Item 1. Financial Statements

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Item 1. Financial Statements

Allegion plc

Condensed and Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
In millions, except per share amounts	2021		2020		2021		2020
Net revenues	$	717.0	$	728.4	$	2,158.2	$	1,992.6
Cost of goods sold	416.5		409.2		1,239.8		1,133.7
Selling and administrative expenses	162.1		156.2		503.3		474.2
Impairment of goodwill and intangible assets	—		2.6		—		98.9
Operating income	138.4		160.4		415.1		285.8
Interest expense	12.3		12.9		37.0		38.8

Other income, net	(14.7)		(12.2)		(21.4)		(12.6)
Earnings before income taxes	140.8		159.7		399.5		259.6
(Benefit from) provision for income taxes	(2.8)		12.8		28.9		38.5
Net earnings	143.6		146.9		370.6		221.1
Less: Net earnings attributable to noncontrolling interests	0.1		—		0.4		0.1
Net earnings attributable to Allegion plc	$	143.5	$	146.9	$	370.2	$	221.0
Earnings per share attributable to Allegion plc ordinary shareholders:
Basic net earnings	$	1.60	$	1.59	$	4.11	$	2.39
Diluted net earnings	$	1.59	$	1.58	$	4.08	$	2.38
Weighted-average shares outstanding:
Basic	89.7		92.3		90.1		92.4
Diluted	90.3		92.7		90.7		92.9

Total comprehensive income	$	121.2	$	171.4	$	326.7	$	232.8
Less: Total comprehensive income attributable to noncontrolling interests	—		0.3		0.4		—
Total comprehensive income attributable to Allegion plc	$	121.2	$	171.1	$	326.3	$	232.8

See accompanying notes to condensed and consolidated financial statements.

Table of Contents

Allegion plc

Condensed and Consolidated Balance Sheets

(Unaudited)


In millions, except share amounts	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	503.9	$	480.4

Accounts and notes receivable, net	307.4		321.8
Inventories	345.7		283.1
Other current assets	45.4		53.9
Assets held for sale	—		5.8
Total current assets	1,202.4		1,145.0
Property, plant and equipment, net	278.6		294.9
Goodwill	808.7		819.0
Intangible assets, net	459.8		487.1
Other noncurrent assets	367.2		323.4
Total assets	$	3,116.7	$	3,069.4
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	212.4	$	220.4
Accrued expenses and other current liabilities	343.1		293.7
Short-term borrowings and current maturities of long-term debt	238.4		0.2
Liabilities held for sale	—		7.2
Total current liabilities	793.9		521.5
Long-term debt	1,192.5		1,429.4
Other noncurrent liabilities	262.7		285.9
Total liabilities	2,249.1		2,236.8
Equity:
Allegion plc shareholders’ equity:
Ordinary shares, $0.01 par value (89,695,508 and 91,212,741 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)	0.9		0.9
Capital in excess of par value	2.8		—
Retained earnings	1,061.5		985.6
Accumulated other comprehensive loss	(201.0)		(157.1)
Total Allegion plc shareholders’ equity	864.2		829.4
Noncontrolling interests	3.4		3.2
Total equity	867.6		832.6
Total liabilities and equity	$	3,116.7	$	3,069.4

See accompanying notes to condensed and consolidated financial statements.

Table of Contents

Allegion plc

Condensed and Consolidated Statements of Cash Flows

(Unaudited)


	Nine months ended
	September 30,
In millions	2021		2020
Cash flows from operating activities:
Net earnings	$	370.6	$	221.1
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization	62.0		60.3
Impairment of goodwill and intangible assets	—		98.9

Changes in assets and liabilities and other non-cash items	(76.2)		(90.9)
Net cash provided by operating activities	356.4		289.4
Cash flows from investing activities:
Capital expenditures	(28.7)		(33.3)
Acquisition of and equity investments in businesses, net of cash acquired	(6.5)		—
Proceeds from sale of equity method investment	7.6		—
Other investing activities, net	12.7		(6.0)
Net cash used in investing activities	(14.9)		(39.3)
Cash flows from financing activities:






Debt repayments, net	(0.1)		(0.1)


Dividends paid to ordinary shareholders	(96.9)		(88.3)



Repurchase of ordinary shares	(212.7)		(94.1)
Other financing activities, net	0.4		3.2
Net cash used in financing activities	(309.3)		(179.3)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(8.7)		1.3
Net increase in cash, cash equivalents and restricted cash	23.5		72.1
Cash, cash equivalents and restricted cash - beginning of period	480.4		358.7
Cash, cash equivalents and restricted cash - end of period	$	503.9	$	430.8

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 ("U.S.") 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, 2020. In the opinion of management, the accompanying Condensed and Consolidated Financial Statements contain all adjustments, which include normal recurring adjustments, necessary to state fairly the consolidated unaudited results for the interim periods presented.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements:

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The new guidance was intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around franchise taxes, goodwill recognized for tax purposes, the allocation of current and deferred tax expense among legal entities, among other minor changes. This ASU became effective for fiscal years beginning after December 15, 2020, and interim periods within those annual periods. Accordingly, the Company adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact to the Condensed and Consolidated Financial Statements.

In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." The amendments in ASU 2020-01 clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting. This ASU became effective for fiscal years beginning after December 15, 2020, and interim periods within those annual periods. Accordingly, the Company adopted ASU 2020-01 on January 1, 2021, and the adoption did not have a material impact to the Condensed and Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU, along with related updates, provides temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions if certain criteria are met in order to ease the potential accounting and financial reporting burden associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The ASU is currently effective and may be applied prospectively at any point through December 31, 2022 at the Company’s option. The Company is assessing what impact, if adopted, ASU 2020-04 would have on the Condensed and Consolidated Financial Statements.

