Edgar Filing: Allegion plc

ALLE-10Q-06.30.2015-DOC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35971

_______________________________

ALLEGION PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

_______________________________



Ireland	98-1108930
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Block D

Iveagh Court

Harcourt Road

Dublin 2, Ireland

(Address of principal executive offices, including zip code)

+(353) (1) 2546200

(Registrant’s telephone number, including area code)

_______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

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



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

The number of ordinary shares outstanding of Allegion plc as of July 27, 2015 was 95,812,288.

Table of Contents

ALLEGION PLC

FORM 10-Q

INDEX




PART I FINANCIAL INFORMATION		1

Item 1 -	Financial Statements	1

	Condensed and Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (Unaudited)	1

	Condensed and Consolidated Balance Sheets at June 30, 2015 and December 31, 2014 (Unaudited)	2

	Condensed and Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)	3

	Notes to Condensed and Consolidated Financial Statements (Unaudited)	4

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3 -	Quantitative and Qualitative Disclosures about Market Risk	42

Item 4 -	Controls and Procedures	42

PART II OTHER INFORMATION		43

Item 1 -	Legal Proceedings	43

Item 1A -	Risk Factors	43

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 6 -	Exhibits	44

SIGNATURES		45

Table of Contents

PART I-FINANCIAL INFORMATION


Item 1.	Financial Statements

ALLEGION PLC

CONDENSED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended					Six months ended
	June 30,					June 30,
In millions, except per share amounts	2015		2014			2015			2014
Net revenues	$	519.5	$	531.5		$	978.2		$	998.1
Cost of goods sold	297.7		305.5			569.3			579.9
Selling and administrative expenses	126.1		136.7			242.2			261.1
Operating income	95.7		89.3			166.7			157.1
Interest expense	11.3		12.5			22.9			25.6
Other (income) expense, net	0.4		(1.0		)	3.5			(1.1		)
Earnings before income taxes	84.0		77.8			140.3			132.6
Provision for income taxes	19.0		23.1			31.4			39.5
Earnings from continuing operations	65.0		54.7			108.9			93.1
Discontinued operations, net of tax	—		(8.0		)	(0.2		)	(8.8		)
Net earnings	65.0		46.7			108.7			84.3
Less: Net earnings (loss) attributable to noncontrolling interests	1.1		3.5			(0.6		)	5.3
Net earnings attributable to Allegion plc	$	63.9	$	43.2		$	109.3		$	79.0
Amounts attributable to Allegion plc ordinary shareholders:
Continuing operations	$	63.9	$	51.2		$	109.5		$	87.8
Discontinued operations	—		(8.0		)	(0.2		)	(8.8		)
Net earnings	$	63.9	$	43.2		$	109.3		$	79.0
Earnings (loss) per share attributable to Allegion plc ordinary shareholders:
Basic:
Continuing operations	$	0.67	$	0.53		$	1.14		$	0.91
Discontinued operations	—		(0.08		)	—			(0.09		)
Net earnings	$	0.67	$	0.45		$	1.14		$	0.82
Diluted:
Continuing operations	$	0.66	$	0.53		$	1.13		$	0.90
Discontinued operations	—		(0.09		)	—			(0.09		)
Net earnings	$	0.66	$	0.44		$	1.13		$	0.81
Weighted-average shares outstanding
Basic	95.8		96.3			95.8			96.3
Diluted	96.7		97.3			96.9			97.4

Dividends declared per ordinary share	$	0.10	$	0.08		$	0.20		$	0.16

Total comprehensive income	$	70.5	$	52.5		$	83.8		$	76.1
Less: Total comprehensive income (loss) attributable to noncontrolling interests	1.1		3.5			(0.6		)	4.5
Total comprehensive income attributable to Allegion plc	$	69.4	$	49.0		$	84.4		$	71.6

See accompanying notes to condensed and consolidated financial statements.

Table of Contents

ALLEGION PLC

CONDENSED AND CONSOLIDATED BALANCE SHEETS

(Unaudited)



In millions	June 30, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	201.0		$	290.5
Accounts and notes receivable, net	274.7			259.9
Costs in excess of billings on uncompleted contracts	186.4			181.1
Inventories	205.9			179.5
Other current assets	55.2			62.8
Total current assets	923.2			973.8
Property, plant and equipment, net	207.8			211.2
Goodwill	527.5			506.0
Intangible assets, net	122.5			125.7
Other noncurrent assets	208.6			199.2
Total assets	$	1,989.6		$	2,015.9
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	233.8		$	249.5
Accrued expenses and other current liabilities	183.4			232.2
Short-term borrowings and current maturities of long-term debt	61.8			49.6
Total current liabilities	479.0			531.3
Long-term debt	1,190.5			1,215.0
Other noncurrent liabilities	247.4			251.1
Total liabilities	1,916.9			1,997.4
Equity:
Allegion plc shareholders’ equity (deficit):
Ordinary shares	1.0			1.0
Capital in excess of par value	12.3			—
Retained earnings	207.1			142.4
Accumulated other comprehensive loss	(173.1		)	(148.2		)
Total Allegion plc shareholders’ equity (deficit)	47.3			(4.8		)
Noncontrolling interests	25.4			23.3
Total equity	72.7			18.5
Total liabilities and equity	$	1,989.6		$	2,015.9

See accompanying notes to condensed and consolidated financial statements.

