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

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, 2021. 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 and its consolidated subsidiaries ("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

Industry Trends and Outlook

Throughout the current year, we have seen strong demand for our products and services, particularly non-residential products in our Allegion Americas segment. Our ability to meet this elevated level of customer demand improved throughout the year, due in part to our previous actions to mitigate industry-wide supply-chain challenges (particularly shortages of electronic components), as well as improving availability of non-electronic parts and materials.

Additionally, in an effort to combat the persistent, elevated levels of inflation, we have implemented a series of pricing initiatives across our global businesses. These initiatives have resulted in strong pricing momentum which we expect to continue to contribute to revenue growth and offset the impact of inflation throughout the remainder of 2022.

In spite of these positive factors, supply chain challenges around the availability of electronic parts and components persist, and continue to negatively impact our ability to meet the elevated levels of demand for our connected electronic security products. Labor availability also continues to impact our operational efficiency. Additionally, we have experienced a further softening of demand throughout many of the Eurozone economies, impacting several of our businesses in our Allegion International segment.

We remain focused on providing exceptional service and innovation to our customers. We are beginning to realize the benefits from the measures we have taken to mitigate operational and distribution inefficiencies, such as re-engineering product designs and configurations to accept alternate electronic components and developing alternate sources of supply. We continue to invest in business initiatives to drive future growth and add value through seamless access and will continue to explore various options to control costs and enhance financial performance while minimizing disruption to customers and our overall business.

The on-going COVID-19 pandemic and the macroeconomic uncertainties noted above will likely continue to affect us in numerous and evolving ways. The full impact of these uncertainties on our business will continue to depend on future developments that we may not be able to accurately predict. These uncertainties and their potential or heightened 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, 2021.

Acquisition of the Access Technologies business

On July 5, 2022, we completed the acquisition of the Access Technologies business for a closing purchase price of $923.1 million. This acquisition was financed by the net proceeds from the issuance of our 5.411% Senior Notes, together with borrowings under our 2021 Revolving Facility and cash on hand. The Access Technologies business has been integrated into our Allegion Americas segment.

The Access Technologies business is a leading manufacturer, installer and service provider of automatic doors in North America, primarily in the U.S. and Canada. Its diversified customer base centers on non-residential settings, including retail, healthcare, education, commercial offices, hospitality and government. This acquisition helps us create a more comprehensive portfolio of access solutions, with the addition of automated entrances. Additionally, the Access Technologies business adds an expansive service and support network throughout the U.S. and Canada, broadening our solutions to national, regional and local customers, and complementing our existing strengths in these non-residential markets. The Access Technologies business generated $88.7 million in Net revenues during the third quarter.

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Divestiture of Milre

In September 2022, we sold Milre Systek Co. Ltd. ("Milre") in South Korea for an immaterial amount. As a result of the sale, we recorded a net loss on divestiture of $7.6 million.

2022 Dividends and Share Repurchases

During the nine months ended September 30, 2022, we paid dividends of $1.23 per ordinary share to shareholders and repurchased approximately 0.5 million shares for $61.0 million.

Results of Operations – Three months ended September 30

In millions, except per share amounts			2022						% of revenues						2021						% of revenues
Net revenues			$	913.7											$	717.0
Cost of goods sold			545.7						59.7		%				416.5						58.1		%
Selling and administrative expenses			205.1						22.4		%				162.1						22.6		%
Operating income			162.9						17.8		%				138.4						19.3		%
Interest expense			23.1												12.3
Loss on divestitures			7.6												—
Other income, net			(1.5)												(14.7)
Earnings before income taxes			133.7												140.8
Provision for (benefit from) income taxes			19.1												(2.8)
Net earnings			114.6												143.6
Less: Net earnings attributable to noncontrolling interests			—												0.1
Net earnings attributable to Allegion plc			$	114.6											$	143.5
Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders:			$	1.30											$	1.59

The discussions that follow describe the significant factors contributing to the changes in our results of operations for the periods presented and form the basis used by management to evaluate the financial performance of the business.

Net Revenues

Net revenues for the three months ended September 30, 2022, increased by 27.4%, or $196.7 million, compared with the same period in 2021, due to the following:

Pricing			12.6		%
Volume			6.0		%
Acquisitions / divestitures			12.4		%
Currency exchange rates			(3.6)		%
Total			27.4		%

The increase in Net revenues was driven by improved pricing across our major businesses, our recently acquired Access Technologies business and higher volumes in our Allegion Americas segment. These increases were partially offset by unfavorable foreign currency exchange rate movements and lower volumes in our Allegion International segment.

Pricing includes increases or decreases of price, including discounts, surcharges and/or other sales deductions, on our existing products and services. As discussed above, the pricing initiatives we have implemented in response to the persistent, elevated levels of inflation continue to be a key driver in the overall increase in Net revenues. Volume includes increases or decreases of revenue due to changes in unit volume of existing products and services, as well as new products and services.

