Item 16. FORM 10-K SUMMARY

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)

By:		/s/ David D. Petratis
		David D. Petratis
		Chief Executive Officer
Date:		February 20, 2018

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title		Date
/s/ David D. Petratis		Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)		February 20, 2018
(David D. Petratis)
/s/ Patrick S. Shannon		Senior Vice President and Chief Financial Officer (Principal Financial Officer)		February 20, 2018
(Patrick S. Shannon)
/s/ Douglas P. Ranck		Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)		February 20, 2018
(Douglas P. Ranck)
/s/ Carla Cico		Director		February 20, 2018
(Carla Cico)
/s/ Kirk S. Hachigian		Director		February 20, 2018
(Kirk S. Hachigian)
/s/ Nicole Parent Haughey		Director		February 20, 2018
(Nicole Parent Haughey)
/s/ Dean Schaffer		Director		February 20, 2018
(Dean Schaffer)
/s/ Martin E. Welch III		Director		February 20, 2018
(Martin E. Welch III)

ALLEGION PLC

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Comprehensive Income	F-4
Consolidated Balance Sheets	F-6
Consolidated Statements of Equity	F-7
Consolidated Statements of Cash Flows	F-8
Notes to Consolidated Financial Statements	F-10
Financial Statement Schedule: Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016 and 2015	F-54

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Allegion plc:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Allegion plc and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-2

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Indianapolis, Indiana

February 20, 2018

We have served as the Company’s auditor since 2013.

F-3

Allegion plc Consolidated Statements of Comprehensive Income In millions, except per share amounts
For the years ended December 31,		2017				2016				2015
Net revenues		$	2,408.2			$	2,238.0			$	2,068.1
Cost of goods sold		1,337.5				1,252.7				1,199.0
Selling and administrative expenses		582.5				559.8				510.5
Operating income		488.2				425.5				358.6
Interest expense		105.7				64.3				52.9
Loss on divestitures		—				84.4				104.2
Other income, net		(13.2		)		(18.2		)		(7.8		)
Earnings before income taxes		395.7				295.0				209.3
Provision for income taxes		119.0				63.8				54.6
Earnings from continuing operations		276.7				231.2				154.7
Discontinued operations, net of tax		—				—				(0.4		)
Net earnings		276.7				231.2				154.3
Less: Net earnings attributable to noncontrolling interests		3.4				2.1				0.4
Net earnings attributable to Allegion plc		$	273.3			$	229.1			$	153.9
Amounts attributable to Allegion plc ordinary shareholders:
Continuing operations		$	273.3			$	229.1			$	154.3
Discontinued operations		—				—				(0.4		)
Net earnings		$	273.3			$	229.1			$	153.9
Earnings per share attributable to Allegion plc ordinary shareholders:
Basic:
Continuing operations		$	2.87			$	2.39			$	1.61
Discontinued operations		—				—				(0.01		)
Net earnings		$	2.87			$	2.39			$	1.60
Diluted:
Continuing operations		$	2.85			$	2.36			$	1.59
Discontinued operations		—				—				—
Net earnings		$	2.85			$	2.36			$	1.59
Dividends declared per ordinary share		$	0.64			$	0.48			$	0.40

F-4

Allegion plc Consolidated Statements of Comprehensive Income (continued) In millions, except per share amounts
For the years ended December 31,		2017				2016				2015
Net earnings		$	276.7			$	231.2			$	154.3
Other comprehensive income, net of tax
Currency translation		97.5				(40.7		)		(60.5		)
Cash flow hedges and marketable securities:
Unrealized net gains arising during period		5.2				9.7				15.8
Net gains reclassified into earnings		(4.7		)		(19.0		)		(17.5		)
Tax expense		(0.1		)		(1.3		)		—
Total cash flow hedges and marketable securities, net of tax		0.4				(10.6		)		(1.7		)
Pension and OPEB adjustments:
Prior service costs for the period		—				—				(0.1		)
Net actuarial gains (losses) for the period		25.5				3.1				(37.6		)
Amortization reclassified into earnings		5.2				6.0				5.4
Settlements/curtailments reclassified to earnings		0.1				0.3				1.1
Currency translation and other		0.7				14.4				5.0
Tax (expense) benefit		(12.2		)		(5.0		)		3.0
Total pension and OPEB adjustments, net of tax		19.3				18.8				(23.2		)
Other comprehensive income (loss), net of tax		117.2				(32.5		)		(85.4		)
Total comprehensive income, net of tax		393.9				198.7				68.9
Less: Total comprehensive income (loss) attributable to noncontrolling interests		2.8				1.7				(0.9		)
Total comprehensive income attributable to Allegion plc		$	391.1			$	197.0			$	69.8

See accompanying notes to consolidated financial statements.

F-5

Allegion plc

Consolidated Balance Sheets

In millions, except share amounts

As of December 31,		2017				2016
ASSETS
Current assets:
Cash and cash equivalents		$	466.2			$	312.4
Accounts and notes receivable, net		296.6				260.0
Inventories		239.8				220.6
Current tax receivable		12.2				11.9
Other current assets		17.0				22.2
Assets held for sale		0.9				2.2
Total current assets		1,032.7				829.3
Property, plant and equipment, net		252.2				226.6
Goodwill		761.2				716.8
Intangible assets, net		394.3				357.4
Deferred and noncurrent income taxes		35.4				72.3
Other noncurrent assets		66.2				45.0
Total assets		$	2,542.0			$	2,247.4
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	188.3			$	179.9
Accrued compensation and benefits		84.7				81.0
Accrued expenses and other current liabilities		134.6				117.8
Current tax payable		18.2				2.7
Short-term borrowings and current maturities of long-term debt		35.0				48.2
Total current liabilities		460.8				429.6
Long-term debt		1,442.3				1,415.6
Postemployment and other benefit liabilities		85.9				134.5
Deferred and noncurrent income taxes		123.6				118.7
Other noncurrent liabilities		23.9				32.6
Total liabilities		2,136.5				2,131.0
Equity:
Allegion plc shareholders’ equity
Ordinary shares, $0.01 par value (95,062,385 and 95,273,927 shares issued and outstanding at December 31, 2017 and 2016, respectively)		1.0				1.0
Capital in excess of par value		9.1				—
Retained earnings		544.4				376.6
Accumulated other comprehensive loss		(152.9		)		(264.3		)
Total Allegion plc shareholders’ equity		401.6				113.3
Noncontrolling interest		3.9				3.1
Total equity		405.5				116.4
Total liabilities and equity		$	2,542.0			$	2,247.4

See accompanying notes to consolidated financial statements.

F-6

Allegion plc Consolidated Statements of Equity
						Allegion plc Shareholders' equity
In millions		Total equity				Ordinary Shares							Capital in excess of par value				Retained earnings				Accumulated other comprehensive income (loss)				Non-controlling Interest
		Amount				Shares
Balance at December 31, 2014		$	18.5			$	1.0			95.8			$	—			$	142.4			$	(148.2	)		$	23.3
Net earnings		154.3				—				—			—				153.9				—				0.4
Other comprehensive loss		(85.4		)		—				—			—				(0.1		)		(84.0		)		(1.3		)
Shares issued under incentive stock plans		14.3				—				—			14.3				—				—				—
Repurchase of ordinary shares		(30.0		)		—				(0.5	)		(4.5		)		(25.5		)		—				—
Share-based compensation		14.6				—				0.7			14.6				—				—				—
Acquisition/divestiture of noncontrolling interest		1.7				—				—			—				—				—				1.7
Dividends declared to noncontrolling interest		(20.0		)		—				—			—				—				—				(20.0		)
Cash dividends declared ($0.40 per share)		(38.3		)		—				—			—				(38.3		)		—				—
Balance at December 31, 2015		29.7				1.0				96.0			24.4				232.4				(232.2		)		4.1
Net earnings		231.2				—				—			—				229.1				—				2.1
Other comprehensive loss		(32.5		)		—				—			—				—				(32.1		)		(0.4		)
Shares issued under incentive stock plans		5.8				—				—			5.8				—				—				—
Repurchase of ordinary shares		(85.1		)		—				(1.3	)		(46.4		)		(38.7		)		—				—
Share-based compensation		16.6				—				0.6			16.6				—				—				—
Acquisition/divestiture of noncontrolling interest		(0.4		)		—				—			(0.4		)		—				—				—
Dividends declared to noncontrolling interest		(2.7		)		—				—			—				—				—				(2.7		)
Cash dividends declared ($0.48 per share)		(46.0		)		—				—			—				(46.0		)		—				—
Other		(0.2		)		—				—			—				(0.2		)		—				—
Balance at December 31, 2016		116.4				1.0				95.3			—				376.6				(264.3		)		3.1
Cumulative effect of change in accounting principle		(5.0		)		—				—			—				(5.0		)		—				—
Net earnings		276.7				—				—			—				273.3				—				3.4
Other comprehensive income (loss)		117.2				—				—			—				—				117.8				(0.6		)
Shares issued under incentive stock plans		7.2				—				—			7.2				—				—				—
Repurchase of ordinary shares		(60.0		)		—				(0.8	)		(13.9		)		(46.1		)		—				—
Share-based compensation		15.8				—				0.6			15.8				—				—				—
Dividends declared to noncontrolling interest		(1.8		)		—				—			—				—				—				(1.8		)
Cash dividends declared ($0.64 per share)		(60.9		)		—				—			—				(60.9		)		—				—
Other (see Note 13)		(0.1		)		—				—			—				6.5				(6.4		)		(0.2		)
Balance at December 31, 2017		$	405.5			$	1.0			95.1			$	9.1			$	544.4			$	(152.9	)		$	3.9

See accompanying notes to consolidated financial statements.

F-7

Allegion plc Consolidated Statements of Cash Flows In millions
For the years ended December 31,		2017				2016				2015
Cash flows from operating activities:
Net earnings		$	276.7			$	231.2			$	154.3
Loss from discontinued operations, net of tax		—				—				0.4
Adjustments to arrive at net cash provided by operating activities:
Debt extinguishment costs		43.1				—				—
Depreciation and amortization		66.9				66.9				53.2
Share based compensation		16.2				16.6				14.6
Loss on divestitures		—				84.4				102.8
Gain on sale of marketable securities		—				(12.4		)		(11.0		)
(Gain) loss on sale of property, plant and equipment		(0.1		)		1.3				0.9
Equity earnings, net of dividends		(5.3		)		(3.2		)		0.3
Discretionary pension plan contribution		(50.0		)		—				—
Deferred income taxes		24.9				6.3				(2.0		)
Other items		3.0				(7.7		)		(14.6		)
Changes in other assets and liabilities
(Increase) decrease in:
Accounts and notes receivable		(22.7		)		(19.8		)		(13.5		)
Inventories		(4.4		)		(15.6		)		(5.8		)
Other current and noncurrent assets		3.5				62.0				(5.0		)
Accounts payable		0.4				3.4				(14.7		)
Other current and noncurrent liabilities		(5.0		)		(35.9		)		(2.5		)
Net cash provided by continuing operating activities		347.2				377.5				257.4
Net cash used in discontinued operating activities		—				—				(0.4		)
Net cash provided by operating activities		347.2				377.5				257.0
Cash flows from investing activities:
Capital expenditures		(49.3		)		(42.5		)		(35.2		)
Acquisition of businesses, net of cash acquired		(20.8		)		(31.4		)		(511.3		)
Proceeds from sale of property, plant and equipment		3.1				0.1				0.3
Proceeds from sale of equity investment		15.6				—				—
Proceeds (payments) related to business dispositions		1.2				(4.3		)		0.1
Proceeds from sale of marketable securities		—				14.1				12.3
Net cash used in investing activities		$	(50.2	)		$	(64.0	)		$	(533.8	)

F-8

Allegion plc Consolidated Statements of Cash Flows - (Continued) In millions
For the years ended December 31,		2017				2016				2015
Cash flows from financing activities:
Short-term borrowings, net		$	(1.3	)		$	(17.4	)		$	18.8
Proceeds from revolving credit facility		165.0				—				400.0
Proceeds from term facility		700.0				—				—
Repayment of second amended credit facility		(856.3		)		—				—
Proceeds from issuance of senior notes		800.0				—				300.0
Redemption of senior notes		(600.0		)		—				—
Payments of long-term debt		(197.3		)		(47.0		)		(440.5		)
Net proceeds from (repayments of) debt		10.1				(64.4		)		278.3
Debt issuance costs		(9.5		)		(0.3		)		(9.0		)
Redemption premium		(33.2		)		—				—
Dividends paid to ordinary shareholders		(60.9		)		(46.0		)		(38.3		)
Dividends paid to noncontrolling interests		(1.8		)		(2.7		)		(20.0		)
Repurchase of ordinary shares		(60.0		)		(85.1		)		(30.0		)
Proceeds from shares issued under incentive plans		7.2				5.8				11.0
Other, net		(2.8		)		(3.3		)		3.0
Net cash (used in) provided by financing activities		(150.9		)		(196.0		)		195.0
Effect of exchange rate changes on cash and cash equivalents		7.7				(4.8		)		(9.0		)
Net increase (decrease) in cash and cash equivalents		153.8				112.7				(90.8		)
Cash and cash equivalents – beginning of period		312.4				199.7				290.5
Cash and cash equivalents – end of period		$	466.2			$	312.4			$	199.7

See accompanying notes to consolidated financial statements.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION

Allegion plc, an Irish public limited company, and its consolidated subsidiaries ("Allegion" or "the Company") are a leading global company that creates peace of mind by pioneering safety and security. The Company offers an extensive and versatile portfolio of mechanical and electronic security products across a range of market-leading brands including CISA®, Interflex®, LCN®, Schlage®, SimonsVoss® and Von Duprin®.

