings (loss) in affiliates, net of tax12.9
 42.4
 (0.2) 86.0
 (141.1) 
Interest expense10.4
 5.1
 
 0.1
 
 15.6
Intercompany interest and fees
 23.9
 (33.1) 9.2
 
 
Loss on divestiture
 
 
 84.4
 
 84.4
Other income, net
 0.4
 0.3
 (0.3) 
 0.4
Earnings (loss) before income taxes1.6
 13.0
 138.9
 8.7
 (141.1) 21.1
Provision (benefit) for income taxes
 (11.3) 53.1
 (22.7) 
 19.1
Net earnings (loss)1.6
 24.3
 85.8
 31.4
 (141.1) 2.0
Less: Net earnings attributable to noncontrolling interests
 
 
 0.4
 
 0.4
Net earnings (loss) attributable to Allegion plc$1.6
 $24.3
 $85.8
 $31.0
 $(141.1) $1.6
            
Total comprehensive income (loss)$16.0
 $27.6
 $86.6
 $42.1
 $(156.1) $16.2
Less: Total comprehensive income attributable to noncontrolling interests
 
 
 0.2
 
 0.2
Total comprehensive income (loss) attributable to Allegion plc$16.0
 $27.6
 $86.6
 $41.9
 $(156.1) $16.0


























In millionsAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Net revenues$
 $
 $1,785.1
 $
 $1,785.1
Cost of goods sold
 
 988.2
 
 988.2
Selling and administrative expenses3.8
 
 431.5
 
 435.3
Operating income (loss)(3.8) 
 365.4
 
 361.6
Equity earnings (loss) in affiliates, net of tax302.8
 53.5
 0.6
 (356.9) 
Interest expense35.3
 14.2
 0.2
 
 49.7
Intercompany interest and fees
 (21.1) 21.1
 
 
Other income, net
 
 (5.6) 
 (5.6)
Earnings (loss) before income taxes263.7
 60.4
 350.3
 (356.9) 317.5
Provision for income taxes
 2.8
 50.1
 
 52.9
Net earnings (loss)263.7
 57.6
 300.2
 (356.9) 264.6
Less: Net earnings attributable to noncontrolling interests
 
 0.9
 
 0.9
Net earnings (loss) attributable to Allegion plc$263.7
 $57.6
 $299.3
 $(356.9) $263.7
          
Total comprehensive income (loss)$345.5
 $57.2
 $384.3
 $(439.5) $347.5
Less: Total comprehensive income attributable to noncontrolling interests
 
 2.0
 
 2.0
Total comprehensive income (loss) attributable to Allegion plc$345.5
 $57.2
 $382.3
 $(439.5) $345.5
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)




Condensed and Consolidated Statement of Comprehensive Income
For the nine months ended September 30, 2016

In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Net revenues$
 $
 $1,194.3
 $798.3
 $(324.3) $1,668.3
Cost of goods sold
 
 674.4
 571.0
 (324.3) 921.1
Selling and administrative expenses3.2
 
 246.9
 168.8
 
 418.9
Operating income (loss)(3.2) 
 273.0
 58.5
 
 328.3
Equity earnings (loss) in affiliates, net of tax190.8
 105.9
 0.4
 242.4
 (539.5) 
Interest expense32.6
 15.3
 
 0.5
 
 48.4
Intercompany interest and fees0.1
 71.6
 (99.1) 27.4
 
 
Loss on divestiture
 
 
 84.4
 
 84.4
Other income (expense), net0.1
 0.4
 (20.1) 2.6
 
 (17.0)
Earnings (loss) before income taxes154.8
 18.6
 392.6
 270.4
 (539.5) 212.5
Provision (benefit) for income taxes0.5
 (33.6) 149.7
 (60.3) 
 56.3
Net earnings (loss)154.3
 52.2
 242.9
 330.7
 (539.5) 156.2
Less: Net earnings attributable to noncontrolling interests
 
 
 1.9
 
 1.9
Net earnings (loss) attributable to Allegion plc$154.3
 $52.2
 $242.9
 $328.8
 $(539.5) $154.3
            
Total comprehensive income$169.7
 $43.8
 $253.2
 $260.2
 $(554.8) $172.1
Less: Total comprehensive income attributable to noncontrolling interests
 
 
 2.4
 
 2.4
Total comprehensive income attributable to Allegion plc$169.7
 $43.8
 $253.2
 $257.8
 $(554.8) $169.7













ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Condensed and Consolidated Balance Sheet
September 30, 20172018

In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors 
Other
Subsidiaries
 
Consolidating
Adjustments
 TotalAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Current assets:                    
Cash and cash equivalents$1.1
 $0.1
 $177.7
 $156.0
 $
 $334.9
$0.6
 $14.0
 $175.1
 $
 $189.7
Restricted cash
 
 6.8
 
 6.8
Accounts and notes receivable, net
 
 164.9
 137.9
 
 302.8

 
 361.4
 
 361.4
Inventories
 
 80.6
 176.5
 
 257.1

 
 278.3
 
 278.3
Other current assets0.5
 35.4
 12.7
 79.2
 (98.0) 29.8
0.8
 24.7
 20.2
 (8.6) 37.1
Accounts and notes receivable affiliates
 416.4
 492.6
 342.0
 (1,251.0) 

 473.6
 342.8
 (816.4) 
Total current assets1.6
 451.9
 928.5
 891.6
 (1,349.0) 924.6
1.4
 512.3
 1,184.6
 (825.0) 873.3
Investment in affiliates1,514.7
 2,903.8
 218.6
 3,648.8
 (8,285.9) 
1,227.8
 652.9
 
 (1,880.7) 
Property, plant and equipment, net
 
 120.9
 125.2
 
 246.1

 
 273.3
 
 273.3
Goodwill and other intangible assets, net
 
 180.0
 969.1
 
 1,149.1

 
 1,436.4
 
 1,436.4
Notes receivable affiliates2.9
 1,124.9
 3,444.7
 1,667.2
 (6,239.7) 
25.5
 1,483.7
 2,613.8
 (4,123.0) 
Other noncurrent assets5.4
 19.2
 55.4
 47.5
 
 127.5
4.3
 30.4
 112.4
 
 147.1
Total assets$1,524.6
 $4,499.8
 $4,948.1
 $7,349.4
 $(15,874.6) $2,447.3
$1,259.0
 $2,679.3
 $5,620.5
 $(6,828.7) $2,730.1
Current liabilities:                    
Accounts payable and accruals$3.0
 $11.0
 $275.4
 $205.8
 $(98.0) $397.2
$1.8
 $13.5
 $445.2
 $(8.6) $451.9
Short-term borrowings and current maturities of long-term debt35.0
 
 
 
 
 35.0
35.0
 
 
 
 35.0
Accounts and notes payable affiliates
 72.0
 669.9
 509.1
 (1,251.0) 

 342.9
 473.5
 (816.4) 
Total current liabilities38.0
 83.0
 945.3
 714.9
 (1,349.0) 432.2
36.8
 356.4
 918.7
 (825.0) 486.9
Long-term debt1,118.2
 292.7
 
 1.1
 
 1,412.0
624.2
 792.5
 1.0
 
 1,417.7
Notes payable affiliate
 2,655.5
 51.0
 3,533.2
 (6,239.7) 

 2,613.8
 1,509.2
 (4,123.0) 
Other noncurrent liabilities1.2
 
 84.4
 145.4
 
 231.0
1.1
 4.7
 220.7
 
 226.5
Total liabilities1,157.4
 3,031.2
 1,080.7
 4,394.6
 (7,588.7) 2,075.2
662.1
 3,767.4
 2,649.6
 (4,948.0) 2,131.1
Equity:                    
Total shareholders equity (deficit)367.2
 1,468.6
 3,867.4
 2,949.9
 (8,285.9) 367.2
596.9
 (1,088.1) 2,968.8
 (1,880.7) 596.9
Noncontrolling interests
 
 
 4.9
 
 4.9

 
 2.1
 
 2.1
Total equity (deficit)367.2
 1,468.6
 3,867.4
 2,954.8
 (8,285.9) 372.1
596.9
 (1,088.1) 2,970.9
 (1,880.7) 599.0
Total liabilities and equity$1,524.6
 $4,499.8
 $4,948.1
 $7,349.4
 $(15,874.6) $2,447.3
$1,259.0
 $2,679.3
 $5,620.5
 $(6,828.7) $2,730.1
ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Condensed and Consolidated Balance Sheet
December 31, 20162017

In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors 
Other
Subsidiaries
 
Consolidating
Adjustments
 TotalAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Current assets:                    
Cash and cash equivalents$0.5
 $0.1
 $166.0
 $145.8
 $
 $312.4
$0.7
 $0.3
 $465.2
 $
 $466.2
Accounts and notes receivable, net
 