Operating Income/Margin

Operating income for the three months ended September 30, 2022, increased $24.5 million compared to the same period in 2021. Operating margin, which we define as Operating income as a percentage of total Net revenues, for the three months ended September 30, 2022, decreased to 17.8% from 19.3% for the same period in 2021, due to the following:

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In millions			Operating Income						Operating Margin
September 30, 2021			$	138.4					19.3		%
Pricing and productivity in excess of inflation			25.5						1.1		%
Volume / product mix			24.5						2.2		%
Restructuring / acquisition expenses			(23.8)						(3.2)		%
Currency exchange rates			(6.5)						(0.1)		%
Investment spending			(2.3)						(0.3)		%
Acquisitions / divestitures			7.1						(1.2)		%
September 30, 2022			$	162.9					17.8		%

The increase in Operating income was driven by pricing improvements in excess of inflation and productivity, favorable volume/product mix and the contribution to operating income from our recently acquired Access Technologies business. These increases were partially offset by a year-over-year increase in restructuring and acquisition expenses, unfavorable foreign currency exchange rate movements and increased investment spending.

The decrease in Operating margin was primarily due to a year-over-year increase in restructuring and acquisition expenses, unfavorable foreign currency exchange rate movements, increased investment spending and the impact to operating margin from our recently acquired Access Technologies business. These decreases were partially offset by pricing improvements in excess of inflation and productivity and favorable volume/product mix.

Pricing and productivity in excess of inflation includes the impact to both Operating income and Operating margin from pricing, as defined above, in addition to productivity and inflation. Productivity represents improvements in unit costs of materials, cost reductions related to improvements to our manufacturing design and processes and reductions in selling and administrative expenses due to productivity projects. Inflation includes both unit costs for the current period compared to the average actual cost for the prior period, multiplied by current year volumes, and current period costs of ongoing selling and administrative functions compared to the same ongoing expenses in the prior period. Expenses related to increased head count for strategic initiatives, new facilities or other significant spending for strategic initiatives or new product and channel development, are captured in Investment spending in the table above.

Volume/product mix represents the impact to both Operating income and Operating margin due to increases or decreases of revenue due to changes in unit volume, including new products and services, including the effect of changes in the mix of products and services sold on Cost of goods sold.

Interest Expense

Interest expense for the three months ended September 30, 2022, increased $10.8 million compared with the same period in 2021, primarily due to interest on our 5.411% Senior Notes and our 2021 Revolving Facility. The recent rise in interest rates has also contributed to a higher weighted-average interest rate on our variable rate outstanding indebtedness.

Loss on Divestiture

As discussed above, in September 2022, we sold Milre for an immaterial amount, resulting in a net loss of $7.6 million.

Other Income, Net

The components of Other income, net for the three months ended September 30, 2022 and 2021, were as follows:

In millions			2022						2021
Interest income			$	(0.4)					$	(0.3)
Foreign currency exchange loss			—						0.8
Earnings from equity method investments, net			—						(6.3)
Net periodic pension and postretirement benefit income, less service cost			(2.1)						(2.1)
Other			1.0						(6.8)
Other income, net			$	(1.5)					$	(14.7)

Other income, net for the three months ended September 30, 2022 decreased $13.2 million compared with the same period in 2021. This decrease is due to a prior year gain of $6.4 million from the sale of our interest in an equity method affiliate, as well as other investment gains and income of $6.8 million during the three months ended September 30, 2021, which did not recur in the current year.

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Provision for (benefit from) Income Taxes

The effective income tax rates for the three months ended September 30, 2022 and 2021, were 14.3% and (2.0)%, respectively. The increase in the effective tax rate compared to 2021 is primarily due to the favorable resolutions of uncertain tax positions and other discrete tax benefits in 2021 that have not recurred in 2022, changes in jurisdictional tax rates, the mix of income earned in higher tax rate jurisdictions and the unfavorable tax impact from the divestiture of Milre.

Results of Operations – Nine months ended September 30

In millions, except per share amounts			2022						% of revenues						2021						% of revenues
Net revenues			$	2,410.4											$	2,158.2
Cost of goods sold			1,438.7						59.7		%				1,239.8						57.4		%
Selling and administrative expenses			544.7						22.6		%				503.3						23.3		%
Operating income			427.0						17.7		%				415.1						19.2		%
Interest expense			52.2												37.0
Loss on divestitures			7.6												—
Other income, net			(7.1)												(21.4)
Earnings before income taxes			374.3												399.5
Provision for income taxes			51.4												28.9
Net earnings			322.9												370.6
Less: Net earnings attributable to noncontrolling interests			0.2												0.4
Net earnings attributable to Allegion plc			$	322.7											$	370.2
Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders:			$	3.65											$	4.08

The discussions that follow describe the significant factors contributing to the changes in our results of operations for the periods presented and form the basis used by management to evaluate the financial performance of the business.

Net revenues

Net revenues for the nine months ended September 30, 2022, increased by 11.7%, or $252.2 million, compared with the same period in 2021, due to the following:

Pricing			9.0		%
Volume			1.5		%
Acquisitions / divestitures			4.1		%
Currency exchange rates			(2.9)		%
Total			11.7		%

The increase in Net revenues was driven by improved pricing across all our major businesses, our recently acquired Access Technologies business and higher volumes in our Allegion Americas segment. These increases were partially offset by unfavorable foreign currency exchange rate movements and lower volumes in our Allegion International segment.

