Item 1. BUSINESS

Overview

Allegion plc ("Allegion," "we," "us" or "the Company") is a leading global provider of security products and solutions that keep people safe, secure and productive. We make the world safer as a company 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. 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.

Allegion Principal Products
Door closers and controls	Doors and door systems
Electronic security products	Electronic and biometric access control systems
Exit devices	Locks, locksets, portable locks and key systems
Time, attendance and workforce productivity systems	Other accessories

Access control security products and solutions are critical elements in every building and home. Many door openings are configured to maximize a room’s particular form and function while also meeting local and national building and safety code requirements and end-user security needs. Most buildings have multiple door openings, each serving its own purpose and requiring different specific access-control solutions. Each door must fit exactly within its frame, be prepared precisely for its hinges, synchronize with its specific lockset and corresponding latch and align with a specific key to secure the door. Moreover, security products are increasingly linked electronically, creating additional functionality and complexity.

We believe our ability to deliver a wide range of solutions that can be custom-configured to meet end-users’ security needs is a key driver of our success. We accomplish this with:

•	Our extensive and versatile product portfolio, combined with our deep expertise, which enables us to deliver the right products and solutions to meet diverse security and functional specifications;

•	Our consultative approach and expertise, which enables us to develop the most efficient and appropriate building security and access-control specifications to fulfill the unique needs of our end-users and their partners, including architects, contractors, home-builders and engineers;

•	Our access to and management of key channels in the market, which is critical to delivering our products in an efficient and consistent manner; and

•	Our enterprise excellence capabilities, including our global manufacturing operations and agile supply chain, which facilitate our ability to deliver specific product and system configurations to end-users worldwide, quickly and efficiently.

We believe that the security products industry is growing and will continue to benefit from several global macroeconomic and long-term demographic trends, including:

•	stabilization of construction markets in key North American markets;

•	the convergence of mechanical and electronic security products;

•	heightened awareness of security requirements;

•	increased global urbanization; and

•	the shift to a digital, interconnected environment.

We believe the security products industry will also benefit from continued growth in institutional, commercial, and residential end-markets. We also expect growth in the global electronic product categories we serve to outperform the security products industry as end-users adopt newer technologies in their facilities.

We operate in three geographic regions: Americas; Europe, Middle East, India and Africa ("EMEIA"); and Asia Pacific. We sell our products and solutions under the following brands:

Allegion Brands
(listed for each region)

We sell a wide range of security products and solutions for end-users in commercial, institutional and residential facilities worldwide, including into the education, healthcare, government, hospitality, commercial office and single and multi-family residential markets. Our corporate brands are CISA®, Interflex®, LCN®, Schlage®, SimonsVoss®, and Von Duprin®. We believe LCN, Schlage, and Von Duprin hold the No. 1 position in their primary product categories in North America and CISA, Interflex, and SimonVoss hold the No.1 or No. 2 position in their primary product categories in certain European markets.

For the year ended December 31, 2017, we generated revenues of $2,408.2 million and operating income of $488.2 million.

History and Developments

We were incorporated in Ireland on May 9, 2013, to hold the commercial and residential security businesses of Ingersoll Rand plc ("Ingersoll Rand"). On December 1, 2013, we became a stand-alone public company after Ingersoll Rand completed the separation of these businesses from the rest of Ingersoll Rand via the transfer of these businesses from Ingersoll Rand to us and the issuance by us of ordinary shares directly to Ingersoll Rand’s shareholders (the "Spin-off"). Our security businesses have long and distinguished operating histories. Several of our brands were established more than 75 years ago and many of our brands originally created their categories:

•	Von Duprin, established in 1908, was awarded the first exit device patent;

•	Schlage, established in 1920, was awarded the first patents granted for the cylindrical lock and the push button lock;

•	LCN, established in 1926, created the first door closer;

•	CISA, established in 1926, devised the first electronically controlled lock; and

•	SimonsVoss, established in 1995, created the first keyless digital transponder.