Basis of presentation: The Consolidated Financial Statements were prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") as defined by the Financial Accounting Standards Board ("FASB") within the FASB Accounting Standards Codification ("ASC").

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies used in the preparation of the accompanying Consolidated Financial Statements follows:

Principles of Consolidation: The Consolidated Financial Statements include all majority-owned subsidiaries of the Company. A noncontrolling interest in a subsidiary is considered an ownership interest in a majority-owned subsidiary that is not attributable to the parent. The Company includes noncontrolling interest as a component of Total equity in the Consolidated Balance Sheet and the Net earnings attributable to noncontrolling interests are presented as an adjustment from Net earnings used to arrive at Net earnings attributable to Allegion in the Consolidated Statement of Comprehensive Income.

Partially-owned equity affiliates generally represent 20-50% ownership interests in investments and where we demonstrate significant influence in investments, but do not have a controlling financial interest. Partially-owned equity affiliates are accounted for under the equity method. The Company is also required to consolidate variable interest entities in which it bears a majority of the risk to the entities’ potential losses or stands to gain from a majority of the entities’ expected returns. Transactions between the Company and Ingersoll Rand and its affiliates are herein referred to as "related party" or "affiliated" transactions. The results of operations and cash flows of all discontinued operations have been separately reported as discontinued operations.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates are based on several factors including the facts and circumstances available at the time the estimates are made, historical experience, risk of loss, general economic conditions and trends, and the assessment of the probable future outcome. Some of the more significant estimates include accounting for doubtful accounts, useful lives of property, plant and equipment and intangible assets, purchase price allocations of acquired businesses, valuation of assets including goodwill and other intangible assets, product warranties, sales allowances, pension plans, postretirement benefits other than pensions, taxes, environmental costs, product liability and other contingencies. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statement of Comprehensive Income in the period that they are determined.

Currency Translation: Assets and liabilities where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates, and income and expense accounts have been translated using average exchange rates throughout the year. Adjustments resulting from the process of translating an entity’s financial statements into the U.S. dollar have been recorded in the Equity section of the Consolidated Balance Sheet within Accumulated other comprehensive loss.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, demand deposits and all highly liquid investments with original maturities at the time of purchase of three months or less.

Inventories: Inventories are stated at the lower of cost and net realizable value using the first-in first-out (FIFO) method.

Allowance for Doubtful Accounts: The Company has provided an allowance for doubtful accounts reserve, which represents the best estimate of probable loss inherent in the Company’s accounts receivable portfolio. Changes in the financial condition of customers or other unanticipated events, which may affect their ability to make payments, could result in charges for additional allowances exceeding the Company's estimates. The Company's estimates are influenced by the following considerations: a continuing credit evaluation of our customers’ financial condition; trade accounts receivable aging; and historical loss experience. The Company reserved $2.8 million and $2.7 million for doubtful accounts as of December 31, 2017 and 2016, respectively.

F-10

Property, Plant and Equipment: Property, plant and equipment are stated at cost, less accumulated depreciation. Assets placed in service are recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset except for leasehold improvements, which are depreciated over the shorter of their economic useful life or their lease term. The range of useful lives used to depreciate property, plant and equipment is as follows:

Buildings	10	to	50	years
Machinery and equipment	2	to	12	years
Software	2	to	7	years

Repair and maintenance costs that do not extend the useful life of the asset are charged against earnings as incurred. Major replacements and significant improvements that increase asset values and extend useful lives are capitalized.

The Company assesses the recoverability of the carrying value of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the assets.

Goodwill and Intangible Assets: The Company records as goodwill the excess of the purchase price of an acquired business over the fair value of the net assets acquired.

In accordance with GAAP, goodwill and other indefinite-lived intangible assets are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the reporting unit or indefinite-lived intangible asset is more likely than not less than the carrying amount of the reporting unit or indefinite-lived intangible asset.

Recoverability of goodwill is measured at the reporting unit level. The carrying amount of the reporting unit is compared to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment charge will be recognized for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. Estimated fair value of the Company's reporting units is based on two valuation techniques, a discounted cash flow model (income approach) and a market adjusted multiple of earnings and revenues (market approach), with each method being weighted in the calculation.

Recoverability of other intangible assets with indefinite useful lives (i.e. Trademarks) is determined on a relief from royalty methodology (income approach), which is based on the implied royalty paid, at an appropriate discount rate, to license the use of an asset rather than owning the asset. The present value of the after-tax cost savings (i.e. royalty relief) indicates the estimated fair value of the asset. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.

Intangible assets such as patents, customer-related intangible assets and other intangible assets with finite useful lives are amortized on a straight-line basis over their estimated economic lives. The weighted-average useful lives approximate the following:

Customer relationships	25	years
Trademarks	25	years
Completed technology/patents	10	years
Other	25	years

Recoverability of intangible assets with finite useful lives is assessed in the same manner as property, plant and equipment as described above.

Income Taxes: The calculation of the Company’s income taxes involves considerable judgment and the use of both estimates and allocations. Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. The Company recognizes future tax benefits, such as net operating losses and tax credits, to the extent that

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realizing these benefits is considered in its judgment to be more likely than not. The Company regularly reviews the recoverability of its deferred tax assets considering its historic profitability, projected future taxable income, timing of the reversals of existing temporary differences and the feasibility of its tax planning strategies. Where appropriate, the Company records a valuation allowance with respect to a future tax benefit.

Cash paid for income taxes, net of refunds for the twelve months ended December 31, 2017 and 2016 was $86.7 million and $10.4 million, respectively. The 2016 net cash income taxes paid includes a refund of $46.2 million received from the Canadian Tax Authorities.

On December 22, 2017, the President of the United States signed comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”), which is discussed in greater detail in Note 17. The Tax Reform Act includes a provision termed the global intangible low-taxed income ("GILTI"). The GILTI provisions will require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the non-U.S. subsidiary's tangible assets. Although it is uncertain whether we will incur a GILTI liability, to the extent a GILTI tax is incurred, the Company has elected to account for GILTI tax in the period in which it is incurred.

Product Warranties: 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. Refer to Note 19 for further details of product warranties.

Revenue Recognition: Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) the price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. Delivery generally occurs when the title and the risks and rewards of ownership have transferred to the customer. Both the persuasive evidence of a sales arrangement and fixed or determinable price criteria 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 Company validates the existence of an enforceable claim that requires payment within a reasonable amount of time and assesses the collectability of that claim. 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. Delivery is not considered to have occurred until the customer has taken title and assumed the risks and rewards of ownership. Service and installation revenue 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.

The Company offers various sales incentive programs to our customers, dealers, and distributors. Sales incentive programs do not preclude revenue recognition, but do require an accrual for the Company’s best estimate of expected activity. 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. At December 31, 2017 and 2016, the Company had a customer claim accrual (contra receivable) of $32.5 million and $29.0 million, respectively. All other incentives or incentive programs where the customer is required to reach a certain level of purchases, 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. At December 31, 2017 and 2016, the Company had a sales incentive accrual of $31.8 million and $29.6 million, respectively. Each of these accruals represents the Company’s best estimate it expects to pay related to previously sold units based on historical claim experience. These estimates are reviewed regularly for accuracy. If updated information or actual amounts are different from previous estimates, the revisions are included in the Company’s results for the period in which they become known. Historically, the aggregate differences, if any, between the Company’s estimates and actual amounts in any year have not had a material impact on the Consolidated Financial Statements.

Environmental Costs: The Company is subject to laws and regulations relating to protecting the environment. Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to existing conditions caused by past operations, which do not contribute to current or future revenues, are expensed. Liabilities for remediation costs are recorded when they are probable and can be reasonably estimated, generally no later than the completion of feasibility studies or the Company’s commitment to a plan of action. The assessment of this liability, which is calculated based on existing technology,

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does not reflect any offset for possible recoveries from insurance companies, and is not discounted. Refer to Note 19 for further details of environmental matters.

Research and Development Costs: The Company conducts research and development activities for the purpose of developing and improving new products and services. These expenditures are expensed when incurred. For the years ended December 31, 2017, 2016 and 2015, these expenditures amounted to approximately $48.3 million, $47.3 million and $45.2 million, respectively and consist of salaries, wages, benefits, building costs and other overhead expenses.

Software Costs: The Company capitalizes certain qualified internal-use software costs during the application development stage and subsequently amortizes those costs over the software's useful life, which ranges from 2 to 7 years.

Employee Benefit Plans: The Company provides a range of benefits, including pensions, postretirement and postemployment benefits to eligible current and former employees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, employee mortality, turnover rates, and healthcare cost trend rates. Actuaries perform the required calculations to determine expense in accordance with GAAP. Actual results may differ from the actuarial assumptions and are generally accumulated into Accumulated other comprehensive loss and amortized into Net earnings over future periods. The Company reviews its actuarial assumptions at each measurement date and makes modifications to the assumptions based on current rates and trends, if appropriate. Refer to Note 11 for further details on employee benefit plans.

Loss Contingencies: Liabilities are recorded for various contingencies arising in the normal course of business, including litigation and administrative proceedings, environmental matters, product liability, product warranty, worker’s compensation and other claims. The Company has recorded reserves in the financial statements related to these matters, which are developed using inputs derived from actuarial estimates and historical and anticipated experience data depending on the nature of the reserve and, in certain instances, with consultation of legal counsel, internal and external consultants and engineers. Subject to the uncertainties inherent in estimating future costs for these types of liabilities, the Company believes its estimated reserves are reasonable and does not believe the final determination of the liabilities with respect to these matters would have a material effect on the financial condition, results of operations, liquidity or cash flows of the Company for any year. Refer to Note 19 for further details on loss contingencies.

Derivative Instruments: The Company periodically enters into cash flow and other derivative transactions to specifically hedge exposure to various risks related to currency and interest rates. The Company recognizes all derivatives on the Consolidated Balance Sheets at their fair value as either assets or liabilities. For designated cash flow hedges, the effective portion of the changes in fair value of the derivative contract is recorded in Other comprehensive income (loss), net of tax, and in Net earnings at the time earnings are affected by the hedged transaction. For other derivative transactions, the changes in the fair value of the derivative contract are immediately recognized in Net earnings. Refer to Note 10 for further details on derivative instruments.

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 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

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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; however, this new standard did not impact our annual impairment test performed 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 use a full retrospective approach or report the cumulative effect as of the date of adoption ("modified retrospective method"). The FASB has also issued the following standards which clarify ASU 2014-09: ASU 2017-14, Revenue Recognition, Revenue from Contracts with Customers: Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, ASU 2017-13, Revenue Recognition, Revenue from Contracts with Customers: Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the 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 adopted each of these standards on January 1, 2018 on a modified retrospective basis. The Company has completed an assessment of the new standard’s impact and determined the new standards will not have a material impact on the Company's consolidated statements of comprehensive income, balance sheets or statements of cash flows. The Company will expand the consolidated financial statement disclosures in order to comply with ASU 2014-09 starting in our first quarter 10-Q of 2018. The expanded disclosure will present in a tabular format the split by business segment between 1) product and service revenue, and 2) products transferred at a point in time and services transferred over time.

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. ASU 2016-02 is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is continuing to assess what impact ASU 2016-02 will have on the consolidated financial statements; however, the Company anticipates that this adoption will result in a significant gross-up of assets and liabilities on its 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 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 consolidated financial 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 be effective for annual and interim reporting periods beginning after December 15, 2017, and as such, the Company adopted ASU 2016-15 on January 1, 2018. The amendments in this update will be applied retrospectively to all periods presented, beginning in 2018, unless deemed impracticable, in which case, prospective application is permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." This update provides guidance to assist companies in 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 adoption. The Company adopted ASU 2017-01 on January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

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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 inventory or a self-constructed asset). The ASU is effective for annual periods beginning after December 15, 2017, and as such, the Company adopted ASU 2017-07 on January 1, 2018. The ASU will be applied 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 consolidated statement of comprehensive income and prospectively, on and after the effective date, 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. The Company intends to apply these practical expedients for prior period presentation. The Company does not believe the adoption of the new standard will have a material impact on the Company's 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 will be applied to hedging relationships existing on the date of adoption. Presentation and disclosure amendments will be applied prospectively. The adoption of ASU 2017-12 is not expected to have a material impact on the Company's consolidated financial statements.

NOTE 3 – INVENTORIES

At December 31, the major classes of inventory were as follows:

In millions		2017				2016
Raw materials		$	66.6			$	56.7
Work-in-process		29.8				23.6
Finished goods		143.4				140.3
Total		$	239.8			$	220.6

Inventories are stated at the lower of cost and net realizable value using the first-in, first-out (FIFO) method.

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

At December 31, the major classes of property, plant and equipment were as follows:

In millions		2017				2016
Land		$	16.0			$	14.5
Buildings		142.2				127.6
Machinery and equipment		383.9				353.6
Software		141.4				126.5
Construction in progress		24.4				18.2
		707.9				640.4
Accumulated depreciation		(455.7		)		(413.8		)
Total		$	252.2			$	226.6

Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $40.0 million, $40.9 million and $36.4 million, which includes amounts for software amortization of $14.3 million, $16.6 million and $14.4 million.