 140.0
 120.0
 
 260.0

 
 296.6
 
 296.6
Inventories
 
 77.6
 143.0
 
 220.6

 
 239.8
 
 239.8
Other current assets0.4
 49.7
 9.4
 145.1
 (168.3) 36.3
0.3
 56.3
 17.6
 (44.1) 30.1
Accounts and notes receivable affiliates
 331.6
 395.0
 320.6
 (1,047.2) 
Accounts receivable affiliates
 430.0
 305.3
 (735.3) 
Total current assets0.9
 381.4
 788.0
 874.5
 (1,215.5) 829.3
1.0
 486.6
 1,324.5
 (779.4) 1,032.7
Investment in affiliates1,229.4
 2,814.1
 193.4
 3,422.6
 (7,659.5) 
1,079.6
 240.8
 
 (1,320.4) 
Property, plant and equipment, net
 
 122.0
 104.6
 
 226.6

 
 252.2
 
 252.2
Goodwill and other intangible assets, net
 
 180.8
 893.4
 
 1,074.2

 
 1,155.5
 
 1,155.5
Notes receivable affiliates53.2
 1,149.8
 3,444.7
 1,679.8
 (6,327.5) 
3.5
 1,580.3
 2,381.0
 (3,964.8) 
Other noncurrent assets5.4
 14.8
 61.9
 35.2
 
 117.3
5.1
 5.5
 91.0
 
 101.6
Total assets$1,288.9
 $4,360.1
 $4,790.8
 $7,010.1
 $(15,202.5) $2,247.4
$1,089.2
 $2,313.2
 $5,204.2
 $(6,064.6) $2,542.0
Current liabilities:                    
Accounts payable and accruals$7.0
 $4.7
 $353.2
 $184.8
 $(168.3) $381.4
$1.9
 $7.0
 $461.0
 $(44.1) $425.8
Short-term borrowings and current maturities of long-term debt46.9
 
 
 1.3
 
 48.2
35.0
 
 
 
 35.0
Accounts and notes payable affiliates0.4
 36.4
 629.6
 380.8
 (1,047.2) 
0.2
 304.9
 430.2
 (735.3) 
Total current liabilities54.3
 41.1
 982.8
 566.9
 (1,215.5) 429.6
37.1
 311.9
 891.2
 (779.4) 460.8
Long-term debt1,120.2
 294.4
 
 1.0
 
 1,415.6
649.3
 792.0
 1.0
 
 1,442.3
Notes payables affiliate
 2,690.7
 53.3
 3,583.5
 (6,327.5) 

 2,381.0
 1,583.8
 (3,964.8) 
Other noncurrent liabilities1.1
 
 138.7
 146.0
 
 285.8
1.2
 4.2
 228.0
 
 233.4
Total liabilities1,175.6
 3,026.2
 1,174.8
 4,297.4
 (7,543.0) 2,131.0
687.6
 3,489.1
 2,704.0
 (4,744.2) 2,136.5
Equity:                    
Total shareholders equity (deficit)113.3
 1,333.9
 3,616.0
 2,709.6
 (7,659.5) 113.3
401.6
 (1,175.9) 2,496.3
 (1,320.4) 401.6
Noncontrolling interests
 
 
 3.1
 
 3.1

 
 3.9
 
 3.9
Total equity (deficit)113.3
 1,333.9
 3,616.0
 2,712.7
 (7,659.5) 116.4
401.6
 (1,175.9) 2,500.2
 (1,320.4) 405.5
Total liabilities and equity$1,288.9
 $4,360.1
 $4,790.8
 $7,010.1
 $(15,202.5) $2,247.4
$1,089.2
 $2,313.2
 $5,204.2
 $(6,064.6) $2,542.0

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)





Condensed and Consolidated Statement of Cash Flows
For the nine months ended September 30, 20172018

In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors 
Other
Subsidiaries
 
Consolidating
Adjustments
 TotalAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Net cash provided by (used in) operating activities$67.4
 $10.3
 $231.3
 $280.9
 $(419.9) $170.0
$135.4
 $(68.5) $402.5
 $(209.0) $260.4
Cash flows from investing activities:                    
Capital expenditures
 
 (14.7) (19.0) 
 (33.7)
 
 (31.8) 
 (31.8)
Acquisition of and equity investments in businesses, net of cash acquired
 
 (22.2) 1.4
 
 (20.8)
 (247.1) (128.7) 
 (375.8)
Proceeds from sale of equity investment
 
 15.5
 
 
 15.5
Other investing activities, net
 
 
 2.9
 
 2.9

 
 (1.1) 
 (1.1)
Net cash used in investing activities
 
 (21.4) (14.7) 
 (36.1)
 (247.1) (161.6) 
 (408.7)
Cash flows from financing activities:                    
Short-term borrowings, net
 
 
 (1.3) 
 (1.3)
Borrowings from revolving facility165.0
 
 
 
 
 165.0
Issuance of term facility700.0
 
 
 
 
 700.0
Settlement of second amended credit facility(856.3) 
 
 
 
 (856.3)
Payments of long-term debt(23.5) 
 
 
 
 (23.5)
Debt repayments, net(14.8) 
 
 (1.3) 
 (16.1)(26.3) 
 (1.1) 
 (27.4)
Debt issuance costs(2.9) (0.1) 
 
 
 (3.0)
Net inter-company proceeds (payments)50.3
 (10.2) 8.2
 (48.3) 
 
(22.0) 329.3
 (307.3) 
 
Dividends paid
 
 (206.4) (213.5) 419.9
 

 
 (209.0) 209.0
 
Dividends paid to shareholders(45.6) 
 
 
 
 (45.6)(59.6) 
 
 
 (59.6)
Repurchase of ordinary shares(60.0) 
 
 
 
 (60.0)(30.0) 
 
 
 (30.0)
Other financing activities, net6.2
 
 
 (0.2) 
 6.0
2.4
 
 (2.3) 
 0.1
Net cash provided by (used in) financing activities(66.8) (10.3) (198.2) (263.3) 419.9
 (118.7)
Effect of exchange rate changes on cash and cash equivalents
 
 
 7.3
 
 7.3
Net increase (decrease) in cash and cash equivalents0.6
 
 11.7
 10.2
 
 22.5
Cash and cash equivalents - beginning of period0.5
 0.1
 166.0
 145.8
 
 312.4
Cash and cash equivalents - end of period$1.1
 $0.1
 $177.7
 $156.0
 $
 $334.9
Net cash (used in) provided by financing activities(135.5) 329.3
 (519.7) 209.0
 (116.9)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
 
 (4.5) 
 (4.5)
Net (decrease) increase in cash, cash equivalents, and restricted cash(0.1) 13.7
 (283.3) 
 (269.7)
Cash, cash equivalents, and restricted cash - beginning of period0.7
 0.3
 465.2
 
 466.2
Cash, cash equivalents, and restricted cash - end of period$0.6
 $14.0
 $181.9
 $
 $196.5

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)




Condensed and Consolidated Statement of Cash Flows
For the nine months ended September 30, 20162017

In millionsAllegion plc Allegion US Holding Other Subsidiary Guarantors 
Other
Subsidiaries
 
Consolidating
Adjustments
 TotalAllegion plc Allegion US Holding 
Other
Subsidiaries
 
Consolidating
Adjustments
 Total
Net cash provided by (used in) operating activities$(26.6) $8.9
 $361.6
 $165.8
 $(331.3) $178.4
$67.4
 $123.1
 $193.1
 $(213.6) $170.0
Cash flows from investing activities:                    
Capital expenditures
 
 (8.1) (18.3) 
 (26.4)
 
 (33.7) 
 (33.7)
Acquisition of businesses, net of cash acquired
 
 
 (31.4) 
 (31.4)
 
 (20.8) 
 (20.8)
Proceeds from sales of marketable securities
 
 
 14.1
 
 14.1
Proceeds from sales and maturities of marketable securities
 
 15.5
 
 15.5
Other investing activities, net
 
 
 (5.6) 
 (5.6)
 
 2.9
 
 2.9
Net cash used in investing activities
 
 (8.1) (41.2) 
 (49.3)
 
 (36.1) 
 (36.1)
Cash flows from financing activities:                    
Debt repayments, net(35.2) 0.2
 
 (18.6) 
 (53.6)(14.8) 
 (1.3) 
 (16.1)
Debt issuance costs(0.3) 
 
 
 
 (0.3)(2.9) (0.1) 
 
 (3.0)
Net inter-company proceeds (payments)115.9
 (9.1) (117.3) 10.5
 
 
50.3
 (17.5) (32.8) 
 
Dividends (paid) received
 
 (216.8) (114.5) 331.3
 
Dividends paid
 (105.5) (108.1) 213.6
 
Dividends paid to shareholders(34.5)








(34.5)(45.6)






(45.6)
Acquisition/divestiture of noncontrolling interests
 
 
 (0.4) 
 (0.4)
Repurchase of ordinary shares(30.0) 
 
 
 