We have built upon these founding legacies since our entry into the security products market through the acquisition of Schlage, Von Duprin and LCN in 1974. Today, we continue to develop and introduce innovative and market-leading products. Recent examples of successful product launches are illustrated in the table below:

Product		Brands		Year		Innovation
Residential Locks and Levers		Schlage Touch, Connect, Sense, Control, SEL, Custom		2015/2016/ 2017		New single and multi-family residential electronic locking platforms that provide for keyless entry (Touch), connected locking (Connect), integration with the Internet of Things (IoT) and Apple HomeKit, Amazon Alexa, Google Assistant and Android platforms (Sense), multi-family interconnected locking (Control), 4-in-1 locks, fingerprint sensors, and smart card or code access (SEL). A new range with universal functionality (Custom) allows homeowners to change from a doorknob to a lever and convert a non-locking door to lockable in minutes.
Commercial Locks and Electronic Access Platforms		Schlage, CISA, SimonsVoss		2015/2016/ 2017		Access control platforms and proximity readers and smart credentials upgraded for improved strength and durability (Schlage). Comprehensive offerings featuring mechanical, wired electrified and wireless electronic solutions for common aesthetic and consistent user experience throughout a building. Wireless locks able to be managed with ENGAGE™ web and mobile apps or with our Software Alliance Member (SAM) systems (Schlage LE and NDE). Multipoint locking line (CISA) designed for high security European applications, correcting for heat distortion. MobileKey (SimonsVoss) provides facility managers highly secure and sophisticated access control with mobile phone technology.
Closers		LCN, Briton, CISA, ITO Kilit		2015/2016/ 2017		Cast Aluminum Series closers (LCN) were specially designed to deliver consistent, dependable and long-term performance. New closers (Briton, CISA, ITO Kilit) significantly expanded the European standard portfolio in 2017, offering affordable quality and specialty applications.
Exit Devices		Von Duprin, CISA		2016/2017		Concealed vertical cables (Von Duprin) give doors aesthetics, strength and security in an exit device system that is easy to install and maintain. e-Fast motorized push bars (CISA) now include lighting features.
Bike Lighting and Portable Locking Solutions		AXA, Kryptonite, Trelock		2017		Innovation in bike safety and security from each of our Global Portable Security brands (AXA, Kryptonite and Trelock), ranging from compact dynamo lights and e-bike lights to USB and battery powered lights, as well as new lines of folding locks, integrated chains and electronic ring locks and mobile applications for bikes and motorcycles.

Industry and Competition

The global markets we serve encompass commercial, institutional and residential construction markets throughout North America, Europe, the Middle East and Asia-Pacific. In recent years, growth in electronic security products and solutions continues to outperform the industry as a whole as end-users adopt newer technologies in their facilities. We expect the security products industry will benefit from favorable long-term demographic trends such as continued urbanization of the global population, increased concerns about safety and security and technology-driven innovation.

The security products markets are highly competitive and fragmented throughout the world, with a number of large multi-national companies and thousands of smaller regional and local companies. This high fragmentation primarily reflects local regulatory requirements and highly variable end-user needs. We believe our principal global competitors are Assa Abloy AB and dorma+kaba Group. We also face competition in various markets and product categories throughout the world, including from Spectrum Brands Holdings, Inc. in the North American residential market. As we move into more technologically-advanced product categories, we may also compete against new, more specialized competitors.

Our success depends on a variety of factors, including brand and reputation, product breadth, quality and delivery capabilities, price and service capabilities. As many of our businesses sell through wholesale distribution, our success also depends on building and partnering with a strong channel network. Although price often serves as an important customer decision criterion, we also compete based on the breadth and quality of our products and solutions, our ability to custom-configure solutions to meet individual end-user requirements and our global supply chain.

Our Reporting Segments

We manufacture and sell mechanical and electronic security products and solutions in approximately 130 countries. Approximately 96% of our 2017 revenues were to customers in the North America, Western Europe and the Asia-Pacific regions.

The following table presents the relative percentages of total segment revenue attributable to each reporting segment for each of the last three fiscal years. See Note 20, "Business Segment Information," to our annual consolidated financial statements for information regarding net revenues, operating income, and total assets by reportable segment:

	For the Years Ended December 31
	2017		2016		2015
Americas	73%		74%		75%
EMEIA	22%		21%		19%
Asia Pacific	5%		5%		6%

Our Americas segment provides security products and solutions in approximately 30 countries throughout North America, Central America, the Caribbean and South America. The segment offers a broad range of products and solutions including locks, locksets, portable locks, key systems, door closers, exit devices, doors and door systems, electronic products, and access control and time and attendance systems to end-users in the commercial, institutional and residential markets, 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.

Our EMEIA segment provides security products and solutions in approximately 85 countries throughout Europe, the Middle East, India and Africa. The segment offers the same portfolio of products as the Americas segment, as well as workforce productivity solutions. This segment’s primary brands are AXA, Bricard, CISA, Interflex and SimonsVoss. This segment also resells North American LCN, Schlage, and Von Duprin products, primarily in the Middle East.