Table of Contents

ALLEGION PLC

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six months ended
	June 30,
In millions	2015			2014
Cash flows from operating activities:
Net earnings	108.7			84.3
Discontinued operations, net of tax	0.2			8.8
Adjustments to arrive at net cash provided by (used in) operating activities:
Depreciation and amortization	24.8			24.4
Changes in assets and liabilities and other non-cash items	(100.3		)	(52.1		)
Net cash provided by continuing operating activities	33.4			65.4
Net cash used in discontinued operating activities	(0.2		)	(1.6		)
Net cash provided by operating activities	33.2			63.8
Cash flows from investing activities:
Capital expenditures	(18.6		)	(26.0		)
Acquisition of and equity investments in businesses, net of cash acquired	(52.0		)	(23.0		)
Other investing activities, net	4.1			40.8
Net cash used in investing activities	(66.5		)	(8.2		)
Cash flows from financing activities:
Short-term borrowings, net	12.2			(40.2		)
Payments of long-term debt	(24.4		)	(15.0		)
Debt repayments, net	(12.2		)	(55.2		)
Dividends paid to ordinary shareholders	(19.1		)	(14.9		)
Repurchase of ordinary shares	(30.0		)	(30.3		)
Other financing activities, net	8.7			14.6
Net cash used in continuing financing activities	(52.6		)	(85.8		)
Effect of exchange rate changes on cash and cash equivalents	(3.6		)	(4.0		)
Net decrease in cash and cash equivalents	(89.5		)	(34.2		)
Cash and cash equivalents - beginning of period	290.5			227.4
Cash and cash equivalents - end of period	$	201.0		$	193.2

See accompanying notes to condensed and consolidated financial statements.

Table of Contents

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

The accompanying condensed and consolidated financial statements of Allegion plc, an Irish public limited company, and its consolidated subsidiaries ("Allegion" or "the Company"), reflect the consolidated operations of the Company and have been prepared in accordance with United States Securities and Exchange Commission ("SEC") interim reporting requirements. Accordingly, the accompanying condensed and consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for full financial statements and should be read in conjunction with the consolidated financial statements included in the Allegion Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, the accompanying condensed and consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the consolidated unaudited results for the interim periods presented.

Note 2 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements:

In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which amends the definition of a discontinued operation in Accounting Standards Codification Topic 205-20 (Presentation of Financial Statements — Discontinued Operations) and requires entities to disclose additional information about disposal transactions that do not meet the discontinued operations criteria. ASU 2014-08 redefines a discontinued operation as a component or group of components of an entity that (1) has been disposed of by sale or other than by sale or is classified as held for sale and (2) represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. According to the ASU, a strategic shift that has (or will have) a major effect on an entity’s operations and results includes the disposal of a major geographical area, a major line of business, a major equity investment, or other major parts of an entity. The ASU is effective prospectively for disposals or components classified as held for sale in periods on or after December 15, 2014. The adoption of ASU 2014-08 did not have a significant impact on the Condensed and Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 is the result of a joint project between the FASB and International Accounting Standards Board ("IASB") to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards ("IFRS") that would remove inconsistencies and weaknesses in revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provide more useful information to users of financial statements through improved disclosure requirements and simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. On July 9, 2015 the FASB voted to defer the effective date by one year to the interim and annual periods beginning on or after December 15, 2017. Early adoption is permitted for periods beginning on or after December 15, 2016. The Company is assessing what impact ASU 2014-09 will have on the Condensed and Consolidated Financial Statements.

In June 2014, the FASB issued ASU 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The ASU is effective for annual and interim reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. The requirements of ASU 2014-12 are not expected to have a significant impact on the Condensed and Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-15, "Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 will be effective in

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

the fourth quarter of 2016. Early adoption is permitted. The requirements of ASU 2014-15 are not expected to have a significant impact on the Condensed and Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as an asset. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The requirements of ASU 2015-03 are not expected to have a significant impact on the Condensed and Consolidated Financial Statements. As of June 30, 2015 the Company had $22.3 million in unamortized debt issuance costs.

In May 2015, the FASB issued ASU 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and removes the requirement to make certain disclosures for these investments. The standard will be effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company is assessing what impact ASU 2015-07 will have on the Condensed and Consolidated Financial Statements.

Note 3 – Inventories

Inventories are stated at the lower of cost or net realizable value. In the fourth quarter of 2014, the Company changed its method of inventory costing for certain inventory in its Americas operating segment to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method. The Company's other operating segments also determine inventory cost using the FIFO method.