Operating Income/Margin

Operating income for the nine months ended September 30, 2022, increased $11.9 million compared to the same period in 2021, and Operating margin for the nine months ended September 30, 2022, decreased to 17.7% from 19.2% for the same period in 2021, due to the following:

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In millions			Operating Income						Operating Margin
September 30, 2021			$	415.1					19.2		%
Pricing and productivity in excess of inflation			38.8						0.1		%
Volume / product mix			24.3						0.8		%
Restructuring / acquisition expenses			(33.6)						(1.5)		%
Currency exchange rates			(14.5)						(0.1)		%
Investment spending			(11.7)						(0.5)		%
Acquisitions / divestitures			8.6						(0.3)		%
September 30, 2022			$	427.0					17.7		%

The increase in Operating income was driven by pricing improvements in excess of inflation and productivity, favorable volume/product mix and the contribution to operating income from our recently acquired Access Technologies business and divestiture of QMI. These increases were partially offset by a year-over-year increase in restructuring and acquisition expenses, unfavorable foreign currency exchange rate movements and increased investment spending.

The decrease in Operating margin was primarily due to a year-over-year increase in restructuring and acquisition expenses, unfavorable foreign currency exchange rate movements, increased investment spending and the impact to operating margin from our recently acquired Access Technologies business and divestiture of QMI. These decreases were partially offset by pricing improvements in excess of inflation and productivity and favorable volume/product mix.

Interest Expense

Interest expense for the nine months ended September 30, 2022, increased $15.2 million compared with the same period in 2021, primarily due to interest on our 5.411% Senior Notes and our 2021 Revolving Facility, as well as the $4.3 million of third party costs related to the financing of the recently acquired Access Technologies business. The recent rise in interest rates has also contributed to a higher weighted-average interest rate on our variable rate outstanding indebtedness.

Loss on Divestiture

As discussed above, in September 2022, we sold Milre for an immaterial amount, resulting in a net loss of $7.6 million.

Other Income, Net

The components of Other income, net for the nine months ended September 30, 2022 and 2021, were as follows:

In millions			2022						2021
Interest income			$	(0.6)					$	(0.4)
Foreign currency exchange loss			1.9						2.0
Earnings from equity method investments, net			(0.6)						(6.0)
Net periodic pension and postretirement benefit income, less service cost			(7.1)						(6.0)
Other			(0.7)						(11.0)
Other income, net			$	(7.1)					$	(21.4)

Other income, net for the nine months ended September 30, 2022 decreased $14.3 million compared with the same period in 2021, due to decreased investment gains and income, and the gain of $6.4 million from the sale of our interest in an equity method affiliate during the prior year, which did not recur in the current year.

Provision for Income Taxes

The effective income tax rates for the nine months ended September 30, 2022 and 2021, were 13.7% and 7.2%, respectively. The increase in the effective tax rate compared to 2021 is primarily due to the favorable resolutions of uncertain tax positions and other discrete tax benefits in 2021 that have not recurred in 2022, changes in jurisdictional tax rates, the mix of income earned in higher tax rate jurisdictions and the unfavorable tax impact from the divestiture of Milre.

Review of Business Segments

We operate in and report financial results for two segments: Allegion Americas and Allegion International. These segments represent the level at which our chief operating decision maker reviews our financial performance and makes operating decisions.

Segment operating income is the measure of profit and loss that our 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

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reasons, we believe that Segment operating income represents the most relevant measure of Segment profit and loss. Our chief operating decision maker may exclude certain charges or gains, such as corporate charges and other special charges, to arrive at a Segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions. We define Segment operating margin as Segment operating income as a percentage of the segment’s Net revenues.

The segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in Net earnings.

Segment Results of Operations - For the three and nine months ended September 30

			Three months ended																		Nine months ended
In millions			2022						2021						% Change						2022						2021						% Change
Net revenues
Allegion Americas			$	747.2					$	524.4					42.5		%				$	1,867.7					$	1,572.7					18.8		%
Allegion International			166.5						192.6						(13.6)		%				542.7						585.5						(7.3)		%
Total			$	913.7					$	717.0											$	2,410.4					$	2,158.2
Segment operating income
Allegion Americas			$	178.4					$	133.7					33.4		%				$	455.9					$	419.5					8.7		%
Allegion International			14.9						20.5						(27.3)		%				45.9						54.0						(15.0)		%
Total			$	193.3					$	154.2											$	501.8					$	473.5
Segment operating margin
Allegion Americas			23.9		%				25.5		%										24.4		%				26.7		%
Allegion International			8.9		%				10.6		%										8.5		%				9.2		%

Allegion Americas

Our Allegion Americas segment is a leading provider of security products and solutions throughout North America. The segment sells a broad range of products and solutions including locks, locksets, portable locks, key systems, door closers, exit devices, doors, door systems, electronic products, access control systems, and entrance solutions (with our recent acquisition of the Access Technologies business) to customers in commercial, institutional and residential facilities, including the education, healthcare, government, hospitality, commercial office and single and multi-family residential markets. This segment’s primary brands are LCN, Schlage, Steelcraft, Technical Glass Products ("TGP") and Von Duprin.