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NOTE 5 – GOODWILL

The Company records as goodwill the excess of the purchase price over the fair value of the net assets acquired. Once the final valuation has been performed for each acquisition, adjustments may be recorded. The changes in the carrying amount of Goodwill are as follows:

In millions		Americas				EMEIA				Asia Pacific				Total
December 31, 2015 (gross)		$	372.8			$	733.4			$	93.4			$	1,199.6
Accumulated impairment *		—				(478.6		)		(6.9		)		(485.5		)
December 31, 2015 (net)		372.8				254.8				86.5				714.1
Acquisitions		—				12.5				3.3				15.8
Currency translation		0.1				(9.8		)		(3.4		)		(13.1		)
December 31, 2016 (net)		372.9				257.5				86.4				716.8
Acquisitions and settlements		2.3				(1.6		)		1.3				2.0
Currency translation		—				35.3				7.1				42.4
December 31, 2017 (net)		$	375.2			$	291.2			$	94.8			$	761.2

• Accumulated impairment consists of charges of $137.6 million (EMEIA), $341.0 million (EMEIA) and $6.9 million (Asia Pacific).

As discussed in Note 8 - Divestitures, the Company sold a majority stake in its systems integration business in China within the Asia Pacific segment in the fourth quarter of 2015. In conjunction with this divestiture, the Company determined that the goodwill assigned to this business was impaired. As a result, approximately $21.0 million of the $78.1 million pre-tax charge related to the divestiture recorded in 2015 related to the write-off of goodwill.

NOTE 6 – INTANGIBLE ASSETS

The following table sets forth the gross amount and related accumulated amortization of the Company’s intangible assets at December 31:

		2017												2016
In millions		Gross carrying amount				Accumulated amortization				Net carrying amount				Gross carrying amount				Accumulated amortization				Net carrying amount
Completed technologies/patents		$	32.6			$	(10.0	)		$	22.6			$	48.0			$	(25.3	)		$	22.7
Customer relationships		324.5				(74.1		)		250.4				278.9				(51.6		)		227.3
Trademarks (finite-lived)		89.0				(46.1		)		42.9				78.5				(37.3		)		41.2
Other		7.9				(4.9		)		3.0				11.0				(9.4		)		1.6
Total finite-lived intangible assets		454.0				$	(135.1	)		318.9				416.4				$	(123.6	)		292.8
Trademarks (indefinite-lived)		75.4								75.4				64.6								64.6
Total		$	529.4							$	394.3			$	481.0							$	357.4

The Company amortizes intangible assets with finite useful lives on a straight-line basis over their estimated economic lives in accordance with GAAP. Indefinite-lived intangible assets are not subject to amortization, but instead, are tested for impairment at least annually (more frequently if certain indicators are present).

Intangible asset amortization expense for 2017, 2016 and 2015 was $22.1 million, $20.5 million and $11.9 million, respectively. Future estimated amortization expense on existing intangible assets in each of the next five years amounts to approximately $22.7 million for 2018, $21.8 million for 2019, $21.8 million for 2020, $21.7 million for 2021, and $21.7 million for 2022.

In accordance with the Company’s indefinite-lived intangible asset impairment testing policy outlined in Note 2, the Company performed its annual impairment test in the fourth quarter of each year. In each year, the Company determined the fair value of all indefinite-lived intangible assets exceeded their respective carrying values. Therefore, no impairment charges were recorded during 2017, 2016 or 2015.

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NOTE 7 - ACQUISITIONS

2017

In January 2017, the Company acquired Republic Doors & Frames, LLC ("Republic") through one of its subsidiaries. During the year ended December 31, 2017 the Company incurred $4.7 million of acquisition related costs, which are included in Selling and administrative expenses in the Consolidated Statement of Comprehensive Income.

2016

In June 2016, the Company acquired 100% of Trelock GmbH, a portable safety and security provider, and certain affiliated companies. Acquisition related costs were not material to the 2016 Consolidated Statement of Comprehensive Income.

2015

In 2015, the Company completed one investment and five acquisitions:

Business		Date
iDevices (investment)		February 2015
Zero International Inc. ("Zero")		April 2015
Brio (Division of RMD Industries Pty Ltd) ("Brio")		May 2015
Milre Systek Co., Ltd ("Milre")		July 2015
SimonsVoss Technologies GmbH ("SimonsVoss")		September 2015
AXA Stenman Holding ("AXA")		September 2015

iDevices is a brand and development partner in the Internet of Things industry. The investment was accounted for using the equity method. As discussed further in Note 8, the Company's equity investment in iDevices LLC was acquired by a third party on April 5, 2017.

Zero manufactures door and window products for commercial spaces and products include sealing systems, such as sound control, fire and smoke protection, threshold applications, lites, door louvers, intumescent products, photo-luminescent and flood barrier for doors.

Brio is a designer and manufacturer of sliding and folding door hardware for commercial and residential spaces in Australia, New Zealand, the United Kingdom and the United States.

Milre is a leading security solutions manufacturer in South Korea, focused on producing high-quality and innovative electronic door locks.

SimonsVoss was acquired for approximately $230.0 million. SimonsVoss, headquartered in Munich, Germany, is an electronic lock company in the European electronic market segment.

AXA was acquired for approximately $208.0 million. AXA is a European residential and portable security provider headquartered in Veenendaal, the Netherlands, with production facilities in the Netherlands, France and Poland. AXA manufactures and sells a branded portfolio of portable locks and lights as well as a wide variety of window and door hardware. The products are sold throughout Europe to bicycle manufacturers, retail distributors and property builders.

Total consideration paid for the acquisitions in 2015 was $511.3 million (net of cash acquired). The acquisitions in 2015 contributed revenues of $74.5 million and earnings before tax of $2.2 million to the Company from the acquisition dates to December 31, 2015.

During the year ended December 31, 2015 the Company incurred $17.9 million of acquisition related costs. These expenses are included in both Cost of goods sold and Selling and administrative expenses in the Consolidated Statement of Comprehensive Income.

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NOTE 8 - DIVESTITURES

As previously disclosed, the Company sold its majority ownership in its Venezuelan operation to Venezuelan investors. As a result of the sale in the third quarter of 2015, the Company recorded a non-cash charge of $26.1 million, which primarily represents cumulative currency translation adjustments that were previously deferred in equity and were reclassified to a loss in the Consolidated Statement of Comprehensive Income upon sale.

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 $75.0 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. During the twelve months ended December 31, 2015, and as a result of the sale, the Company recorded a non-cash, pre-tax charge of $78.1 million ($82.4 million after tax charges) to write the carrying value of Systems Integration’s assets and liabilities down to their estimated fair value less costs to complete the transaction. The charge was recorded as a Loss on divestitures within the Consolidated Statement of Comprehensive Income.

During the third quarter of 2016 the receivable was considered impaired, as it was determined that certain unfavorable events occurred related to the Systems Integration business requiring an impairment of the original consideration and working capital transfer amounts that were recorded at the time of the sale. A charge of $81.4 million (net of tax) was recorded, reducing the carrying value of the receivable to a fair value estimated by discounting the expected future cash flows. The assumptions used in this estimate are considered unobservable inputs. Fair value measurements that utilize significant unobservable inputs are categorized as Level 3 measurements under the accounting guidance. The total charge recorded as a Loss on divestitures within the Consolidated Statement of Comprehensive Income was $84.4 million for the twelve months ended December 31, 2016.

The Company currently estimates the fair value of the consideration to be $2.6 million as of December 31, 2017, which is classified within Other noncurrent assets within the Consolidated Balance Sheet. The Company does not expect to incur any material charges in future periods related to the Systems Integration business.

In April 2017, iDevices LLC, including the Company's equity investment, was acquired by a third party. The Company recorded a cumulative gain of $5.4 million in 2017 related to this divestiture within Other income, net.

NOTE 9 – DEBT AND CREDIT FACILITIES

At December 31, long-term debt and other borrowings consisted of the following:

In millions	2017				2016
Term Loan A Facility	$	—			$	879.8
Term Facility	691.3				—
Revolving Facility	—				—
5.750% Senior Notes due 2021	—				300.0
5.875% Senior Notes due 2023	—				300.0
3.200% Senior Notes due 2024	400.0				—
3.550% Senior Notes due 2027	400.0				—
Other debt	1.0				2.3
Total borrowings outstanding	1,492.3				1,482.1
Less discounts and debt issuance costs, net	(15.0		)		(18.3		)
Total debt	1,477.3				1,463.8
Less current portion of long term debt	35.0				48.2
Total long-term debt	$	1,442.3			$	1,415.6

Unsecured Credit Facilities

As of December 31, 2017, 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

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facility (the “Revolving Facility” and, together with the Term Facility, the “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 may voluntarily prepay outstanding amounts under the Term Facility at any time without premium or penalty, subject to customary breakage costs. Amounts borrowed under the Term Facility that are repaid may not be reborrowed.

The Revolving Facility provides aggregate commitments of up to $500.0 million, which includes up to $100.0 million for the issuance of letters of credit. At December 31, 2017, there were no borrowings outstanding on the Revolving Facility, and the Company had $17.4 million of letters of credit outstanding. Commitments under the Revolving Facility may be reduced at any time without premium or penalty, and amounts repaid may be reborrowed. The Company pays certain fees with respect to the Revolving Facility, including an unused commitment fee on the undrawn portion of the Revolving Facility of between 0.125% and 0.200% per year, depending on the Company's credit rating, as well as certain other fees.

Outstanding borrowings under the Credit Facilities accrue interest, at the option of the Company 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 1.500% depending on the Company's credit ratings. At December 31, 2017, the outstanding borrowings under the Term Facility accrue interest at LIBOR plus a margin of 1.250%. To manage the Company's exposure to fluctuations in LIBOR rates, the Company has interest rate swaps to fix the interest rate for $250.0 million of the outstanding borrowings (see Note 10).

The 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 December 31, 2017, the Company was in compliance with all covenants.

Senior Notes

As of December 31, 2017, 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 3.200% Senior Notes, the “Notes”), both of which were issued on October 2, 2017. The Notes require semi-annual interest payments on April 1 and October 1 of each year, and will mature on October 1, 2024 and October 1, 2027, respectively.

The Notes are senior unsecured obligations of Allegion US Hold Co and rank equally with all of Allegion US Hold Co’s existing and future senior unsecured and unsubordinated indebtedness. The guarantee of the Notes is the senior unsecured obligation of the Company and ranks equally with all of the Company's existing and future senior unsecured and unsubordinated indebtedness.

2017 Refinancing

The Company entered into the Credit Agreement on September 12, 2017. The initial proceeds of $700.0 million from the Term Facility, along with initial borrowings of $165.0 million under the Revolving Facility, were used primarily to repay in full the outstanding borrowing under the Company’s previously outstanding secured credit facility, the Second Amended and Restated Credit Agreement, dated as of September 30, 2015. All obligations under the Second Amended and Restated Credit Agreement were satisfied, all commitments thereunder were terminated, and all guarantees and security interests that had been granted in connection therewith were released.

On October 3, 2017, Allegion US Hold Co used the net proceeds from the Notes to redeem in full the $300.0 million Senior Notes due 2021 and the $300.0 million Senior Notes due 2023, as well as to repay in full the borrowings under the Revolving Facility and other costs associated with the refinancing.

Related to the 2017 refinancing activities, the Company recorded a $33.2 million charge for the redemption premiums associated with the Senior Notes due 2021 and 2023, non-cash charges of $9.9 million related to the write-off of previously deferred financing costs, and $1.6 million of third party costs. These charges were all recorded within Interest expense on the Consolidated Statement of Comprehensive Income. The Company also incurred and deferred $10.8 million of discounts and financing costs associated with the new debt, which will be amortized to interest expense over the terms of the respective debt.

F-19

Future Repayments

Our scheduled principal repayments on indebtedness as of December 31, 2017 are as follows:

In millions
2018	$	35.0
2019	35.0
2020	35.0
2021	70.0
2022	516.3
Thereafter	801.0
Total	$	1,492.3

At December 31, 2017, the weighted-average interest rate for borrowings was 2.82% under the Term Facility (including the effect of interest rate swaps), 3.200% under the 3.200% Senior Notes and 3.550% under the 3.550% Senior Notes. Cash paid for interest for the years ended December 31, 2017, 2016 and 2015 was $58.4 million, $56.0 million and $39.0 million respectively.

NOTE 10 – FINANCIAL INSTRUMENTS

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

On the date 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.

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 highly effective hedge, the fair market value changes of the instrument are recorded to Accumulated other comprehensive income (AOCI).

Any ineffective portion of a derivative instrument’s change in fair value is recorded in Net earnings in the period of change. If the hedging relationship ceases to be highly effective, 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 were $57.7 million and $132.6 million at December 31, 2017 and 2016. At December 31, 2017 and 2016, gains of $0.3 million and $0.8 million, net of tax, were included in Accumulated other comprehensive loss related to the fair value of the Company’s currency derivatives designated as accounting hedges. The approximate amount expected to be reclassified into Net earnings over the next twelve months is a gain of $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 December 31, 2017, the maximum term of the Company’s currency derivatives was less than one year.

F-20

Interest Rate Swaps

The Company has forward starting interest rate swaps to fix interest rate payments during the contract period for $250.0 million of the Company's variable rate Term Facility. These swaps expire in September 2020. These interest rate swaps 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 are recognized in Accumulated other comprehensive loss. At December 31, 2017 and 2016, $3.5 million and $2.6 million of gains, net of tax, were recorded in Accumulated other comprehensive loss related to these interest rate swaps. The approximate amount expected to be reclassified into Net earnings over the next twelve months is a gain of $1 million. The actual amounts that will be reclassified to Net earnings may vary from this amount as a result of changes in market conditions.

The fair values of derivative instruments included within the Consolidated Balance Sheets as of December 31 were as follows:

		Asset derivatives								Liability derivatives
In millions		2017				2016				2017				2016
Derivatives designated as hedges:
Currency derivatives		$	0.2			$	0.7			$	0.3			$	0.1
Interest rate swaps		5.3				4.6				—				0.4
Derivatives not designated as hedges:
Currency derivatives		—				0.3				0.4				0.2
Total derivatives		$	5.5			$	5.6			$	0.7			$	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 interest rate swap derivatives included in the table above are recorded within Other noncurrent assets and Other noncurrent liabilities.