Our Asia Pacific segment provides security products and solutions in approximately 15 countries throughout Asia Pacific. The segment offers the same portfolio of products as the Americas segment. This segment’s primary brands are Brio, FSH, Legge, Milre, and Schlage.

Products and Services

We offer an extensive and versatile portfolio of mechanical and electronic security products across a range of market-leading brands:

•	Locks, locksets, portable locks and key systems: A broad array of cylindrical and mortise door locksets, security levers, and master key systems that are used to protect and control access. We also offer a range of portable security products, including bicycle, small vehicle and travel locks.

•	Door closers and exit devices: An extensive portfolio of life-safety products generally installed on fire doors and facility entrances and exits. Door closers are devices that automatically close doors after they are opened. Exit devices are generally horizontal attachments to doors and enable rapid egress.

•	Electronic security products and access control systems: A broad range of electrified locks, access control systems, biometric hand reader systems, key card and reader systems and accessories, including Internet of Things (IoT) and cloud-based solutions.

•	Time, attendance and workforce productivity systems: Products and services designed to help business customers manage and monitor workforce access control parameters, attendance and employee scheduling. We offer ongoing aftermarket services in addition to design and installation offerings.

•	Doors and door systems: A portfolio of hollow metal, glass, wood, and specialty doors and door systems.

•	Other accessories: A variety of additional security and product components, including hinges, door levers, door stops, lights, louvers, weather stripping, thresholds, and other accessories, as well as certain bathroom fittings.

Customers

We sell most of our products and solutions through distribution and retail channels, ranging from specialty distribution to wholesalers. We have built a network of channel partners that help our customers choose the right solution to meet their security needs and help commercial and institutional end-users fulfill and install orders. We also sell through a variety of retail channels, ranging from large do-it-yourself home improvement centers to small, specialty showroom outlets. We work with our retail partners on developing marketing and merchandising strategies to maximize their sales per square foot of shelf space. Through our Interflex business and Global Portable Security brands, we also provide products and solutions directly to end-users.

Our 10 largest customers represented approximately 25% of our total revenues in 2017. No single customer represented 10% or more of our total revenues in 2017.

Sales and Marketing

In markets where we sell through commercial and institutional distribution channels, we employ sales professionals around the world who work with a combination of end-users, security professionals, architects, contractors, engineers and distribution partners to develop specific custom-configured solutions for our end-users’ needs. Our field sales professionals are assisted by specification writers who work with architects, engineers and consultants to help design door openings and security systems to meet end-users’ functional, aesthetic and regulatory requirements. Both groups are supported by dedicated customer care and technical sales-support specialists worldwide. We also support our sales efforts with a variety of marketing efforts, including trade-specific advertising, cooperative distributor merchandising, digital marketing, and marketing at a variety of industry trade shows.

In markets in which we sell through retail and home-builder distribution channels, we have teams of sales, merchandising and marketing professionals who help drive brand and product awareness through our channel partners and to consumers. We utilize a variety of advertising and marketing strategies, including traditional consumer media, retail merchandising, digital marketing, retail promotions, and builder and consumer trade shows, to support these teams.

We also work actively with several industry bodies around the world to help promote effective and consistent safety and security standards. For example, we are members of Builders Hardware Manufacturers Association (BHMA), Security Industry Association, Smart Card Alliance, American Society of Healthcare Engineering, American Institute of Architects, Construction Specification Institute, ASSOFERMA (Italy), BHE (Germany) and UNIQ (France). We also have established the Safety and Security Institute in China, which helps to educate government officials, architects and builders and advocates for consistent building codes and standards that address end-users’ safety and security.

Production and Distribution

We manufacture our products in our geographic markets around the world. We operate 31 production and assembly facilities, including 14 in the Americas region, 12 in EMEIA and 5 in Asia Pacific. We own 15 of these facilities and lease the others. Our

strategy is to produce in the region of use, wherever appropriate, to allow us to be closer to the end-user and increase efficiency and timely product delivery. Much of our United States (U.S.) based residential portfolio is manufactured in the Baja Region of Mexico under a NAFTA Maquiladora.

In managing our network of production facilities, we focus on eliminating excess capacity, reducing cycle time through productivity, and harmonizing production practices and safety procedures.

We distribute our products through a broad network of channel partners. In addition, third-party logistics providers perform storage and distribution services for us to support certain parts of our distribution network.

Raw Materials

We support our region-of-use production strategy with corresponding region-of-use supplier partners, where available. Our global and regional commodity teams work with production leadership, product management and materials management teams to ensure adequate materials are available for production.