 (30.0)(60.0) 
 
 
 (60.0)
Other financing activities, net8.4
 
 
 (5.6) 
 2.8
6.2
 
 (0.2) 
 6.0
Net cash provided by (used in) financing activities24.3
 (8.9) (334.1) (128.6) 331.3
 (116.0)
Net cash (used in) provided by financing activities(66.8) (123.1) (142.4) 213.6
 (118.7)
Effect of exchange rate changes on cash and cash equivalents
 
 
 1.7
 
 1.7

 
 7.3
 
 7.3
Net increase (decrease) in cash and cash equivalents(2.3) 
 19.4
 (2.3) 
 14.8
Net increase in cash and cash equivalents0.6
 
 21.9
 
 22.5
Cash and cash equivalents - beginning of period3.3
 0.3
 73.8
 122.3
 
 199.7
0.5
 0.2
 311.7
 
 312.4
Cash and cash equivalents - end of period$1.0
 $0.3
 $93.2
 $120.0
 $
 $214.5
$1.1
 $0.2
 $333.6
 $
 $334.9
 



Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that mightmay cause a difference include, but are not limited to, those discussed under Part I, Item 1A – Risk Factors in the Annual Report on Form 10-K for the fiscal year ended December 31, 20162017. The following section is qualified in its entirety by the more detailed information, including our condensed and consolidated financial statements and the notes thereto, which appears elsewhere in this Quarterly Report.

Overview

Organizational    Organization

Allegion plc and its consolidated subsidiaries ("Allegion," "we," "us""our," or the "Company""us") is a leading global provider of security products and solutions that keep people safe, secureoperating in three geographic regions: Americas, EMEIA, and productive.Asia Pacific. We make the world safer assell a companywide range of experts, securing the places where people thrive and we create peace of mind by pioneering safety and security. We offer an extensive and versatile portfolio of mechanical and electronic security products across a range of market-leading brands.and solutions for end-users in commercial, institutional and residential markets worldwide, including into the education, healthcare, government, commercial office and single and multi-family residential markets. Our experts across the globe deliver high-quality security products, services and systems and we use our deep expertise to serve as trusted partners to end-users who seek customized solutions to their security needs. Our leadingcorporate brands include CISA, Interflex, LCN, Schlage, SimonsVoss, and Von Duprin.
 

Recent Developments

2017 and 20162018 Acquisitions and Divestitures

On January 3, 2017, we acquired Republic Doors & Frames, LLC. On April 5, 2017, iDevices LLC, including our equity investment, was acquired by a third party. In 2016,During the nine months ended September 30, 2018, we completed one business acquisition (Trelock GmbH).six acquisitions:
BusinessDate
Technical Glass Products, Inc. ("TGP")January 2018
Hammond Enterprises, Inc. ("Hammond")January 2018
Qatar Metal Industries LLC ("QMI")February 2018
AD Systems, Inc. ("AD Systems")March 2018
Gainsborough Hardware and API Locksmiths ("Door and Access Systems")July 2018
ISONAS Security Systems, Inc. ("ISONAS")July 2018

2017TGP provides fire-rated architectural glass and framing solutions for commercial buildings, as well as non-fire rated architectural glass and framing, including channel glass systems and curtain walls throughout the United States, Canada, and select markets in the Middle East. TGP has been integrated into our Americas and EMEIA segments.

We acquired 100% of the machinery, equipment, and intellectual property of a division of Hammond. The assets acquired have been integrated into our existing production facilities and are specific to our Schlage-branded products.

QMI specializes in fire rated and non-fire rated steel and wooden doors, acoustic doors, and wooden cabinets, as well as fire rated curtain wall systems and access panels in Qatar, Saudi Arabia, Bahrain, Oman, Kuwait, the United Arab Emirates, and Africa. QMI has been integrated into our EMEIA segment.

AD Systems designs and manufactures high-performance interior and storefront door systems, specializing in sliding and acoustic solutions. AD Systems' portfolio includes sliding and swinging doors, perimeter frames, door hardware, gasketing, seals and sidelite panels. AD Systems has been integrated into our Americas segment.

Door and Access Systems, based in Australia, includes the brands Gainsborough Hardware, the market-leading residential door hardware brand in Australia, and API Locksmiths, which serves the Australian market with its keying, installation and access control services. Door and Access Systems has been integrated into our Asia Pacific segment.

ISONAS designs and manufactures edge-computing technology that produces Power over Ethernet access control solutions for non-residential end-markets. ISONAS has been integrated into our Americas segment.

2018 Dividends

Through September 30, 2017,2018, we paid dividends of $0.48$0.63 per ordinary share to shareholders.

Share repurchases

Through September 30, 2017,During the first nine months of 2018, we repurchased approximately 0.80.4 million shares for approximately $60.0$30.0 million.



Results of Operations – Three months ended September 30
In millions, except per share amounts2017 % of
revenues
 2016 % of
revenues
2018 % of
revenues
 2017 % of
revenues
Net revenues$609.4
   $581.1
  $711.5
   $609.4
  
Cost of goods sold335.5
 55.1% 317.6
 54.7%402.1
 56.5% 335.0
 55.0%
Selling and administrative expenses147.8
 24.3% 142.0
 24.4%167.1
 23.5% 147.3
 24.2%
Operating income126.1
 20.7% 121.5
 20.9%142.3
 20.0% 127.1
 20.9%
Interest expense17.8
   15.6
  14.0
   17.8
  
Loss on divestitures
   84.4
  
Other income, net(3.7)   0.4
  (1.9)   (2.7)  
Earnings before income taxes112.0
   21.1
  130.2
   112.0
  
Provision for income taxes21.9
   19.1
  14.1
   21.9
  
Net earnings90.1
   2.0
  116.1
   90.1
  
Less: Net earnings attributable to noncontrolling interests0.3
   0.4
  0.1
   0.3
  
Net earnings attributable to Allegion plc$89.8
   $1.6
  $116.0
   $89.8
  
Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders:              
Net earnings$0.94
   $0.02
  $1.21
   $0.94
  
The discussions that follow describe the significant factors contributing to the changes in our results of operations for the periods presented.
Net Revenues
Net revenues for the three months ended September 30, 20172018 increased by 4.9%16.8%, or $28.3102.1 million, compared with the same period in 20162017, which resulted from the following:
Pricing2.42.2%
Volume0.36.3%
Acquisitions1.09.0%
Currency exchange rates1.2(0.7)%
Total4.916.8%
The increase in netNet revenues was primarily driven by higher volumes, improved pricing in all three segments, as well as an acquisition inand acquisitions during the Americas segment and favorablecurrent year partially offset by unfavorable foreign currency exchange rate movements due to weakening of the US dollar against currencies in EMEIA and Asia Pacific.











movements.
Operating Income/Margin
Operating income for the three months ended September 30, 20172018 increased $4.615.2 million compared to the same period in 20162017 and operating margin for the three months ended September 30, 20172018 decreased to 20.7%20.0% from 20.9% for the same period in 20162017 due to the following:
in millions Operating Income Operating MarginOperating Income Operating Margin
September 30, 2016 $121.5
 20.9 %
Pricing and productivity in excess of inflation 10.9
 1.3 %
Volume/product mix (1.4) (0.3)%
September 30, 2017$127.1
 20.9 %
Inflation in excess of pricing and productivity(1.9) (0.8)%
Volume / product mix15.3
 1.1 %
Restructuring / acquisition expenses (3.3) (0.6)%1.8
 0.3 %
Currency exchange rates 1.3
 0.1 %0.2
 0.2 %
Investment spending and other items (2.8) (0.5)%
Investment spending(3.2) (0.5)%
Acquisitions (0.1) (0.2)%3.0
 (1.2)%
September 30, 2017 $126.1
 20.7 %
September 30, 2018$142.3
 20.0 %

Operating income increased primarily due to pricing improvementsfavorable volume/product mix, decreased restructuring and productivity in excess of inflation, as well asacquisition expenses, favorable foreign currency exchange rate movements.movements and acquisitions during the current year. These increases were partially offset by inflation in excess of pricing and productivity and increased investment spending, restructuring and acquisition expenses, and unfavorable volume/product mix.spending.
Operating margin decreased primarily due to inflation in excess of pricing and productivity, increased investment spending, and lower margins from acquisitions during the current year. These decreases were partially offset by favorable volume/product mix, decreased restructuring and acquisition expenses, and volume/product mix. The decrease was partially offset by favorable pricing improvements and productivity in excess of inflation.foreign currency exchange rate movements.
Interest Expense
Interest expense for the three months ended September 30, 2017 increased $2.22018 decreased $3.8 million compared with the same period of 2016in 2017 primarily due to $1.6 million of costs associated withlower interest rates on our outstanding indebtedness due to the refinancing of our credit facilities, which closed duringCredit Facilities, issuance of two new senior notes and redemption of two previously outstanding senior notes in the three months ended September 30,third and fourth quarters of 2017.
Loss on Divestitures
During Interest expense for the three months ended September 30, 2017 we did not have any loss on divestitures. Duringalso included approximately $1.6 million of non-recurring costs associated with the three months ended September 30, 2016 we recorded an after tax charge of $84.4 million primarily due to the write-downrefinancing of the carrying value of consideration receivable related to the September 2015 divestiture of our security system integration business in China.Credit Facilities.
Other (Income) Expense,Income, Net
The components of Other (income) expense,income, net for the three months ended September 30, 20172018 and 20162017 were as follows:
In millions 2017 20162018 2017
Interest income $(0.3) $(0.5)$(0.4) $(0.3)
Exchange (gain) loss (0.1) 0.5
(Earnings) loss from and gains on the sale of equity investments (0.1) 0.1
Foreign currency exchange gain(0.8) (0.1)
Earnings from and gains on the sale of equity investments
 (0.1)
Net periodic pension and postretirement benefit (income) cost, less service cost(0.7) 1.0
Other (3.2) 0.3