Net Revenues

Net revenues for the three months ended September 30, 2022, increased by 42.5%, or $222.8 million, compared to the same period in 2021, due to the following:

Pricing						14.7		%
Volume						11.1		%
Acquisitions						16.9		%
Currency exchange rates						(0.2)		%
Total						42.5		%

The increase in Net revenues was driven by significantly improved pricing, higher volumes for both our residential and non-residential products and services and the impact of our recently acquired Access Technologies business. These increases were partially offset by unfavorable foreign currency exchange rate movements.

Net revenues from non-residential products (excluding Net revenues from our recently acquired Access Technologies business) for the three months ended September 30, 2022, increased by nearly thirty percent compared to the same period in the prior year, driven by substantially improved pricing and higher volumes. Continued strong demand and improvements around the availability of materials and components, driven in part by our previous actions to mitigate these supply-chain challenges, helped drive the increase in volumes compared to the same period in the prior year.

Net revenues from residential products for the three months ended September 30, 2022, increased by a mid-teens percent compared to the same period in the prior year. This increase was driven by substantially improved pricing and higher volumes. Although we continue to face challenges around the supply of electronic components and have also seen a softening in market demand for residential products, we expect our pricing initiative to continue contributing to revenue growth for the remainder of the year.

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Growth in electronic security products and solutions is a metric that is actively monitored by management and a focus of our investors. Electronic products encompass both residential and non-residential solutions and include all electrified product categories including, but not limited to, electronic locks, access controls and electrified exit devices and door controls. For the three months ended September 30, 2022, Net revenues from the sale of electronic products in the Allegion Americas segment (excluding Net revenues from our recently acquired Access Technologies business) increased by nearly thirty percent compared to the same period in the prior year. While we continue to experience delays and shortages of electronic components from key suppliers, we expect continued growth in Net revenues from the sale of electronic products for the remainder of the year, given the combination of our pricing initiatives and the comparable impact to the fourth quarter of 2021, when the supply chain challenges and shortages of materials and components negatively impacted revenue.

Net revenues for the nine months ended September 30, 2022, increased by 18.8%, or $295.0 million, compared to the same period in 2021, due to the following:

Pricing						10.3		%
Volume						3.0		%
Acquisitions						5.6		%
Currency exchange rates						(0.1)		%
Total						18.8		%

The increase in Net revenues was driven by significantly improved pricing and higher volumes for our non-residential products, as well as the impact of our recently acquired Access Technologies business. These increases were partially offset by unfavorable foreign currency exchange rate movements and lower volumes for our residential products.

Net revenues from non-residential products (excluding Net revenues from our recently acquired Access Technologies business) for the nine months ended September 30, 2022, increased by approximately twenty percent compared to the same period in the prior year, driven by improved pricing and higher volumes. Net revenues from residential products for the nine months ended September 30, 2022, decreased by a low single digits percent compared to the same period in the prior year, driven by lower volumes, which were partially offset by increased pricing. Net revenues from the sale of electronic products for the nine months ended September 30, 2022, were up by a high single digits percent compared to the same period in the prior year.

Operating income/margin

Segment operating income for the three months ended September 30, 2022, increased $44.7 million compared to the same period in 2021, and Segment operating margin for the three months ended September 30, 2022, decreased to 23.9% from 25.5%, due to the following:

In millions						Operating Income						Operating Margin
September 30, 2021						$	133.7					25.5		%
Pricing and productivity in excess of inflation						24.2						1.0		%
Volume / product mix						30.8						2.9		%
Currency exchange rates						(0.6)						—		%
Investment spending						(0.7)						(0.1)		%
Acquisitions						6.8						(2.5)		%
Acquisition expenses						(15.8)						(2.9)		%
September 30, 2022						$	178.4					23.9		%

The increase in Segment operating income was primarily driven by pricing improvements in excess of inflation and productivity, favorable volume/product mix and the contribution to operating income from our recently acquired Access Technologies business. These increases were partially offset by a year-over-year increase in acquisition and integration expenses, unfavorable foreign currency exchange rate movements and increased investment spending.

The decrease in Segment operating margin was primarily due to a year-over-year increase in acquisition and integration expenses, the impact to operating margin from our recently acquired Access Technologies business and increased investment spending. These decreases were partially offset by pricing improvements in excess of inflation and productivity and favorable volume/product mix.