The amounts associated with derivatives designated as hedges affecting Net earnings and Accumulated other comprehensive loss for the years ended December 31 were as follows:

		Amount of gain (loss) recognized in AOCI												Location of gain (loss) reclassified from AOCI and recognized into Net earnings		Amount of gain (loss) reclassified from AOCI and recognized into Net earnings
In millions		2017				2016				2015					2017				2016				2015
Currency derivatives		$	4.0			$	4.2			$	6.6			Cost of goods sold		$	4.7			$	5.4			$	6.5
Interest rate swaps		1.2				5.4				(0.3		)		Interest expense		(0.3		)		—				—
Total		$	5.2			$	9.6			$	6.3					$	4.4			$	5.4			$	6.5

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, net in the 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.

NOTE 11 – PENSIONS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company sponsors several U.S. defined benefit and defined contribution plans covering substantially all of our 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.

F-21

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 following table details information regarding the Company’s pension plans at December 31:

		U.S.								NON-U.S.
In millions		2017				2016				2017				2016
Change in benefit obligations:
Benefit obligation at beginning of year		$	286.9			$	280.7			$	380.5			$	371.7
Service cost		8.7				9.4				3.3				3.1
Interest cost		10.5				9.8				8.9				10.7
Employee contributions		—				—				0.3				0.3
Actuarial losses (gains)		17.5				1.6				(15.4		)		80.8
Benefits paid		(12.4		)		(12.6		)		(13.7		)		(18.7		)
Foreign exchange rate changes		—				—				34.3				(63.5		)
Curtailments and settlements		—				—				(0.9		)		(1.8		)
Acquisitions		7.3				—				—				—
Other, including expenses paid		(1.0		)		(2.0		)		(1.0		)		(2.1		)
Benefit obligation at end of year		$	317.5			$	286.9			$	396.3			$	380.5
Change in plan assets:
Fair value at beginning of year		$	202.4			$	192.7			$	353.4			$	340.4
Actual return on plan assets		31.9				16.4				22.3				90.3
Company contributions		55.7				7.9				5.2				6.0
Employee contributions		—				—				0.3				0.3
Benefits paid		(12.4		)		(12.6		)		(13.7		)		(18.7		)
Foreign exchange rate changes		—				—				33.7				(61.0		)
Settlements		—				—				(0.9		)		(1.8		)
Acquisitions		6.5				—				—				—
Other, including expenses paid		(0.9		)		(2.0		)		(1.9		)		(2.1		)
Fair value of assets end of year		$	283.2			$	202.4			$	398.4			$	353.4
Funded status:
Plan assets (less than) over benefit obligations		$	(34.3	)		$	(84.5	)		$	2.1			$	(27.1	)
Amounts included in the balance sheet:
Other noncurrent assets		$	—			$	—			$	28.5			$	—
Accrued compensation and benefits		(0.2		)		(0.1		)		(1.3		)		(1.5		)
Postemployment and other benefit liabilities		(34.1		)		(84.4		)		(25.1		)		(25.6		)
Net amount recognized		$	(34.3	)		$	(84.5	)		$	2.1			$	(27.1	)

It is the Company’s objective to contribute to the pension plans to ensure adequate funds are available in the plans to make benefit payments to plan participants and beneficiaries when required. However, certain plans are not funded due to either legal, accounting, or tax requirements in certain jurisdictions. As of December 31, 2017, approximately 5% of our projected benefit obligation relates to plans that are not funded of which the majority are non-U.S. plans.

F-22

The pretax amounts recognized in Accumulated other comprehensive loss were as follows:

		U.S.
In millions		Prior service cost				Net actuarial losses				Total
December 31, 2015		$	(2.8	)		$	(88.9	)		$	(91.7	)
Current year changes recorded to Accumulated other comprehensive loss		—				4.5				4.5
Amortization reclassified to earnings		0.7				4.7				5.4
December 31, 2016		$	(2.1	)		$	(79.7	)		$	(81.8	)
Current year changes recorded to Accumulated other comprehensive loss		—				2.4				2.4
Amortization reclassified to earnings		0.3				4.8				5.1
December 31, 2017		$	(1.8	)		$	(72.5	)		$	(74.3	)

		NON-U.S.
In millions		Prior service cost				Net actuarial losses				Total
December 31, 2015		$	—			$	(92.2	)		$	(92.2	)
Current year changes recorded to Accumulated other comprehensive loss		—				(4.3		)		(4.3		)
Amortization reclassified to earnings		—				2.2				2.2
Settlements/curtailments reclassified to earnings		—				0.3				0.3
Currency translation and other		—				14.4				14.4
December 31, 2016		$	—			$	(79.6	)		$	(79.6	)
Current year changes recorded to Accumulated other comprehensive loss		—				23.3				23.3
Amortization reclassified to earnings		—				1.8				1.8
Settlements/curtailments reclassified to earnings		—				0.1				0.1
Currency translation and other		0.1				(6.2		)		(6.1		)
December 31, 2017		$	0.1			$	(60.6	)		$	(60.5	)

Weighted-average assumptions used:

Benefit obligations at December 31,		2017			2016
Discount rate:
U.S. plans		3.6	%		4.1	%
Non-U.S. plans		2.5	%		2.6	%
Rate of compensation increase:
U.S. plans		3.0	%		3.5	%
Non-U.S. plans		3.2	%		3.2	%

The accumulated benefit obligation for all U.S. defined benefit pension plans was $304.9 million and $272.5 million at December 31, 2017 and 2016. The accumulated benefit obligation for all non-U.S. defined benefit pension plans was $388.3 million and $371.9 million at December 31, 2017 and 2016.

Beginning in 2016, the Company elected to change the method used to estimate the service and interest cost components of net periodic benefit cost to a full yield-curve approach. Historically, the Company estimated the service and interest cost components using a single weighted-average discount rate, rounded to the nearest 25th basis point, derived from the yield curve used to measure the benefit obligation at the beginning of the period. Under the new approach, the Company applied discounting using the applicable spot rates derived from the yield curve to discount the cash flows used to measure the benefit obligation. These spot rates align to each of the projected benefit obligations and service cost cash flows. This change was made to better align the projected benefit cash flows and the corresponding yield curve spot rates to provide a better estimate of service and interest cost components of net periodic benefit costs. This change was considered a change in estimate and was accounted for on a prospective basis beginning January 1, 2016. This change did not have a material impact on 2016 pension expense.

F-23

Information regarding pension plans with accumulated benefit obligations more than plan assets were:

		U.S.								NON-U.S.
In millions		2017				2016				2017				2016
Projected benefit obligation		$	317.5			$	286.9			$	34.4			$	30.2
Accumulated benefit obligation		304.9				272.5				29.5				25.9
Fair value of plan assets		$	283.2			$	202.4			$	7.9			$	6.8

Future pension benefit payments are expected to be paid as follows:

In millions	U.S.				NON-U.S.
2018	$	16.3			$	16.0
2019	16.6				16.3
2020	23.6				17.0
2021	18.7				17.8
2022	19.1				18.3
2023 - 2027	$	111.7			$	102.3

The components of the Company’s net periodic pension benefit costs for the years ended December 31 include the following:

		U.S.
In millions		2017				2016				2015
Service cost		$	8.7			$	9.4			$	9.5
Interest cost		10.5				9.8				11.0
Expected return on plan assets		(12.0		)		(10.2		)		(11.2		)
Net amortization of:
Prior service costs		0.3				0.7				0.7
Plan net actuarial losses		4.8				4.7				4.9
Net periodic pension benefit cost		12.3				14.4				14.9
Net curtailment and settlement losses		—				—				0.9
Net periodic pension benefit cost after net curtailment and settlement losses		$	12.3			$	14.4			$	15.8

		NON-U.S.
In millions		2017				2016				2015
Service cost		$	3.3			$	3.1			$	3.3
Interest cost		8.9				10.7				13.7
Expected return on plan assets		(14.3		)		(13.7		)		(17.8		)
Other adjustments		0.7				—				—
Net amortization of:
Plan net actuarial losses		1.9				2.2				1.4
Net periodic pension benefit cost		0.5				2.3				0.6
Net curtailment and settlement losses		0.1				0.3				0.2
Net periodic pension benefit cost after net curtailment and settlement losses		$	0.6			$	2.6			$	0.8

F-24

Pension expense for 2018 is projected to be approximately $5.9 million, utilizing the assumptions for calculating the pension benefit obligations at the end of 2017. The amounts expected to be recognized in net periodic pension cost during the year ended December 31, 2018 for prior service cost and plan net actuarial losses are $0.4 million and $4.8 million, respectively.

Weighted-average assumptions used:

Net periodic pension cost for the year ended December 31,		2017			2016			2015
Discount rate:
U.S. plans		4.1	%		4.3	%		4.0	%
Non-U.S. plans		2.6	%		3.7	%		3.7	%
Rate of compensation increase:
U.S. plans		3.5	%		3.5	%		3.5	%
Non-U.S. plans		3.2	%		3.0	%		2.9	%
Expected return on plan assets:
U.S. plans		4.8	%		5.5	%		5.5	%
Non-U.S. plans		4.0	%		4.5	%		5.0	%

The expected long-term rate of return on plan assets reflects the average rate of returns expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return on plan assets is based on what is achievable given the plan’s investment policy, the types of assets held and target asset allocations. The expected long-term rate of return is determined as of the measurement date. Each plan is reviewed, along with its historical returns and target asset allocations, to determine the appropriate expected long-term rate of return on plan assets to be used.

The overall objective in managing defined benefit plan assets is to ensure that all present and future benefit obligations are met as they come due. The goal is to achieve this 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. Each plan’s funded status and asset allocation is monitored regularly in addition to investment manager performance.

The fair values of the Company’s U.S. pension plan assets at December 31, 2017 by asset category are as follows:

		Fair value measurements																Total fair value
In millions		Level 1				Level 2				Level 3				Assets measured at NAV
Cash, cash equivalents, and short term investments		$	—			$	3.2			$	—			$	—			$	3.2
Equity mutual funds		—				—				—				70.9				70.9
Fixed income investments:
U.S. government and agency obligations		—				83.6				—				—				83.6
Corporate and non-U.S. bonds(a)		—				111.3				—				12.8				124.1
		—				194.9				—				12.8				207.7
Total assets at fair value		$	—			$	198.1			$	—			$	83.7			$	281.8
Receivables and payables, net																		1.4
Net assets available for benefits																		$	283.2

(a)	Includes state and municipal bonds.

No material transfers in or out of Level 3 occurred during the year ended December 31, 2017.

F-25

The fair values of the Company’s U.S. pension plan assets at December 31, 2016 by asset category are as follows:

		Fair value measurements																Total fair value
In millions		Level 1				Level 2				Level 3				Assets measured at NAV
Cash, cash equivalents, and short term investments		$	—			$	5.6			$	—			$	—			$	5.6
Equity mutual funds		—				—				—				62.9				62.9
Fixed income investments:
U.S. government and agency obligations		—				55.2				—				—				55.2
Corporate and non-U.S. bonds(a)		—				77.6				—				—				77.6
		—				132.8				—				—				132.8
Total assets at fair value		$	—			$	138.4			$	—			$	62.9			$	201.3
Receivables and payables, net																		1.1
Net assets available for benefits																		$	202.4

(a)	Includes state and municipal bonds.

No material transfers in or out of Level 3 occurred during the year ended December 31, 2016.

The Company determines the fair value of its U.S. plan assets using the following methodologies:

•

Cash, cash equivalents and short term investments – Short term investments are valued at the closing price or amount held on deposit by the custodian bank or at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. As these investments are not traded on active markets, these investments are classified as Level 2.

•	Equity mutual funds – Equity mutual funds are valued at their daily net asset value (NAV) per share or the equivalent. NAV per share or the equivalent is used for fair value purposes as a practical expedient. NAVs are calculated by the investment manager or sponsor of the fund.

•	U.S. government and agency obligations – Quoted market prices are not available for these securities. Fair values are estimated using pricing models and/or quoted prices of securities with similar characteristics or discounted cash flows. Such securities are classified as Level 2.

•	Corporate and non-U.S. bonds – Quoted market prices are not available for these securities. Fair values are estimated by using pricing models and/or quoted prices of securities with similar characteristics or discounted cash flows. Such securities are classified as Level 2.

The fair values of the Company’s non-U.S. pension plan assets at December 31, 2017 by asset category are as follows:

		Fair value measurements																Total fair value
In millions		Level 1				Level 2				Level 3				Assets measured at NAV
Cash and cash equivalents		$	36.7			$	—			$	—			—				$	36.7
Equity mutual funds		—				2.0				—				103.1				105.1
Corporate and non-U.S. bonds		—				176.9				—				—				176.9
Real estate		—				—				0.8				—				0.8
Other(a)		—				46.7				2.3				29.9				78.9
Total assets at fair value		$	36.7			$	225.6			$	3.1			$	133.0			$	398.4

(a)	Primarily includes insurance contracts, mortgage-backed securities, and derivative contracts.

F-26

No material transfers in or out of Level 3 occurred during the year ended December 31, 2017.

The fair values of the Company’s non-U.S. pension plan assets at December 31, 2016 by asset category are as follows:

		Fair value measurements												Total fair value
In millions		Level 1				Level 2				Level 3
Cash and cash equivalents		$	58.9			$	—			$	—			$	58.9
Equity mutual funds		—				107.2				—				107.2
Corporate and non-U.S. bonds		—				110.8				—				110.8
Real estate(a)		—				9.7				0.7				10.4
Other(b)		—				64.1				2.0				66.1
Total assets at fair value		$	58.9			$	291.8			$	2.7			$	353.4

(a)	Includes several private equity funds that invest in real estate. It includes both direct investment funds and funds-of-funds.