 (3.2)
Other (income) expense, net $(3.7) $0.4
Other income, net$(1.9) $(2.7)

Other (income) expense,income, net for the three months ended September 30, 2018 was lower by $0.8 million compared to the same period in 2017, includeddue to a gain of $2.9 million related to a legal entity liquidation.liquidation during the three months ended September 30, 2017 that did not recur during the current year. This decrease was partially offset by Net periodic pension and postretirement benefit income, less service cost of $0.7 million for the three months ended September 30, 2018, compared to Net periodic pension and postretirement benefit cost, less service cost of $1.0 million for the same period of 2017.

Provision for Income Taxes

The effective income tax rates for the three months ended September 30, 2018 and 2017 were 10.8% and 2016 were 19.6% and 90.5%., respectively. The decrease in the effective income tax rate for the three months ended September 30, 2016 was negatively impacted by $84.4 million (before and after-tax)compared to 2017 is primarily due to the write-downfavorable impact of the carrying valueTax Reform Act, including the reduction of consideration receivable relatedthe US statutory tax rate and the adjustment recorded to the September 2015 divestiture of our Systems Integration businessprovisional tax amounts previously recognized (see Note 2). The decrease in China. Excluding this write-down, the effective tax rate increased due to unfavorableis also driven by the year over year change in the recognition of uncertain tax positions, and changes in the mix of income earned in higherlower rate jurisdictions.



Results of Operations – Nine months ended September 30
In millions, except per share amounts2017 % of
revenues
 2016 % of
revenues
2018 % of
revenues
 2017 % of
revenues
Net revenues$1,785.1
   $1,668.3
  $2,029.3
   $1,785.1
  
Cost of goods sold989.3
 55.4% 921.1
 55.2%1,156.5
 57.0% 988.2
 55.4%
Selling and administrative expenses436.8
 24.5% 418.9
 25.1%488.4
 24.1% 435.3
 24.4%
Operating income359.0
 20.1% 328.3
 19.7%384.4
 18.9% 361.6
 20.3%
Interest expense49.7
   48.4
  40.3
   49.7
  
Loss on divestitures
   84.4
  
Other income, net(8.2)   (17.0)  (3.9)   (5.6)  
Earnings before income taxes317.5
   212.5
  348.0
   317.5
  
Provision for income taxes52.9
   56.3
  45.5
   52.9
  
Net earnings264.6
   156.2
  302.5
   264.6
  
Less: Net earnings attributable to noncontrolling interests0.9
   1.9
  0.4
   0.9
  
Net earnings attributable to Allegion plc$263.7
   $154.3
  $302.1
   $263.7
  
Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders:              
Net earnings$2.75
   $1.59
  $3.15
   $2.75
  
The discussions that follow describe the significant factors contributing to the changes in our results of operations for the periods presented.
Net Revenues
Net revenues for the nine months ended September 30, 20172018 increased by 7.0%13.7%, or $116.8$244.2 million, compared with the same period in 2016,2017, which resulted from the following:
Pricing2.01.6%
Volume3.54.2%
Acquisitions1.66.4%
Currency exchange rates(0.11.5)%
Total7.013.7%
The increase in netNet revenues was primarily driven by higher volumes, improved pricing, acquisitions during the current year, and acquisitions impacting all three segments.











favorable foreign currency exchange rate movements.
Operating Income/Margin
Operating income for the nine months ended September 30, 20172018 increased $30.7$22.8 million compared to the same period in 20162017 and operating margin for the nine months ended September 30, 2017 increased2018 decreased to 20.1%18.9% from 19.7%20.3% for the same period in 20162017 due to the following:
in millions Operating Income Operating MarginOperating Income Operating Margin
September 30, 2016 $328.3
 19.7 %
Pricing and productivity in excess of inflation 26.5
 1.1 %
Volume/product mix 19.9
 0.5 %
Acquisitions (0.4) (0.3)%
September 30, 2017$361.6
 20.3 %
Inflation in excess of pricing and productivity(3.8) (0.5)%
Volume / product mix30.5
 0.8 %
Restructuring / acquisition expenses (3.6) (0.2)%(0.4)  %
Currency exchange rates 1.4
 0.1 %4.7
  %
Investment spending and other items (13.1) (0.8)%
September 30, 2017 $359.0
 20.1 %
Investment spending(11.2) (0.6)%
Acquisitions3.0
 (1.1)%
September 30, 2018$384.4
 18.9 %

Operating income and operating margin increased primarily due to favorable volume/product mix, pricing improvements and productivity in excess of inflation and favorable foreign currency exchange rate movements.movements and acquisitions during the current year. These increases were partially offset by increased investment spending,inflation in excess of pricing and productivity, restructuring and acquisition expenses and acquisitions.increased investment spending.
Operating margin decreased primarily due to inflation in excess of pricing and productivity, increased investment spending and lower margins from acquisitions during the current year. These decreases were partially offset by favorable volume/product mix.
Interest Expense
Interest expense for the nine months ended September 30, 2017 increased $1.32018 decreased $9.4 million compared with the same period of 2016in 2017 primarily due to $1.6 million of costs associated withlower interest rates on our outstanding indebtedness due to the refinancing of our credit facilities.
Loss on Divestitures
DuringCredit Facilities, issuance of two new senior notes and redemption of two previously outstanding senior notes in the third and fourth quarters of 2017. Interest expense for the nine months ended September 30, 2017 we did not have any loss on divestitures. Duringalso included approximately $1.6 million of non-recurring costs associated with the nine months ended September 30, 2016 we recorded an after tax charge of $84.4 million primarily due to the write-downrefinancing of the carrying value of consideration receivable related to the September 2015 divestiture of our security system integration business in China.Credit Facilities.
Other Income, Net
The components of Other income, net for the nine months ended September 30, 20172018 and 20162017 were as follows:
In millions2017 20162018 2017
Interest income$(0.6) $(1.9)$(0.7) $(0.6)
Exchange loss0.4
 2.9
Foreign currency exchange (gain) loss(1.0) 0.4
Earnings from and gains on the sale of equity investments(4.7) (3.9)(0.1) (4.7)
Net periodic pension and postretirement benefit (income) cost, less service cost(2.3) 2.6
Other(3.3) (14.1)0.2
 (3.3)
Other income, net$(8.2) $(17.0)$(3.9) $(5.6)

Other income, net for the nine months ended September 30, 20172018 was unfavorable $8.8lower by $1.7 million compared to the same period in 2016. Other income, net for the nine months ended September 30, 2017, includeddue to a cumulative gain of $4.9$5.3 million from the sale of iDevices, LLC,an equity method investment during the prior year and a gain of $2.9 million related to a legal entity liquidation. Duringliquidation during the three months ended September 30, 2017, neither of which were recurring during the current year. These decreases were partially offset by Net periodic pension and postretirement benefit income, less service cost of $2.3 million for the nine months ended September 30, 2016, we recorded gains from2018, compared to Net periodic pension and postretirement benefit cost, less service cost of $2.6 million for the salesame period of marketable securities of $12.4 million, which is included in Other in the table above.2017.

Provision for Income Taxes

The effective income tax rates for the nine months ended September 30, 2018 and 2017 were 13.1% and 2016 were 16.7% and 26.5%., respectively. The decrease in the effective income tax rate forcompared to 2017 is primarily due to the nine months ended September 30, 2017 was impacted by a favorable benefitimpact of vestingthe Tax Reform Act, changes in taxes accrued on unremitted earnings and exercise of share based compensation awards and a favorable benefit resulting from the release of valuation allowances, which are partially offset by unfavorable changes in the mix of income earned in higherlower rate jurisdictions. The effective incomefavorable impact is partially offset by unfavorable year over year changes in the recognition of both uncertain tax rate for the nine months ended September 30, 2016 was negatively impacted by $84.4 million (beforepositions and after-tax) primarily due to the write-down of the carrying value of consideration receivable related to the September 2015 divestiture of our Systems Integration business in China.valuation allowances.