NOTE 3 - INVENTORIES

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

The major classes of inventories were as follows:


In millions	September 30, 2021		December 31, 2020
Raw materials	$	131.9	$	114.0
Work-in-process	42.4		42.3
Finished goods	171.4		126.8
Total	$	345.7	$	283.1

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 4 - GOODWILL

The changes in the carrying amount of goodwill for the nine months ended September 30, 2021, were as follows:


In millions	Allegion Americas		Allegion International		Total
December 31, 2020 (gross)	$	501.1	$	891.5	$	1,392.6
Accumulated impairment	—		(573.6)		(573.6)
December 31, 2020 (net)	501.1		317.9		819.0
Acquisitions and adjustments	0.1		4.6		4.7


Currency translation	—		(15.0)		(15.0)
September 30, 2021 (net)	$	501.2	$	307.5	$	808.7

As a result of the global economic disruption and uncertainty due to the COVID-19 pandemic arising during the first quarter of 2020, the Company concluded a triggering event had occurred as of March 31, 2020, and performed interim impairment tests on the goodwill balances, at that time, of its previous EMEA and Asia Pacific reporting units (which were combined to form the new Allegion International segment effective January 1, 2021). The results of the interim impairment testing indicated that the estimated fair value of the former Asia Pacific reporting unit was less than its carrying value. Consequently, a goodwill impairment charge of $88.1 million was recorded, which is included in Impairment of goodwill and intangible assets in the Condensed and Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2020.

NOTE 5 - INTANGIBLE ASSETS

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


	September 30, 2021						December 31, 2020
In millions	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Completed technologies/patents	$	58.3	$	(27.9)	$	30.4	$	59.9	$	(25.1)	$	34.8
Customer relationships	401.0		(138.6)		262.4		415.5		(130.2)		285.3
Trade names (finite-lived)	85.5		(57.1)		28.4		90.2		(57.4)		32.8
Other	44.9		(21.2)		23.7		27.0		(11.1)		15.9
Total finite-lived intangible assets	589.7		$	(244.8)	344.9		592.6		$	(223.8)	368.8
Trade names (indefinite-lived)	114.9				114.9		118.3				118.3
Total	$	704.6			$	459.8	$	710.9			$	487.1

Intangible asset amortization expense was $25.2 million and $23.2 million for the nine months ended September 30, 2021 and 2020, respectively. Future estimated amortization expense on existing intangible assets in each of the next five years amounts to approximately $32.1 million for full year 2021, $27.8 million for 2022, $27.6 million for 2023, $27.6 million for 2024 and $26.7 million for 2025.

As a result of the global economic disruption and uncertainty due to the COVID-19 pandemic arising during the first quarter of 2020, the Company concluded a triggering event had occurred as of March 31, 2020, and performed interim impairment testing on certain indefinite-lived trade names. Based on these tests, it was determined that three of the Company's indefinite-lived trade names were impaired, and impairment charges of $8.2 million were recorded, which are included in Impairment of goodwill and intangible assets in the Condensed and Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2020.

During the three months ended September 30, 2020, a subsidiary in the former Asia Pacific segment experienced supply chain disruptions, which reduced one of its brand's expected future cash flows. As a result, an impairment charge of $2.6 million was recorded, which is included in Impairment of goodwill and intangible assets in the Condensed and Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2020.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 6 - ACQUISITIONS

In July 2021, the Company acquired, through its subsidiaries, certain assets of Astrum Benelux B.V. ("Astrum Benelux") and 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. Neither the assets acquired from Astrum Benelux nor the acquisition of WorkforceIT had a material impact on the Condensed and Consolidated Financial Statements for the three or nine months ended September 30, 2021. Both WorkforceIT and the assets acquired from Astrum Benelux have been accounted for as a business combination and have been integrated into the Allegion International segment.

NOTE 7 - DIVESTITURES

As previously disclosed, during the fourth quarter of 2020, the net assets of the Company's 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, the Company completed its divestiture of QMI. The completion of the divestiture did not have a material impact to the Condensed and Consolidated Financial Statements for the nine months ended September 30, 2021.

NOTE 8 - DEBT AND CREDIT FACILITIES

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


In millions	September 30, 2021		December 31, 2020
Term Facility	$	238.8	$	238.8
Revolving Facility	—		—
3.200% Senior Notes due 2024	400.0		400.0
3.550% Senior Notes due 2027	400.0		400.0
3.500% Senior Notes due 2029	400.0		400.0
Other debt	0.4		0.6
Total borrowings outstanding	1,439.2		1,439.4
Discounts and debt issuance costs, net	(8.3)		(9.8)
Total debt	1,430.9		1,429.6
Less current portion of long-term debt	238.4		0.2
Total long-term debt	$	1,192.5	$	1,429.4

Unsecured Credit Facilities

As of September 30, 2021, the Company has an unsecured Credit Agreement in place, consisting of a $700.0 million term loan facility (the “Term Facility”), of which $238.8 million is outstanding at September 30, 2021, and a $500.0 million revolving credit 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. Principal amounts repaid on the Term Facility may not be reborrowed, and the Company has satisfied its obligation to make quarterly installments on the Term Facility up to the maturity date, with the remaining outstanding balance due on September 12, 2022.

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 September 30, 2021, there were no borrowings outstanding on the Revolving Facility and the Company had $14.1 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.