The major classes of inventory were as follows:



In millions	June 30, 2015		December 31, 2014
Raw materials	$	65.0	$	54.8
Work-in-process	45.4		32.1
Finished goods	95.5		92.6
Total	$	205.9	$	179.5

Note 4 – Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2015 were as follows:



In millions	Americas			EMEIA			Asia Pacific			Total
December 31, 2014 (gross)	$	364.8		$	533.1		$	93.6		$	991.5
Accumulated impairment	—			(478.6		)	(6.9		)	(485.5		)
December 31, 2014 (net)	364.8			54.5			86.7			506.0
Acquisitions	9.2			4.0			15.9			29.1
Currency translation	(0.1		)	(3.4		)	(4.1		)	(7.6		)
June 30, 2015 Goodwill (net)	$	373.9		$	55.1		$	98.5		$	527.5

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

Note 5 – Intangible Assets

The gross amount of the Company’s intangible assets and related accumulated amortization were as follows:



	June 30, 2015							December 31, 2014
In millions	Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount
Completed technologies/patents	$	26.7	$	(22.6	)	$	4.1	$	27.8	$	(23.2	)	$	4.6
Customer relationships	95.3		(36.0		)	59.3		94.7		(37.0		)	57.7
Trademarks (finite-lived)	82.6		(34.9		)	47.7		89.3		(36.0		)	53.3
Other	10.2		(10.2		)	—		10.8		(10.8		)	—
Total finite-lived intangible assets	214.8		$	(103.7	)	111.1		222.6		$	(107.0	)	115.6
Trademarks (indefinite-lived)	11.4					11.4		10.1					10.1
Total	$	226.2				$	122.5	$	232.7				$	125.7

Intangible asset amortization expense was $3.8 million and $4.9 million for the six months ended June 30, 2015 and 2014, respectively. Future estimated amortization expense on existing intangible assets in each of the next five years amounts to approximately $7.6 million for full year 2015, $7.6 million for 2016, $7.6 million for 2017, $7.6 million for 2018, and $7.6 million for 2019.

Note 6 – Acquisitions

In February 2015, the Company made an investment in iDevices, a brand and development partner in the Internet of Things industry. The investment is accounted for using the equity method.

In April 2015, the Company completed the acquisition of certain assets of Zero International, Inc. ("Zero"). 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.

In May 2015, the Company completed the acquisition of the assets of Brio, a division of RMD Industries Pty Ltd ("Brio"). 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.

Total consideration paid for the acquisitions of Zero and Brio was $43.0 million. These acquisitions were not material to the Company's condensed and consolidated financial statements, either individually or in the aggregate, and therefore actual and proforma disclosures under the applicable accounting guidance have not been presented. The summary of net tangible and intangible assets acquired is as follows:



	Total
Net tangible assets acquired	$	5.5
Intangible assets and goodwill acquired	37.5
Total cash consideration	$	43.0

The purchase price allocations for the Zero and Brio acquisitions are pending completion of valuations for certain acquired intangible assets, finalization of working capital adjustments and calculation of deferred tax balances. The Company expects these items to be completed in the second half of 2015. These acquisitions are accounted for as business combinations.

In June 2015, the Company signed a definitive agreement to acquire SimonsVoss Technologies GmbH ("SimonsVoss") for approximately $236.0 million. SimonsVoss, headquartered in Munich, Germany, is an electronic lock company in the European electronic market segment. SimonsVoss generated sales of approximately $69.2 million in 2014. The Company plans to fund the acquisition through existing cash on hand and borrowings under its Senior Secured Revolving Credit Facility. The Company expects the transaction to close in the third quarter of 2015, subject to regulatory approval.

Note 7 – Debt and Credit Facilities

Long-term debt and other borrowings consisted of the following:



In millions	June 30, 2015		December 31, 2014
Term Loan Facility due 2019	$	938.4	$	962.8
5.75% Senior notes due 2021	300.0		300.0
Other debt, including capital leases, maturing in various amounts through 2016	13.9		1.8
Total debt	1,252.3		1,264.6
Less: current portion of long term debt	61.8		49.6
	$	1,190.5	$	1,215.0

Senior Secured Credit Facilities

The Company has a credit agreement providing for (i) a $975.0 million Senior Secured Term Loan Facility maturing on October 15, 2019 (the "Term Loan Facility") and (ii) a $500.0 million Senior Secured Revolving Credit Facility (the "Revolver") maturing in 2018. The Company refers to these credit facilities as its "Senior Secured Credit Facilities." Allegion plc is the primary borrower for the Senior Secured Credit Facilities.

Outstanding borrowings under the Senior Secured Credit Facilities currently accrue interest at LIBOR plus an applicable margin. The applicable margin for borrowings under the Revolver and the Term Loan Facility is subject to a credit facility rating-based pricing grid with the LIBOR ranging from 1.50% to 2.00%. The margin for the Term Loan Facility borrowings was 1.75% as of June 30, 2015.

To manage the Company's exposure to fluctuations in LIBOR rates, the Company has interest rate swaps for $300.0 million of the Company's variable rate $975.0 million Term Loan Facility. Swaps with notional amounts totaling $275.0 million were effective in January 2015 and expire in September 2017 and swaps with notional amounts totaling $25.0 million were effective in January 2015 and expire in December 2016. The swaps exchange 90-day LIBOR for a fixed interest rate.

The Company repaid $24.4 million of principal on its Term Loan Facility during the six months ended June 30, 2015 in accordance with the terms of its senior secured credit facility. At June 30, 2015, the Company did not have any borrowings outstanding under the Revolver and had $27.3 million of letters of credit outstanding.

Senior Notes

A wholly-owned subsidiary of the Company has issued $300.0 million of 5.75% senior notes due 2021 (the "Senior Notes"). The Senior Notes accrue interest at the rate of 5.75% per annum, payable semi-annually on April 1 and October 1 of each year. The Senior Notes mature on October 1, 2021.