Segment operating income for the nine months ended September 30, 2022, increased $36.4 million compared to the same period in 2021, and Segment operating margin for the nine months ended September 30, 2022, decreased to 24.4% from 26.7%, due to the following:

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In millions						Operating Income						Operating Margin
September 30, 2021						$	419.5					26.7		%
Pricing and productivity in excess of inflation						22.7						(1.1)		%
Volume / product mix						31.4						1.2		%
Currency exchange rates						(1.4)						—		%
Investment spending						(7.5)						(0.4)		%
Acquisitions						6.8						(1.0)		%
Restructuring / acquisition expenses						(15.6)						(1.0)		%
September 30, 2022						$	455.9					24.4		%

The increase in Segment operating income was primarily driven by pricing improvements in excess of inflation and productivity, favorable volume/product mix and the contribution to operating income from our recently acquired Access Technologies business. These increases were partially offset by a year-over-year increase in restructuring and acquisition expenses, unfavorable foreign currency exchange rate movements and increased investment spending.

The decrease in Segment operating margin was primarily due to a year-over-year increase in restructuring and acquisition expenses, the impact to operating margin from our recently acquired Access Technologies business, increased investment spending and the dilutive impact to operating margin from inflation and productivity exceeding the benefit to operating margin from pricing improvements. These decreases were partially offset by favorable volume/product mix.

Allegion International

Our Allegion International segment provides security products, services and solutions primarily throughout Europe, Asia and Oceania. The segment offers end-users a broad range of products, services and solutions including locks, locksets, portable locks, key systems, door closers, exit devices, doors and door systems, electronic products and access control systems, as well as time and attendance and workforce productivity solutions. This segment’s primary brands are AXA, Bricard, Briton, CISA, Gainsborough, Interflex and SimonsVoss.

Net Revenues

Net revenues for the three months ended September 30, 2022, decreased by 13.6%, or $26.1 million, compared to the same period in 2021, due to the following:

Pricing						6.9		%
Volume						(7.7)		%
Currency exchange rates						(12.8)		%
Total						(13.6)		%

The decrease in Net revenues was driven by lower volumes and unfavorable foreign currency exchange rate movements due to the significant strengthening of the U.S. dollar relative to most of the currencies in which we do business throughout our Allegion International segment. Also, as discussed above, softening demand throughout much of the Eurozone has impacted several of our businesses in the segment, resulting in lower volumes. These decreases were partially offset by improved pricing.

Net revenues for the nine months ended September 30, 2022, decreased by 7.3%, or $42.8 million, compared to the same period in 2021, due to the following:

Pricing						5.6		%
Volume						(2.7)		%
Acquisitions / divestitures						(0.1)		%
Currency exchange rates						(10.1)		%
Total						(7.3)		%

The decrease in Net revenues was primarily driven by unfavorable foreign currency exchange rate movements, lower volumes and the divestitures of QMI and Milre. These decreases were partially offset by improved pricing.

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Operating income/margin

Segment operating income for the three months ended September 30, 2022, decreased $5.6 million compared to the same period in 2021, and Segment operating margin for the three months ended September 30, 2022, decreased to 8.9% from 10.6%, due to the following:

In millions						Operating Income						Operating Margin
September 30, 2021						$	20.5					10.6		%
Pricing and productivity in excess of inflation						7.5						3.0		%
Volume / product mix						(6.3)						(2.6)		%
Currency exchange rates						(5.8)						(1.8)		%
Investment spending						(1.5)						(0.7)		%
Acquisitions / divestitures						0.3						0.2		%
Restructuring / acquisition expenses						0.2						0.2		%
September 30, 2022						$	14.9					8.9		%

The decreases in Segment operating income and Segment operating margin were primarily driven by unfavorable volume/product mix, unfavorable foreign currency exchange rate movements and increased investment spending. These decreases were partially offset by pricing and productivity improvements in excess of inflation, a year-over-year decrease in restructuring and acquisition expenses and the beneficial impact of a prior year acquisition and the divestiture of Milre.

Segment operating income for the nine months ended September 30, 2022, decreased $8.1 million compared to the same period in 2021, and Segment operating margin for the nine months ended September 30, 2022, decreased to 8.5% from 9.2%, due to the following:

In millions						Operating Income						Operating Margin
September 30, 2021						$	54.0					9.2		%
Pricing and productivity in excess of inflation						15.9						2.1		%
Volume / product mix						(7.1)						(0.9)		%
Currency exchange rates						(13.1)						(1.4)		%
Investment spending						(4.2)						(0.6)		%
Acquisitions / divestitures						1.8						0.3		%
Restructuring / acquisition expenses						(1.4)						(0.2)		%
September 30, 2022						$	45.9					8.5		%

The decreases in Segment operating income and Segment operating margin were primarily driven by unfavorable volume/product mix, unfavorable foreign currency exchange rate movements, increased investment spending and a year-over-year increase in restructuring and acquisition expenses. These decreases were partially offset by pricing and productivity improvements in excess of inflation and the beneficial impact of a prior year acquisition and the divestitures of QMI and Milre.

Liquidity and Capital Resources

Liquidity Outlook, Sources and Uses

Our primary source of liquidity is cash provided by operating activities. Cash provided by operating activities is used to invest in new product development and fund capital expenditures and working capital requirements. Our ability to generate cash from our operating activities, our unused availability under our 2021 Revolving Facility and our access to the capital and credit markets enable us to fund these capital needs, execute our long-term growth strategies and return value to our shareholders. Further, our business operates with strong operating cash flows, low leverage and low capital intensity, providing financial flexibility, including sufficient access to credit markets.