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 September 30, 2021, the Company's outstanding borrowings under the Credit

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Facilities accrue interest at LIBOR plus a margin of 1.250%, resulting in an interest rate of 1.34%. The Credit Facilities also 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 September 30, 2021, the Company was in compliance with all covenants.

Senior Notes

As of September 30, 2021, 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”), while Allegion plc has $400.0 million outstanding of its 3.500% Senior Notes due 2029 (the “3.500% Senior Notes”). The 3.200% Senior Notes, 3.550% Senior Notes and 3.500% Senior Notes (collectively, the "Senior Notes") all require semi-annual interest payments on April 1 and October 1 of each year and will mature on October 1, 2024, October 1, 2027, and October 1, 2029, respectively. The 3.200% Senior Notes and the 3.550% Senior 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 3.200% Senior Notes and the 3.550% Senior 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. The 3.500% Senior Notes are senior unsecured obligations of Allegion plc, are guaranteed by Allegion US Hold Co and rank equally with all of the Company’s existing and future senior unsecured indebtedness.

NOTE 9 - 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. When 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 Company assesses at inception and at least quarterly thereafter, whether the derivatives used in cash flow hedging transactions are effective in offsetting the changes in the cash flows of the hedged item. To the extent the derivative is deemed to be an effective hedge, the fair market value changes of the instrument are recorded to Accumulated other comprehensive loss and subsequently reclassified to Net earnings when the hedged transaction affects earnings, while changes in the fair market value of derivatives not deemed to be an effective hedge are recorded in Net earnings in the period of change. 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. If the hedging relationship ceases to be effective subsequent to inception, 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 $181.6 million and $218.9 million at September 30, 2021 and December 31, 2020, respectively. The fair values of currency derivatives included within the Condensed and Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 were not material, nor were either the balances included in Accumulated other comprehensive loss or the amount expected to be reclassified into Net earnings over the next twelve months related to currency derivatives designated as cash flow hedges, although the actual amounts that will be reclassified to Net earnings may vary as a result of future changes in market conditions.

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

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Amount of gain recognized in Accumulated other comprehensive loss				Location of (loss) gain recognized in Net earnings		Amount of (loss) gain reclassified from Accumulated other comprehensive loss and recognized into Net earnings
In millions	2021		2020			2021			2020
Currency derivatives	$	0.4	$	0.9	Cost of goods sold		$	(1.0)		$	1.7

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


	Amount of gain recognized in Accumulated other comprehensive loss				Location of gain recognized in Net earnings	Amount of gain reclassified from Accumulated other comprehensive loss and recognized into Net earnings
In millions	2021		2020		2021	2020
Currency derivatives	$	2.8	$	3.9	Cost of goods sold	$	0.2	$	3.8

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 Condensed and Consolidated Statements of Comprehensive Income. At September 30, 2021, the maximum term of the Company’s currency derivatives, both those that are designated as cash flow hedges and those that are not, was less than one year.

Concentration of Credit Risk

The counterparties to the Company’s forward contracts 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 10 - LEASES

The Company records a right-of-use ("ROU") asset and lease liability for substantially all leases for which it is a lessee, in accordance with ASC 842. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys a right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration. The Company has no significant lease agreements in place for which the Company is a lessor, and substantially all of the Company’s leases for which the Company is a lessee are classified as operating leases. Total rental expense for the nine months ended September 30, 2021 and 2020, was $33.6 million and $32.5 million, respectively, and is classified within Cost of goods sold and Selling and administrative expenses within the Condensed and Consolidated Statements of Comprehensive Income. Rental expense related to short-term leases, variable lease payments or other leases or lease components not included within the ROU asset or lease liability totaled $6.0 million and $7.1 million, respectively, for the nine months ended September 30, 2021 and 2020. No material lease costs have been capitalized on the Condensed and Consolidated Balance Sheets as of September 30, 2021 or December 31, 2020.

If at lease commencement date, a lease has a term of less than 12 months and does not include a purchase option that is reasonably certain to be exercised, the Company does not include the lease as part of its ROU asset or lease liability. If the Company enters into a large number of leases in the same month with the same terms and conditions, these are considered a group (portfolio), assuming the lease model under this approach does not materially differ from applying ASC 842 to each individual lease. When available, the Company will utilize the rate implicit in the lease as the discount rate to determine the lease liability. However, as this rate is not available for most leases, the Company will use its incremental borrowing rate as the discount rate, which is the rate at inception of the lease the Company would hypothetically incur to borrow over a similar term the funds needed to purchase the leased asset.

As a lessee, the Company categorizes its leases into two general categories: real estate leases and equipment leases.

The Company’s real estate leases include leased production and assembly facilities, warehouses and distribution centers, office space and to a lesser degree, employee housing. The terms and conditions of real estate leases can vary significantly from lease

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

to lease. The Company has assessed the specific terms and conditions of each real estate lease to determine the amount of the lease payments and the length of the lease term, which includes the minimum period over which lease payments are required plus any renewal options that are both within the Company’s control to exercise and reasonably certain of being exercised upon lease commencement. The Company assesses all relevant factors to determine if sufficient incentives exist as of lease commencement to conclude whether or not renewal is reasonably certain. There are no material residual value guarantees provided by the Company nor any restrictions or covenants imposed by the real estate leases to which the Company is a party. In determining the lease liability, the Company utilizes its incremental borrowing rate for debt instruments with terms approximating the weighted-average term for its real estate leases to discount the future lease payments over the lease term to present value. The Company does incur variable lease payments for certain of its real estate leases, such as reimbursements of property taxes, maintenance and other operational costs to the lessor. In general, these variable lease payments are not captured as part of the lease liability or ROU asset, but rather are expensed as incurred.