At June 30, 2015, the weighted-average interest rate for borrowings was 2.3% under the Term Loan Facility (including the effect of interest rate swaps) and 5.75% under the Senior Notes.

Note 8 – Financial Instruments

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

On the 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

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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 loss.

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 was $244.8 million and $494.5 million at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015 and December 31, 2014, gains of $0.8 million and $1.6 million, net of tax, respectively, were included in Accumulated other comprehensive loss related to the fair value of the Company’s currency derivatives designated as cash flow hedges. The amount expected to be reclassified into Net earnings over the next twelve months is a gain of $0.8 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 June 30, 2015, the maximum term of the Company’s currency derivatives was less than one year.

Interest Rate Swaps

In June 2014, the Company entered into forward starting interest rate swaps to fix the interest rate paid during the contract period for $300.0 million of the Company's variable rate $975.0 million Term Loan Facility. Swaps with notional amounts totaling $275.0 million effective January 2015 expire in September 2017 and swaps with notional amounts totaling $25.0 million effective January 2015 expire in December 2016. 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 were recognized in Accumulated other comprehensive loss. At June 30, 2015, $2.0 million of losses were recorded in Accumulated other comprehensive loss related to these interest rate swaps and none are expected to be reclassified into Interest expense over the next twelve months.

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



	Asset derivatives				Liability derivatives
In millions	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014
Derivatives designated as hedges:
Currency derivatives	$	1.4	$	2.1	$	—	$	—
Interest rate swaps	—		—		2.0		0.9
Derivatives not designated as hedges:
Currency derivatives	0.3		2.2		3.2		13.9
Total derivatives	$	1.7	$	4.3	$	5.2	$	14.8

Asset and liability derivatives included in the table above are recorded within Other current assets and Accrued expenses and other current liabilities within the Condensed and Consolidated Balance Sheets.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

The amounts associated with derivatives designated as hedges affecting Net earnings and Accumulated other comprehensive loss for the six months ended June 30 were as follows:



	Amount of gain (loss) recognized in Accumulated other comprehensive loss						Location of gain (loss) recognized in Net earnings	Amount of gain (loss) reclassified from Accumulated other comprehensive loss and recognized into Net earnings
In millions	2015			2014			Location of gain (loss) recognized in Net earnings	2015		2014
Currency derivatives	$	4.2		$	(0.7	)	Cost of goods sold	$	4.7	$	0.6
Interest rate swaps	(1.1		)	(0.4		)	Interest expense	—		—
Total	$	3.1		$	(1.1	)		$	4.7	$	0.6

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 9 – Pensions and Postretirement Benefits Other than Pensions

The Company sponsors several U.S. defined benefit and defined contribution plans covering substantially all of its U.S. employees. Additionally, the Company has non-U.S. defined benefit and defined contribution plans covering eligible non-U.S. employees. Postretirement benefits, other than pensions, provide healthcare benefits, and in some instances, life insurance benefits for certain eligible employees.

Pension Plans

The noncontributory defined benefit pension plans covering non-collectively bargained U.S. employees provide benefits on an average pay formula while most plans for collectively bargained U.S. employees provide benefits on a flat dollar benefit formula. The non-U.S. pension plans generally provide benefits based on earnings and years of service. The Company also maintains additional other supplemental plans for officers and other key employees.

The components of the Company’s net periodic pension benefit costs for the three and six months ended June 30 were as follows:



	U.S.
	Three months ended						Six months ended
In millions	2015			2014			2015			2014
Service cost	$	2.3		$	1.8		$	4.7		$	3.6
Interest cost	2.8			2.8			5.5			5.6
Expected return on plan assets	(2.9		)	(2.8		)	(5.7		)	(5.6		)
Net amortization of:
Prior service costs	0.2			0.2			0.4			0.4
Plan net actuarial losses	1.2			0.5			2.3			1.0
Net periodic pension benefit cost	$	3.6		$	2.5		$	7.2		$	5.0
Net settlement losses	—			—			0.6			—
Net periodic pension benefit cost after settlement losses	$	3.6		$	2.5		$	7.8		$	5.0

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)



	Non-U.S.
	Three months ended						Six months ended
In millions	2015			2014			2015			2014
Service cost	$	0.9		$	1.1		$	1.7		$	2.3
Interest cost	3.5			4.4			6.9			8.7
Expected return on plan assets	(4.5		)	(4.4		)	(8.9		)	(8.7		)
Amortization of plan net actuarial losses	0.3			0.7			0.7			1.4
Net periodic pension benefit cost	$	0.2		$	1.8		$	0.4		$	3.7

The Company made employer contributions of $0.2 million and $0.5 million during the six months ended June 30, 2015 and 2014 to its defined benefit pension plans. Additional contributions of approximately $5.0 million are expected during the remainder of 2015.

Postretirement Benefits Other Than Pensions

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

The components of net periodic postretirement benefit income for the three and six months ended June 30 were as follows:



	Three months ended						Six months ended
In millions	2015			2014			2015			2014
Service cost	$	0.1		$	—		$	0.1		$	0.1
Interest cost	0.1			0.2			0.2			0.3
Amortization of prior service gains	(0.4		)	(0.4		)	(0.8		)	(0.8		)
Net periodic postretirement benefit income	$	(0.2	)	$	(0.2	)	$	(0.5	)	$	(0.4	)

Note 10 – Fair Value Measurement

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a framework that utilizes the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:


•	Level 1 – Inputs based on quoted prices in active markets for identical assets or liabilities.