(b)	Primarily includes insurance contracts.

No material transfers in or out of Level 3 occurred during the year ended December 31, 2016.

The Company determines the fair value of its non-U.S. plan assets using the following methodologies:

•	Cash and cash equivalents - Cash equivalents are valued using a market approach with inputs including quoted market prices for either identical or similar instruments.

•	Equity mutual funds - Equity mutual funds are valued at their daily net asset value (NAV) per share or the equivalent. NAV per share or the equivalent is used for fair value purposes as a practical expedient. NAVs are calculated by the investment manager or sponsor of the fund.

•	Corporate and non-U.S. bonds - Corporate and non-U.S. bonds are valued through a market approach with inputs including, but not limited to, benchmark yields, reported trades, broker quotes and issuer spreads.

•	Real estate - Private real estate fund values are reported by the fund manager and are based on valuation or appraisal of the underlying investments.

The Company made employer contributions of $55.7 million to the U.S. pension plan in 2017, of which $50.0 million was discretionary, and $7.9 million in 2016. The Company did not make any required or discretionary contributions to the U.S. pension plans in 2015. The Company made required and discretionary contributions to its non-U.S. pension plans of $5.2 million in 2017, $6.0 million in 2016, and $6.5 million in 2015.

The Company currently projects that an approximate $13.5 million will be contributed to its U.S and non-U.S. plans in 2018. The Company’s policy allows it to fund an amount, which could be in excess of or less than the pension cost expensed, subject to the limitations imposed by current tax regulations. The Company anticipates funding the plans in 2018 in accordance with contributions required by funding regulations or the laws of each jurisdiction.

Most of the Company’s U.S. employees are covered by defined contribution plans. Employer contributions are determined based on criteria specific to the individual plans and amounted to approximately $14.0 million, $13.3 million, and $12.1 million in 2017, 2016 and 2015. The Company’s contributions relating to non-U.S. defined contribution plans and other non-U.S. benefit plans were $7.0 million, $5.6 million and $6.2 million in 2017, 2016 and 2015.

Deferred Compensation Plan

The Company maintains an Executive Deferred Compensation Plan ("EDCP"), which is an unfunded, nonqualified plan that permits certain employees to defer receipt of up to 50% of their annual salary and up to 100% of their annual bonus awards, performance share plan awards, and restricted stock units received upon commencement of employment. As of December 31, 2017 the deferred compensation liability balance was $20.9 million.

F-27

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 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.

The following table details information regarding the Company’s postretirement plans at December 31:

In millions		2017				2016
Change in benefit obligations:
Benefit obligation at beginning of year		$	9.7			$	12.9
Service cost		0.1				0.1
Interest cost		0.3				0.4
Actuarial gains		0.1				(2.9		)
Benefits paid, net of Medicare Part D subsidy		(0.9		)		(0.8		)
Benefit obligations at end of year		$	9.3			$	9.7

Funded status:
Plan assets less than benefit obligations		$	(9.3	)		$	(9.7	)
Amounts included in the balance sheet:
Accrued compensation and benefits		(0.9		)		(0.9		)
Postemployment and other benefit liabilities		(8.4		)		(8.8		)
Total		$	(9.3	)		$	(9.7	)

The pretax amounts recognized in Accumulated other comprehensive loss were as follows:

In millions		Prior service gains				Net actuarial losses				Total
December 31, 2015		$	3.9			$	(1.2	)		$	2.7
Current year changes recorded to Accumulated other comprehensive loss		—				2.9				2.9
Amortization reclassified to earnings		(1.6		)		—				(1.6		)
Balance at December 31, 2016		$	2.3			$	1.7			$	4.0
Current year changes recorded to Accumulated other comprehensive loss		—				(0.2		)		(0.2		)
Amortization reclassified to earnings		(1.7		)		—				(1.7		)
Balance at December 31, 2017		$	0.6			$	1.5			$	2.1

The components of net periodic postretirement benefit cost (income) for the years ended December 31 were as follows:

In millions		2017				2016				2015
Service cost		$	0.1			$	0.1			$	0.1
Interest cost		0.3				0.4				0.5
Net amortization of:
Prior service gains		(1.7		)		(1.6		)		(1.6		)
Net actuarial losses		(0.1		)		—				—
Net periodic postretirement benefit income		$	(1.4	)		$	(1.1	)		$	(1.0	)

Postretirement income for 2018 is projected to be $0.5 million. Amounts expected to be recognized in net periodic postretirement benefits cost in 2018 for prior service gains and plan net actuarial losses are $0.7 million and $0.1 million.

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Assumptions:		2017			2016			2015
Weighted-average discount rate assumption to determine:
Benefit obligations at December 31		3.3	%		3.5	%		3.5	%
Net periodic benefit cost		3.5	%		3.5	%		3.5	%

The Company has capped the annual maximum amount it will pay for retiree healthcare costs. Accordingly, assumptions of health-care cost trend rates are no longer applicable.

A 1% change in the medical trend rate assumed for postretirement benefits would have no effect on the postretirement benefit obligation as the Company has capped the annual maximum amount it will pay for retiree healthcare costs, therefore any additional costs would be assumed by the retiree.

Benefit payments for postretirement benefits, which are net of expected plan participant contributions and Medicare Part D subsidy, are expected to be paid as follows:

In millions
2018	$	0.9
2019	1.0
2020	0.9
2021	0.9
2022	0.8
2023 - 2027	$	3.5

NOTE 12 – FAIR VALUE MEASUREMENTS

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.

•	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.

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Assets and liabilities measured at fair value at December 31, 2017 are as follows:

	Fair value measurements												Total fair value
In millions	Quoted 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 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

Assets and liabilities measured at fair value at December 31, 2016 are as follows:

	Fair value measurements												Total fair value
In millions	Quoted 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	$	—			$	4.6			$	—			$	4.6
Foreign currency contracts	—				1.0				—				1.0
Total asset recurring fair value measurements	$	—			$	5.6			$	—			$	5.6
Liabilities:
Foreign currency contracts	$	—			$	0.3			$	—			$	0.3
Interest rate swaps	—				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:

•	Foreign currency contracts – These instruments include foreign currency contracts for non-functional currency balance sheet exposures. The fair value of the foreign currency contracts are determined based on a pricing model that uses spot rates and forward prices from actively quoted currency markets that are readily accessible and observable.

•	Interest rate swaps – These instruments include forward-starting interest rate swap contracts for $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.

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•	Deferred compensation plans - These include obligations related to deferred compensation adjusted for market performance. The fair value is obtained based on observable market prices quoted on public exchanges for similar instruments.

•	Debt – These securities are recorded at cost and include senior notes maturing through 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 cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings are a reasonable estimate of their fair value due to the short-term nature of these instruments.

The methodology used by the Company to determine the fair value of its financial assets and liabilities at December 31, 2017 are the same as those used at December 31, 2016. There have been no significant transfers between Level 1 and Level 2 categories.

NOTE 13 – EQUITY

Ordinary Shares

The reconciliation of Ordinary shares is as follows:

In millions	Total
December 31, 2016	95.3
Shares issued under incentive plans	0.6
Repurchase of ordinary shares	(0.8	)
December 31, 2017	95.1

Allegion had 400.0 million ordinary shares authorized and 10.0 million $0.001 par value preferred shares authorized (with none outstanding) at December 31, 2017.

On February 2, 2017, the Company's Board of Directors approved a new stock repurchase authorization of up to $500 million of the Company's ordinary shares. This new stock repurchase authorization replaced the authorization established in 2014. During the year ended December 31, 2017, the Company paid $60.0 million to repurchase 0.8 million ordinary shares on the open market under this new repurchase authorization.

Other Comprehensive Income (Loss)

The changes in Accumulated other comprehensive income (loss) are as follows:

In millions		Cash flow hedges and marketable securities				Pension and OPEB Items				Foreign Currency Items				Total
December 31, 2014		$	15.7			$	(116.1	)		$	(47.8	)		$	(148.2	)
Other comprehensive loss, net of tax		(1.7		)		(23.2		)		(59.1		)		(84.0		)
December 31, 2015		$	14.0			$	(139.3	)		$	(106.9	)		$	(232.2	)
Other comprehensive (loss) income, net of tax		(10.6		)		18.8				(40.3		)		(32.1		)
December 31, 2016		$	3.4			$	(120.5	)		$	(147.2	)		$	(264.3	)
Other comprehensive income (loss), net of tax		0.4				19.3				98.1				117.8
Other(a)		—				(6.4		)		—				(6.4		)
December 31, 2017		$	3.8			$	(107.6	)		$	(49.1	)		$	(152.9	)

(a)	During 2017, the Company reclassified $6.4 million between Accumulated other comprehensive loss and Retained earnings to correct a prior period classification error of Pension and OPEB items. The Company does not believe this reclassification is material to 2017 or to any of its previously issued annual or interim financial statements.

F-31

The amounts of Other comprehensive income (loss) attributable to noncontrolling interests are as follows:

In millions		2017				2016				2015
Foreign currency items		$	(0.6	)		$	(0.4	)		$	(1.4	)
Total other comprehensive loss attributable to noncontrolling interests		$	(0.6	)		$	(0.4	)		$	(1.4	)

NOTE 14 – 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 stock units ("PSUs"), and deferred compensation.

Under the Company's incentive stock plan, the total number of ordinary shares authorized by the shareholders is 8.0 million, of which 3.4 million remain available as of December 31, 2017 for future incentive awards.

Compensation Expense

Share-based compensation expense is included in Cost of goods sold and Selling and administrative expenses. The following table summarizes the expenses recognized for the years ended December 31:

In millions		2017				2016				2015
Stock options		$	3.3			$	4.1			$	3.7
RSUs		7.0				7.7				5.8
PSUs		5.8				4.8				5.0
Deferred compensation		2.8				0.8				0.3
Pre-tax expense		18.9				17.4				14.8
Tax benefit		(6.4		)		(5.6		)		(4.4		)
Total		$	12.5			$	11.8			$	10.4

Stock Options / RSUs

Eligible participants may receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs. 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-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 for the year ended December 31, 2017 and 2016 was estimated to be $18.22 per share and $15.86 per share, respectively, using the Black-Scholes option-pricing model. The weighted average assumptions used were the following:

		2017			2016			2015
Dividend yield		0.89	%		0.83	%		0.69	%
Volatility		24.93	%		28.85	%		31.37	%
Risk-free rate of return		2.08	%		1.38	%		1.78	%
Expected life		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. 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 term of the award. Historical peer data is used to estimate forfeitures within the Company’s valuation model. The expected life of the Company’s stock option awards granted post separation is derived from the simplified approach based

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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.

Changes in options outstanding under the plans for the years ended December 31, 2017, 2016 and 2015 are as follows:

		Shares subject to option			Weighted- average exercise price (a)				Aggregate intrinsic value (millions)				Weighted- average remaining life (years)
December 31, 2014		1,962,028			$	28.11
Granted		220,679			57.85
Exercised		(575,564	)		22.98
Canceled		(14,976	)		47.28
December 31, 2015		1,592,167			33.91
Granted		231,521			57.91
Exercised		(447,019	)		26.04
Canceled		(63,599	)		53.40
December 31, 2016		1,313,070			39.87
Granted		165,113			71.84
Exercised		(410,397	)		31.54
Canceled		(15,906	)		60.84
Outstanding December 31, 2017		1,051,880			$	47.80			$	33.4			6.0
Exercisable December 31, 2017		696,929			$	39.46			$	27.9			4.8

(a)	The weighted average exercise price of awards represents the exercise price of the awards on the grant date converted to ordinary shares of the Company.

The following table summarizes information concerning currently outstanding and exercisable options:

										Options outstanding									Options exercisable
Range of exercise price										Number outstanding at December 31, 2017			Weighted- average remaining life (years)		Weighted- average exercise price				Number exercisable at December 31, 2017			Weighted- average remaining life (years)			Weighted- average exercise price
$	10.01			—		$	20.00			88,965			1.5		$	15.17			88,965			1.5			$	15.17
20.01				—		30.00				149,055			2.6		26.62				149,055			2.6			26.62
30.01				—		40.00				82,043			4.7		32.33				82,043			4.7			32.33
40.01				—		50.00				128,503			6.0		43.37				128,503			6.0			43.37
50.01				—		60.00				442,663			7.1		56.92				248,295			6.7			56.19
60.01				—		70.00				421			8.8		63.93				—			—			—
70.01				—		80.00				160,230			9.0		71.84				68			2.7			71.35
										1,051,880			6.0		$	47.80			696,929			4.8			$	39.46

At December 31, 2017, there was $2.4 million of total unrecognized compensation cost from stock option arrangements granted under the plan, which is primarily related to unvested shares of non-retirement eligible employees. The aggregate intrinsic value of the Company's options exercised during the year ended December 31, 2017 and 2016 was $17.5 million and $18.3 million, respectively. Generally, stock options expire ten years from their date of grant.

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The following table summarizes RSU activity for the years ended December 31, 2017, 2016 and 2015:

		RSUs			Weighted- average grant date fair value (a)
Outstanding and unvested at December 31, 2014		325,160			$	42.15
Granted		121,153			59.69
Vested		(92,029	)		36.63
Canceled		(9,354	)		49.32
Outstanding and unvested at December 31, 2015		344,930			49.59
Granted		123,299			59.49
Vested		(220,854	)		45.83
Canceled		(41,741	)		52.40
Outstanding and unvested at December 31, 2016		205,634			58.99
Granted		124,933			73.76
Vested		(90,523	)		58.78
Canceled		(10,038	)		60.47
Outstanding and unvested at December 31, 2017		230,006			$	66.83

(a)	The weighted average grant date fair value represents the fair value of the awards on the grant date converted to ordinary shares of the Company.