We purchase a wide range of raw materials, including steel, zinc, brass and other non-ferrous metals, to support our production facilities. Where appropriate, we may enter into fixed-cost contracts to lower overall costs.

Intellectual Property

Intellectual property, inclusive of certain patents, trademarks, copyrights, know-how, trade secrets and other proprietary rights, is important to our business. We create, protect and enforce our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to try to ensure the protection and enforcement of our intellectual property rights. We use trademarks on nearly all of our products and believe that such distinctive marks are an important factor in creating a market for our goods, in identifying us and in distinguishing our products from others. We consider our Schlage, Von Duprin, LCN, CISA, SimonsVoss, Interflex and other associated trademarks to be among our most valuable assets, and we have registered these trademarks in a number of countries. Although certain proprietary intellectual property rights are important to our success, we do not believe we are materially dependent on any particular patent or license, or any particular group of patents or licenses.

Facilities

We operate through a broad network of sales offices, engineering centers, 31 production facilities and several distribution centers throughout the world. Our active properties represent approximately 7.0 million square feet, of which approximately 47% is leased.

The following table shows the location of our worldwide production facilities:

Production Facilities
Americas		EMEIA		Asia Pacific
Blue Ash, Ohio		Clamecy, France		Auckland, New Zealand
Bogota, Colombia		Dubai, United Arab Emirates		Bucheon, South Korea
Chino, California		Durchhausen, Germany		Jinshan, China
Ensenada, Mexico		Duzce, Turkey		Melbourne, Australia
Indianapolis, Indiana		Faenza, Italy		Sydney, Australia
Irving, Texas		Feuquieres, France
McKenzie, Tennessee		Monsampolo, Italy
Perrysburg, Ohio		Muenster, Germany
Princeton, Illinois		Osterfeld, Germany
Security, Colorado		Renchen, Germany
Snoqualmie, Washington		Siewierz, Poland
Tecate, Mexico		Veenendaal, Netherlands
Tijuana, Mexico
Toronto, Ontario

Research and Development

We are committed to investing in highly productive research and development capabilities, particularly in electro-mechanical systems. Our research and development ("R&D") expenditures were approximately $48.3 million, $47.3 million and $45.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.

We concentrate on developing technology innovations that will deliver growth through the introduction of new products and solutions, and also on driving continuous improvements in product cost, quality, safety and sustainability.

We manage our R&D team as a global group with an emphasis on a global collaborative approach to identify and develop new technologies and worldwide product platforms. We are organized on a regional basis to leverage expertise in local standards and configurations. In addition to regional engineering centers in each geographic region, we also operate a global engineering center of excellence in Bangalore, India.

Seasonality

Our business experiences seasonality that varies by product line. Because more construction and do-it-yourself projects occur during the second and third calendar quarters of each year in the Northern Hemisphere, our security product sales, typically, are higher in those quarters than in the first and fourth calendar quarters. However, our Interflex business typically experiences higher sales in the fourth calendar quarter due to project timing. Revenue by quarter for the years ended December 31, 2017, 2016 and 2015 are as follows:

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
2017	23%	26%	25%	26%
2016	22%	26%	26%	26%
2015	22%	25%	26%	27%

Employees

We currently have approximately 10,000 employees.

Environmental Regulation

We have a dedicated environmental program that is designed to reduce the utilization and generation of hazardous materials during the manufacturing process as well as to remediate identified environmental concerns. As to the latter, we are 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.

We are sometimes a party to environmental lawsuits and claims and have received notices of potential violations of environmental laws and regulations from the U.S. Environmental Protection Agency (the "EPA") and similar state authorities. We have 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, our involvement is minimal.

In estimating our liability, we have assumed that we 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 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.

We incurred $3.2 million, $23.3 million, and $4.4 million of expenses during the years ended December 31, 2017, 2016, and 2015, respectively, for environmental remediation at sites presently or formerly owned or leased by us. As of December 31, 2017 and 2016, we have recorded reserves for environmental matters of $28.9 million and $30.6 million. Of these amounts $8.9 million and $9.6 million, respectively, relate to remediation of sites previously disposed by us. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.

Available Information

We are required to file annual, quarterly, and current reports, proxy statements, and other documents with the U.S. Securities and Exchange Commission ("SEC"). The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The public can obtain any documents that are filed by us at http://www.sec.gov.

In addition, this Annual Report on Form 10-K, as well as future quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to all of the foregoing reports, are made available free of charge on our Internet website (http://www.allegion.com) as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The contents of our website are not incorporated by reference in this report.