The Company’s equipment leases include vehicles, material handling equipment, other machinery and equipment utilized in the Company’s production and assembly facilities, warehouses and distribution centers, laptops and other IT equipment, and other miscellaneous leased equipment. Most of the equipment leases are for terms ranging from two to five years, although terms and conditions can vary from lease to lease. The Company applies similar estimates and judgments to its equipment lease portfolio in determining the lease payments and lease term as it does to its real estate lease portfolio. There are no material residual value guarantees provided by the Company nor any restrictions or covenants imposed by the equipment leases to which the Company is a party. In determining the lease liability, the Company utilizes its incremental borrowing rate for debt instruments with terms approximating the weighted-average term for its equipment leases to discount the future lease payments over the lease term to present value. The Company does not typically incur variable lease payments related to its equipment leases.

Amounts included within the Condensed and Consolidated Balance Sheets related to the Company’s ROU asset and lease liability were as follows:


		September 30, 2021								December 31, 2020
In millions	Balance Sheet classification	Real estate			Equipment			Total		Real estate			Equipment			Total
ROU asset	Other noncurrent assets	$	58.1		$	31.7		$	89.8	$	59.5		$	32.5		$	92.0
Lease liability - current	Accrued expenses and other current liabilities	14.4			13.4			27.8		14.7			12.9			27.6
Lease liability - noncurrent	Other noncurrent liabilities	45.5			18.4			63.9		46.5			19.8			66.3

Other information:
Weighted-average remaining term (years)		6.8			2.8					7.0			3.2
Weighted-average discount rate		3.6		%	2.2		%			3.9		%	2.7		%

The following table summarizes additional information related to the Company’s leases for the nine months ended September 30:


	2021						2020
In millions	Real estate		Equipment		Total		Real estate		Equipment		Total
Cash paid for amounts included in the measurement of lease liabilities	$	14.7	$	12.9	$	27.6	$	14.4	$	11.0	$	25.4
ROU assets obtained in exchange for new lease liabilities	12.0		8.8		20.8		18.3		18.3		36.6

The Company frequently enters into both real estate and equipment leases in the normal course of business. While there have been lease agreements entered into that have not yet commenced as of September 30, 2021, none of these leases provide new rights or obligations to the Company that are material individually or in the aggregate.

Future Repayments

Scheduled minimum lease payments required under non-cancellable operating leases for both the real estate and equipment lease portfolios for the remainder of 2021 and for each of the years thereafter as of September 30, 2021, are as follows:

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


In millions	Remainder of 2021		2022		2023		2024		2025		Thereafter		Total
Real estate leases	$	4.1	$	15.9	$	11.7	$	8.7	$	7.4	$	20.5	$	68.3
Equipment leases	3.9		13.0		8.8		4.7		2.1		0.2		32.7
Total	$	8.0	$	28.9	$	20.5	$	13.4	$	9.5	$	20.7	$	101.0

The difference between the total undiscounted minimum lease payments and the combined current and noncurrent lease liabilities as of September 30, 2021, is due to imputed interest of $9.3 million.

NOTE 11 - DEFINED BENEFIT PLANS

The Company sponsors several U.S. and non-U.S. defined benefit pension plans to eligible employees and retirees. 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 other supplemental plans for officers and other key employees.

The components of the Company’s Net periodic pension benefit cost (income) for the three and nine months ended September 30 were as follows:


	U.S.
	Three months ended				Nine months ended
In millions	2021		2020		2021		2020
Service cost	$	1.6	$	1.2	$	5.0	$	5.0
Interest cost	1.7		2.3		5.1		7.2
Expected return on plan assets	(3.6)		(3.5)		(10.5)		(10.8)
Administrative costs and other	0.3		0.2		0.9		1.1
Net amortization of:
Prior service costs	0.1		0.1		0.2		0.2
Plan net actuarial losses	0.8		0.7		2.6		2.7
Net periodic pension benefit cost	$	0.9	$	1.0	$	3.3	$	5.4


	Non-U.S.
	Three months ended				Nine months ended
In millions	2021		2020		2021		2020
Service cost	$	0.6	$	0.5	$	1.7	$	1.5
Interest cost	1.3		1.7		3.8		5.1
Expected return on plan assets	(3.4)		(3.3)		(10.3)		(9.8)
Administrative costs and other	0.4		0.4		1.4		1.1
Net amortization of:
Prior service costs	—		0.1		0.1		0.1
Plan net actuarial losses	0.4		0.3		1.1		1.0

Net periodic pension benefit income	$	(0.7)	$	(0.3)	$	(2.2)	$	(1.0)

Service cost is recorded in Cost of goods sold and Selling and administrative expenses, while the remaining components of Net periodic pension benefit cost (income) are recorded in Other income, net within the Condensed and Consolidated Statements of Comprehensive Income.

