Item 1. Financial Statements

Allegion plc

Condensed and Consolidated Statements of Comprehensive Income

(Unaudited)

									Three months ended
									March 31,
In millions, except per share amounts															2023						2022
Net revenues															$	923.0					$	723.6
Cost of goods sold															532.0						434.9
Selling and administrative expenses															220.0						171.7
Operating income															171.0						117.0
Interest expense															23.6						11.9
Other income, net															(0.3)						(2.2)
Earnings before income taxes															147.7						107.3
Provision for income taxes															24.1						14.2
Net earnings															123.6						93.1
Less: Net earnings attributable to noncontrolling interests															0.1						0.1
Net earnings attributable to Allegion plc															$	123.5					$	93.0
Earnings per share attributable to Allegion plc ordinary shareholders:
Basic net earnings															$	1.40					$	1.05
Diluted net earnings															$	1.40					$	1.05
Weighted-average shares outstanding:
Basic															88.0						88.2
Diluted															88.4						88.6
Total comprehensive income															$	133.9					$	72.1
Less: Total comprehensive income attributable to noncontrolling interests															0.2						0.1
Total comprehensive income attributable to Allegion plc															$	133.7					$	72.0

See accompanying notes to condensed and consolidated financial statements.

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Allegion plc

Condensed and Consolidated Balance Sheets

(Unaudited)

In millions, except share amounts			March 31, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	292.8					$	288.0
Accounts and notes receivable, net			445.0						395.6
Inventories			472.7						479.0
Other current assets			42.9						48.5
Assets held for sale			—						3.5
Total current assets			1,253.4						1,214.6
Property, plant and equipment, net			319.6						308.7
Goodwill			1,441.3						1,413.1
Intangible assets, net			614.8						608.9
Other noncurrent assets			495.3						445.9
Total assets			$	4,124.4					$	3,991.2
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	277.8					$	280.7
Accrued expenses and other current liabilities			378.1						410.3
Short-term borrowings and current maturities of long-term debt			12.6						12.6
Total current liabilities			668.5						703.6
Long-term debt			2,109.3						2,081.9
Other noncurrent liabilities			302.0						261.2
Total liabilities			3,079.8						3,046.7
Equity:
Allegion plc shareholders’ equity:
Ordinary shares, $0.01 par value (87,946,030 and 87,852,777 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)			0.9						0.9
Capital in excess of par value			19.6						13.9
Retained earnings			1,296.8						1,212.8
Accumulated other comprehensive loss			(275.6)						(285.8)
Total Allegion plc shareholders’ equity			1,041.7						941.8
Noncontrolling interests			2.9						2.7
Total equity			1,044.6						944.5
Total liabilities and equity			$	4,124.4					$	3,991.2

See accompanying notes to condensed and consolidated financial statements.

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Allegion plc

Condensed and Consolidated Statements of Cash Flows

(Unaudited)

			Three months ended
			March 31,
In millions			2023						2022
Cash flows from operating activities:
Net earnings			$	123.6					$	93.1
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization			28.3						20.4
Changes in assets and liabilities and other non-cash items			(82.9)						(93.0)
Net cash provided by operating activities			69.0						20.5
Cash flows from investing activities:
Capital expenditures			(22.3)						(8.7)
Acquisition of businesses, net of cash acquired			(36.6)						—
Other investing activities, net			7.5						2.4
Net cash used in investing activities			(51.4)						(6.3)
Cash flows from financing activities:
Debt repayments, net			(3.1)						(3.1)
Proceeds from 2021 Revolving Facility			30.0						—
Net proceeds from (repayments of) debt			26.9						(3.1)
Dividends paid to ordinary shareholders			(39.4)						(35.8)
Repurchase of ordinary shares			—						(61.0)
Other financing activities, net			(2.9)						(5.0)
Net cash used in financing activities			(15.4)						(104.9)
Effect of exchange rate changes on cash and cash equivalents			2.6						(2.1)
Net increase (decrease) in cash and cash equivalents			4.8						(92.8)
Cash and cash equivalents - beginning of period			288.0						397.9
Cash and cash equivalents - end of period			$	292.8					$	305.1

See accompanying notes to condensed and consolidated financial statements.