Review of Business Segments

We operate in and report financial results for three segments: Americas, EMEIA, and Asia Pacific. These segments represent the level at which our chief operating decision maker reviews companyour financial performance and makes operating decisions.

Segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for resource allocation, performance reviews, and compensation. For these reasons, we believe that Segment operating income represents the most relevant measure of segment profit and loss. Our chief operating decision maker may exclude certain charges or gains, such as corporate charges and other special charges from Operating income, to arrive at a Segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions. We define Segment operating margin as Segment operating income as a percentage of Net revenues.

The segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in netNet earnings.


Segment Results of Operations - For the three and nine months ended September 30
Three months ended Nine months endedThree months ended Nine months ended
in millions2017 2016 % Change 2017 2016 % Change2018 2017 % Change 2018 2017 % Change
Net revenues                      
Americas$455.2
 $436.2
 4.4% $1,331.4
 $1,235.7
 7.7%$530.1
 $455.2
 16.5 % $1,495.9
 $1,331.4
 12.4 %
EMEIA125.1
 116.4
 7.5% 372.7
 356.5
 4.5%134.4
 125.1
 7.4 % 432.5
 372.7
 16.0 %
Asia Pacific29.1
 28.5
 2.1% 81.0
 76.1
 6.4%47.0
 29.1
 61.5 % 100.9
 81.0
 24.6 %
Total$609.4
 $581.1
   $1,785.1
 $1,668.3
  $711.5
 $609.4
   $2,029.3
 $1,785.1
  
                      
Segment operating income                      
Americas$131.8
 $131.5
 0.2% $379.7
 $351.7
 8.0%$153.8
 $133.2
 15.5 % $415.5
 $383.6
 8.3 %
EMEIA9.1
 3.4
 167.6% 24.5
 20.3
 20.7%7.6
 8.6
 (11.6)% 27.3
 23.1
 18.2 %
Asia Pacific2.2
 1.8
 22.2% 5.1
 3.8
 34.2%1.5
 2.2
 (31.8)% 0.8
 5.1
 (84.3)%
Total$143.1
 $136.7
   $409.3
 $375.8
  $162.9
 $144.0
   $443.6
 $411.8
  
                      
Segment operating margin                      
Americas29.0% 30.1%   28.5% 28.5%  29.0% 29.3%   27.8% 28.8%  
EMEIA7.3% 2.9%   6.6% 5.7%  5.7% 6.9%   6.3% 6.2%  
Asia Pacific7.6% 6.3%   6.3% 5.0%  3.2% 7.6%   0.8% 6.3%  

Americas

Our Americas segment is a leading provider of security products and solutions in approximately 30 countries throughout North America, Central America, the Caribbean and South America. The segment sells a broad range of products and solutions including, locks, locksets, portable locks, key systems, door closers, exit devices, doors and door frames,systems, electronic product and access control systems to end usersend-users in commercial, institutional and residential facilities, including into the education, healthcare, government, commercial office and single and multi-family residential markets. This segment’s primary brands are LCN, Schlage, and Von Duprin and LCN.







Duprin.

Net Revenues

Net revenues for the three months ended September 30, 20172018 increased by 4.4%16.5%, or $19.0$74.9 million, compared to the same period in 20162017 due to the following:
Pricing 2.72.5%
Volume 0.17.6%
Acquisitions 1.46.6%
Currency exchange rates (0.2)%
Total 4.416.5%

The increase in Net revenues is primarily due to higher volumes, improved pricing and an acquisitionacquisitions in the current year. These increases were partially offset by unfavorable foreign currency exchange rate movements. Net revenues from non-residential products for the three months ended September 30, 20172018 increased mid single-digitshigh teens compared to the same period in the prior year, primarily driven by higher volumes, improved pricing, and acquisitions in the current year. Net revenues from residential products for the three months ended September 30, 20172018 increased low single-digitshigh single digits compared to the same period in the prior year.

Net revenues for the nine months ended September 30, 20172018 increased by 7.7%12.4%, or $95.7$164.5 million, compared to the same period in 20162017 due to the following:

Pricing 2.21.8%
Volume 4.04.8%
Acquisitions 1.55.7%
Currency exchange rates0.1%
Total 7.712.4%

The increase in Net revenues is primarily due to higher volumes, improved pricing, favorable foreign currency exchange rate movements and an acquisitionacquisitions in the current year. Net revenues from non-residential products for the nine months ended September 30, 20172018 increased high single-digitsmid teens compared to the same period in the prior year, primarily driven by higher volumes, improved pricing, and acquisitions in the current year. Net revenues from residential products for the nine months ended September 30, 2017 also2018 increased mid single-digitssingle digits compared to the same period in the prior year.

Operating income/margin

Segment operating income for the three months ended September 30, 20172018 increased $0.3$20.6 million and segment operating margin decreased to 29.0% from 30.1%29.3% compared to the same period in 20162017 due to the following:
in millions Operating Income Operating Margin Operating Income Operating Margin
2016 $131.5
 30.1 %
September 30, 2017 $133.2
 29.3 %
Pricing and productivity in excess of inflation 9.1
 1.3 % 0.5
 (0.6)%
Volume/product mix (2.6) (0.6)%
Volume / product mix 14.1
 0.8 %
Currency exchange rates 0.3
  % 0.2
 0.1 %
Investment spending (1.8) (0.4)% (1.8) (0.4)%
Acquisitions (0.1) (0.4)% 2.8
 (1.2)%
Restructuring / acquisition expenses (4.6) (1.0)% 4.8
 1.0 %
2017 $131.8
 29.0 %
September 30, 2018 $153.8
 29.0 %

The increase in operatingOperating income was primarily due to pricing improvements and productivity in excess of inflation and favorable foreign currency exchange rate movements. These increases were partially offset by unfavorable volume/product mix, increased investment spending primarily for new product development and channel initiatives, and restructuring.

The decrease in operating margin was primarily due to increased investment spending primarily for new product development and channel led initiatives, restructuring and acquisition expenses, volume/product mix, and an operating loss from an acquisition in the current year. These decreases were partially offset by pricing improvements and productivity in excess of inflation.

Segment operating income for the nine months ended September 30, 2017 increased $28.0 million and segment operating margin held constant at 28.5% compared to the same period in 2016. Year over year fluctuations are due to the following:

in millions Operating Income Operating Margin
2016 $351.7
 28.5 %
Pricing and productivity in excess of inflation 20.7
 1.0 %
Volume/product mix 17.4
 0.3 %
Currency exchange rates 2.3
 0.2 %
Investment spending (9.4) (0.8)%
Acquisitions 0.6
 (0.4)%
Restructuring / acquisition expenses (3.6) (0.3)%
2017 $379.7
 28.5 %

The increase in operating income was primarily due to favorable volume/product mix, pricing improvements and productivity in excess of inflation, and favorable foreign currency exchange rate movements.movements, acquisitions during the current year, and year over year decreases in restructuring and acquisition expenses. These increases were partially offset by increased investment spending primarily for new product development and channel initiatives, and restructuring and acquisition expenses in the current year.spending.

Operating margin saw improved contributionsdecreased due to lower pricing improvements and productivity in excess of inflation, increased investment spending and lower margins from acquisitions during the current year. These decreases were partially offset by favorable volume/product mix, favorable foreign currency exchange rate movements, and year over year decreases in restructuring and acquisition expenses.

Segment operating income for the nine months ended September 30, 2018 increased $31.9 million and segment operating margin decreased to 27.8% from 28.8% compared to the same period in 2017 due to the following:
in millions Operating Income Operating Margin
September 30, 2017 $383.6
 28.8 %
Pricing and productivity in excess of inflation 2.5
 (0.3)%
Volume / product mix 28.3
 0.7 %
Currency exchange rates 1.3
 0.1 %
Investment spending (6.1) (0.4)%
Acquisitions 2.1
 (1.4)%
Restructuring / acquisition expenses 3.8
 0.3 %
September 30, 2018 $415.5
 27.8 %


Operating income increased due to favorable volume/product mix, pricing improvements and productivity in excess of inflation, and favorable foreign currency exchange rate movements.movements, acquisitions during the current year, and year over year decreases in restructuring and acquisition costs. These increases were partially offset by increased investment spending.

Operating margin decreased due to lower pricing improvements and productivity in excess of inflation, increased investment spending primarily for new and lower margins from acquisitions during the current year. These decreases were partially offset by favorable volume/product developmentmix, favorable foreign currency exchange rate movements, and channel initiatives, an acquisition, andyear over year decreases in restructuring and acquisition expenses in the current year.costs.