The Company made employer contributions of $7.7 million and $7.0 million during the nine months ended September 30, 2021 and 2020, respectively, to its defined benefit pension plans. Contributions of approximately $4 million are expected during the remainder of 2021.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

Assets and liabilities measured at fair value at September 30, 2021, 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)
Recurring fair value measurements
Assets:
Investments	$	—	$	23.5	$	—	$	23.5
Derivative instruments	—		1.3		—		1.3
Total asset recurring fair value measurements	$	—	$	24.8	$	—	$	24.8
Liabilities:
Derivative instruments	$	—	$	1.1	$	—	$	1.1
Deferred compensation and other retirement plans	—		24.8		—		24.8
Total liability recurring fair value measurements	$	—	$	25.9	$	—	$	25.9
Financial instruments not carried at fair value
Total debt	$	—	$	1,525.6	$	—	$	1,525.6
Total financial instruments not carried at fair value	$	—	$	1,525.6	$	—	$	1,525.6

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Assets and liabilities measured at fair value at December 31, 2020, 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)
Recurring fair value measurements
Assets:
Investments	$	—	$	23.5	$	—	$	23.5
Derivative instruments	—		1.6		—		1.6
Total asset recurring fair value measurements	$	—	$	25.1	$	—	$	25.1
Liabilities:
Derivative instruments	$	—	$	3.4	$	—	$	3.4
Deferred compensation and other retirement plans	—		25.1		—		25.1
Total liability recurring fair value measurements	$	—	$	28.5	$	—	$	28.5
Financial instruments not carried at fair value
Total debt	$	—	$	1,541.4	$	—	$	1,541.4
Total financial instruments not carried at fair value	$	—	$	1,541.4	$	—	$	1,541.4

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

Investments – These instruments include equity mutual funds and corporate bond funds. The fair value is obtained based on observable market prices quoted on public exchanges for similar instruments.

*•*Derivative instruments – These instruments include foreign currency contracts for non-functional currency balance sheet exposures, including both those that are and are not designated as cash flow hedges. The fair value of the foreign currency contracts is determined based on a pricing model that uses spot rates and forward prices from actively quoted currency markets that are readily accessible and observable.

Deferred compensation and other retirement plans – These include obligations related to deferred compensation and other retirement plans adjusted for market performance. The fair value is obtained based on observable market prices quoted on public exchanges for similar instruments.
Debt – These instruments are recorded at cost and include senior notes maturing through 2029. 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 and notes receivable, Accounts payable and Accrued expenses and other current liabilities are a reasonable estimate of their fair value due to the short-term nature of these instruments.

The Company had investments in debt and equity securities without readily determinable fair values of $12.4 million and $13.7 million as of September 30, 2021 and December 31, 2020, respectively, which are classified as Other noncurrent assets within the Condensed and Consolidated Balance Sheets. These investments are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer and are qualitatively assessed for impairment indicators at each reporting period. These investments are considered to be nonrecurring fair value measurements, and thus, are not included in the fair value tables above.

The methodologies used by the Company to determine the fair value of its financial assets and liabilities at September 30, 2021, are the same as those used at December 31, 2020.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 13 - EQUITY

The changes in the components of Equity for the nine months ended September 30, 2021, were as follows:


			Allegion plc shareholders' equity
			Ordinary shares
In millions	Total equity		Amount		Shares	Capital in excess of par value		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests
Balance at December 31, 2020	$	832.6	$	0.9	91.2	$	—	$	985.6	$	(157.1)	$	3.2
Net earnings	108.2		—		—	—		108.0		—		0.2



Other comprehensive loss, net	(32.0)		—		—	—		—		(32.0)		—
Repurchase of ordinary shares	(149.7)		—		(1.3)	(4.4)		(145.3)		—		—
Share-based compensation activity	4.4		—		0.1	4.4		—		—		—


Dividends to ordinary shareholders ($0.36 per share)	(32.5)		—		—	—		(32.5)		—		—
Other	—		—		—	—		0.1		—		(0.1)
Balance at March 31, 2021	731.0		0.9		90.0	—		915.9		(189.1)		3.3
Net earnings	118.8		—		—	—		118.7		—		0.1



Other comprehensive income, net	10.5		—		—	—		—		10.4		0.1
Repurchase of ordinary shares	(50.1)		—		(0.4)	(9.7)		(40.4)		—		—
Share-based compensation activity	9.7		—		0.2	9.7		—		—		—

Dividends to noncontrolling interests	(0.1)		—		—	—		—		—		(0.1)
Dividends to ordinary shareholders ($0.36 per share)	(32.4)		—		—	—		(32.4)		—		—

Balance at June 30, 2021	787.4		0.9		89.8	—		961.8		(178.7)		3.4
Net earnings	143.6		—		—	—		143.5		—		0.1



Other comprehensive loss, net	(22.4)		—		—	—		—		(22.3)		(0.1)
Repurchase of ordinary shares	(12.9)		—		(0.1)	(1.4)		(11.5)		—		—
Share-based compensation activity	4.2		—		—	4.2		—		—		—


Dividends to ordinary shareholders ($0.36 per share)	(32.3)		—		—	—		(32.3)		—		—

Balance at September 30, 2021	$	867.6	$	0.9	89.7	$	2.8	$	1,061.5	$	(201.0)	$	3.4

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The changes in the components of Equity for the nine months ended September 30, 2020, were as follows:


			Allegion plc shareholders' equity
			Ordinary shares
In millions	Total equity		Amount		Shares	Capital in excess of par value		Retained earnings		Accumulated other comprehensive loss		Noncontrolling interests
Balance at December 31, 2019	$	760.4	$	0.9	92.7	$	—	$	975.1	$	(218.6)	$	3.0
Cumulative effect of adoption of ASC 326, Financial Instruments – Credit Losses	(2.2)		—		—	—		(2.2)		—		—
Net earnings	0.5		—		—	—		0.4		—		0.1



Other comprehensive loss, net	(33.4)		—		—	—		—		(32.8)		(0.6)
Repurchase of ordinary shares	(94.1)		—		(0.9)	(12.2)		(81.9)		—		—
Share-based compensation activity	12.2		—		0.4	12.2		—		—		—