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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 U.S. ("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, 2022. 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 - ACQUISITIONS

2023

On January 3, 2023, the Company, through its subsidiaries, completed an acquisition of the assets of plano. group, a SaaS workforce management solution business based in Germany ("plano"), for initial cash consideration of $36.6 million. Additional consideration may be payable in future periods in the event plano achieves certain specified financial results. This acquisition was accounted for as a business combination, and plano has been incorporated into the Allegion International segment.

The preliminary allocation of the purchase price, which includes initial cash consideration and the estimated fair value of contingent consideration, to assets acquired and liabilities assumed as of the acquisition date includes approximately $3 million of net working capital, approximately $17 million of finite-lived intangible assets and approximately $22 million of goodwill. The finite-lived intangible assets have a weighted average useful life of approximately 15 years. The valuation of assets acquired and liabilities assumed had not yet been finalized as of March 31, 2023, and finalization of the valuation during the measurement period could result in a change in the amounts recorded. The completion of the valuation will occur no later than one year from the acquisition date as required by GAAP.

2022

On July 5, 2022, the Company, through its subsidiaries, completed the acquisition of Stanley Access Technologies LLC and assets related to the automatic entrance solutions business from Stanley Black & Decker, Inc. (the "Access Technologies business") for preliminary cash consideration of $923.1 million. The Access Technologies business acquisition helps the Company 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 the Company's solutions to national, regional and local customers and complementing the Company's existing strengths in these non-residential markets. This acquisition was accounted for as a business combination, and the Access Technologies business has been integrated into the Allegion Americas segment.

The following table summarizes the preliminary allocation of the purchase price to assets acquired and liabilities assumed as of the acquisition date:

In millions
Accounts receivable, net			$	69.7
Inventories			50.8
Other current assets			0.3
Property, plant and equipment			14.6
Goodwill			634.1
Intangible assets			222.5
Other noncurrent assets			6.2
Accounts payable			(20.8)
Accrued expenses and other current liabilities			(31.3)
Other noncurrent liabilities			(23.0)
Total net assets acquired and liabilities assumed			$	923.1

The valuation of assets acquired and liabilities assumed had not yet been finalized as of March 31, 2023. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for acquired tangible assets, goodwill

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ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

and income tax assets and liabilities, among other items. The completion of the valuation will occur no later than one year from the acquisition date as required by GAAP. Intangible assets recognized as of the acquisition date were comprised of the following:

			Value (in millions)						Useful life (in years)
Completed technologies/patents			$	6.2					5
Customer relationships			137.4						23
Trade names (finite-lived)			56.8						5
Backlog revenue			22.1						2

Goodwill results from several factors, including Allegion-specific synergies that were excluded from the cash flow projections used in the valuation of intangible assets and intangible assets that do not qualify for separate recognition, such as an assembled workforce. Goodwill resulting from the Access Technologies business acquisition is expected to be deductible for tax purposes.

The following unaudited pro forma financial information for the three months ended March 31, 2023 and 2022, reflects the consolidated results of operations of the Company as if the Access Technologies business acquisition had taken place on January 1, 2021:

In millions			2023						2022
Net revenues			$	923.0					$	812.9
Net earnings attributable to Allegion plc			128.2						94.5

The unaudited pro forma financial information is presented for informational purposes only and does not purport to be indicative of results of operations that would have occurred had the pro forma events taken place on the date indicated or the future consolidated results of operations of the combined company. The unaudited pro forma financial information has been calculated after applying the Company's accounting policies and adjusting the historical financial results to reflect additional items directly attributable to the acquisition that would have been incurred assuming the acquisition had occurred on January 1, 2021. Adjustments to historical financial information for the three months ended March 31, 2023 and 2022, include:

