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, 2022. 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") are 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, retail, commercial office and single and multi-family residential markets. Our leading brands include CISA®, Interflex®, LCN®, Schlage®, SimonsVoss® and Von Duprin®.

Recent Developments

Business and Industry Trends and Outlook

Throughout the first nine months of 2023, we continued to experience stable demand for our non-residential products and services in our Allegion Americas segment. Revenue from electronic security products has also remained strong globally, as we realize the benefits from measures taken to address supply chain challenges in prior years.

Beginning in the second quarter and continuing into the early part of the third quarter of 2023, customers began adjusting ordering patterns in response to our reduced lead times due to improved supply chain and operational execution, which resulted in lower volume from non-residential mechanical products. Additionally, lower demand negatively impacted volumes of residential products within our Allegion Americas segment. We continue to experience softness in demand in China and for our Global Portable Security products in our Allegion International segment.

Pricing initiatives continued to drive revenue growth during 2023. We expect pricing to continue to mitigate inflation in our cost base throughout the remainder of 2023.

Acquisition of plano

On January 3, 2023, we 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. Plano has been incorporated into our Allegion International segment.

2023 Dividends and Share Repurchases

During the nine months ended September 30, 2023, we paid dividends of $1.35 per ordinary share to shareholders and repurchased approximately 0.2 million shares for $19.9 million.

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Results of Operations – Three months ended September 30

In millions, except per share amounts			2023						% of revenues						2022						% of revenues
Net revenues			$	917.9											$	913.7
Cost of goods sold			514.6						56.1		%				545.7						59.7		%
Selling and administrative expenses			210.2						22.9		%				205.1						22.4		%
Operating income			193.1						21.0		%				162.9						17.8		%
Interest expense			22.9												23.1
Loss on divestitures			—												7.6
Other expense (income), net			0.1												(1.5)
Earnings before income taxes			170.1												133.7
Provision for income taxes			13.7												19.1
Net earnings			156.4												114.6
Less: Net earnings attributable to noncontrolling interests			0.1												—
Net earnings attributable to Allegion plc			$	156.3											$	114.6
Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders:			$	1.77											$	1.30

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, 2023, increased by 0.5%, or $4.2 million, compared with the same period in 2022, due to the following:

Pricing			6.5		%
Volume			(7.1)		%
Acquisitions / divestitures			0.1		%
Currency exchange rates			1.0		%
Total			0.5		%

The increase in Net revenues was driven by improved pricing across our major businesses to address inflation, the acquisitions of the Access Technologies business and plano and favorable foreign currency exchange rate movements. These increases were partially offset by lower volumes and a prior year divestiture.

Pricing includes increases or decreases of price, including discounts, surcharges and/or other sales deductions, on our existing products and services. 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, 2023, increased $30.2 million compared to the same period in 2022. Operating margin, which we define as Operating income as a percentage of total Net revenues, for the three months ended September 30, 2023, increased to 21.0% from 17.8% for the same period in 2022, due to the following:

In millions			Operating Income						Operating Margin
September 30, 2022			$	162.9					17.8		%
Pricing and productivity in excess of inflation and investment spending			43.4						3.2		%
Volume / product mix			(32.4)						(1.9)		%
Acquisition / integration/ restructuring expenses			19.2						2.1		%
Currency exchange rates			(1.0)						(0.3)		%
Acquisitions / divestitures			1.0						0.1		%
September 30, 2023			$	193.1					21.0		%

The increase in Operating income was driven by pricing and productivity improvements in excess of inflation and investment spending, the contribution to operating income from recent acquisition and divestiture activity and lower restructuring and acquisition expenses. These increases were partially offset by unfavorable volume/product mix and unfavorable foreign currency exchange rate movements.

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The increase in Operating margin was driven by pricing and productivity improvements in excess of inflation and investment spending, lower restructuring and acquisition expenses and the impact to operating margin from recent acquisition and divestiture activity. These increases were partially offset by unfavorable volume/product mix and unfavorable foreign currency exchange rate movements.

Pricing and productivity in excess of inflation and investment spending includes the impact to both Operating income and Operating margin from pricing, as defined above, in addition to productivity, inflation and investment spending. 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.