•	Level 2 – Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.


•	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.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

Assets and liabilities measured at fair value at June 30, 2015 were 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)		Total fair value
Recurring fair value measurements
Assets:
Marketable securities	$	23.2	$	—	$	—	$	23.2
Foreign currency contracts	—		1.7		—		1.7
Total asset recurring fair value measurements	$	23.2	$	1.7	$	—	$	24.9
Liabilities:
Foreign currency contracts	$	—	$	3.2	$	—	$	3.2
Interest rate swap	—		2.0		—		2.0
Deferred compensation plans	—		15.4		—		15.4
Total liability recurring fair value measurements	$	—	$	20.6	$	—	$	20.6
Financial instruments not carried at fair value
Total debt	—		1,259.6		—		1,259.6
Total financial instruments not carried at fair value	$	—	$	1,259.6	$	—	$	1,259.6

Assets and liabilities measured at fair value at December 31, 2014 were 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)		Total fair value
Recurring fair value measurements
Assets:
Marketable securities	$	17.9	$	—	$	—	$	17.9
Foreign currency contracts	—		4.3		—		4.3
Total asset recurring fair value measurements	$	17.9	$	4.3	$	—	$	22.2
Liabilities:
Foreign currency contracts	$	—	$	13.9	$	—	$	13.9
Interest rate swap	—		0.9		—		0.9
Deferred compensation plans	—		14.9		—		14.9
Total liability recurring fair value measurements	$	—	$	29.7	$	—	$	29.7
Financial instruments not carried at fair value
Total debt	—		1,279.4		—		1,279.4
Total financial instruments not carried at fair value	$	—	$	1,279.4	$	—	$	1,279.4

The Company determines the fair value of its financial assets and liabilities using the following methodologies:


•	Marketable securities – These securities include investments in publicly traded stock of non-U.S. companies held by non-U.S. subsidiaries of the Company. The fair value is obtained for the securities based on observable market prices quoted on public stock exchanges.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)


•	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 $300.0 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.


•	Debt – These securities are recorded at cost and include senior notes maturing through 2021. 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.

These methodologies used by the Company to determine the fair value of its financial assets and liabilities at June 30, 2015 are the same as those used at December 31, 2014. There have been no significant transfers between Level 1 and Level 2 categories.

Note 11 – Equity

The reconciliation of Ordinary shares is as follows:



In millions	Total
December 31, 2014	95.8
Shares issued under incentive plans, net	0.5
Repurchase of ordinary shares	(0.5	)
June 30, 2015	95.8

During the six months ended June 30, 2015, the Company paid $30.0 million to repurchase 0.5 million ordinary shares on the open market under a share repurchase program previously approved by its Board of Directors.

The components of Equity for the six months ended June 30, 2015 were as follows:



In millions	Allegion plc shareholders’ equity (deficit)			Noncontrolling interests			Total equity (deficit)
Balance at December 31, 2014	$	(4.8	)	$	23.3		$	18.5
Net earnings (loss)	109.3			(0.6		)	108.7
Currency translation	(28.4		)	0.0			(28.4		)
Change in value of marketable securities and derivatives qualifying as cash flow hedges, net of tax	2.8			—			2.8
Pension and OPEB adjustments, net of tax	0.7			—			0.7
Total comprehensive income	84.4			(0.6		)	83.8
Share-based compensation	6.9			—			6.9
Acquisition/divestiture of noncontrolling interests	—			3.0			3.0
Dividends to noncontrolling interests	—			(0.3		)	(0.3		)
Dividends to ordinary shareholders	(19.1		)	—			(19.1		)
Repurchase of ordinary shares	(30.0		)	—			(30.0		)
Shares issued under incentive plans, net	9.9			—			9.9
Balance at June 30, 2015	$	47.3		$	25.4		$	72.7

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

The components of Equity for the six months ended June 30, 2014 were as follows:



In millions	Allegion plc shareholders’ equity (deficit)			Noncontrolling interests			Total equity (deficit)
Balance at December 31, 2013	$	(66.1	)	$	31.1		$	(35.0	)
Net earnings	79.0			5.3			84.3
Currency translation	(3.3		)	(0.8		)	(4.1		)
Change in value of marketable securities and derivatives qualifying as cash flow hedges, net of tax	(2.7		)	—			(2.7		)
Pension and OPEB adjustments, net of tax	(1.4		)	—			(1.4		)
Total comprehensive income	71.6			4.5			76.1
Share-based compensation	6.5			—			6.5
Dividends to noncontrolling interests	—			(4.5		)	(4.5		)
Dividends to ordinary shareholders	(15.4		)	—			(15.4		)
Shares issued under incentive plans, net	15.4			—			15.4
Repurchase of ordinary shares	(30.3		)	—			(30.3		)
Other	(3.3		)	—			(3.3		)
Balance at June 30, 2014	$	(21.6	)	$	31.1		$	9.5

Other Comprehensive Income (Loss)