In millions			2023						2022
Intangible asset amortization expense, net of tax			$	1.6					$	(5.1)
Interest expense, net of tax			—						(6.2)
Acquisition and integration costs, net of tax			3.1						2.9

The following financial information reflects the Net revenues and Earnings before income taxes generated by the Access Technologies business included within the Company's Condensed and Consolidated Statement of Comprehensive Income for the three months ended March 31, 2023:

In millions
Net revenues			$	103.1
Earnings before income taxes			7.9

Intangible asset amortization of $6.8 million is included in the Earnings before income taxes amount presented above, while acquisition and integration related expenses and Interest expense related to acquisition financing are excluded from this amount.

During the three months ended March 31, 2023 and 2022, the Company incurred $4.1 million and $4.8 million, respectively, of acquisition and integration related expenses, which are included in Selling and administrative expenses in the Condensed and Consolidated Statements of Comprehensive Income.

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			March 31, 2023						December 31, 2022
Raw materials			$	225.7					$	212.2
Work-in-process			46.0						41.7
Finished goods			201.0						225.1
Total			$	472.7					$	479.0

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ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 - GOODWILL

The changes in the carrying amount of goodwill for the three months ended March 31, 2023, were as follows:

In millions			Allegion Americas						Allegion International						Total
December 31, 2022 (gross)			$	1,128.1					$	858.6					$	1,986.7
Accumulated impairment			—						(573.6)						(573.6)
December 31, 2022 (net)			1,128.1						285.0						1,413.1
Acquisitions and adjustments			2.6						21.7						24.3
Currency translation			0.3						3.6						3.9
March 31, 2023 (net)			$	1,131.0					$	310.3					$	1,441.3

NOTE 5 - INTANGIBLE ASSETS

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

						March 31, 2023																		December 31, 2022
In millions						Gross carrying amount						Accumulated amortization						Net carrying amount						Gross carrying amount						Accumulated amortization						Net carrying amount
Completed technologies/patents						$	66.1					$	(33.9)					$	32.2					$	63.0					$	(32.1)					$	30.9
Customer relationships						528.7						(163.4)						365.3						515.0						(155.8)						359.2
Trade names (finite-lived)						140.6						(67.0)						73.6						135.7						(62.6)						73.1
Other						73.2						(40.4)						32.8						71.2						(35.9)						35.3
Total finite-lived intangible assets						808.6						$	(304.7)					503.9						784.9						$	(286.4)					498.5
Trade names (indefinite-lived)						110.9												110.9						110.4												110.4
Total						$	919.5											$	614.8					$	895.3											$	608.9

Intangible asset amortization expense was $15.8 million and $8.2 million for the three months ended March 31, 2023 and 2022, respectively. Future estimated amortization expense on existing intangible assets in each of the next five years amounts to approximately $60.9 million for full year 2023, $55.4 million for 2024, $49.6 million for 2025, $46.4 million for 2026 and $39.6 million for 2027.

NOTE 6 - DEBT AND CREDIT FACILITIES

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

In millions			March 31, 2023						December 31, 2022
2021 Term Facility			$	234.4					$	237.5
2021 Revolving Facility			99.0						69.0
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						600.0
Other debt			0.2						0.2
Total borrowings outstanding			2,133.6						2,106.7
Discounts and debt issuance costs, net			(11.7)						(12.2)
Total debt			2,121.9						2,094.5
Less current portion of long-term debt			12.6						12.6
Total long-term debt			$	2,109.3					$	2,081.9

Unsecured Credit Facilities

The Company is party to an unsecured credit agreement consisting of a $250.0 million term loan facility (the “2021 Term Facility”), of which $234.4 million was outstanding at March 31, 2023, and a $500.0 million revolving credit facility (the “2021 Revolving Facility” and, together with the 2021 Term Facility, the “2021 Credit Facilities”), of which $99.0 million was

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

outstanding at March 31, 2023. The 2021 Credit Facilities mature on November 18, 2026, and are unconditionally guaranteed jointly and severally on an unsecured basis by Allegion plc and Allegion US Holding Company Inc. ("Allegion US Hold Co"), the Company’s wholly-owned subsidiary.