While the financing of our acquisition of the Access Technologies business has increased our leverage, we remain comfortably within all our financial covenants. Further, we do not believe this acquisition or the related financing will diminish our sound financial position or our ability to meet our short-term financing needs. Short-term financing needs primarily consist of working capital requirements, restructuring initiatives, capital spending, dividend payments and principal and interest payments on our long-term debt. Long-term financing needs depend largely on potential growth opportunities, including potential acquisitions, repayment or refinancing of our long-term obligations and repurchases of our ordinary shares. Further, of our total outstanding indebtedness at September 30, 2022, approximately 80% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.

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Based upon our operations, existing cash balances and unused availability under our 2021 Revolving Facility, as of September 30, 2022, we expect cash flows from operations to be sufficient to maintain a sound financial position and liquidity and to meet our financing needs for at least the next 12 months. Further, we do not anticipate any covenant compliance challenges with any of our outstanding indebtedness for at least the next 12 months. We also believe the availability under our 2021 Credit Facilities and access to credit and capital markets are sufficient to achieve our longer-term strategic plans.

The following table reflects the major categories of cash flows for the nine months ended September 30. For additional details, see the Condensed and Consolidated Statements of Cash Flows in the Condensed and Consolidated Financial Statements.

In millions			2022						2021
Net cash provided by operating activities			$	267.1					$	356.4
Net cash used in investing activities			(965.9)						(14.9)
Net cash provided by (used) in financing activities			606.1						(309.3)

Operating Activities: Net cash provided by operating activities during the nine months ended September 30, 2022, decreased $89.3 million compared to the same period in 2021, primarily driven by changes in working capital and decreased Net earnings.

Investing Activities: Net cash used in investing activities during the nine months ended September 30, 2022, increased $951.0 million compared to the same period in 2021, primarily due to $923.1 million of cash paid for the acquisition of the Access Technologies business.

Financing Activities: Net cash provided by (used in) financing activities during the nine months ended September 30, 2022, fluctuated $915.4 million compared to the same period in 2021, primarily due to the issuance of our 5.411% Senior Notes and draw on our 2021 Revolving Facility to finance the acquisition of the Access Technologies business. Additionally, cash used to repurchase shares was $151.7 million lower in 2022 compared to the same period in 2021.

Capitalization

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

In millions			September 30, 2022						December 31, 2021
2021 Term Facility			$	240.6					$	250.0
2021 Revolving Facility			199.0						—
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
5.411% Senior Notes due 2032			600.0						—
Other debt			0.2						0.3
Total borrowings outstanding			2,239.8						1,450.3
Discounts and debt issuance costs, net			(12.7)						(8.2)
Total debt			2,227.1						1,442.1
Less current portion of long-term debt			12.6						12.6
Total long-term debt			$	2,214.5					$	1,429.5

As of September 30, 2022, we have an unsecured Credit Agreement in place, consisting of a $250.0 million term loan facility (the “2021 Term Facility”), of which $240.6 million is outstanding at September 30, 2022, and a $500.0 million revolving credit facility (the “2021 Revolving Facility” and, together with the 2021 Term Facility, the “2021 Credit Facilities”). The 2021 Credit Facilities mature on November 18, 2026. The 2021 Term Facility will amortize in quarterly installments at the following rates: 1.25% per quarter starting March 31, 2022 through March 31, 2025, 2.5% per quarter starting June 30, 2025 through September 30, 2026, with the balance due on November 18, 2026. Principal amounts repaid on the Term Facility may not be reborrowed.

The 2021 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. On July 1, 2022, we borrowed $340.0 million on the 2021 Revolving Facility to partially fund the acquisition of the Access Technologies business. We subsequently made $141.0 million in repayments, resulting in $199.0 million borrowings outstanding as of September 30, 2022, and we had $7.6 million of letters of credit outstanding. Commitments under the 2021 Revolving Facility may be reduced at any time without premium or penalty, and amounts repaid may be reborrowed.

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Outstanding borrowings under the 2021 Credit Facilities accrue interest at our option of (i) a Bloomberg Short-Term Bank Yield Index ("BSBY") rate plus the applicable margin or (ii) a base rate plus the applicable margin. The applicable margin ranges from 0.875% to 1.375% depending on our credit ratings. At September 30, 2022, outstanding borrowings under the 2021 Credit Facilities accrue interest at BSBY plus a margin of 1.125%, resulting in an interest rate of 4.241%. The 2021 Credit Facilities also contain negative and affirmative covenants and events of default that, among other things, limit or restrict our ability to enter into certain transactions. In addition, the 2021 Credit Facilities require us to comply with a maximum leverage ratio as defined within the agreement. As of September 30, 2022, we were in compliance with all covenants.