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, 2023, decreased $0.2 million compared with the same period in 2022, primarily due to lower outstanding indebtedness compared to the same period in the prior year.

Other Expense (Income), Net

The components of Other expense (income), net for the three months ended September 30 were as follows:

In millions			2023						2022
Interest income			$	(1.5)					$	(0.4)
Foreign currency exchange loss			1.1						—
Net periodic pension and postretirement benefit cost (income), less service cost			0.4						(2.1)
Other			0.1						1.0
Other expense (income), net			$	0.1					$	(1.5)

Provision for Income Taxes

The effective income tax rates for the three months ended September 30, 2023 and 2022, were 8.1% and 14.3%, respectively. The decrease in the effective income tax rate compared to 2022 is primarily due to the favorable year over year change in the amounts recognized for uncertain tax positions, partially offset by an unfavorable change in the mix of income earned in higher tax rate jurisdictions.

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Results of Operations – Nine months ended September 30

In millions, except per share amounts			2023						% of revenues						2022						% of revenues
Net revenues			$	2,753.4											$	2,410.4
Cost of goods sold			1,557.2						56.6		%				1,438.7						59.7		%
Selling and administrative expenses			647.5						23.5		%				544.7						22.6		%
Operating income			548.7						19.9		%				427.0						17.7		%
Interest expense			70.2												52.2
Loss on divestitures			—												7.6
Other income, net			(1.8)												(7.1)
Earnings before income taxes			480.3												374.3
Provision for income taxes			58.3												51.4
Net earnings			422.0												322.9
Less: Net earnings attributable to noncontrolling interests			0.2												0.2
Net earnings attributable to Allegion plc			$	421.8											$	322.7
Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders:			$	4.78											$	3.65

Net Revenues

Net revenues for the nine months ended September 30, 2023, increased by 14.2%, or $343.0 million, compared with the same period in 2022, due to the following:

Pricing			8.5		%
Volume			(2.4)		%
Acquisitions / divestitures			8.3		%
Currency exchange rates			(0.2)		%
Total			14.2		%

The increase in Net revenues was driven by improved pricing across our major businesses to address inflation and the acquisitions of the Access Technologies business and plano. These increases were partially offset by lower volumes and unfavorable foreign currency exchange rate movements.

Operating Income/Margin

Operating income for the nine months ended September 30, 2023, increased $121.7 million compared to the same period in 2022. Operating margin for the nine months ended September 30, 2023, increased to 19.9% from 17.7% for the same period in 2022, due to the following:

In millions			Operating Income						Operating Margin
September 30, 2022			$	427.0					17.7		%
Pricing and productivity in excess of inflation and investment spending			121.3						3.0		%
Volume / product mix			(23.7)						(0.6)		%
Acquisition / integration/ restructuring expenses			6.6						0.3		%
Currency exchange rates			(10.1)						(0.2)		%
Acquisitions / divestitures			27.6						(0.3)		%
September 30, 2023			$	548.7					19.9		%

The increase in Operating income was driven by pricing and productivity improvements in excess of inflation and investment spending, lower acquisition, integration and restructuring expenses and the contribution to operating income from recent acquisition and divestiture activity. These increases were partially offset by lower volumes and unfavorable foreign currency exchange rate movements.

The increase in Operating margin was driven by pricing and productivity improvements in excess of inflation and investment spending and lower acquisition, integration and restructuring expenses. These increases were partially offset by lower volumes, unfavorable foreign currency exchange rate movements and the impact to operating margin from recent acquisition and divestiture activity.

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Interest Expense

Interest expense for the nine months ended September 30, 2023, increased $18.0 million compared with the same period in 2022, primarily due to interest on our 5.411% Senior Notes issued during 2022 and the increase in borrowing under the 2021 Revolving Facility, as well as a higher weighted-average interest rate on our variable rate outstanding indebtedness.