At December 31, 2017, there was $6.5 million of total unrecognized compensation cost from RSU arrangements granted under the plan, which is related to unvested shares of non-retirement eligible employees.

Performance Shares

The Company has a Performance Share Program ("PSP") for key employees which provides awards in the form of Performance Share Units ("PSU") based on performance against pre-established objectives. The annual target award level is expressed as a number of the Company's ordinary shares. All PSUs are settled in the form of ordinary shares unless deferred.

In February 2015, 2016 and 2017, 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 conditions 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.

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The following table summarizes PSU activity for the maximum number of shares that may be issued for the years ended December 31, 2017, 2016 and 2015:

		PSUs			Weighted-average grant date fair value (a)
Outstanding and unvested at December 31, 2014		161,132			$	57.39
Granted		58,323			66.47
Vested		(17,327	)		75.05
Forfeited		(85	)		75.05
Outstanding and unvested at December 31, 2015		202,043			64.92
Granted		94,201			64.83
Vested		(64,979	)		72.69
Forfeited		(21,661	)		57.07
Outstanding and unvested at December 31, 2016		209,604			56.02
Granted		99,832			78.13
Vested		(146,830	)		72.01
Forfeited		(1,783	)		67.10
Outstanding and unvested at December 31, 2017		160,823			$	55.02

(a)	The weighted average grant date fair value represents the fair value of the awards on the grant date converted to ordinary shares of the Company.

At December 31, 2017, there was $4.2 million of total unrecognized compensation cost from the PSP based on current performance, which is related to unvested shares. This compensation will be recognized over the required service period, which is generally the three-year vesting period.

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 15 – RESTRUCTURING

During 2017, 2016, and 2015, the Company incurred costs of $12.3 million, $3.1 million, and $15.1 million respectively, associated with restructuring actions. These actions included workforce reductions, costs associated with the exit of an immaterial product line, and the closure and consolidation of manufacturing facilities in an effort to increase efficiencies.

Restructuring charges recorded during the years ended December 31 as part of restructuring plans were as follows:

In millions		2017				2016				2015
Americas		$	5.5			$	2.0			$	—
EMEIA		6.2				0.9				14.7
Asia Pacific		—				0.2				0.4
Corporate and Other		0.6				—				—
Total		$	12.3			$	3.1			$	15.1
Cost of goods sold		$	5.8			$	0.9			$	13.6
Selling and administrative expenses		6.5				2.2				1.5
Total		$	12.3			$	3.1			$	15.1

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The changes in the restructuring reserve during the years ended December 31, 2017 and 2016 were as follows:

In millions		Americas				EMEIA				Asia Pacific				Corporate/Other				Total
December 31, 2015		$	—			$	10.0			$	0.2			$	—			$	10.2
Additions		2.0				0.9				0.2				—				3.1
Cash and non-cash uses		(1.7		)		(7.5		)		(0.4		)		—				(9.6		)
Currency translation		—				(0.2		)		—				—				(0.2		)
December 31, 2016		0.3				3.2				—				—				3.5
Additions		5.5				6.2				—				0.6				12.3
Cash and non-cash uses		(5.5		)		(5.8		)		—				(0.5		)		(11.8		)
Currency translation		—				0.2				—				—				0.2
December 31, 2017		$	0.3			$	3.8			$	—			$	0.1			$	4.2

The Company incurred other non-qualified restructuring charges of $1.5 million and $6.4 million during the years ended December 31, 2017 and 2016, respectively, in conjunction with the other restructuring plans, which represent costs that are directly attributable to restructuring activities, but do not fall into the severance, exit or disposal category.

The majority of the costs accrued as of December 31, 2017 will be paid within one year.

NOTE 16 – OTHER INCOME, NET

At December 31, the components of Other income, net were as follows:

In millions		2017				2016				2015
Interest income		$	(1.2	)		$	(1.9	)		$	(1.5	)
Exchange loss		0.7				2.0				4.9
(Earnings) loss from and (gains) on the sale of equity investments		(5.4		)		(3.6		)		0.3
Other		(7.3		)		(14.7		)		(11.5		)
Other income, net		$	(13.2	)		$	(18.2	)		$	(7.8	)

Other income, net for the year ended December 31, 2017 included a gain of $5.4 million from the sale of iDevices, LLC, which is included within the (Earnings) loss from and (gains) on the sale of equity investments in the table above. Other income, net for the year ended December 31, 2017 also included gains of $7.3 million related to legal entity liquidations in our Asia Pacific region, of which $2.2 million has been attributed to noncontrolling interests. These gains are included within Other in the table above.

During the year ended December 31, 2016 the Company recorded gains from the sale of marketable securities of $12.4 million, which is included within Other in the table above.

During the year ended December 31, 2015, the Company recorded gains from the sale of marketable securities of $11.0 million, which is included within Other in the table above. In February 2015, the Venezuelan government announced changes to its exchange rate system that included the launch of a new, market-based system called the Marginal Currency System, or "SIMADI." During the year ended December 31, 2015 the Company recorded a charge of $2.8 million in order to remeasure net monetary assets at the SIMADI rate and other unfavorable currency impacts. These losses are within Exchange loss in the table above.

NOTE 17 – INCOME TAXES

Earnings before income taxes for the years ended December 31 were taxed within the following jurisdictions:

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In millions		2017				2016				2015
United States		$	166.5			$	129.9			$	123.1
Non-U.S.		229.2				165.1				86.2
Total		$	395.7			$	295.0			$	209.3

The components of the Provision for income taxes for the years ended December 31 were as follows:

In millions		2017				2016				2015
Current tax expense:
United States		$	78.8			$	43.8			$	53.4
Non-U.S.		15.0				13.8				3.5
Total:		93.8				57.6				56.9
Deferred tax expense (benefit):
United States		41.2				14.4				2.1
Non-U.S.		(16.0		)		(8.2		)		(4.4		)
Total:		25.2				6.2				(2.3		)
Total tax expense (benefit):
United States		120.0				58.2				55.5
Non-U.S.		(1.0		)		5.6				(0.9		)
Total		$	119.0			$	63.8			$	54.6

The Provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. statutory income tax rate to pretax income, as a result of the following differences:

		Percent of pretax income
		2017			2016			2015
Statutory U.S. rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in rates resulting from:
Non-U.S. tax rate differential (1)		(20.0	)		(17.4	)		(11.1	)
State and local income taxes (1)		1.8			2.0			2.8
Reserves for uncertain tax positions		0.8			2.0			(3.4	)
Tax on unremitted earnings		0.8			1.2			1.5
Tax Reform Act		13.5			—			—
Venezuela devaluation		—			—			0.9
Production incentives		(0.9	)		(0.6	)		(1.0	)
Other adjustments		(0.9	)		(0.6	)		1.4
Effective tax rate		30.1	%		21.6	%		26.1	%

(1)	Net of changes in valuation allowances

On December 22, 2017, the Tax Reform Act became law, resulting in broad and complex changes to the U.S. tax code which impact the Company's consolidated financial statements during the year ended December 31, 2017 including, but not limited to (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries that may electively be paid over eight years, and (3) requiring a review of the future realizability of deferred tax balances.

The Tax Reform Act reduces the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. The Tax Reform Act also puts in place new tax laws which include, but are not limited to (1) a Base Erosion Anti-abuse Tax (BEAT), which is a new minimum tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a provision designed to tax currently global intangible low taxed income (GILTI), (4) a provision that may limit the amount of currently deductible interest expense, (5) the repeal of the domestic production incentives, (6) limitations on the deductibility of certain executive compensation, and (7) limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.

F-37

Shortly after the Tax Reform Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which provides guidance on accounting for the Tax Reform Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Reform Act under ASC Topic 740. In accordance with SAB 118, the company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting under ASC Topic 740 is complete.

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 be 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. If a company is unable to provide a reasonable estimate of the impacts of the Tax Reform Act in a reporting period, a provisional amount must be recorded in the first reporting period in which a reasonable estimate can be determined.

The Company has recorded a provisional discrete net tax charge of $53.5 million related to the Tax Reform Act in the year ended December 31, 2017. This net charge primarily consists of a net charge of $24.5 million due to the remeasurement of deferred tax accounts to reflect the corporate rate reduction impact to the Company's net deferred tax balances, a net charge of $22.8 million due to the future realizability of certain deferred tax balances, and a net charge for the transition tax of $5.0 million, as more fully described below.

Reduction in U.S. Corporate Rate: The Tax Reform Act reduces the U.S. federal statutory corporate tax rate to 21 percent in years beginning on or after January 1, 2018. The Company has recorded a provisional adjustment to the net deferred tax balances, with a corresponding discrete net tax charge of $24.5 million in the current period. While the Company can make a reasonable estimate of the impact of the reduction in corporate rate, the Company is continuing to analyze the temporary differences that existed on the date of enactment.

Future Realizability of Certain Deferred Tax Balances: The Tax Reform Act contains provisions that may limit or restrict the future realizability of certain existing deferred tax balances. The Company has recorded a provisional valuation allowance related to interest limitation carryforwards and other adjustments to the net deferred tax assets, with a corresponding discrete net tax charge of $22.8 million in the current period. While the Company can make a reasonable estimate of the valuation allowance, the Company is awaiting further interpretative guidance and is continuing to gather additional information to refine its assessment. To the extent transition rules and interpretative guidance is clarified, some or all of the valuation allowance may reverse in a subsequent period.

Transition Tax: The transition tax is levied on the previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company's foreign subsidiaries. In order to determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. The Company has made a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of $5.0 million which the Company expects to elect to pay over eight years. This amount is presented in current and Other long-term liabilities. However, the Company is awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information to more precisely compute the amount of the transition tax.

The majority of the Company's earnings are considered permanently reinvested. The $5.0 million transition tax will result in certain previously untaxed non-U.S. earnings being included in the U.S. federal and state 2017 taxable income. As a result of the Tax Reform Act, the Company is currently analyzing its global working capital requirements and the potential tax liabilities that would be incurred if certain non-U.S. subsidiaries made distributions, which include local country withholding tax and potential U.S. state taxation. For these reasons, the Company is not yet able to reasonably estimate the effect of this provision of the Tax Reform Act and has not recorded any incremental withholding or state tax liabilities on its investment in its non-U.S. subsidiaries.

The Company is also currently analyzing other provisions of the Tax Reform Act that come into effect in 2018. These provisions include BEAT, eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the treatment of amounts in accumulated other comprehensive income, the new provision that could limit the amount of deductible interest expense, and the limitations on the deductibility of certain executive compensation.

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At December 31, a summary of the deferred tax accounts were as follows:

In millions		2017				2016
Deferred tax assets:
Inventory and accounts receivable		$	17.0			$	18.3
Fixed assets and intangibles		2.6				2.0
Postemployment and other benefit liabilities		29.9				42.0
Other reserves and accruals		12.5				16.0
Net operating losses, tax credits and other carryforwards		309.5				227.1
Other		4.2				5.3
Gross deferred tax assets		375.7				310.7
Less: deferred tax valuation allowances		(312.9		)		(225.5		)
Deferred tax assets net of valuation allowances		$	62.8			$	85.2
Deferred tax liabilities:
Fixed assets and intangibles		$	(101.7	)		$	(90.6	)
Postemployment and other benefit liabilities		(4.7		)		—
Unremitted earnings of foreign subsidiaries		(6.0		)		(4.2		)
Other		(7.4		)		(6.0		)
Gross deferred tax liabilities		(119.8		)		(100.8		)
Net deferred tax liabilities		$	(57.0	)		$	(15.6	)

At December 31, 2017, $6.0 million of deferred tax was recorded for certain undistributed earnings of non-U.S. subsidiaries. Historically, no deferred taxes have been provided for any portion of the remaining undistributed earnings of the Company's subsidiaries since these earnings have been, and will continue to be, permanently reinvested in these subsidiaries. For many reasons, including the number of legal entities and jurisdictions involved, the complexity of the Company's legal entity structure, the complexity of tax laws in the relevant jurisdictions and the impact of projections of income for future years to any calculations, the Company believes it is not practicable to estimate, within any reasonable range, the amount of additional taxes which may be payable upon the distribution of earnings.

At December 31, 2017, the Company had the following tax losses and tax credit carryforwards available to offset taxable income in prior and future years:

In millions		Amount				Expiration Period
U.S. Federal tax loss carryforwards		$	15.1			2027 & 2028
U.S. Federal and State credit carryforwards		22.2				2024-2027
U.S. State tax loss carryforwards		29.6				2018-2037
Non-U.S. tax loss carryforwards		$	1,013.0			2018-Unlimited

The U.S. state loss carryforwards were incurred in various jurisdictions. The non-U.S. loss carryforwards were incurred in various jurisdictions, predominantly in China, Ireland, Italy, Luxembourg and the United Kingdom.

The Company evaluates its deferred income tax assets to determine if valuation allowances are required or should be adjusted. U.S. GAAP requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a "more likely than not" standard. This assessment considers the nature, frequency and amount of recent losses, the duration of statutory carryforward periods and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.