On June 22, 2022, Allegion US Hold Co issued $600.0 million aggregate principal amount of its 5.411% Senior Notes due 2032 (the “5.411% Senior Notes”). The 5.411% Senior Notes require semi-annual interest payments on January 1 and July 1, beginning January 1, 2023, and will mature on July 1, 2032. We incurred and deferred $5.9 million of discounts and financing costs associated with the 5.411% Senior Notes, which will be amortized to Interest expense over their 10-year term, as well as $4.3 million of third party financing costs that were recorded within Interest expense on the Condensed and Consolidated Statement of Income for the nine months ended September 30, 2022.

As of September 30, 2022, Allegion US Hold Co also 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”, and all four senior notes collectively, the “Senior Notes”). The 3.200% Senior Notes, 3.550% Senior Notes and 3.500% 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.

Historically, the majority of our earnings were considered to be permanently reinvested in jurisdictions where we have made, and intend to continue to make, substantial investments to support the ongoing development and growth of our global operations. At September 30, 2022, we analyzed our working capital requirements and the potential tax liabilities that would be incurred if certain subsidiaries made distributions and concluded that no material changes to our historic permanent reinvestment assertions are required.

Defined Benefit Plans

Our investment objective in managing defined benefit plan assets is to ensure that all present and future benefit obligations are met as they come due. We seek to achieve this goal while trying to mitigate volatility in plan funded status, contributions and expense by better matching the characteristics of the plan assets to that of the plan liabilities. Global asset allocation decisions are based on a dynamic approach whereby a plan’s allocation to fixed income assets increases as the funded status increases. We monitor plan funded status, asset allocation and the impact of market conditions on our defined benefit plans regularly in addition to investment manager performance. For further details on pension plan activity, see Note 10 to the Condensed and Consolidated Financial Statements.

For a further discussion of Liquidity and Capital Resources, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

Guarantor Financial Information

Allegion US Hold Co is the issuer of the 3.200% Senior Notes, 3.550% Senior Notes, and 5.411% Senior Notes and is the guarantor of the 3.500% Senior Notes. Allegion plc (the “Parent”) is the issuer of the 3.500% Senior Notes and is the guarantor of the 3.200% Senior Notes, 3.550% Senior Notes, and 5.411% Senior Notes. Allegion US Hold Co is directly or indirectly 100% owned by the Parent and each of the guarantees of Allegion US Hold Co and the Parent is full and unconditional and joint and several.

The 3.200% Senior Notes, 3.550% Senior Notes, and 5.411% 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, 3.550% Senior Notes, and 5.411% Senior Notes is the senior unsecured obligation of the Parent and ranks equally with all of the Parent’s existing and future senior unsecured and unsubordinated indebtedness. The 3.500% Senior Notes are senior unsecured obligations of the Parent and rank equally with all of the Parent’s existing and future senior unsecured and unsubordinated indebtedness. The guarantee of the 3.500% Senior Notes is the senior unsecured obligation of Allegion US Hold Co and ranks equally with all of Allegion US Hold Co's existing and future senior unsecured and unsubordinated indebtedness.

Each guarantee is effectively subordinated to any secured indebtedness of the Guarantor to the extent of the value of the assets securing such indebtedness. The Senior Notes are structurally subordinated to indebtedness and other liabilities of the subsidiaries of the Guarantor, none of which guarantee the notes. The obligations of the Guarantor under its Guarantee are limited as necessary to prevent such Guarantee from constituting a fraudulent conveyance under applicable law and, therefore, are limited to the amount that the Guarantor could guarantee without such Guarantee constituting a fraudulent conveyance; this

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limitation, however, may not be effective to prevent such Guarantee from constituting a fraudulent conveyance. If the Guarantee was rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the Guarantor, and, depending on the amount of such indebtedness, the Guarantor’s liability on its Guarantee could be reduced to zero. In such an event, the notes would be structurally subordinated to the indebtedness and other liabilities of the Guarantor.

For further details, terms and conditions of the Senior Notes refer to the Company’s Forms 8-K filed October 2, 2017, September 27, 2019, and June 22, 2022.

The following tables present the summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X for each issuer and guarantor. The summarized financial information has been prepared in accordance with Rule 13-01 of Regulation S-X.

Selected Condensed Statement of Comprehensive Income Information

			Nine months ended September 30, 2022												Year ended December 31, 2021
In millions			Allegion plc						Allegion US Hold Co						Allegion plc						Allegion US Hold Co
Net revenues			$	—					$	—					$	—					$	—
Gross profit			—						—						—						—
Operating loss			(5.2)						(14.4)						(6.6)						(0.5)
Equity earnings in affiliates, net of tax			353.8						126.9						521.6						173.6
Transactions with related parties and subsidiaries(a)			(10.5)						(61.3)						(12.5)						(85.0)
Net earnings			322.7						43.1						483.0						87.1
Net earnings attributable to the entity			322.7						43.1						483.0						87.1

(a) Transactions with related parties and subsidiaries include intercompany interest and fees.