Dividends to ordinary shareholders ($0.32 per share)	(29.6)		—		—	—		(29.6)		—		—

Balance at March 31, 2020	613.8		0.9		92.2	—		861.8		(251.4)		2.5
Net earnings	73.7		—		—	—		73.7		—		—



Other comprehensive income, net	20.6		—		—	—		—		20.4		0.2

Share-based compensation activity	1.6		—		—	1.6		—		—		—
Dividends to noncontrolling interests	(0.2)		—		—	—		—		—		(0.2)
Dividends to ordinary shareholders ($0.32 per share)	(29.5)		—		—	—		(29.5)		—		—

Balance at June 30, 2020	680.0		0.9		92.2	1.6		906.0		(231.0)		2.5
Net earnings	146.9		—		—	—		146.9		—		—



Other comprehensive income, net	24.5		—		—	—		—		24.2		0.3

Share-based compensation activity	5.2		—		0.1	5.2		—		—		—

Dividends to ordinary shareholders ($0.32 per share)	(29.5)		—		—	—		(29.5)		—		—

Balance at September 30, 2020	$	827.1	$	0.9	92.3	$	6.8	$	1,023.4	$	(206.8)	$	2.8

In February 2017, the Company’s Board of Directors approved a share repurchase authorization of up to $500 million of the Company’s ordinary shares (the "2017 Share Repurchase Authorization"). On February 6, 2020, the Company’s Board of Directors approved a new share repurchase authorization of up to, and including, $800 million of the Company’s ordinary shares (the "2020 Share Repurchase Authorization"), replacing the existing 2017 Share Repurchase Authorization. During the nine months ended September 30, 2021 and 2020, the Company paid $212.7 million and $94.1 million, respectively, to repurchase the ordinary shares reflected in the tables above on the open market under these share repurchase authorizations. As of September 30, 2021, the Company has approximately $401.4 million still available to be repurchased under the 2020 Share Repurchase Authorization.

Accumulated Other Comprehensive Loss

The changes in Accumulated other comprehensive loss for the nine months ended September 30, 2021, were as follows:


In millions	Cash flow hedges		Pension and OPEB items		Foreign currency items		Total
December 31, 2020	$	(0.9)	$	(120.3)	$	(35.9)	$	(157.1)
Other comprehensive income (loss) before reclassifications	2.8		1.5		(50.8)		(46.5)
Amounts reclassified from accumulated other comprehensive loss(a)	(0.2)		3.5		—		3.3
Tax expense	(0.7)		—		—		(0.7)
September 30, 2021	$	1.0	$	(115.3)	$	(86.7)	$	(201.0)

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The changes in Accumulated other comprehensive loss for the nine months ended September 30, 2020, were as follows:


In millions	Cash flow hedges		Pension and OPEB items		Foreign currency items		Total
December 31, 2019	$	0.5	$	(126.2)	$	(92.9)	$	(218.6)
Other comprehensive income before reclassifications	3.7		1.6		21.3		26.6
Amounts reclassified from accumulated other comprehensive loss(a)	(4.3)		3.8		(14.0)		(14.5)
Tax benefit (expense)	0.2		(0.5)		—		(0.3)
September 30, 2020	$	0.1	$	(121.3)	$	(85.6)	$	(206.8)

(a) Amounts reclassified from Accumulated other comprehensive loss and recognized into Net earnings related to cash flow hedges are recorded in Cost of goods sold and Interest expense. Amounts reclassified from Accumulated other comprehensive loss and recognized into Net earnings related to pension and postretirement benefits other than pensions ("OPEB") items and foreign currency items are recorded in Other income, net.

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.

Compensation Expense

Share-based compensation expense is included in Cost of goods sold and Selling and administrative expenses within the Condensed and Consolidated Statements of Comprehensive Income. The following table summarizes the expenses recognized for the three and nine months ended September 30:


	Three months ended				Nine months ended
In millions	2021		2020		2021		2020
Stock options	$	0.5	$	0.4	$	3.7	$	3.4
RSUs	2.2		2.0		10.1		9.6
PSUs	0.5		2.6		4.4		3.0
Deferred compensation	(0.1)		1.0		1.3		1.2
Pre-tax expense	3.1		6.0		19.5		17.2
Tax benefit(a)	(0.4)		(0.8)		(2.4)		(2.2)
After-tax expense	$	2.7	$	5.2	$	17.1	$	15.0

(a) Tax benefit reflected in the table above does not include the excess benefit from exercises and vesting of share based compensation of $0.2 million during the three months ended September 30, 2021, and $1.5 million and $4.0 million during the nine months ended September 30, 2021 and 2020, respectively.

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 nine months ended September 30 were as follows:


	2021			2020
	Number granted	Weighted- average fair value per award		Number granted	Weighted- average fair value per award
Stock options	179,743	$	24.99	161,600	$	25.62
RSUs	130,126	$	112.21	81,053	$	125.13

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 three-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 nine months ended September 30:


	2021		2020
Dividend yield	1.32	%	0.99	%
Volatility	27.14	%	20.70	%
Risk-free rate of return	0.75	%	1.41	%
Expected life (years)	6.0		6.0

Volatility is based on the Company’s historic volatility. 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. 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 Stock

The Company has a Performance Stock Program ("PSP") for key employees which 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 nine months ended September 30, 2021, the Company granted PSUs with a maximum award level of approximately 0.1 million shares.

In February 2019, 2020 and 2021, 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. 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.