The changes in Accumulated other comprehensive income (loss) for the six months ended June 30, 2015 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 income (loss) before reclassifications	7.9			(1.5		)	(28.4		)	(22.0		)
Amounts reclassified from accumulated other comprehensive income	(4.7		)	2.6			—			(2.1		)
Tax expense	(0.4		)	(0.4		)	—			(0.8		)
June 30, 2015	$	18.5		$	(115.4	)	$	(76.2	)	$	(173.1	)

The changes in Accumulated other comprehensive income (loss) for the six months ended June 30, 2014 are as follows:



In millions	Cash flow hedges and marketable securities			Pension and OPEB Items			Foreign Currency Items			Total
December 31, 2013	$	16.7		$	(131.3	)	$	17.9		$	(96.7	)
Other comprehensive loss before reclassifications	(2.5		)	(3.4		)	(3.3		)	(9.2		)
Amounts reclassified from accumulated other comprehensive income	(0.6		)	2.0			—			1.4
Tax benefit	0.1			—			—			0.1
June 30, 2014	$	13.7		$	(132.7	)	$	14.6		$	(104.4	)

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

Reclassifications out of Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2015 were as follows:



	Amount Reclassified from Accumulated Other Comprehensive Income
In millions	Three months ended			Six months ended			Statement of Comprehensive Income Line Item
Reclasses below represent (Income) loss to the Statement of Comprehensive Income

Gains losses on cash flow hedges:
Foreign exchange contracts	$	(3.0	)	$	(4.7	)	Cost of goods sold
	(3.0		)	(4.7		)	Earnings before income taxes
	—			(0.4		)	Provision for income taxes
	$	(3.0	)	$	(5.1	)	Earnings from continuing operations

Defined benefit pension items:
Amortization of:
Prior-service gains	$	(0.2	)	$	(0.4	)	(a)
Actuarial losses	1.5			3.0			(a)
	1.3			2.6			Earnings before income taxes
	(0.3		)	(0.4		)	Provision for income taxes
	1.0			2.2			Earnings from continuing operations

Total reclassifications for the period	$	(2.0	)	$	(2.9	)	Earnings from continuing operations

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost and net periodic postretirement benefit cost (see Note 9 for additional details).

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

Reclassifications out of Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2014 were as follows:



	Amount Reclassified from Accumulated Other Comprehensive Income
In millions	Three months ended			Six months ended			Statement of Comprehensive Income Line Item
Reclasses below represent (Income) loss to the Statement of Comprehensive Income

Gains on cash flow hedges:
Foreign exchange contracts	$	(0.2	)	$	(0.6	)	Cost of goods sold
	(0.2		)	(0.6		)	Earnings before income taxes
	0.1			0.1			Provision for income taxes
	$	(0.1	)	$	(0.5	)	Earnings from continuing operations

Defined benefit pension items:
Amortization of:
Prior-service gains	$	(0.2	)	$	(0.4	)	(a)
Actuarial (gains) losses	1.2			2.4			(a)
	1.0			2.0			Earnings before income taxes
	—			—			Provision for income taxes
	1.0			2.0			Earnings from continuing operations

Total reclassifications for the period	$	0.9		$	1.5		Earnings from continuing operations

Note 12 – Share-Based Compensation

The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its financial statements. The Company’s share-based compensation plans include programs for stock options, restricted stock units ("RSUs"), performance share units ("PSUs") and deferred compensation.

Compensation Expense

Share-based compensation expense relates to continuing operations and is included in selling and administrative expenses. The expenses recognized for the three and six months ended June 30 were as follows:



	Three months ended						Six months ended
In millions	2015			2014			2015			2014
Stock options	$	0.9		$	0.8		$	1.9		$	1.9
RSUs	1.3			1.3			2.9			3.2
PSUs	1.1			1.1			2.1			1.4
Deferred compensation	0.1			0.3			0.5			0.5
Pre-tax expense	3.4			3.5			7.4			7.0
Tax benefit	(1.2		)	(1.0		)	(2.5		)	(2.3		)
After-tax expense	$	2.2		$	2.5		$	4.9		$	4.7

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

Stock Options/RSUs

Eligible participants may receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs. Grants issued during the six months ended June 30 were as follows:



	2015			2014
	Number granted	Weighted- average fair value per award		Number granted	Weighted- average fair value per award
Stock options	220,679	$	17.88	188,817	$	19.54
RSUs	96,387	$	58.45	82,076	$	53.96

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 is determined using the Black-Scholes option-pricing model. The following assumptions were used during the six months ended June 30:



	2015		2014
Dividend yield	0.69	%	0.60	%
Volatility	34.02	%	36.55	%
Risk-free rate of return	1.78	%	1.94	%
Expected life	6.0 years		6.0 years

Expected volatility is based on the weighted average of the implied volatility of a group of the Company’s peers due to the lack of trading history for the Company's ordinary shares. 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 life 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 is derived from the simplified approach based on the weighted average time to vest and the remaining contractual term and represents the period of time that awards are expected to be outstanding.

Performance Shares

The Company has a Performance Share Program for key employees. The program provides awards in the form of PSUs based on performance against pre-established objectives. The annual target award level is expressed as a number of the Company's ordinary shares. All PSUs are settled in the form of ordinary shares unless deferred. During the six months ended June 30, 2015, the Company granted PSUs with a maximum award level of approximately 0.1 million shares.