Selected Condensed Balance Sheet Information

			September 30, 2022												December 31, 2021
In millions			Allegion plc						Allegion US Hold Co						Allegion plc						Allegion US Hold Co
Current assets:
Amounts due from related parties and subsidiaries			$	—					$	314.0					$	0.6					$	753.7
Total current assets			10.2						344.2						60.8						785.5
Noncurrent assets:
Amounts due from related parties and subsidiaries			—						1,647.8						—						1,240.9
Total noncurrent assets			1,792.6						1,710.3						1,793.1						1,292.7
Current liabilities:
Amounts due to related parties and subsidiaries			$	75.2					$	273.0					$	62.8					$	233.9
Total current liabilities			98.1						296.7						82.6						241.3
Noncurrent liabilities:
Amounts due to related parties and subsidiaries			576.4						2,694.5						761.8						2,660.5
Total noncurrent liabilities			1,201.8						4,260.9						1,396.5						3,466.9

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Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed and Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgments in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses, as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates.

Management believes there have been no significant changes during the nine months ended September 30, 2022, to the items we disclosed as our critical accounting policies in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements

See Note 2 to our Condensed and Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements.

Forward-Looking Statements

Certain statements in this report, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” or the negative thereof or variations thereon or similar expressions generally intended to identify forward-looking statements.

Forward-looking statements may relate to such matters as: statements regarding the continued impacts of the global COVID-19 pandemic, supply chain constraints, electronic component and labor shortages, inflation, rising freight and material costs, impacts of Russia's invasion of Ukraine, including further supply chain disruptions and the increased risk of cyber-attacks in connection with such invasion, projections of revenue, margins, expenses, tax provisions, earnings, cash flows, benefit obligations, dividends, share purchases or other financial items; any statements of the plans, strategies and objectives of management for future operations, including those relating to any statements concerning expected development, performance or market share relating to our products and services; any statements regarding future economic conditions or our performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. You are advised to review any further disclosures we make on related subjects in materials we file with or furnish to the SEC. Forward-looking statements speak only as of the date they are made and are not guarantees of future performance. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from our expectations and projections. We do not undertake to update any forward-looking statements.

Factors that might affect our forward-looking statements include, among other things:

• adverse impacts to our business operations due to the global COVID-19 pandemic and our ability to predict the full extent of such impacts;

• competitive factors in the industry in which we compete, including technological developments and increased competition from private label brands;

• the development, commercialization and acceptance of new products and services that meet the varied and evolving needs of our customers;

• the demand for our products and services, including changes in customer and consumer preferences, and our ability to maintain beneficial relationships with large customers;

• our products or solutions fail to meet certification and specification requirements, are defective or otherwise fall short of customers’ needs and expectations;

• the ability to complete and integrate any acquisitions and/or losses related to our investments in external companies;

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• business opportunities that diverge from our core business;

• our ability to operate efficiently and productively;

• our ability to effectively manage and implement restructuring initiatives or other organizational changes;

• the effects of global climate change or other unexpected events, including global health crises, that may disrupt our operations;

• our ability to manage risks related to our information technology and operational technology systems and cybersecurity, including implementation of new processes that may cause disruptions and be more difficult, costly or time consuming than expected;

• our reliance on third-party vendors for many of the critical elements of our global information and operational technology infrastructure and their failure to provide effective support for such infrastructure;

• disruption and breaches of our information systems;

• ability to recruit and retain a highly qualified and diverse workforce;

• disruptions in our global supply chain, including supply chain constraints, electronic component and labor shortages and product manufacturing and logistical services provided by our supplier partners;

• availability of and increased inflation impacting the prices of raw materials, parts and components, freight, packaging, labor and energy;

• economic, political and business conditions in the markets in which we operate, including changes to trade agreements, sanctions, import and export regulations and custom duties;

• conditions of the institutional, commercial and residential construction and remodeling markets, including the impact of work-from-home trends;

• fluctuations in currency exchange rates;

• potential impairment of our goodwill, indefinite-lived intangible assets and/or our long-lived assets;

• interest rate fluctuations and other changes in borrowing costs, in addition to risks associated with our outstanding and future indebtedness;

• the impact our outstanding indebtedness may have on our business and operations and other capital market conditions, including availability of funding sources and currency exchange rate fluctuations;

• risks related to corporate social responsibility and reputational matters;

• the ability to protect our brand reputation and trademarks;

• the outcome of any litigation, governmental investigations or proceedings;

• claims of infringement of intellectual property rights by third parties;

• adverse publicity or improper conduct by any of our employees, agents or business partners;

• changes to, or changes in interpretations of, current laws and regulations;

• uncertainty and inherent subjectivity related to transfer pricing regulations;

• changes in tax requirements, including tax rate changes, the adoption of new tax legislation or exposure to additional tax liabilities and revised tax law interpretations; and

• risks related to our incorporation in Ireland, including the possible effects on us of future legislation or interpretations in the U.S. that may limit or eliminate potential U.S. tax benefits resulting from our incorporation in a non-U.S. jurisdiction, such as Ireland, or deny U.S. government contracts to us based upon our incorporation in such non-U.S. jurisdiction.

Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in the “Risk Factors” section of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There may also be other factors that have not been anticipated or that are not described in our periodic filings with the SEC, generally because we did not believe them to be significant at the time, which could cause results to differ materially from our expectations.

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