EMEIA

Our EMEIA segment provides security products and solutions in approximately 85 countries throughout Europe, the Middle East, India and Africa. The segment offers end-users a broad range of products, services and solutions including, locks, locksets, portable locks, key systems, door closers, exit devices, doors and door frames,systems, electronic product and access control systems, as well as time and attendance and workforce productivity solutions. This segment’s primary brands are AXA, Bricard, CISA, Interflex and SimonsVoss. This segment also resells LCN, Schlage, and Von Duprin and LCN products, primarily in the Middle East.

Net Revenues

Net revenues for the three months ended September 30, 20172018 increased by 7.5%7.4%, or $8.7$9.3 million, compared to the same period in 2016 due to the following:
Pricing1.8%
Volume1.3%
Currency exchange rates4.4%
Total7.5%

The increase was due to higher volumes, improved pricing and favorable foreign currency exchange rate movements.

Net revenues for the nine months ended September 30, 2017 increased by 4.5%, or $16.2 million, compared to the same period in 2016 due to the following:
Pricing 1.5 %
Volume 2.11.9 %
Acquisitions 2.25.5 %
Currency exchange rates (1.31.5)%
Total 4.57.4 %

The increase wasin Net revenues is primarily due to higher volumes, improved pricing and an acquisitionacquisitions in the prior yearcurrent year. These increases were partially offset by unfavorable foreign currency exchange rate movements.

Net revenues for the nine months ended September 30, 2018 increased by 16.0%, or $59.8 million, compared to the same period in 2017 due to the following:
Pricing1.4%
Volume2.1%
Acquisitions5.6%
Currency exchange rates6.9%
Total16.0%

The increase in Net revenues is primarily due to higher volumes, improved pricing, favorable foreign currency exchange rate movements and acquisitions in the current year.

Operating income/margin

Segment operating income for the three months ended September 30, 2017 increased $5.72018 decreased $1.0 million and segment operating margin increaseddecreased to 7.3%5.7% from 2.9%6.9% compared to the same period in 20162017 due to the following:

in millions Operating Income Operating Margin Operating Income Operating Margin
2016 $3.4
 2.9 %
September 30, 2017 $8.6
 6.9 %
Pricing and productivity in excess of inflation 2.0
 1.6 % 0.4
 0.2 %
Volume/product mix 1.2
 0.9 %
Volume / product mix 1.3
 0.9 %
Currency exchange rates 0.8
 0.5 % 0.2
 0.3 %
Investment spending (0.7) (0.6)% (1.0) (0.8)%
Acquisitions (0.8) (0.9)%
Restructuring / acquisition expenses 2.4
 2.0 % (1.1) (0.9)%
2017 $9.1
 7.3 %
September 30, 2018 $7.6
 5.7 %

The increase in operatingdecreases to both Operating income and Operating margin was primarily duewere related to increased investment spending, acquisitions during the current year and year-over-year changes in restructuring and acquisition expenses. These decreases were partially offset by favorable volume/product mix, pricing improvements and productivity in excess of inflation and favorable foreign currency exchange rate movements.

Segment operating income for the nine months ended September 30, 2018 increased $4.2 million and segment operating margin increased to 6.3% from 6.2% compared to the same period in 2017 due to the following:
in millions Operating Income Operating Margin
September 30, 2017 $23.1
 6.2 %
Pricing and productivity in excess of inflation 0.3
  %
Volume / product mix 3.7
 0.8 %
Currency exchange rates 3.7
 0.5 %
Investment spending (3.4) (0.9)%
Acquisitions 
 (0.3)%
Restructuring / acquisition expenses (0.1)  %
September 30, 2018 $27.3
 6.3 %

Operating income increased due to favorable volume/product mix, decreased restructuringpricing improvements and acquisition expenses,productivity in excess of inflation and favorable foreign currency exchange rate movements. These increases were partially offset by increased investment spending.spending and year-over-year changes in restructuring and acquisition expenses.

Segment operating income for the nine months ended September 30, 2017 increased $4.2 million and segment operatingOperating margin increased to 6.6% from 5.7% compared to the same period in 2016 due to the following:

in millions Operating Income Operating Margin
2016 $20.3
 5.7 %
Pricing and productivity in excess of inflation 5.0
 1.3 %
Volume/product mix 2.2
 0.5 %
Currency exchange rates (1.2) (0.3)%
Investment spending (1.7) (0.5)%
Acquisitions (0.9) (0.3)%
Restructuring / acquisition expenses 0.8
 0.2 %
2017 $24.5
 6.6 %

The increase in operating income and operating margin was primarily due to pricing improvements and productivity in excess of inflation, favorable volume/product mix and decreased restructuring and acquisition expenses.favorable foreign currency exchange rate movements. These increases were partially offset by unfavorable foreign currency exchange rate movements, increased investment spending and acquisitions.lower margins from acquisitions during the current year.

Asia Pacific

Our Asia Pacific segment provides security products and solutions in approximately 1415 countries throughout the Asia Pacific region. The segment offers end-users a broad range of products, services and solutions including, locks, locksets, portable locks, key systems, door closers, exit devices, electronic product and access control systems. This segment’s primary brands are Brio, FSH, Gainsborough, Legge, Milre, Schlage, CISA, Von Duprin and LCN.Schlage.

Net Revenues

Net revenues for the three months ended September 30, 20172018 increased by 2.1%61.5%, or $0.6$17.9 million, compared to the same period in 20162017 due to the following:

Pricing 0.40.1%
Volume 5.8 %
Acquisitions60.5%
Currency exchange rates 1.7(4.9)%
Total 2.161.5%

The increase in Net revenues was primarily due to improvedhigher volumes, slightly higher pricing and favorablean acquisition during the current year. These increases were partially offset by unfavorable foreign currency exchange rate movements.

Net revenues for the nine months ended September 30, 20172018 increased by 6.4%24.6%, or $4.9$19.9 million, compared to the same period in 20162017 due to the following:

Pricing 0.40.1%
Volume 3.82.3%
Acquisitions 1.021.7%
Currency exchange rates 1.20.5%
Total 6.424.6%

The increase in Net revenues was primarily due to higher volumes, improvedslightly higher pricing, an acquisition during the current year and favorable foreign currency exchange rate movements and an acquisition in the prior year.movements.

Operating income/margin

Segment operating income for the three months ended September 30, 2017 increased $0.42018 decreased $0.7 million and segment operating margin increaseddecreased to 7.6%3.2% from 6.3%7.6% compared to the same period in 20162017 due to the following:
in millions Operating Income Operating Margin Operating Income Operating Margin
2016 $1.8
 6.3 %
September 30, 2017 $2.2
 7.6 %
Pricing and productivity in excess of inflation 0.3
 1.2 % 0.4
 1.5 %
Volume/product mix 
 0.2 %
Volume / product mix 
 (0.6)%
Currency exchange rates 0.2
 0.3 % (0.2) (0.4)%
Investment spending (0.1) (0.4)% (0.1) (0.4)%
2017 $2.2
 7.6 %
Acquisitions 0.9
 (0.8)%
Restructuring / acquisition expenses (1.7) (3.7)%
September 30, 2018 $1.5
 3.2 %

The increaseOperating income decreased due to unfavorable foreign currency exchange rate movements, increased investment spending and year over year increases in operating incomerestructuring and operation margin was primarily related to favorableacquisition expenses. These decreases were partially offset by pricing improvements and productivity in excess of inflation and favorablean acquisition during the current year.

Operating margin decreased due to unfavorable volume/product mix, unfavorable foreign currency exchange rate movements.movements, increased investment spending, lower margins from an acquisition during the current year and year over year increases in restructuring and acquisition expenses. These increasesdecreases were partially offset by increased investment spending.pricing improvements and productivity in excess of inflation.

Segment operating income for the nine months ended September 30, 2017 increased $1.32018 decreased $4.3 million and segment operating margin increaseddecreased to 6.3%0.8% from 5.0%6.3% compared to the same period in 20162017 due to the following:

in millions Operating Income Operating Margin
2016 $3.8
 5.0 %
Pricing and productivity in excess of inflation 0.8
 1.0 %
Volume/product mix 0.3
 0.2 %
Currency exchange rates 0.3
 0.2 %
Investment spending (0.3) (0.4)%
Acquisitions (0.1) (0.1)%
Restructuring expenses 0.3
 0.4 %
2017 $5.1
 6.3 %
in millions Operating Income Operating Margin
September 30, 2017 $5.1
 6.3 %
Inflation in excess of pricing and productivity (0.2) (0.3)%
Volume / product mix (1.6) (2.1)%
Currency exchange rates (0.4) (0.5)%
Investment spending (0.8) (1.0)%
Acquisitions 0.9
 (0.2)%
Restructuring / acquisition expenses (2.2) (1.4)%
September 30, 2018 $0.8
 0.8 %


The increase in operatingOperating income and operating margin was primarily relateddecreased due to favorable volume/product mix, pricing improvements and productivityinflation in excess of inflation, favorablepricing and productivity, unfavorable volume/product mix, unfavorable foreign currency exchange rate movements, increased investment spending and decreasedyear over year increases in restructuring and acquisition expenses. These increasesdecreases were partially offset by an operating loss relatedacquisition during the current year.