Deferred Compensation

Prior to 2019, the Company allowed key employees to defer a portion of their eligible granted PSUs and/or 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 ACTIVITIES

During the three months ended September 30, 2021 and 2020, the Company recorded $0.6 million and $5.9 million, respectively, of expenses associated with restructuring activities. During the nine months ended September 30, 2021 and 2020, the Company recorded $3.8 million and $22.4 million, respectively, of expenses associated with restructuring activities. Restructuring activities in both 2021 and 2020 were primarily associated with the Allegion International segment and related to workforce reductions intended to optimize and simplify operations and cost structure, although approximately $7 million of the restructuring charges incurred during the nine months ended September 30, 2020 related to the Allegion Americas segment and Corporate. Restructuring charges for both the three and nine month periods ended September 30, 2021 and 2020, respectively, are primarily included within Selling and administrative expenses within the Condensed and Consolidated Statements of Comprehensive Income.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The changes in the restructuring reserve during the nine months ended September 30, 2021, were as follows:


In millions	Total
December 31, 2020	$	5.3
Additions, net of reversals	3.3
Cash payments	(7.8)
Currency translation	(0.1)
September 30, 2021	$	0.7

The majority of the costs accrued as of September 30, 2021, are expected to be paid within one year.

The Company also incurred other non-qualified restructuring charges of $0.4 million and $0.9 million, during the nine months ended September 30, 2021 and 2020, respectively, in conjunction with restructuring plans, which represent costs that are directly attributable to restructuring activities, but that do not fall into the severance, exit or disposal category. These expenses are included in Cost of goods sold and Selling and administrative expenses within the Condensed and Consolidated Statements of Comprehensive Income.

NOTE 16 - OTHER INCOME, N****ET

The components of Other income, net for the three and nine months ended September 30 were as follows:


	Three months ended				Nine months ended
In millions	2021		2020		2021		2020
Interest income	$	(0.3)	$	(0.2)	$	(0.4)	$	(0.8)
Foreign currency exchange loss	0.8		0.2		2.0		1.0
(Earnings and gains from the sale of) losses from equity method investments	(6.3)		0.1		(6.0)		0.6
Net periodic pension and postretirement benefit income, less service cost	(2.1)		(1.0)		(6.0)		(2.0)
Other	(6.8)		(11.3)		(11.0)		(11.4)
Other income, net	$	(14.7)	$	(12.2)	$	(21.4)	$	(12.6)

Other income, net for the three and nine months ended September 30, 2021, included a gain of $6.4 million from the sale of the Company's equity method investment in Nuki Home Solutions GmbH, which is included within (Earnings and gains from the sale of) losses from equity method investments in the table above.

Other income, net for the three and nine months ended September 30, 2020, included a gain of $14.0 million related to the reclassification to earnings of accumulated foreign currency translation adjustments upon the liquidation of a legal entity in our former EMEA segment. This gain is included within Other in the table above.

NOTE 17 - INCOME TAXES

The effective income tax rates for the three months ended September 30, 2021 and 2020, were (2.0)% and 8.0%, respectively. The decrease in the effective tax rate compared to 2020 is primarily due to favorable settlements of uncertain tax positions, a current quarter benefit related to the mix of income earned in lower tax rate jurisdictions and the unfavorable tax impact recognized in 2020 related to the recording of valuation allowances.

The effective income tax rates for the nine months ended September 30, 2021 and 2020, were 7.2% and 14.8%, respectively. The decrease in the effective tax rate compared to 2020 is primarily due to the unfavorable tax impact recognized in 2020 related to goodwill and intangible asset impairment charges, favorable settlements of uncertain tax positions and the unfavorable tax impact recognized in 2020 related to the recording of valuation allowances, which were partially offset by an unfavorable year-over-year change in share-based compensation deductions.

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

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 EPS calculations for the three and nine months ended September 30:


	Three months ended		Nine months ended
In millions	2021	2020	2021	2020
Weighted-average number of basic shares	89.7	92.3	90.1	92.4
Shares issuable under share-based compensation plans	0.6	0.4	0.6	0.5
Weighted-average number of diluted shares	90.3	92.7	90.7	92.9

At September 30, 2021, 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 - NET REVENUES

Net revenues are recognized based on the satisfaction of performance obligations under the terms of a contract. A performance obligation is a promise in a contract to transfer control of a distinct product or to provide a service, or a bundle of products or services, to a customer. The Company has two principal revenue streams, tangible product sales and services. Approximately 99% of consolidated Net revenues involve contracts with a single performance obligation, which is the transfer of control of a product or bundle of products to a customer. Transfer of control typically occurs when goods are shipped from the Company’s facilities or at other predetermined control transfer points (for instance, destination terms). Net revenues are measured as the amount of consideration expected to be received in exchange for transferring control of the products and takes into account variable consideration, such as sales incentive programs including discounts and volume rebates. The existence of these programs does not preclude revenue recognition but does require the Company’s best estimate of the variable consideration to be made based on expected activity, as these items are reserved for as a deduction to Net revenues over time based on the Company’s historical rates of providing these incentives and annual forecasted sales volumes. The Company also offers a standard warranty with most product sales, and the value of such warranty is included in the contractual price. The corresponding expense of the warranty obligation is accrued as a liability (see Note 21).

The Company’s remaining Net revenues involve services, including installation and consulting. Unlike the single performance obligation to ship a product or bundle of products, revenue recognition related to services is delayed until the service performance obligations are satisfied. In some instances, customer acceptance provisions are included in sales arrangements to give the buyer the ability to ensure the service meets the criteria established in the order. In these instances, revenue recognition is deferred until the performance obligations are satisfied, which could include acceptance terms specified in the arrangement being fulfilled through customer acceptance or a demonstration that established criteria have been satisfied. During the nine months ended September 30, 2021 and 2020, no adjustments were recorded related to performance obligations satisfied in previous periods.