The 2021 Term Facility amortizes 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. The Company repaid $3.1 million of principal on the 2021 Term Facility during the three months ended March 31, 2023. 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. The Company had $13.4 million of letters of credit outstanding at March 31, 2023. Borrowings under the 2021 Revolving Facility may be repaid at any time without premium or penalty, and amounts repaid may be reborrowed.

Outstanding borrowings under the 2021 Credit Facilities accrue interest, at the option of the Company, equal to either: (i) a Bloomberg Short-Term Bank Yield Index ("BSBY") rate plus an applicable margin or (ii) a base rate plus the applicable margin. The applicable margin ranges from 0.875% to 1.375% depending on the Company’s credit ratings. At March 31, 2023, the Company's outstanding borrowings under the 2021 Credit Facilities accrued interest at BSBY plus a margin of 1.125%, resulting in an interest rate of 6.019%. The 2021 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 2021 Credit Facilities require the Company to comply with a maximum leverage ratio as defined in the credit agreement. As of March 31, 2023, the Company was in compliance with all applicable covenants under the credit agreement.

Senior Notes

As of March 31, 2023, Allegion US Hold Co had $400.0 million outstanding of its 3.200% Senior Notes due 2024 (the “3.200% Senior Notes”), $400.0 million outstanding of its 3.550% Senior Notes due 2027 (the “3.550% Senior Notes”) and $600.0 million outstanding of its 5.411% Senior Notes due 2032 (the "5.411% Senior Notes"), and Allegion plc had $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. The 5.411% Senior Notes require semi-annual interest payments on January 1 and July 1 of each year, and will mature on July 1, 2032.

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, the 3.550% Senior Notes and the 5.411% Senior Notes is the senior unsecured obligation of Allegion plc 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 7 - FINANCIAL INSTRUMENTS

Currency Hedging Instruments

The gross notional amount of the Company’s currency derivatives was $181.1 million and $161.5 million at March 31, 2023 and December 31, 2022, respectively. Neither the fair values of currency derivatives, which are determined based on a pricing model that uses spot rates and forward prices from actively quoted currency markets that are readily observable (Level 2 inputs under the fair value hierarchy described in Note 10), nor the balances included in Accumulated other comprehensive loss were material as of March 31, 2023 or December 31, 2022. Currency derivatives designated as cash flow hedges did not have a material impact to either Net earnings or Other comprehensive income during the three months ended March 31, 2023 and 2022, nor is the amount to be reclassified into Net earnings over the next twelve months expected to be material, although the actual amounts that will be reclassified to Net earnings may vary as a result of future changes in market conditions. At March 31, 2023, 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 therefore, the Company believes they present no significant credit risk to the Company.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 8 - LEASES

Total rental expense for the three months ended March 31, 2023 and 2022, was $13.6 million and $10.7 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 right of use ("ROU") asset or lease liability totaled $3.2 million and $1.6 million, respectively, for the three months ended March 31, 2023 and 2022. No material lease costs have been capitalized on the Condensed and Consolidated Balance Sheets as of March 31, 2023 or December 31, 2022.