Other Income, Net

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

In millions			2023						2022
Interest income			$	(3.4)					$	(0.6)
Foreign currency exchange loss			2.8						1.9
Net periodic pension and postretirement benefit cost (income), less service cost			0.5						(7.1)
Other			(1.7)						(1.3)
Other income, net			$	(1.8)					$	(7.1)

Provision for Income Taxes

The effective income tax rates for the nine months ended September 30, 2023 and 2022, were 12.1% and 13.7%, respectively. The decrease in the effective income tax rate compared to 2022 is primarily due to the favorable year over year change in the amounts recognized for uncertain tax positions, partially offset by an unfavorable change in the mix of income earned in higher tax rate jurisdictions.

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 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. Due to a reporting change effective January 1, 2023, results for our Global Portable Security brands (inclusive of the AXA, Kryptonite and Trelock businesses) are now fully reflected within the Allegion International segment. Accordingly, the prior periods' summary of operations by reportable segment below have been recast to conform with the current period presentation. The impact of this recast was to re-align approximately $5.2 million and $16.5 million of Net Revenues, and $(0.1) million and $1.5 million of Segment operating income, respectively, for the three and nine months ended September 30, 2022, from the Allegion Americas segment to the Allegion International segment.

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

			Three months ended																		Nine months ended
In millions			2023						2022						% Change						2023						2022						% Change
Net revenues
Allegion Americas			$	740.9					$	741.9					(0.1)		%				$	2,209.0					$	1,851.1					19.3		%
Allegion International			177.0						171.8						3.0		%				544.4						559.3						(2.7)		%
Total			$	917.9					$	913.7											$	2,753.4					$	2,410.4
Segment operating income
Allegion Americas			$	200.2					$	178.5					12.2		%				$	582.2					$	454.4					28.1		%
Allegion International			15.7						14.8						6.1		%				40.2						47.4						(15.2)		%
Total			$	215.9					$	193.3											$	622.4					$	501.8
Segment operating margin
Allegion Americas			27.0		%				24.1		%										26.4		%				24.5		%
Allegion International			8.9		%				8.6		%										7.4		%				8.5		%

Allegion Americas

Our Allegion Americas segment is a leading provider of security products, services and solutions throughout North America. The segment sells a broad range of products and solutions including locks, locksets, key systems, door controls and systems, exit devices, doors, accessories, electronic security products, access control systems and software and service solutions to customers in commercial, institutional and residential facilities, including the education, healthcare, government, hospitality, retail, commercial office and single and multi-family residential markets. This segment’s primary brands are LCN, Schlage, Von Duprin and Stanley Access Technologies, which we utilize with permission in accordance with the terms of the Access Technologies acquisition agreement ("Stanley" is the property of Stanley Logistics L.L.C.).

Net Revenues

Net revenues for the three months ended September 30, 2023, decreased by 0.1%, or $1.0 million, compared to the same period in 2022, due to the following:

Pricing						6.9		%
Volume						(6.9)		%
Currency exchange rates						(0.1)		%
Total						(0.1)		%

The decrease in Net revenues was driven by lower volumes and unfavorable currency exchange rate movements partially offset by improved pricing to address inflation.

Net revenues from non-residential products for the three months ended September 30, 2023, excluding Net revenues from our Access Technologies business, increased by a low-single digits percent compared to the same period in the prior year, driven by improved pricing and higher electronics products volumes partially offset by lower mechanical volumes. We currently anticipate demand for our non-residential products to remain stable through the remainder of 2023. Net revenues from our Access Technologies business increased by a mid-teens percent.

Net revenues from residential products for the three months ended September 30, 2023, decreased by a low-teens percent compared to the same period in the prior year. Given current market conditions around new construction and consumer sentiment, we expect continued softness in demand for our residential products.

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 and electrified locks, access control systems and electronic and electrified door controls and systems and exit devices. For the three months ended September 30, 2023, Net revenues from the sale of electronic products in the Allegion Americas segment increased by a high-teens percent compared to the same period in the prior year. We expect continued growth in Net revenues from the sale of electronic products for the remainder of 2023, given high demand, pricing initiatives and improved component availability relative to 2022.

Net revenues for the nine months ended September 30, 2023, increased by 19.3%, or $357.9 million, compared to the same period in 2022, due to the following:

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Pricing						9.5		%
Volume						(0.7)		%
Acquisitions						10.8		%
Currency exchange rates						(0.3)		%
Total						19.3		%

The increase in Net revenues was driven by significantly improved pricing to address inflation and the impact of our Access Technologies business acquisition. These increases were partially offset by lower volumes and unfavorable foreign currency exchange rate movements.