In March 2014, the Company’s Compensation Committee granted PSUs that were based 50% upon a performance condition, measured at each performance period by earnings per share ("EPS") growth, and 50% upon a market condition, measured by the Company’s relative total shareholder return ("TSR") as compared to the TSR of the industrial group of companies in the S&P 400 Capital Goods Index over the one-year, two-year, and three-year performance periods. The fair values of the market condition were estimated using a Monte Carlo Simulation approach in a risk-neutral framework based upon historical volatility, risk-free rates and correlation matrix.

In March 2015, the Company's Compensation Committee granted PSU's that were based 50% upon a performance condition, measured at the end of the performance period by EPS growth, and 50% upon a market condition, measured by the Company’s relative TSR as compared to the TSR of the industrial group of companies in the S&P 400 Capital Goods Index over the three-year performance period. The fair value of the market condition was estimated using a Monte Carlo Simulation approach in a risk-neutral framework based upon historical volatility, risk-free rates and correlation matrix.

Deferred Compensation

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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 13 – Restructuring Activities

The changes in the restructuring reserve during the six months ended June 30, 2015 were as follows:



In millions	EMEIA			Total
December 31, 2014	$	1.9		$	1.9
Additions, net of reversals	3.8			3.8
Cash and non-cash uses	(1.4		)	(1.4		)
Currency translation	(0.2		)	(0.2		)
June 30, 2015	$	4.1		$	4.1

The majority of the costs accrued as of June 30, 2015 will be paid within one year.

2015 Italy Restructuring Plan

In the second quarter of 2015, management committed to a restructuring plan in Italy. The plan aims to improve competitive position, ensure long-term viability and enhance customer experience. Expenses incurred for this plan for the three and six months ended June 30 were as follows:



	Three months ended				Six months ended
In millions	2015		2014		2015		2014
EMEIA	$	3.8	$	—	$	3.8	$	—
Total	$	3.8	$	—	$	3.8	$	—

Cost of goods sold	$	3.5	$	—	$	3.5	$	—
Selling and administrative expenses	0.3		—		0.3		—
Total	$	3.8	$	—	$	3.8	$	—

The above expenses primarily relate to severance charges.

2014 EMEIA Restructuring Plan

In the second quarter of 2014, management committed to a plan to restructure the EMEIA segment to improve efficiencies and

regional cost structure. Expenses incurred for this plan for the three and six months ended June 30 were as follows:



	Three months ended				Six months ended
In millions	2015		2014		2015		2014
EMEIA	$	—	$	4.4	$	—	$	4.4
Total	$	—	$	4.4	$	—	$	4.4

Cost of goods sold	$	—	$	1.0	$	—	$	1.0
Selling and administrative expenses	—		3.4		—		3.4
Total	$	—	$	4.4	$	—	$	4.4

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

In addition, the Company incurred other non-qualified restructuring charges of $0.4 million during the six months ended June 30, 2014 in conjunction with the plan, which represents costs that are directly attributable to restructuring activities, but do not fall into the severance, exit or disposal category.

Other Restructuring Plans

Other restructuring charges of $0.3 million and $0.8 million were recorded during the three and six months ended June 30, 2014 as part of prior restructuring plans. These charges primarily relate to workforce reductions in an effort to increase efficiencies across multiple lines of business.

Note 14 – Other (Income) Expense, Net

The components of Other (income) expense, net for the three and six months ended June 30 were as follows:



	Three months ended						Six months ended
In millions	2015			2014			2015			2014
Interest income	$	(0.5	)	$	(0.1	)	$	(0.8	)	$	(0.3	)
Exchange (gain) loss	0.6			(0.7		)	3.9			(0.6		)
Other	0.3			(0.2		)	0.4			(0.2		)
Other (income) expense, net	$	0.4		$	(1.0	)	$	3.5		$	(1.1	)

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 six months ended June 30, 2015 the Company recorded a charge of $2.8 million in order to remeasure net monetary assets at the SIMADI rate. This loss is within Exchange (gain) loss in the table above.

Note 15 – Income Taxes

The effective income tax rates for the three months ended June 30, 2015 and 2014 were 22.6% and 29.7%. The decrease in the effective income tax rate compared to 2014 is primarily due to favorable changes in the mix of income earned in lower rate jurisdictions.

The effective income tax rates for the six months ended June 30, 2015 and 2014 were 22.4% and 29.8%. The decrease in the effective income tax rate compared to 2014 is primarily due to favorable changes in the mix of income earned in lower rate jurisdictions.

Note 16 – Discontinued Operations

EMEIA Divestiture

In the second quarter of 2014 the Company committed to a plan to sell its United Kingdom (UK) Door businesses to an unrelated third party. The transaction closed in the third quarter of 2014. The businesses sold include the Dor-o-Matic™ branded automatic door business, the Martin Roberts™ branded performance steel doorset business and the UK service organization. Historical results of the component have been reclassified to discontinued operations for all periods presented.

Net revenues and after-tax earnings of the component for the three and six months ended June 30 were as follows:

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)



	Three months ended					Six months ended
In millions	2015		2014			2015		2014
Net revenues	$	—	$	6.0		$	—	$	11.8

After-tax gain (loss) from operations	$	0.1	$	(1.1	)	$	—	$	(1.7	)
Loss on disposal	—		(6.6		)	—		(6.6		)
Discontinued operations, net of tax	$	0.1	$	(7.7	)	$	—	$	(8.3	)

Other divestitures

Other discontinued operations recognized losses of $0.1 million and $0.3 million for the three months ended June 30, 2015 and 2014 and losses of $0.2 million and $0.5 million for the six months ended June 30, 2015 and 2014. These losses were mainly related to lease expense and other miscellaneous expenses from previously sold businesses.