As a lessee, the Company categorizes its leases into two general categories: real estate leases and equipment leases. Amounts included within the Condensed and Consolidated Balance Sheets related to the Company’s ROU asset and lease liability for both real estate and equipment leases were as follows:

									March 31, 2023																		December 31, 2022
In millions			Balance Sheet classification						Real estate						Equipment						Total						Real estate						Equipment						Total
ROU asset			Other noncurrent assets						$	106.2					$	28.1					$	134.3					$	69.3					$	28.8					$	98.1
Lease liability - current			Accrued expenses and other current liabilities						17.7						13.9						31.6						17.7						14.1						31.8
Lease liability - noncurrent			Other noncurrent liabilities						91.9						14.3						106.2						54.8						14.7						69.5
Other information:
Weighted-average remaining term (years)									12.2						2.4												5.9						2.4
Weighted-average discount rate									4.8		%				2.8		%										3.5		%				2.1		%

The following table summarizes additional information related to the Company’s leases for the three months ended March 31:

						2023																		2022
In millions						Real estate						Equipment						Total						Real estate						Equipment						Total
Cash paid for amounts included in the measurement of lease liabilities						$	5.9					$	4.5					$	10.4					$	4.9					$	4.2					$	9.1
ROU assets obtained in exchange for new lease liabilities						41.4						1.9						43.3						18.8						1.4						20.2

During the three months ended March 31, 2023, the Company commenced a new long-term lease of a manufacturing facility in Mexico, which added an ROU asset and corresponding lease liability of approximately $37 million.

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 2023 and for each of the years thereafter as of March 31, 2023, are as follows:

In millions						Remainder of 2023						2024						2025						2026						2027						Thereafter						Total
Real estate leases						$	16.7					$	18.6					$	16.3					$	13.0					$	10.3					$	87.7					$	162.6
Equipment leases						11.3						10.6						5.5						1.3						0.2						0.1						29.0
Total						$	28.0					$	29.2					$	21.8					$	14.3					$	10.5					$	87.8					$	191.6

The difference between the total undiscounted minimum lease payments and the combined current and noncurrent lease liabilities as of March 31, 2023, is due to imputed interest of $53.8 million.

NOTE 9 - DEFINED BENEFIT PLANS

The Company sponsors several U.S. and non-U.S. defined benefit pension plans for eligible employees and retirees and 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 months ended March 31 were as follows:

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

			U.S.
In millions			2023						2022
Service cost			$	0.2					$	1.5
Interest cost			2.9						2.0
Expected return on plan assets			(3.7)						(3.4)
Administrative costs and other			0.3						0.3
Net amortization of:
Plan net actuarial losses			0.2						0.3
Net periodic pension benefit (income) cost			$	(0.1)					$	0.7

			Non-U.S.
In millions			2023						2022
Service cost			$	0.4					$	0.3
Interest cost			3.0						1.8
Expected return on plan assets			(3.9)						(3.9)
Administrative costs and other			0.4						0.5
Net amortization of:
Plan net actuarial losses			0.9						0.2
Net periodic pension benefit cost (income)			$	0.8					$	(1.1)

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. Employer contributions to the plans were not material during the three months ended March 31, 2023 or 2022. Employer contributions totaling approximately $12 million are expected to be made during the remainder of 2023.

NOTE 10 - 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.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Assets and liabilities measured at fair value as of March 31, 2023, 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			$	—					$	17.8					$	—					$	17.8
Total asset recurring fair value measurements			$	—					$	17.8					$	—					$	17.8
Liabilities:
Deferred compensation and other retirement plans			$	—					$	17.8					$	—					$	17.8
Total liability recurring fair value measurements			$	—					$	17.8					$	—					$	17.8
Financial instruments not carried at fair value
Total debt			$	—					$	2,058.1					$	—					$	2,058.1
Total financial instruments not carried at fair value			$	—					$	2,058.1					$	—					$	2,058.1

Assets and liabilities measured at fair value as of December 31, 2022, 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			$	—					$	19.9					$	—					$	19.9
Total asset recurring fair value measurements			$	—					$	19.9					$	—					$	19.9
Liabilities:
Deferred compensation and other retirement plans			$	—					$	20.3					$	—					$	20.3
Total liability recurring fair value measurements			$	—					$	20.3					$	—					$	20.3
Financial instruments not carried at fair value
Total debt			$	—					$	1,978.4					$	—					$	1,978.4
Total financial instruments not carried at fair value			$	—					$	1,978.4					$	—					$	1,978.4

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.

