Allegion 10-Q 2021-09-30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________

For the quarterly period ended September 30, 2021

or

For the transition period from to

Commission File Number 001-35971

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ALLEGION PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

_______________________________

Block D

Iveagh Court

Harcourt Road

Dublin 2, D02 VH94, Ireland

(Address of principal executive offices, including zip code)

+(353) (1) 2546200

(Registrant’s telephone number, including area code)

_______________________________

Securities registered pursuant to Section 12(b) of the Act:

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 every Interactive Data File required to be submitted 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 such files). Yes x No ¨

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of ordinary shares outstanding of Allegion plc as of October 18, 2021 was 89,695,862.

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ALLEGION PLC

FORM 10-Q

INDEX

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PART I-FINANCIAL INFORMATION

Allegion plc

Condensed and Consolidated Statements of Comprehensive Income

(Unaudited)

See accompanying notes to condensed and consolidated financial statements.

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Allegion plc

Condensed and Consolidated Balance Sheets

(Unaudited)

See accompanying notes to condensed and consolidated financial statements.

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Allegion plc

Condensed and Consolidated Statements of Cash Flows

(Unaudited)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that may cause a difference include, but are not limited to, those discussed under Part I, Item 1A – Risk Factors in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The following section is qualified in its entirety by the more detailed information, including our Condensed and Consolidated Financial Statements and the notes thereto, which appears elsewhere in this Quarterly Report.

Overview

Organization

Allegion plc ("Allegion," "the Company", "we," "our," or "us") is a leading global provider of security products and solutions operating in two segments: Allegion Americas and Allegion International. We sell a wide range of security products and solutions for end-users in commercial, institutional and residential facilities worldwide, including the education, healthcare, government, hospitality, commercial office and single and multi-family residential markets. Our leading brands include CISA®, Interflex®, LCN®, Schlage®, SimonsVoss® and Von Duprin®.

Recent Developments

COVID-19 Pandemic and Industry Trends and Outlook

The COVID-19 pandemic and uneven economic recovery continue to create volatility in the global economy and on our business. During the third quarter of 2021, we continued to see strong and accelerating demand for our products and services in most of the markets we serve. However, we have also experienced an acceleration of several macroeconomic challenges in the current quarter that have negatively impacted our ability to meet this robust demand, such as supply chain disruptions and delays; shortages in materials including reductions in allocations of electronic components and other parts from key suppliers; labor shortages; and increased commodity, material component, packaging, freight and labor inflation. These challenges have also created inefficiencies, including periodic production interruptions, that have negatively impacted our productivity and margin performance during the quarter. While these challenges are impacting all our global businesses, to date they have had a more pronounced impact on our Allegion Americas operating segment.

While we currently anticipate these industry-wide challenges to continue beyond 2021, we are rapidly adapting to navigate these challenges, and we expect to be well-positioned to convert demand to revenue once conditions normalize. We remain focused on providing exceptional service to our customers; implementing measures to mitigate operational and distribution inefficiencies and reduce backlogs, such as aligning resources to re-engineer product designs and configurations and developing alternate sources of supply; implementing pricing initiatives to address rising production, material and freight costs; and investing in business initiatives to drive future growth. We will continue to explore various options to control costs and enhance financial performance, while minimizing disruption to customers and the overall business; however, the full impacts of the pandemic and the on-going macroeconomic challenges on our business, results of operations, financial condition and cash flows remain uncertain.

The pandemic and related macroeconomic challenges stemming from the uneven economic recovery will likely continue to impact us in numerous and evolving ways that we may not be able to accurately predict. The full impact of the pandemic will continue to depend on future developments such as the continued spread and duration of the pandemic, the emergence of future variant strains of the COVID-19 virus which may be more contagious or severe, the availability and distribution of effective medical treatments and vaccines, vaccination rates, as well as any government-imposed restrictions or mandates. Further, any new or strengthened government-imposed restrictions or mandates on the conduct of business and travel could adversely impact our ability to carry out business as usual in certain markets. The challenges and uncertainties related to the COVID-19 pandemic and its potential impact on our business, results of operations, financial condition and cash flows, as well as other challenges and uncertainties that could affect our businesses are described further under Part I, Item 1A. "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

Acquisitions

In July 2021, we acquired certain assets of Astrum Benelux B.V. ("Astrum Benelux") as well as 100% of the equity of WorkforceIT B.V. in the Netherlands ("WorkforceIT"), both of which were previously held under common control and offer workforce management technology products and solutions in the Benelux region of Europe. Both WorkforceIT and the assets acquired from Astrum Benelux have been integrated into our Allegion International segment.

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QMI Divestiture

As previously disclosed, during the fourth quarter of 2020, the net assets of our Qatar Metal Industries ("QMI") business, met the criteria to be classified as held for sale, and accordingly, were written down to fair value, resulting in a Loss on assets held for sale in the fourth quarter of 2020 of $37.9 million.

On February 28, 2021, we completed our divestiture of QMI. The impacts of this divestiture on our results of operations for the three and six months ended September 30, 2021 are reflected in the discussions below.

2021 Dividends and Share Repurchases

During the nine months ended September 30, 2021, we paid dividends of $1.08 per ordinary share to shareholders and repurchased approximately 1.8 million shares for $212.7 million.

Results of Operations – Three months ended September 30

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There have been no material changes in our exposure to market risk during the third quarter of 2021. For a discussion of the Company’s exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of

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September 30, 2021, that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported when required and the information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in the Company’s internal control over financial reporting that occurred during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

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

There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the period ended December 31, 2020. For a further discussion of our Risk Factors, refer to the “Risk Factors” discussion contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

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

Issuer Purchases of Equity Securities

On February 6, 2020, our Board of Directors approved a share repurchase authorization of up to, and including, $800 million of the Company’s ordinary shares (the "2020 Share Repurchase Authorization"). The 2020 Share Repurchase Authorization does not have a prescribed expiration date. Based on market conditions, share repurchases are made from time to time in the open market at the discretion of management.

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(a) Exhibits

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ALLEGION PLC

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.