Note 17 – 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 for the three and six months ended June 30:



	Three months ended		Six months ended
In millions	2015	2014	2015	2014
Weighted-average number of basic shares	95.8	96.3	95.8	96.3
Shares issuable under incentive stock plans	0.9	1.0	1.1	1.1
Weighted-average number of diluted shares	96.7	97.3	96.9	97.4

At June 30, 2015 0.4 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 18 – Business Segment Information

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

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.

In the second quarter of 2014 management committed to a plan to sell a component of a business in the EMEIA region and reclassified historical results of the component to discontinued operations for all periods presented. The transaction closed in the third quarter of 2014.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

A summary of operations by reportable segment for the three and six months ended June 30 was as follows:



	Three months ended						Six months ended
In millions	2015			2014			2015			2014
Net revenues
Americas	$	402.1		$	400.7		$	756.4		$	746.1
EMEIA	83.9			101.2			165.6			200.4
Asia Pacific	33.5			29.6			56.2			51.6
Total	$	519.5		$	531.5		$	978.2		$	998.1
Segment operating income (loss)
Americas	$	111.9		$	110.9		$	196.1		$	197.3
EMEIA	0.5			(4.1		)	3.1			(4.7		)
Asia Pacific	(1.4		)	(3.5		)	(4.0		)	(6.5		)
Total	111.0			103.3			195.2			186.1
Reconciliation to Operating income
Unallocated corporate expense	(15.3		)	(14.0		)	(28.5		)	(29.0		)
Operating income	$	95.7		$	89.3		$	166.7		$	157.1
Reconciliation to Earnings before income taxes
Interest expense	11.3			12.5			22.9			25.6
Other (income) expense, net	0.4			(1.0		)	3.5			(1.1		)
Earnings before income taxes	$	84.0		$	77.8		$	140.3		$	132.6

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

In estimating its liability, the Company has assumed it will not bear the entire cost of remediation of any site to the exclusion of other PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based on our understanding of the parties’ financial condition and probable contributions on a per site basis. Additional lawsuits and claims involving environmental matters are likely to arise from time to time in the future.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

During the three months ended June 30, 2015 and 2014, the Company incurred $0.5 million and $0.4 million of expenses for environmental remediation at sites presently or formerly owned or leased by us. During the six months ended June 30, 2015 and 2014, the Company incurred $2.3 million and $1.2 million of expenses for environmental remediation at sites presently or formerly owned or leased by us. As of June 30, 2015 and December 31, 2014, the Company has recorded reserves for environmental matters of $9.3 million and $8.8 million. Of these amounts, $2.6 million and $2.4 million relate 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 June 30, 2015 and December 31, 2014 was $2.6 million and $2.2 million and the remainder is classified as non-current. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.

Warranty Liability

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

The changes in the standard product warranty liability for the six months ended June 30 were as follows:



In millions	2015			2014
Balance at beginning of period	$	10.3		$	9.7
Reductions for payments	(3.1		)	(3.3		)
Accruals for warranties issued during the current period	2.6			3.7
Changes to accruals related to preexisting warranties	0.1			(0.4		)
Translation	(0.1		)	—
Balance at end of period	$	9.8		$	9.7

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

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

Note 20 – Guarantor Financial Information

Allegion US Holding Company, Inc. (the “Issuer”) as the issuer of the Senior Notes and Allegion plc (the “Parent”), Schlage Lock Company LLC and Von Duprin LLC (together, the “Subsidiary Guarantors”) are all guarantors of the Senior Notes. The following condensed and consolidated financial information of the Parent, the Issuer, the Subsidiary Guarantors and the other Allegion subsidiaries that are not guarantors (the “Other Subsidiaries”) on a combined basis as of June 30, 2015 and for the six months ended June 30, 2015 and 2014, 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, the Parent and the Subsidiary Guarantors are not required to be filed with the SEC as the subsidiary debt issuer and the guarantors are directly or indirectly 100% owned by the Parent and the guarantees are full and unconditional and joint and several.

Condensed and Consolidated Statement of Comprehensive Income

For the three months ended June 30, 2015



In millions	Parent			Issuer			Subsidiary Guarantors			Other Subsidiaries			Consolidating Adjustments			Allegion plc
Net revenues	$	—		$	—		$	388.3		$	180.0		$	(48.8	)	$	519.5
Cost of goods sold	—			—			219.3			127.2			(48.8		)	297.7
Selling and administrative expenses	1.1			—			78.4			46.6			—			126.1
Operating income (loss)	(1.1		)	—			90.6			6.2			—			95.7
Equity earnings (loss) in affiliates, net of tax	71.1			27.1			0.8			61.5			(160.5		)	—
Interest expense	5.9			5.4			—			—			—			11.3
Intercompany interest and fees	0.2			22.8			(9.6		)	(13.4		)	—			—
Other (income) expense, net	—			—			—			0.4			—			0.4
Earnings (loss) before income taxes	63.9			(1.1		)	101.0