• 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 the 2021 Credit Facilities and Senior Notes maturing through 2032. The fair value of these debt instruments is obtained based on observable market prices quoted on public exchanges for similar instruments.

The methodologies used by the Company to determine the fair value of its financial assets and liabilities as of March 31, 2023, are the same as those used as of December 31, 2022. The carrying values of Cash and cash equivalents, Accounts and notes receivable, net, 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 also had investments in debt and equity securities without readily determinable fair values of $46.8 million as of both March 31, 2023 and December 31, 2022, which are classified as Other noncurrent assets within the Condensed and Consolidated Balance Sheets. These investments are considered to be nonrecurring fair value measurements, and thus, are not included in the fair value tables above.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 11 - EQUITY

The changes in the components of Equity for the three months ended March 31, 2023, were as follows:

									Allegion plc shareholders' equity
									Ordinary shares
In millions, except per share amounts			Total equity						Amount						Shares						Capital in excess of par value						Retained earnings						Accumulated other comprehensive loss						Noncontrolling interests
Balance at December 31, 2022			$	944.5					$	0.9					87.9						$	13.9					$	1,212.8					$	(285.8)					$	2.7
Net earnings			123.6						—						—						—						123.5						—						0.1
Other comprehensive income, net			10.3						—						—						—						—						10.2						0.1
Share-based compensation activity			5.7						—						—						5.7						—						—						—
Dividends to ordinary shareholders ($0.45 per share)			(39.5)						—						—						—						(39.5)						—						—
Balance at March 31, 2023			$	1,044.6					$	0.9					87.9						$	19.6					$	1,296.8					$	(275.6)					$	2.9

The changes in the components of Equity for the three months ended March 31, 2022, were as follows:

									Allegion plc shareholders' equity
									Ordinary shares
In millions, except per share amounts			Total equity						Amount						Shares						Capital in excess of par value						Retained earnings						Accumulated other comprehensive loss						Noncontrolling interests
Balance at December 31, 2021			$	762.4					$	0.9					88.2						$	—					$	952.6					$	(194.4)					$	3.3
Net earnings			93.1						—						—						—						93.0						—						0.1
Other comprehensive loss, net			(21.0)						—						—						—						—						(21.0)						—
Repurchase of ordinary shares			(61.0)						—						(0.5)						(7.5)						(53.5)						—						—
Share-based compensation activity			7.5						—						0.1						7.5						—						—						—
Dividends to ordinary shareholders ($0.41 per share)			(36.0)						—						—						—						(36.0)						—						—
Balance at March 31, 2022			$	745.0					$	0.9					87.8						$	—					$	956.1					$	(215.4)					$	3.4

In February 2020, the Company’s Board of Directors (the "Board") approved a share repurchase authorization of up to, and including, $800 million of the Company’s ordinary shares (the "2020 Share Repurchase Authorization"). During the three months ended March 31, 2022, the Company paid $61.0 million to repurchase the ordinary shares reflected above on the open market under the 2020 Share Repurchase Authorization. As of March 31, 2023, the Company had approximately $140.5 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 three months ended March 31, 2023, were as follows:

In millions						Cash flow hedges						Defined benefit items						Foreign currency items						Total
December 31, 2022						$	6.1					$	(117.1)					$	(174.8)					$	(285.8)
Other comprehensive (loss) income before reclassifications						(0.7)						(1.9)						11.7						9.1
Amounts reclassified from accumulated other comprehensive loss(a)						(0.2)						1.0						—						0.8
Tax benefit						0.2						0.1						—						0.3
March 31, 2023						$	5.4					$	(117.9)					$	(163.1)					$	(275.6)

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The changes in Accumulated other comprehensive loss for the three months ended March 31, 2022, were as follows:

In millions						Cash flow hedges						Defined benefit items						Foreign currency items						Total
December 31, 2021						$	0.9					$	(96.0)					$	(99.3)					$	(194.4)
Other comprehensive (loss) income before reclassifications						(0.3)						2.3						(22.5)						(20.5)
Amounts reclassified from accumulated other comprehensive loss(a)						(0.4)						(0.4)						—						(0.8)
Tax benefit						0.2						0.1						—						0.3
March 31, 2022						$	0.4					$	(94.0)					$	(121.8)					$	(215.4)

(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 defined benefit items are recorded in Other income, net.

