Acquisitions and Investments in Unconsolidated Entities

2018

During the nine months ended September 30, 2018, the Company completed six acquisitions:



Business		Date
Technical Glass Products, Inc. ("TGP")		January 2018
Hammond Enterprises, Inc. ("Hammond")		January 2018
Qatar Metal Industries LLC ("QMI")		February 2018
AD Systems, Inc. ("AD Systems")		March 2018
Gainsborough Hardware and API Locksmiths ("Door and Access Systems")		July 2018
ISONAS Security Systems, Inc. ("ISONAS")		July 2018

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

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

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

In March 2018, the Company acquired 100% of AD Systems through one of its subsidiaries. AD Systems designs and manufactures high-performance interior and storefront door systems, specializing in sliding and acoustic solutions. AD Systems' portfolio includes sliding and swinging doors, perimeter frames, door hardware, gasketing, seals and sidelite panels. AD Systems has been integrated into the Company's Americas segment.

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

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

Total consideration paid for these six acquisitions to date was approximately $368 million (net of cash acquired). The Company estimates the fair value of future consideration to be paid, including contingent consideration, to be approximately $6 million. Cash on hand and $75 million of borrowings on the Revolving Facility in July, which has since been repaid, were utilized to fund these acquisitions. The preliminary allocation of the aggregate purchase price to assets acquired and liabilities assumed for the acquisitions described above is as follows:



In millions
Accounts receivable, net	$	29.8
Inventories	28.7
Other current assets	1.3
Property, plant and equipment, net	27.6
Goodwill	132.5
Intangible assets, net	204.3
Other noncurrent assets	0.9
Accounts payable	(11.1		)
Accrued expenses and other current liabilities	(35.2		)
Other noncurrent liabilities	(4.7		)
Total consideration	$	374.1

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

Goodwill results from several factors including Allegion-specific synergies that were excluded from the cash flow projections used in the valuation of intangible assets and intangible assets that do not qualify for separate recognition, for example, assembled workforce. The majority of the goodwill is expected to be deductible for tax purposes. The preliminary purchase price allocations for the acquisitions are pending completion of valuations. These acquisitions are accounted for as business combinations.

The following unaudited pro forma financial information for the three and nine months ended September 30, 2018 and 2017 reflects the consolidated results of operations of the Company as if these acquisitions had taken place on January 1, 2017:



	Three months ended				Nine months ended
In millions, except per share amounts	2018		2017		2018		2017
Net revenues	$	711.5	$	663.6	$	2,071.8	$	1,939.3
Net earnings attributable to Allegion plc	$	119.3	$	93.4	$	313.1	$	263.2
Basic net earnings per share	$	1.25	$	0.98	$	3.29	$	2.76
Diluted net earnings per share	$	1.25	$	0.97	$	3.27	$	2.74

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

The following financial information reflects Net revenues and Earnings before income taxes of the acquisitions for the three and nine months ended September 30, 2018 since their respective acquisition dates included in the Condensed and Consolidated Statement of Comprehensive Income:



In millions	Three months ended September 30, 2018		Nine months ended September 30, 2018
Net revenues	$	55.0	$	115.0

Earnings before income taxes	$	0.9	$	(0.7	)

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

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

2017

In January 2017, the Company acquired Republic Doors & Frames, LLC ("Republic") through one of its subsidiaries. This acquisition did not have a material impact on the Condensed and Consolidated Financial Statements.

In April 2017, iDevices LLC, including the Company's equity investment, was acquired by a third party. The Company recorded a cumulative gain of $5.3 million during the nine months ended September 30, 2017 within Other income, net (see Note 14).