Operating margin decreased due to inflation in excess of pricing and productivity, unfavorable volume/product mix, unfavorable foreign currency exchange rate movements, increased investment spending, lower margins from an acquisition induring the priorcurrent year and increased investment spending.


year over year increases in restructuring and acquisition expenses.

Liquidity and Capital Resources

Sources and uses of liquidity

Our primary source of liquidity is cash provided by operating activities. Cash provided by operating activities is used to invest in new product development, fund capital expenditures and fund working capital requirements and is expected to be adequate to service any future debt, pay any declared dividends and potentially fund acquisitions and share repurchases. Our ability to fund these capital needs depends on our ongoing ability to generate cash provided by operating activities, and to access our borrowing facilities (including unused availability under our Revolving Facility) and capital markets. We believe that our future cash provided by operating activities, availability under our Revolving Facility and access to funds on hand and capital markets, will provide adequate resources to fund our operating and financing needs.

The following table reflects the major categories of cash flows for the nine months ended September 30. For additional details, see the Condensed and Consolidated Statements of Cash Flows in the condensedCondensed and consolidated financial statements.Consolidated Financial Statements.
In millions2017 20162018 2017
Net cash provided by operating activities$170.0
 $178.4
$260.4
 $170.0
Net cash used in investing activities(36.1) (49.3)(408.7) (36.1)
Net cash used in financing activities(118.7) (116.0)(116.9) (118.7)
Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2017 decreased $8.42018 increased $90.4 million compared to the same period in 2016. The decrease2017. This increase in net cash provided by operating activities for the nine months ended September 30, 20172018 was primarily due to higher Net earnings in the nine months ended September 30, 2018 and a discretionary $50.0 million contribution to the U.S. qualified defined benefit pension plan in 2017, partially offset by higher earnings.changes in working capital.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2017 decreased $13.22018 increased $372.6 million compared to the same period in 2016.2017. The decreaseincrease in net cash used in investing activities is primarily due to $15.5approximately $368 million of cash payments related to acquisitions and approximately $8 million of investments in proceeds fromunconsolidated entities during the nine months ended September 30, 2018, compared to just $20.8 million for an acquisition during the same period in 2017. Additionally contributing to the increase in cash used in investing activities was the sale of an equity investment induring the nine months ended September 30, 2017, that did not occurwhich resulted in the same period last year and a $10.6an investing cash inflow of $15.5 million decrease of cash payments related to acquisitions in the nine months ended September 30, 2017 compared to the same period last year. These changes were partially offset by $14.1 million of cash received from the sale of marketable securities in the same period last year that did not recur in the nine months ended September 30, 2017.current year.
Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2017 increased $2.72018 decreased $1.8 million compared to the same period in 2016.2017. The increasedecrease in cash used in financing activities is primarily due to a $30.0 million increase of repurchases of ordinaryless used to repurchase shares and a $11.1 million increase in dividend payments to ordinary shareholders partially offset by lower debt repayments. During the nine months ended September 30, 2017, we repaid our previously outstanding credit facility, the Second Amended Credit Agreement, dated as of September 30, 2015. As part of this refinancing, debt issuance costs of $3.0 million were paid during the nine months ended September 30, 2018 compared to the same period in 2017. Cash providedThis decrease is partially offset by other financing activities increased $3.2an increase in dividend payments of $14.0 million forduring the nine months ended September 30, 20172018 compared to the prior year primarily due to higher proceeds from shares issued under incentive plans, lower dividends paid to noncontrolling interests and payment of contingent consideration related to an acquisition in the same period last year that did not recur in the nine months ended September 30, 2017.


Capitalization

On September 12, 2017, we entered into a new Credit Agreement (the “Credit Agreement”), which refinanced in full our previously outstanding credit facility dated asBorrowings and current maturities of long-term debt consisted of the following:
In millionsSeptember 30,
2018
 December 31,
2017
Term Facility$665.0
 $691.3
Revolving Facility
 
3.200% Senior Notes due 2024400.0
 400.0
3.550% Senior Notes due 2027400.0
 400.0
Other debt

1.0
 1.0
Total borrowings outstanding1,466.0
 1,492.3
Less discounts and debt issuance costs, net(13.3) (15.0)
Total debt1,452.7
 1,477.3
Less current portion of long-term debt35.0
 35.0
Total long-term debt$1,417.7
 $1,442.3

As of September 30, 2015. The2018, we have a Credit Agreement in place that provides for up to $1,200.0 million in unsecured financing, consisting of a $700.0 million term loan facility maturing on September 12, 2022 (the “Term Facility”) and a $500.0 million revolving credit facility maturing on September 12, 2022 (the “Revolving Facility” and, together with the Term Facility, the “Credit Facilities”). All obligations under our previously outstanding credit facility were satisfied, all commitments thereunder were terminated, and all guarantees and security interests that had been granted in connection therewith were released.

The full amount of the Term Facility was drawn at closing. Amounts borrowed under the Term Facility that are repaid or prepaid may not be reborrowed. The proceeds from the Term Facility along with the initial borrowings of $165.0 million under the Revolving Facility were used primarily to repay our previously outstanding credit facility.Credit Facilities mature on September 12, 2022. The Term Facility will amortizeamortizes in quarterly installments at the following rates: 1.25% per quarter starting December 31, 2017 through December 31, 2020, 2.5% per quarter from March, 31, 2021 through June 30, 2022, with the balance due on September 12, 2022.

The Revolving Facility consists of a five-year revolving credit facility withprovides aggregate commitments in an amount equalof up to $500.0 million, of which includes up to $100.0 million is available for the issuance of letters of credit, and including a swingline facility in an amount equal to $50.0 million. Certaincredit. At September 30, 2018, we had $0.0 million of the commitments underborrowings outstanding on the Revolving Facility, are available to be drawn in currencies other than US dollars, including euros and pounds sterling. Amounts repaid under the Revolving Facility may be reborrowed. As discussed further below, we repaid in full the outstanding borrowings under the Revolving Facility on October 2, 2017, with proceeds from the issuance of Senior Notes due 2024 and 2027 on the same date.

On October 2, 2017, Allegion US Holding Company Inc. (“Allegion US Holding”), a subsidiary of Allegion plc (“Allegion”), issued $400.0 million aggregate principal amount of its 3.200% Senior Notes due 2024 and $400.0 million aggregate principal amount of its 3.550% Senior Notes due 2027.
On October 3, 2017 we used the net proceeds of the offering to redeem in full the 5.75% Senior Notes due 2021 and to redeem in full the 5.875% Senior Notes due 2023, pay the related redemption premiums of approximately $33.0 million, and fees of approximately $7.4 million related to the Senior Notes due 2024 and 2027, of which half will be deferred over 7 years and half over 10 years and amortized into interest expense.

As of September 30, 2017, we had $18.0$17.2 million of letters of credit outstanding.

We are requiredOutstanding borrowings under the Credit Facilities accrue interest, at our option of (i) a LIBOR rate plus the applicable margin or (ii) a base rate plus the applicable margin. The applicable margin ranges from 1.125% to comply with certain covenants under1.500% depending on our unsecured credit facilities. We are requiredratings. To manage our exposure to comply with a maximum leverage ratiofluctuations in LIBOR rates, we have interest rate swaps to fix the interest rate for $250.0 million of 3.75 to 1.00 based on a ratio of total consolidated indebtedness, net of unrestricted cash up to $200.0 million, to consolidated EBITDA. Additionally, we are required to have a minimum interest expense coverage ratio of 4.00 to 1.00 based on a ratio of consolidated EBITDA to consolidated interest expense, net of interest income. the outstanding borrowings (see Note 8).

As of September 30, 2017,2018, we were in compliancealso have $400.0 million outstanding of 3.200% Senior Notes due 2024 (the “3.200% Senior Notes”) and $400.0 million outstanding of 3.550% Senior Notes due 2027 (the “3.550% Senior Notes” and, together with these covenants.the 3.200% Senior Notes, the “Notes”). The indenture to our senior notesNotes require semi-annual interest payments on April 1 and the unsecured credit facilities contain affirmativeOctober 1 of each year, and negative covenants that, among other things, limit or restrict our ability to enter into certain transactions.will mature on October 1, 2024 and October 1, 2027, respectively.