NOTE 12 - SHARE-BASED COMPENSATION

The Company’s share-based compensation plans include programs for stock options, restricted stock units ("RSUs") and performance stock units ("PSUs"). 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 share-based compensation expense recognized for the three months ended March 31:

In millions			2023						2022
Stock options			$	2.1					$	2.9
RSUs			5.0						7.3
PSUs			1.7						1.6
Pre-tax expense			8.8						11.8
Tax benefit			(1.2)						(1.2)
After-tax expense			$	7.6					$	10.6

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 three months ended March 31 were as follows:

			2023												2022
			Number granted						Weighted- average fair value per award						Number granted						Weighted- average fair value per award
Stock options			156,929						$	33.66					157,880						$	28.59
RSUs			117,923						$	112.59					101,609						$	115.33

The weighted-average fair value of the stock options granted is determined using the Black-Scholes option-pricing model. The following weighted-average assumptions were used during the three months ended March 31:

			2023						2022
Dividend yield			1.60		%				1.42		%
Volatility			28.47		%				27.05		%
Risk-free rate of return			4.10		%				1.89		%
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

During the three months ended March 31, 2023, the Company granted PSUs with a maximum award level of approximately 0.1 million shares. In February 2021, 2022 and 2023, 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 for each performance period set by the Compensation and Human Capital Committee of the

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Board, and 50% upon a market condition, measured by the Company’s relative total shareholder return against the S&P 400 Capital Goods Index over a three-year performance period. The fair values of the market condition 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.

NOTE 13 - RESTRUCTURING ACTIVITIES

During the three months ended March 31, 2023 and 2022, the Company recorded $3.0 million and $0.2 million, respectively, of expenses associated with restructuring activities, which are included within Cost of goods sold and Selling and administrative expenses within the Condensed and Consolidated Statements of Comprehensive Income.

The changes in the restructuring reserve during the three months ended March 31, 2023, were as follows:

In millions			Total
December 31, 2022			$	0.2
Additions, net of reversals			3.0
Cash payments			(0.8)
March 31, 2023			$	2.4

The majority of the costs accrued as of March 31, 2023, are expected to be paid within one year.

The Company also incurred other non-qualified restructuring charges of $0.2 million and $0.5 million during the three months ended March 31, 2023 and 2022, respectively, 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 14 - OTHER INCOME, N****ET

The components of Other income, net for the three months ended March 31 were as follows:

In millions			2023						2022
Interest income			$	(0.7)					$	(0.1)
Foreign currency exchange loss			1.4						1.0
Net periodic pension and postretirement benefit income, less service cost			—						(2.6)
Other			(1.0)						(0.5)
Other income, net			$	(0.3)					$	(2.2)

NOTE 15 - INCOME TAXES

The effective income tax rates for the three months ended March 31, 2023 and 2022, were 16.3% and 13.2%, respectively. The increase in the effective income tax rate compared to 2022 is primarily due to a change in the mix of income earned in higher tax rate jurisdictions.

NOTE 16 - EARNINGS PER SHARE ("EPS")

Basic EPS is calculated by dividing Net earnings attributable to Allegion plc by the weighted-average number of ordinary shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the denominator of the basic EPS calculation for the effect of all potentially dilutive ordinary shares, which in the Company’s case, includes shares issuable under share-based compensation plans.