Net revenues from non-residential products for the nine months ended September 30, 2023, increased by a low double-digit percent compared to the same period in the prior year. Net revenues from residential products for the nine months ended September 30, 2023, decreased by a low-single digits percent compared to the same period in the prior year. Net revenues from the sale of electronic products in the Allegion Americas segment for the nine months ended September 30, 2023, increased by approximately thirty percent compared to the same period in the prior year.

Operating income/margin

Segment operating income for the three months ended September 30, 2023, increased $21.7 million compared to the same period in 2022, and Segment operating margin for the three months ended September 30, 2023, increased to 27.0% from 24.1%, due to the following:

In millions						Operating Income						Operating Margin
September 30, 2022						$	178.5					24.1		%
Pricing and productivity in excess of inflation and investment spending						39.2						3.3		%
Volume / product mix						(25.3)						(1.6)		%
Currency exchange rates						(3.8)						(0.4)		%
Acquisition / integration/ restructuring expenses						11.6						1.6		%
September 30, 2023						$	200.2					27.0		%

The increase in Segment operating income was primarily driven by pricing and productivity improvements in excess of inflation and investment spending and lower acquisition, integration and restructuring expenses. These increases were partially offset by unfavorable volume/product mix and unfavorable foreign currency exchange rate movements.

The increase in Segment operating margin was primarily due to pricing and productivity improvements in excess of inflation and investment spending and lower acquisition, integration and restructuring expenses. These increases were partially offset by unfavorable volume/product mix, unfavorable foreign currency exchange rate movements.

Segment operating income for the nine months ended September 30, 2023, increased $127.8 million compared to the same period in 2022, and Segment operating margin for the nine months ended September 30, 2023, increased to 26.4% from 24.5%, due to the following:

In millions						Operating Income						Operating Margin
September 30, 2022						$	454.4					24.5		%
Pricing and productivity in excess of inflation and investment spending						127.6						3.9		%
Volume / product mix						(6.1)						(0.2)		%
Currency exchange rates						(11.6)						(0.2)		%
Acquisitions						25.0						(1.2)		%
Acquisition / integration/ restructuring expenses						(7.1)						(0.4)		%
September 30, 2023						$	582.2					26.4		%

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

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

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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 and systems, exit devices, doors, electronic security products, access control systems, time and attendance and workforce productivity solutions, among other software and service solutions. This segment’s primary brands are AXA, Bricard, Briton, CISA, Gainsborough, Interflex, Kryptonite and SimonsVoss.

Net Revenues

Net revenues for the three months ended September 30, 2023, increased by 3.0%, or $5.2 million, compared to the same period in 2022, due to the following:

Pricing						5.0		%
Volume						(7.8)		%
Acquisitions / divestitures						0.6		%
Currency exchange rates						5.2		%
Total						3.0		%

The increase in Net revenues was primarily driven by improved pricing, favorable foreign currency exchange rate movements and the favorable impact from the current year acquisition of plano. This increase was partially offset by lower volumes, particularly within our Global Portable Security and China businesses, as well as a prior year divestiture.

Net revenues for the nine months ended September 30, 2023, decreased by 2.7%, or $14.9 million, compared to the same period in 2022, due to the following:

Pricing						5.1		%
Volume						(8.0)		%
Acquisitions / divestitures						—		%
Currency exchange rates						0.2		%
Total						(2.7)		%

The decrease in Net revenues was primarily driven by lower volumes, particularly within our Global Portable Security and China businesses. These decreases were partially offset by improved pricing across our major businesses throughout the segment as well as favorable foreign currency exchange rate movements. The impact from the current year acquisition of plano was offset by a prior year divestiture.