The Company applies the practical expedients allowed under ASC 606, "Revenue from Contracts with Customers", to omit the disclosure of remaining performance obligations for contracts with an original expected duration of one year or less and for contracts where the Company has the right to invoice for performance completed to date. The transaction price is not adjusted for the effects of a significant financing component, as the time period between control transfer of goods and services is less than one year. Sales, value-added and other similar taxes collected by the Company are excluded from Net revenues. The Company has also elected to account for shipping and handling activities that occur after control of the related goods transfers as fulfillment activities instead of performance obligations. These activities are included in Cost of goods sold in the Condensed and Consolidated Statements of Comprehensive Income. The Company’s payment terms are generally consistent with the industries in which its businesses operate.

The following tables show the Company’s Net revenues related to both tangible product sales and services for the three and nine months ended September 30, 2021 and 2020, respectively, disaggregated by business segment. Net revenues are shown by tangible product sales and services, as contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty around revenue recognition and cash flows are substantially similar within each of these two principal revenue streams:

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Three months ended September 30, 2021						Nine months ended September 30, 2021
In millions	Allegion Americas		Allegion International		Total		Allegion Americas		Allegion International		Consolidated
Net revenues
Products	$	524.1	$	185.5	$	709.6	$	1,571.2	$	563.9	$	2,135.1
Services	0.3		7.1		7.4		1.5		21.6		23.1
Total Net revenues	$	524.4	$	192.6	$	717.0	$	1,572.7	$	585.5	$	2,158.2


	Three months ended September 30, 2020						Nine months ended September 30, 2020
In millions	Allegion Americas		Allegion International		Total		Allegion Americas		Allegion International		Consolidated
Net revenues
Products	$	539.1	$	182.4	$	721.5	$	1,495.5	$	477.5	$	1,973.0
Services	—		6.9		6.9		—		19.6		19.6
Total Net revenues	$	539.1	$	189.3	$	728.4	$	1,495.5	$	497.1	$	1,992.6

As of September 30, 2021, neither the contract assets related to the Company’s right to consideration for work completed but not billed, nor the contract liabilities associated with contract revenue were material. As a practical expedient, the Company recognizes incremental costs of obtaining a contract, if any, as an expense when incurred if the amortization period of the asset would have been one year or less. The Company does not have any costs to obtain or fulfill a contract that are capitalized.

NOTE 20 - BUSINESS SEGMENT INFORMATION

The Company classifies its business into the following two reportable segments based on industry and market focus: Allegion Americas and Allegion International. 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 operating decisions. The Company defines Segment operating margin as Segment operating income (loss) as a percentage of the segment’s Net revenues.

As previously announced, effective January 1, 2021, the Company combined its previous operations in Europe, the Middle East and Africa ("EMEA") and Asia Pacific into a new segment named Allegion International, in addition to renaming its Americas segment "Allegion Americas". Business segment information for EMEA and Asia Pacific for the three and nine months ended September 30, 2020, has been combined in the table below to reflect this change in reportable segments.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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


	Three months ended				Nine months ended
In millions	2021		2020		2021		2020
Net revenues
Allegion Americas	$	524.4	$	539.1	$	1,572.7	$	1,495.5
Allegion International	192.6		189.3		585.5		497.1
Total	$	717.0	$	728.4	$	2,158.2	$	1,992.6
Segment operating income (loss)
Allegion Americas	$	133.7	$	165.0	$	419.5	$	432.4
Allegion International	20.5		13.2		54.0		(92.8)
Total	154.2		178.2		473.5		339.6
Reconciliation to Operating income
Unallocated corporate expense	(15.8)		(17.8)		(58.4)		(53.8)
Operating income	138.4		160.4		415.1		285.8
Reconciliation to earnings before income taxes
Interest expense	12.3		12.9		37.0		38.8
Other income, net	(14.7)		(12.2)		(21.4)		(12.6)
Earnings before income taxes	$	140.8	$	159.7	$	399.5	$	259.6

NOTE 21 - COMMITMENTS AND CONTINGENCIES

The Company is involved in various litigation, 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 past operations. 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 the Company's 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.

During the nine months ended September 30, 2021 and 2020, the Company incurred $0.9 million and $1.8 million, respectively, of expenses for environmental remediation at sites presently or formerly owned or leased by the Company. Environmental

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

remediation costs are recorded in Costs of goods sold within the Condensed and Consolidated Statements of Comprehensive Income.

As of September 30, 2021 and December 31, 2020, the Company has recorded reserves for environmental matters of $17.1 million and $21.1 million, respectively. The total reserve at September 30, 2021 and December 31, 2020, included $4.5 million and $4.4 million, respectively, 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 within the Condensed and Consolidated Balance Sheets based on the timing of their expected future payment. The Company’s total current environmental reserve at September 30, 2021 and December 31, 2020, was $3.9 million and $6.1 million, respectively, 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.

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 nine months ended September 30 were as follows:


In millions	2021		2020
Balance at beginning of period	$	16.5	$	15.9
Reductions for payments	(7.5)		(5.3)
Accruals for warranties issued during the current period	9.1		6.2
Changes to accruals related to preexisting warranties	—		(0.3)

Currency translation	(0.2)		0.1
Balance at end of period	$	17.9	$	16.6

Standard product warranty liabilities are classified as either Accrued expenses and other current liabilities or Other noncurrent liabilities within the Condensed and Consolidated Balance Sheets based on the timing of the expected future payments.

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