The following table summarizes the weighted-average number of ordinary shares outstanding for basic and diluted EPS calculations for the three months ended March 31:

In millions			2023						2022
Weighted-average number of basic shares			88.0						88.2
Shares issuable under share-based compensation plans			0.4						0.4
Weighted-average number of diluted shares			88.4						88.6

At March 31, 2023, 0.5 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.

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 17 - NET REVENUES

The following tables show the Company’s Net revenues related to both tangible product sales and services for the three months ended March 31, 2023 and 2022, respectively, disaggregated by business segment:

			Three months ended March 31, 2023
In millions			Allegion Americas						Allegion International						Total
Net revenues
Products			$	697.4					$	175.5					$	872.9
Services			43.5						6.6						50.1
Total Net revenues			$	740.9					$	182.1					$	923.0

			Three months ended March 31, 2022
In millions			Allegion Americas						Allegion International						Total
Net revenues
Products			$	521.4					$	195.1					$	716.5
Services			0.5						6.6						7.1
Total Net revenues			$	521.9					$	201.7					$	723.6

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. Product sales involve contracts with a single performance obligation, the transfer of control of a product or bundle of products to a customer. Service revenue, which includes inspection, maintenance and repair, design and installation, aftermarket and locksmith services, as well as software-as-a-service offerings such as access control, IoT integration and workforce management solutions, is delayed until the service performance obligations are satisfied.

As of March 31, 2023, 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. The Company does not have any costs to obtain or fulfill a contract that are capitalized on its Condensed and Consolidated Balance Sheets. During the three months ended March 31, 2023 and 2022, no adjustments related to performance obligations satisfied in previous periods were recorded.

NOTE 18 - 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

As of March 31, 2023 and December 31, 2022, the Company had reserves for environmental matters of $23.5 million and $24.1 million, respectively. The total reserve at March 31, 2023 and December 31, 2022, included $13.3 million and $13.8 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 March 31, 2023 and December 31, 2022, was $3.6 million and $3.9 million, respectively, and the remainder was classified as noncurrent. Expenses related to environmental remediation were not material during either the three months ended March 31, 2023, or 2022. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.

Warranty Liability

The changes in the standard product warranty liability for the three months ended March 31 were as follows:

ALLEGION PLC

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In millions			2023						2022
Balance at beginning of period			$	18.2					$	17.7
Reductions for payments			(2.0)						(2.4)
Accruals for warranties issued during the current period			2.3						3.1
Currency translation			—						(0.1)
Balance at end of period			$	18.5					$	18.3

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.

NOTE 19 - 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 as a percentage of the segment’s Net revenues.

Due to a reporting change effective January 1, 2023, results for the Company's Global Portable Security brands (inclusive of the AXA, Kryptonite and Trelock businesses) are now fully reflected within the Allegion International segment. Accordingly, the summary of operations by reportable segment below for the three months ended March 31, 2022, has been recast to conform with the current year presentation. The impact of this recast was to re-align approximately $6.3 million and $1.3 million of Net revenues and Segment operating income, respectively, from the Allegion Americas segment to the Allegion International segment.

A summary of operations by reportable segment for the three months ended March 31 was as follows:

In millions			2023						2022
Net revenues
Allegion Americas			$	740.9					$	521.9
Allegion International			182.1						201.7
Total			$	923.0					$	723.6
Segment operating income
Allegion Americas			$	186.6					$	122.6
Allegion International			10.6						20.9
Total			197.2						143.5
Reconciliation to Operating income
Unallocated corporate expense			(26.2)						(26.5)
Operating income			171.0						117.0
Reconciliation to earnings before income taxes
Interest expense			23.6						11.9
Other income, net			(0.3)						(2.2)
Earnings before income taxes			$	147.7					$	107.3

NOTE 20 - SUBSEQUENT EVENTS

Dividend Declaration

On April 13, 2023, the Board declared a quarterly dividend of $0.45 per ordinary share. The dividend is payable June 30, 2023, to shareholders of record on June 15, 2023.

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