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Activity associated with the Company’s valuation allowance is as follows:

In millions		2017				2016				2015
Beginning balance		$	225.5			$	133.3			$	50.8
Increase to valuation allowance		96.9				109.0				82.2
Decrease to valuation allowance		(11.9		)		(13.9		)		(3.0		)
Foreign exchange translation		2.4				(3.3		)		(1.6		)
Accumulated other comprehensive income (loss)		—				0.4				4.9
Ending balance		$	312.9			$	225.5			$	133.3

During 2017, the valuation allowance increased by $87.4 million. This increase is the result of changes in jurisdictional profitability, country specific tax laws and changes in judgment and facts regarding the realizability of deferred tax assets.

The Company has total unrecognized tax benefits of $29.0 million and $32.0 million as of December 31, 2017, and December 31, 2016, respectively. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate are $27.4 million as of December 31, 2017. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

In millions		2017				2016				2015
Beginning balance		$	32.0			$	23.8			$	25.4
Additions based on tax positions related to the current year		6.4				9.1				3.9
Additions based on tax positions related to prior years		1.6				7.1				1.6
Reductions based on tax positions related to prior years		(5.0		)		(5.5		)		(3.0		)
Reductions related to settlements with tax authorities		(7.1		)		(0.6		)		—
Reductions related to lapses of statute of limitations		(1.2		)		(0.9		)		(1.4		)
Translation loss/(gain)		2.3				(1.0		)		(2.7		)
Ending balance		$	29.0			$	32.0			$	23.8

The Company records interest and penalties associated with the uncertain tax positions within its Provision for income taxes. The Company had reserves associated with interest and penalties, net of tax, of $4.9 million and $5.4 million at December 31, 2017 and 2016. For the years ended December 31, 2017 and 2016, the Company recognized $0.0 million and $0.3 million in net interest and penalties, net of tax, related to these uncertain tax positions.

The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits, excluding interest and penalties, could potentially be reduced by up to approximately $10.7 million during the next 12 months.

The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a tax authority with respect to that return. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, France, Germany, Italy, Mexico, the Netherlands and the United States. In general, the examination of the material tax returns of subsidiaries of the Company is complete for the years prior to 2003, with certain matters being resolved through appeals and litigation.

The Company had indemnity receivables in the amount of $5.7 million and $5.6 million included in Other noncurrent assets at December 31, 2017 and 2016, respectively, primarily related to additional competent authority relief filings.

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NOTE 18 – EARNINGS PER SHARE (EPS)

Basic EPS is calculated by dividing Net earnings attributable to Allegion plc by the weighted-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 share calculations.

In millions		2017			2016			2015
Weighted-average number of basic shares		95.1			95.8			95.9
Shares issuable under incentive stock plans		0.9			1.1			1.0
Weighted-average number of diluted shares		96.0			96.9			96.9

At December 31, 2017, 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.

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 has received 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 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.

The Company 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 the Company. In the fourth-quarter of 2016, with the collaboration and approval of state regulators, the Company launched a proactive, alternative approach to remediate two sites in the United States. This approach will allow the Company to more aggressively address environmental conditions at these sites and reduce the impact of potential changes in regulatory requirements. As a result, the Company recorded a $15 million charge for environmental remediation in the fourth quarter of 2016. Environmental remediation costs are recorded in Costs of goods sold within the Consolidated Statements of Comprehensive Income.

As of December 31, 2017 and 2016, the Company has recorded reserves for environmental matters of $28.9 million and $30.6 million. The total reserve at December 31, 2017 and 2016 included $8.9 million and $9.6 million 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 December 31, 2017 and 2016 was $12.6 million and $6.1 million and the remainder is classified as noncurrent. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.

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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 year ended December 31, were as follows:

In millions	2017				2016				2015
Balance at beginning of period	$	13.3			$	11.7			$	9.8
Reductions for payments	(7.8		)		(6.5		)		(5.4		)
Accruals for warranties issued during the current period	9.0				8.1				7.1
Changes to accruals related to preexisting warranties	(0.8		)		0.2				0.5
Translation	0.4				(0.2		)		(0.3		)
Balance at end of period	$	14.1			$	13.3			$	11.7

Standard product warranty liabilities are classified as Accrued expenses and other current liabilities.

Other Commitments and Contingencies

Certain office and warehouse facilities, transportation vehicles and data processing equipment are leased by the Company. Total rental expense was $35.5 million in 2017, $32.5 million in 2016 and $30.3 million in 2015. Minimum lease payments required under non-cancellable operating leases with terms in excess of one year for the next five years are as follows: $20.5 million in 2018, $17.9 million in 2019, $13.0 million in 2020, $8.0 million in 2021, and $4.0 million in 2022.

NOTE 20 – BUSINESS SEGMENT INFORMATION

The Company classifies its business 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 its operating decisions. The Company defines Segment operating margin as Segment operating income as a percentage of Net revenues.

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A summary of operations and balance sheet information by reportable segments as of and for the years ended December 31 were as follows:

Dollar amounts in millions		2017				2016				2015
Americas
Net revenues		$	1,767.5			$	1,645.7			$	1,558.4
Segment operating income		503.3				448.1				418.0
Segment operating margin		28.5		%		27.2		%		26.8		%
Depreciation and amortization		26.4				26.4				26.4
Capital expenditures		26.1				21.5				18.9
Total segment assets		872.4				852.7				806.1
EMEIA
Net revenues		523.5				485.9				386.3
Segment operating income		45.2				35.9				8.6
Segment operating margin		8.6		%		7.4		%		2.2		%
Depreciation and amortization		28.6				27.6				17.2
Capital expenditures		17.1				13.6				5.6
Total segment assets		1,027.7				886.2				899.4
Asia Pacific
Net revenues		117.2				106.4				123.4
Segment operating income (loss)		9.5				6.1				(3.4		)
Segment operating margin		8.1		%		5.7		%		(2.8		)%
Depreciation and amortization		2.5				2.4				2.1
Capital expenditures		1.5				1.1				2.0
Total segment assets		196.3				177.4				237.1
Total net revenues		$	2,408.2			$	2,238.0			$	2,068.1
Reconciliation to earnings before income taxes
Segment operating income from reportable segments		$	558.0			$	490.1			$	423.2
Unallocated corporate expense		69.8				64.6				64.6
Interest expense		105.7				64.3				52.9
Loss on divestitures		—				84.4				104.2
Other income, net		(13.2		)		(18.2		)		(7.8		)
Total earnings before income taxes		$	395.7			$	295.0			$	209.3
Depreciation and amortization from reportable segments		$	57.5			$	56.4			$	45.7
Unallocated depreciation and amortization		4.1				5.0				3.1
Total depreciation and amortization		$	61.6			$	61.4			$	48.8
Capital expenditures from reportable segments		$	44.7			$	36.2			$	26.5
Corporate capital expenditures		4.6				6.3				8.7
Total capital expenditures		$	49.3			$	42.5			$	35.2
Assets from reportable segments		$	2,096.4			$	1,916.3			$	1,942.6
Unallocated assets (a)		445.6				331.1				320.4
Total assets		$	2,542.0			$	2,247.4			$	2,263.0

(a)	Unallocated assets consists of investments in unconsolidated affiliates, fixed assets, deferred income taxes and cash.

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Revenues by destination and product as well as long-lived assets by geographic area for the years ended December 31 were as follows:

In millions		2017				2016				2015
Revenues
United States		$	1,645.6			$	1,531.2			$	1,425.1
Non-U.S.		762.6				706.8				643.0
Total		$	2,408.2			$	2,238.0			$	2,068.1

In millions		2017				2016				2015
Revenues
Mechanical products		$	1,906.4			$	1,793.1			$	1,661.4
All other		501.8				444.9				406.7
Total		$	2,408.2			$	2,238.0			$	2,068.1

Less than 10% of the Company's net revenues come from the sale of services.

In millions		2017				2016
Long-lived assets
United States		$	131.0			$	117.1
Non-U.S.		440.1				402.3
Total		$	571.1			$	519.4

NOTE 21 – SUBSEQUENT EVENTS

Subsequent to the year ended December 31, 2017, the Company completed three acquisitions:

Business		Date
Technical Glass Products, Inc. ("TGP")		January 2018
Hammond Enterprises, Inc. ("Hammond")		January 2018
Qatar Metal Industries LLC ("QMI")		February 2018

In January 2018, the Company acquired 100% of TGP through one of its subsidiaries. TGP provides 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 will be incorporated 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 will be 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 will be incorporated into the Company's EMEIA segment.

Total consideration paid for these three acquisitions at closing was approximately $215 million (net of cash acquired), with additional consideration approximating $10 million to be paid subject to a retention and transition period for two of these acquisitions. Cash on hand was utilized to fund these acquisitions.

Based on the preliminary allocation of the aggregate purchase price to assets acquired and liabilities assumed for these acquisitions, approximately $5 million has been allocated to net working capital, approximately $15 million to long-term tangible assets,

F-44

approximately $120 million to indefinite-lived and finite intangible assets, and the remaining approximately $85 million to goodwill. Goodwill is expected to be deductible for tax purposes. Supplemental pro forma information has not been provided as the acquisitions individually and in the aggregate would not have had a material impact on consolidated pro forma results of operations in 2017 or 2016.

On February 7, 2018, the Company's Board of Directors declared a quarterly dividend of $0.21 cents per ordinary share. The dividend is payable March 29, 2018 to shareholders of record on March 15, 2018.

F-45

NOTE 22 – GUARANTOR FINANCIAL INFORMATION

Allegion US Holding Company, Inc. ("Allegion US Hold Co") is the issuer of the 3.200% and 3.550% Senior Notes. Allegion plc is the guarantor of the 3.200% and 3.550% Senior Notes. The following condensed and consolidated financial information of Allegion plc, Allegion US Hold Co, and the other Allegion subsidiaries that are not guarantors (the "Other Subsidiaries") on a combined basis as of December 31, 2017 and for the years ended December 31, 2017, 2016 and 2015, is being presented in order to meet the reporting requirements under the Senior Notes indenture 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, whom is the guarantor, are not required to be filed with the SEC as the subsidiary debt issuer is directly or indirectly 100% owned by the Parent, whom is the guarantor, and the guarantees are full and unconditional and joint and several.

In addition to reflecting the presentation of the condensed and consolidating financial statements for the new guarantor reporting structure disclosed in Form 10-Q filed with the SEC on October 26, 2017, the Company also made revisions to correct certain errors that were not material to the condensed and consolidating balance sheet as of December 31, 2016, which impacted Allegion US Hold Co, with applicable offsetting adjustments in the Consolidating Adjustments column. These revisions had no impact to the condensed and consolidating statements of comprehensive income (loss) or cash flows for any period. The effects of the revisions were as follows: Allegion US Hold Co's Investments in affiliates and Other shareholders' equity (deficit) was reduced by $2,696.3 million. The applicable offsetting effect of these corrections was included in the Consolidating Adjustments column.

Subsequent to December 31, 2017 but before the issuance of this annual report, a merger of an entity currently presented in the "Other Subsidiaries" column with Allegion US Hold Co took place. As a result, the guarantor financial information presented under Rule 3-10 of Regulation S-X included in this periodic report does not reflect this merger. The entity merged with Allegion US Hold Co primarily includes intercompany investments and related equity; there is no material income statement or cash flow activity related to this entity. In future periodic filings beginning with the Company's 2018 first quarterly report included in Form 10-Q, the condensed and consolidating financial information presented below will be modified to reflect this merger.

Condensed and Consolidated Statement of Comprehensive Income

For the year ended December 31, 2017

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Net revenues	$	—			$	—			$	2,408.2			$	—			$	2,408.2
Cost of goods sold	—				—				1,337.5				—				1,337.5
Selling and administrative expenses	5.3				0.2				577.0				—				582.5
Operating income (loss)	(5.3		)		(0.2		)		493.7				—				488.2
Equity earnings (loss) in affiliates, net of tax	348.2				148.9				—				(497.1		)		—
Interest expense	70.6				34.8				0.3				—				105.7
Intercompany interest and fees	(1.0		)		102.7				(101.7		)		—				—
Other income, net	—				—				(13.2		)		—				(13.2		)
Earnings (loss) before income taxes	273.3				11.2				608.3				(497.1		)		395.7
Provision (benefit) for income taxes	—				(27.3		)		146.3				—				119.0
Net earnings (loss)	273.3				38.5				462.0				(497.1		)		276.7
Less: Net earnings attributable to noncontrolling interests	—				—				3.4				—				3.4
Net earnings (loss) attributable to Allegion plc	$	273.3			$	38.5			$	458.6			$	(497.1	)		$	273.3
Total comprehensive income (loss)	$	391.1			$	39.2			$	577.6			$	(614.0	)		$	393.9
Less: Total comprehensive income attributable to noncontrolling interests	—				—				2.8				—				2.8
Total comprehensive income (loss) attributable to Allegion plc	$	391.1			$	39.2			$	574.8			$	(614.0	)		$	391.1

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Condensed and Consolidated Statement of Comprehensive Income

For the year ended December 31, 2016

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Net revenues	$	—			$	—			$	2,238.0			$	—			$	2,238.0
Cost of goods sold	—				—				1,252.7				—				1,252.7
Selling and administrative expenses	4.7				—				555.1				—				559.8
Operating income (loss)	(4.7		)		—				430.2				—				425.5
Equity earnings (loss) in affiliates, net of tax	277.4				148.3				0.3				(426.0		)		—
Interest expense	43.5				20.2				0.6				—				64.3
Intercompany interest and fees	(0.4		)		97.9				(97.5		)		—				—
Other (income) expense, net	—				—				66.2				—				66.2
Earnings (loss) before income taxes	229.6				30.2				461.2				(426.0		)		295.0
Provision (benefit) for income taxes	0.5				(45.5		)		108.8				—				63.8
Net earnings (loss)	229.1				75.7				352.4				(426.0		)		231.2
Less: Net earnings attributable to noncontrolling interests	—				—				2.1				—				2.1
Net earnings (loss) attributable to Allegion plc	$	229.1			$	75.7			$	350.3			$	(426.0	)		$	229.1
Total comprehensive income (loss)	$	197.0			$	79.4			$	314.2			$	(391.9	)		$	198.7
Less: Total comprehensive income attributable to noncontrolling interests	—				—				1.7				—				1.7
Total comprehensive income (loss) attributable to Allegion plc	$	197.0			$	79.4			$	312.5			$	(391.9	)		$	197.0