Long-term debt as of September 30, 2017 and subsequent toHistorically, the financing activities through October 3, 2017 noted above, consisted of the following:
In millionsOctober 3,
2017
 September 30,
2017
Term Facility700.0
 700.0
Revolving Facility
 165.0
5.75% Senior notes due 2021
 300.0
5.875% Senior notes due 2023
 300.0
3.20% Senior notes due 2024400.0
 
3.55% Senior notes due 2027400.0
 
Other debt, including capital leases, maturing in various amounts through 2024

1.0
 1.0
Unamortized debt issuance costs, net(14.7) (19.0)
Total debt1,486.3
 1,447.0
Less current portion of long-term debt35.0
 35.0
Total long-term debt$1,451.3
 $1,412.0

The majority of our earnings arewere considered to be permanently reinvested in jurisdictions where we have made, and intend to continue to make, substantial investments to support the ongoing development and growth of our global operations. Accordingly, applicable income taxes have not been accrued onWe are currently analyzing our global working capital requirements and the portion of our earningspotential tax liabilities that is considered towould be permanently reinvested.  incurred if certain non-U.S. subsidiaries made distributions, which include local country withholding tax and potential U.S. state taxation.

At September 30, 2017, we had cash and cash equivalents of $334.9 million. Approximately 47% of our cash and cash equivalents were located outside the U.S.

PensionsPension Plans

Our investment objective in managing defined benefit plan assets is to ensure that all present and future benefit obligations are met as they come due. We seek to achieve this goal while trying to mitigate volatility in plan funded status, contribution and expense by better matching the characteristics of the plan assets to that of the plan liabilities. Global asset allocation decisions are based on a dynamic approach whereby a plan's allocation to fixed income assets increases as the funded status increases. We monitor plan funded status, and asset allocation, regularly in addition to investment manager performance. In January 2017, we made a discretionary $50.0 million contribution to the U.S. qualified defined benefit pension plan.

We monitorand the impact of market conditions on our defined benefit plans on a regular basis. None of our defined benefit pension plans have experienced a significant impact on their liquidity dueregularly in addition to the volatility in the markets.investment manager performance. For further details on pension plan activity, see Note 109 to the condensedCondensed and consolidated financial statements.Consolidated Financial Statements.


For a further discussion of Liquidity and Capital Resources, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contained in the Company’sour Annual Report on Form 10-K for the periodyear ended December 31, 20162017.


Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our condensedCondensed and consolidated financial statements,Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgments in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses, as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates.

Management believes there have been no significant changes during the nine months ended September 30, 20172018, to the items that we disclosed as our critical accounting policies in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 20162017.

Recent Accounting Pronouncements

See Note 2 to our condensedCondensed and consolidated financial statementsConsolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements.

Safe Harbor StatementForward-Looking Statements

Certain statements in this report, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” or the negative thereof or variations thereon or similar terminology generally intended to identify forward-looking statements.

Forward-looking statements may relate to such matters as projections of revenue, margins, expenses, tax provisions, earnings, cash flows, benefit obligations, dividends, share purchases or other financial items; any statements of the plans, strategies and objectives of management for future operations, including those relating to any statements concerning expected development, performance or market share relating to our products and services; any statements regarding future economic conditions or our performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and

any statements of assumptions underlying any of the foregoing. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. You are advised to review any further disclosures we make on related subjects in materials we file with or furnish to the SEC. Forward-looking statements speak only as of the date they are made and are not guarantees of future performance. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from those in our forward looking statements. We do not undertake to update any forward-looking statements.

Factors that might affect our forward-looking statements include, among other things:
economic, political and business conditions in the markets in which we operate;
the demand for our products and services;
competitive factors in the industry in which we compete;
the ability to protect and use intellectual property;
emerging products and services introduced by competitors and their adoption by our customers;
fluctuations in currency exchange rates;
the ability to complete and integrate any acquisitions;
our ability to operate efficiently and productively;

our ability to manage risks related to our information technology;technology and cyber-security;
changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations);
the outcome of any litigation, governmental investigations or proceedings;
interest rate fluctuations and other changes in borrowing costs;
other capital market conditions, including availability of funding sources and currency exchange rate fluctuations;
availability of and fluctuations in the prices of key commodities and the impact of higher energy prices;
potential further impairment of our goodwill, indefinite-lived intangible assets and/or our long-lived assets;
the possible effects on us of future legislation or interpretations in the U.S. that may limit or eliminate potential U.S. tax benefits resulting from our incorporation in a non-U.S. jurisdiction, such as Ireland, or deny U.S. government contracts to us based upon our incorporation in such non-U.S. jurisdiction; and
the impact our substantial leverageoutstanding indebtedness may have on our business and operations.
Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in the “Risk Factors” section of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. There may also be other factors that have not been anticipated or that are not described in our periodic filings with the SEC, generally because we did not believe them to be significant at the time, which could cause results to differ materially from our expectations.



Item 3 – Quantitative and Qualitative Disclosures about Market Risk

There have been no other significantmaterial changes in our exposure to market risk during the third quarter of 2017.2018. For a discussion of the Company’s exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20162017.


Item 4 – Controls and Procedures
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of September 30, 20172018, that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported when required and the information is

accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting that occurred during the third quarter of 20172018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

In the normal course of business, we are involved in a variety of lawsuits, claims and legal proceedings, including commercial and contract disputes, labor and employment matters, product liability claims, environmental liabilities, intellectual property disputes and tax-related matters. In our opinion, pending legal matters are not expected to have a material adverse impact on our results of operations, financial condition, liquidity or cash flows.

Item 1A – Risk Factors

There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the period ended December 31, 20162017. For a further discussion of our Risk Factors, refer to the “Risk Factors” discussion contained in our Annual Report on Form 10-K for the periodyear ended December 31, 20162017.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period Total number of shares purchased (000s) Average price paid per share Total number of shares purchased as part of program (000s) Approximate dollar value of shares still available to be purchased under the program (000s) Total number of shares purchased (000s) Average price paid per share Total number of shares purchased as part of program (000s) Approximate dollar value of shares still available to be purchased under the program (000s)
July 1 - July 31 
 $
 
 $439,992
 
 
 
 $409,999
August 1 - August 31 
 
 
 439,992
 
 
 
 409,999
September 1 - September 30 
 
 
 439,992
 
 
 
 409,999
Total 
 $
 
 $439,992
 
 
 
 $409,999

In February 2017, our Board of Directors approved a new stock repurchase authorization of up to $500 million of the Company's ordinary shares ("2017(the "2017 Share Repurchase Authorization"). Based on market conditions, share repurchases are made from time to time in the open market at the discretion of management. The 2017 Share Repurchase Authorization does not have a prescribed expiration date.




Item 6 – Exhibits
(a) Exhibits
Exhibit No. Description Method of Filing
   
 Indenture, dated asAmended and restated Memorandum of October 2, 2017, among Allegion US Holding Company Inc.,Association of Allegion plc and Wells Fargo Bank, National Association.(as amended by special resolution on June 8, 2016). Incorporated by reference to Exhibit 4.1 of Allegion plc's Current Report on3.1 to the Company's Form 8-K filed October 2, 2017.
First Supplemental Indenture, dated as of October 2, 2017, among Allegion US Holding Company Inc., Allegion plc and Wells Fargo Bank, National Association.Incorporated by reference to Exhibit 4.2 of Allegion plc's Current Reportwith the SEC on Form 8-K filed October 2, 2017.
Form of Global Note representing the 3.200% Senior Notes due 2024.Incorporated by reference to Exhibit 4.3 of Allegion plc's Current Report on Form 8-K filed October 2, 2017 (included in Exhibit 4.2)June 13, 2016 (File No. 001-35971).
     
 Second Supplemental Indenture, dated asAmended and restated Articles of October 2, 2017, among Allegion US Holding Company Inc.,Association of Allegion plc and Wells Fargo Bank, National Association.(as amended by special resolution on June 8, 2016). Incorporated by reference to Exhibit 4.4 of Allegion plc's Current Report on3.1 to the Company's Form 8-K filed October 2, 2017.
Form of Global Note representingwith the 3.550% Senior Notes due 2027.Incorporated by reference to Exhibit 4.5 of Allegion plc's Current ReportSEC on Form 8-K filed October 2, 2017 (included in Exhibit 4.4)June 13 2016 (File No. 001-35971).
Credit Agreement, dated as of September 12, 2017.Incorporated by reference to Exhibit 10.1 of Allegion plc's Current Report on Form 8-K filed September 15, 2017.
     
 Ratio of Earnings to Fixed Charges. Filed herewith.
     
 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
   
 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
   
 Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
   
101      The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed and Consolidated Statements of Comprehensive Income, (ii) the Condensed and Consolidated Balance Sheets, (iii) the Condensed and Consolidated Statement of Cash Flows, and (iv) Notes to Condensed and Consolidated Financial Statements. Filed herewith.


ALLEGION PLC
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  
ALLEGION PLC
(Registrant)
   
Date:October 26, 201725, 2018/s/ Patrick S. Shannon
  
Patrick S. Shannon, Senior Vice President
and Chief Financial Officer
Principal Financial Officer
   
Date:October 26, 201725, 2018/s/ Douglas P. Ranck
  
Douglas P. Ranck, Vice President,
Controller and Chief Accounting Officer
Principal Accounting Officer


50