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Condensed and Consolidated Statement of Comprehensive Income

For the year ended December 31, 2015

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Net revenues	$	—			$	—			$	2,068.1			$	—			$	2,068.1
Cost of goods sold	—				—				1,199.0				—				1,199.0
Selling and administrative expenses	4.7				(0.1		)		505.9				—				510.5
Operating income (loss)	(4.7		)		0.1				363.2				—				358.6
Equity earnings (loss) in affiliates, net of tax	190.6				167.2				—				(357.8		)		—
Interest expense	31.2				21.1				0.6				—				52.9
Intercompany interest and fees	(0.4		)		95.0				(94.6		)		—				—
Other (income) expense, net	(0.2		)		—				96.6				—				96.4
Earnings (loss) before income taxes	155.3				51.2				360.6				(357.8		)		209.3
Provision (benefit) for income taxes	1.2				(44.7		)		98.1				—				54.6
Earnings (loss) from continuing operations	154.1				95.9				262.5				(357.8		)		154.7
Discontinued operations, net of tax	—				—				(0.4		)		—				(0.4		)
Net earnings (loss)	154.1				95.9				262.1				(357.8		)		154.3
Less: Net earnings attributable to noncontrolling interests	—				—				0.4				—				0.4
Net earnings (loss) attributable to Allegion plc	$	154.1			$	95.9			$	261.7			$	(357.8	)		$	153.9
Total comprehensive income (loss)	$	69.8			$	95.6			$	177.9			$	(274.4	)		$	68.9
Less: Total comprehensive income attributable to noncontrolling interests	—				—				(0.9		)		—				(0.9		)
Total comprehensive income (loss) attributable to Allegion plc	$	69.8			$	95.6			$	178.8			$	(274.4	)		$	69.8

F-48

Condensed and Consolidated Balance Sheet

December 31, 2017

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Current assets:
Cash and cash equivalents	$	0.7			$	0.2			$	465.3			$	—			$	466.2
Accounts and notes receivable, net	—				—				296.6				—				296.6
Inventories	—				—				239.8				—				239.8
Other current assets	0.3				53.1				16.7				(40.9		)		29.2
Assets held for sale	—				—				0.9				—				0.9
Accounts and notes receivable affiliates	—				396.8				33.1				(429.9		)		—
Total current assets	1.0				450.1				1,052.4				(470.8		)		1,032.7
Investment in affiliates	1,079.6				215.3				—				(1,294.9		)		—
Property, plant and equipment, net	—				—				252.2				—				252.2
Intangible assets, net	—				—				1,155.5				—				1,155.5
Notes receivable affiliates	3.5				1,165.1				2,182.9				(3,351.5		)		—
Other noncurrent assets	5.0				5.2				91.4				—				101.6
Total assets	$	1,089.1			$	1,835.7			$	4,734.4			$	(5,117.2	)		$	2,542.0
Current liabilities:
Accounts payable and accruals	$	1.9			$	7.1			$	457.7			$	(40.9	)		$	425.8
Short-term borrowings and current maturities of long-term debt	35.0				—				—				—				35.0
Accounts and note payable affiliates	0.2				32.9				396.8				(429.9		)		—
Total current liabilities	37.1				40.0				854.5				(470.8		)		460.8
Long-term debt	649.3				791.9				1.1				—				1,442.3
Note payable affiliate	—				2,182.9				1,168.6				(3,351.5		)		—
Other noncurrent liabilities	1.1				2.1				230.2				—				233.4
Total liabilities	687.5				3,016.9				2,254.4				(3,822.3		)		2,136.5
Equity:
Total shareholders’ equity (deficit)	401.6				(1,181.2		)		2,476.1				(1,294.9		)		401.6
Noncontrolling interests	—				—				3.9				—				3.9
Total equity (deficit)	401.6				(1,181.2		)		2,480.0				(1,294.9		)		405.5
Total liabilities and equity	$	1,089.1			$	1,835.7			$	4,734.4			$	(5,117.2	)		$	2,542.0

F-49

Condensed and Consolidated Balance Sheet

December 31, 2016

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Current assets:
Cash and cash equivalents	$	0.5			$	0.1			$	311.8			$	—			$	312.4
Accounts and notes receivable, net	—				—				260.0				—				260.0
Inventories	—				—				220.6				—				220.6
Other current assets	0.4				49.7				17.6				(33.6		)		34.1
Assets held for sale	—				—				2.2				—				2.2
Accounts and notes receivable affiliates	—				331.6				36.8				(368.4		)		—
Total current assets	0.9				381.4				849.0				(402.0		)		829.3
Investment in affiliates	1,229.4				220.2				—				(1,449.6		)		—
Property, plant and equipment, net	—				—				226.6				—				226.6
Intangible assets, net	—				—				1,074.2				—				1,074.2
Notes receivable affiliates	53.2				1,149.8				2,690.7				(3,893.7		)		—
Other noncurrent assets	5.4				14.8				97.1				—				117.3
Total assets	$	1,288.9			$	1,766.2			$	4,937.6			$	(5,745.3	)		$	2,247.4
Current liabilities:
Accounts payable and accruals	$	7.0			$	4.7			$	403.3			$	(33.6	)		$	381.4
Short-term borrowings and current maturities of long-term debt	46.9				—				1.3				—				48.2
Accounts and note payable affiliates	0.4				36.4				331.6				(368.4		)		—
Total current liabilities	54.3				41.1				736.2				(402.0		)		429.6
Long-term debt	1,120.2				294.4				1.0				—				1,415.6
Note payable affiliate	—				2,690.7				1,203.0				(3,893.7		)		—
Other noncurrent liabilities	1.1				—				284.7				—				285.8
Total liabilities	1,175.6				3,026.2				2,224.9				(4,295.7		)		2,131.0
Equity:
Total shareholders’ equity (deficit)	113.3				(1,260.0		)		2,709.6				(1,449.6		)		113.3
Noncontrolling interests	—				—				3.1				—				3.1
Total equity (deficit)	113.3				(1,260.0		)		2,712.7				(1,449.6		)		116.4
Total liabilities and equity	$	1,288.9			$	1,766.2			$	4,937.6			$	(5,745.3	)		$	2,247.4

F-50

Condensed and Consolidated Statement of Cash Flows

For the year ended December 31, 2017

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Net cash provided by (used in) operating activities	$	581.3			$	40.0			$	510.2			$	(784.3	)		$	347.2
Cash flows from investing activities:
Capital expenditures	—				—				(49.3		)		—				(49.3		)
Acquisition of businesses, net of cash acquired	—				—				(20.8		)		—				(20.8		)
Proceeds from sale of property, plant and equipment	—				—				3.1				—				3.1
Proceeds from sale of equity investment	—				—				15.6				—				15.6
Proceeds (payments) related to business dispositions	—				—				1.2				—				1.2
Net cash used in investing activities	—				—				(50.2		)		—				(50.2		)
Cash flows from financing activities:
Net debt repayments	(488.5		)		500.0				(1.4		)		—				10.1
Debt issuance costs	(4.0		)		(5.5		)		—				—				(9.5		)
Redemption premium	(24.6		)		(8.6		)		—				—				(33.2		)
Net inter-company proceeds (payments)	49.7				(523.0		)		473.3				—				—
Dividends paid to shareholders	(60.9		)		—				—				—				(60.9		)
Dividends paid to noncontrolling interests	—				—				(1.8		)		—				(1.8		)
Dividends paid	—				—				(784.3		)		784.3				—
Proceeds from shares issued under incentive plans	7.2				—				—				—				7.2
Repurchase of ordinary shares	(60.0		)		—				—				—				(60.0		)
Other financing activities, net	—				(2.8		)		—				—				(2.8		)
Net cash (used in) provided by financing activities	(581.1		)		(39.9		)		(314.2		)		784.3				(150.9		)
Effect of exchange rate changes on cash and cash equivalents	—				—				7.7				—				7.7
Net increase in cash and cash equivalents	0.2				0.1				153.5				—				153.8
Cash and cash equivalents - beginning of period	0.5				0.1				311.8				—				312.4
Cash and cash equivalents - end of period	$	0.7			$	0.2			$	465.3			$	—			$	466.2

F-51

Condensed and Consolidated Statement of Cash Flows

For the year ended December 31, 2016

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Net cash provided by (used in) continuing operating activities	$	(25.6	)		$	34.1			$	528.9			$	(159.9	)		$	377.5
Cash flows from investing activities:
Capital expenditures	—				—				(42.5		)		—				(42.5		)
Acquisition of businesses, net of cash acquired	—				—				(31.4		)		—				(31.4		)
Proceeds from sales and maturities of marketable securities	—				—				14.1				—				14.1
Proceeds (payments) related to business disposition	—				—				(4.3		)		—				(4.3		)
Other investing activities, net	—				—				0.1				—				0.1
Net cash used in investing activities	—				—				(64.0		)		—				(64.0		)
Cash flows from financing activities:
Net debt repayments	(47.0		)		—				(17.4		)		—				(64.4		)
Debt issuance costs	(0.3		)		—				—				—				(0.3		)
Net inter-company proceeds (payments)	195.4				(34.3		)		(161.1		)		—				—
Dividends paid to shareholders	(46.0		)		—				—				—				(46.0		)
Dividends paid to noncontrolling interests	—				—				(2.7		)		—				(2.7		)
Dividends paid	—				—				(159.9		)		159.9				—
Acquisition of noncontrolling interest	—				—				(3.3		)		—				(3.3		)
Proceeds from shares issued under incentive plans	5.8				—				—				—				5.8
Repurchase of ordinary shares	(85.1		)		—				—				—				(85.1		)
Net cash provided by (used in) financing activities	22.8				(34.3		)		(344.4		)		159.9				(196.0		)
Effect of exchange rate changes on cash and cash equivalents	—				—				(4.8		)		—				(4.8		)
Net (decrease) increase in cash and cash equivalents	(2.8		)		(0.2		)		115.7				—				112.7
Cash and cash equivalents - beginning of period	3.3				0.3				196.1				—				199.7
Cash and cash equivalents - end of period	$	0.5			$	0.1			$	311.8			$	—			$	312.4

F-52

Condensed and Consolidated Statement of Cash Flows

For the year ended December 31, 2015

In millions	Allegion plc				Allegion US Holding				Other Subsidiaries				Consolidating Adjustments				Total
Net cash provided by (used in) continuing operating activities	$	(23.4	)		$	125.8			$	416.5			$	(261.5	)		$	257.4
Net cash used in discontinued operating activities	—				—				(0.4		)						(0.4		)
Net cash provided by (used in) operating activities	(23.4		)		125.8				416.1				(261.5		)		257.0
Cash flows from investing activities:
Capital expenditures	—				—				(35.2		)		—				(35.2		)
Acquisition of businesses, net of cash acquired	—				—				(511.3		)		—				(511.3		)
Proceeds from sale of property, plant and equipment	—				—				0.3				—				0.3
Proceeds from business disposition, net of cash sold	—				—				0.1				—				0.1
Proceeds from sale of marketable securities	—				—				12.3				—				12.3
Net cash used in investing activities	—				—				(533.8		)		—				(533.8		)
Cash flows from financing activities:
Net debt proceeds	263.8				—				14.5				—				278.3
Debt issuance costs	(9.0		)		—				—				—				(9.0		)
Net inter-company proceeds (payments)	(200.9		)		(126.0		)		326.9				—				—
Dividends paid to shareholders	(38.3		)		—				—				—				(38.3		)
Dividends paid to noncontrolling interests	—				—				(20.0		)		—				(20.0		)
Dividends paid	—				—				(261.5		)		261.5				—
Proceeds from shares issued under incentive plans	11.0				—				—				—				11.0
Repurchase of ordinary shares	(30.0		)		—				—				—				(30.0		)
Other financing activities, net	3.0				—				—				—				3.0
Net cash (used in) provided by financing activities	(0.4		)		(126.0		)		59.9				261.5				195.0
Effect of exchange rate changes on cash and cash equivalents	—				—				(9.0		)		—				(9.0		)
Net decrease in cash and cash equivalents	(23.8		)		(0.2		)		(66.8		)		—				(90.8		)
Cash and cash equivalents - beginning of period	27.1				0.5				262.9				—				290.5
Cash and cash equivalents - end of period	$	3.3			$	0.3			$	196.1			$	—			$	199.7

F-53

SCHEDULE II

ALLEGION PLC

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED December 31, 2017, 2016 AND 2015

(Amounts in millions)

Allowances for Doubtful Accounts:
Balance December 31, 2014	$	3.2
Additions charged to costs and expenses	1.6
Deductions*	(1.5		)
Business acquisitions and divestitures, net	0.9
Currency translation	(0.4		)
Balance December 31, 2015	3.8
Additions charged to costs and expenses	0.1
Deductions*	(1.1		)
Currency translation	(0.1		)
Balance December 31, 2016	2.7
Additions charged to costs and expenses	0.8
Deductions*	(0.9		)
Currency translation	0.2
Balance December 31, 2017	$	2.8

(*)	"Deductions" include accounts and advances written off, less recoveries.

F-54