Operating income/margin

Segment operating income for the three months ended September 30, 2023, increased $0.9 million compared to the same period in 2022, and Segment operating margin for the three months ended September 30, 2023, increased to 8.9% from 8.6%, due to the following:

In millions						Operating Income						Operating Margin
September 30, 2022						$	14.8					8.6		%
Pricing and productivity in excess of inflation and investment spending						6.9						3.4		%
Volume / product mix						(7.1)						(3.2)		%
Currency exchange rates						2.8						1.1		%
Acquisitions / divestitures						1.0						0.6		%
Acquisition / integration/ restructuring expenses						(2.7)						(1.6)		%
September 30, 2023						$	15.7					8.9		%

The increase in Segment operating income was primarily driven by pricing and productivity improvements in excess of inflation and investment spending, the favorable impact to Segment operating income from favorable foreign currency exchange rate movements and recent acquisition and divestiture activity. These increases were partially offset by unfavorable volume/product mix and higher acquisition, integration and restructuring expenses.

The increase in Segment operating margin was primarily driven by pricing and productivity improvements in excess of inflation and investment spending, the favorable impact to Segment operating margin from favorable foreign currency exchange rate movements and recent acquisition and divestiture activity. These increases were partially offset by unfavorable volume/product mix and higher acquisition, integration and restructuring expenses.

Segment operating income for the nine months ended September 30, 2023, decreased $7.2 million compared to the same period in 2022, and Segment operating margin for the nine months ended September 30, 2023, decreased to 7.4% from 8.5%, due to the following:

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In millions						Operating Income						Operating Margin
September 30, 2022						$	47.4					8.5		%
Pricing and productivity in excess of inflation and investment spending						10.3						1.2		%
Volume / product mix						(17.6)						(2.3)		%
Currency exchange rates						1.5						0.2		%
Acquisitions / divestitures						2.7						0.5		%
Acquisition / integration/ restructuring expenses						(4.1)						(0.7)		%
September 30, 2023						$	40.2					7.4		%

The decrease in Segment operating income was primarily driven by unfavorable volume/product mix and a year-over-year increase in restructuring, integration and acquisition expenses. These decreases were partially offset by pricing and productivity improvements in excess of inflation and investment spending, favorable foreign currency exchange rate movements and the favorable impact to Segment operating income from recent acquisition and divestiture activity.

The decrease in Segment operating margin was primarily driven by unfavorable volume/product mix and a year-over-year increase in restructuring and acquisition expenses. These decreases were partially offset by the favorable impact to Segment operating margin from pricing and productivity improvements in excess of inflation and investment spending, favorable foreign currency exchange rate movements and recent acquisition and divestiture activity.

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 operating activities, our unused borrowing capacity under the 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.

Our 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. Of our total outstanding indebtedness as of September 30, 2023, approximately 89% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.

Based upon our operations, existing cash balances and unused borrowing capacity under the 2021 Revolving Facility, as of September 30, 2023, we expect our cash flows from operations will be sufficient to maintain a sound financial position and liquidity and to meet our current 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 existing borrowing capacity under the 2021 Credit Facilities, together with financing we believe would be accessible to us in the 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			2023						2022
Net cash provided by operating activities			$	381.1					$	267.1
Net cash used in investing activities			(83.4)						(965.9)
Net cash (used in) provided by financing activities			(219.9)						606.1

Operating Activities: Net cash provided by operating activities during the nine months ended September 30, 2023, increased $114.0 million compared to the same period in 2022, primarily driven by increased Net earnings and changes in working capital.

Investing Activities: Net cash used in investing activities during the nine months ended September 30, 2023, decreased $882.5 million compared to the same period in 2022, primarily due to the $923.1 million acquisition of the Access Technologies business in July 2022, partially offset by $31.7 million of cash paid for acquisitions in 2023 and $19.2 million of increased capital expenditures in 2023, primarily related to the construction of a new manufacturing facility.

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Financing Activities: Net cash used in financing activities during the nine months ended September 30, 2023, increased $826.0 million compared to the same period in 2022, primarily due to the issuance of our 5.411% Senior Notes in the prior year used for the purchase of the Access Technologies business, $30 million of repayments in the current year of borrowings under our 2021 Revolving Facility, partially offset by a $41.1 million reduction in cash used to repurchase ordinary shares.

Capitalization

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

In millions			September 30, 2023						December 31, 2022
2021 Term Facility			$	228.1					$	237.5
2021 Revolving Facility			—						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			0.1						0.2
Total borrowings outstanding			2,028.2						2,106.7
Discounts and debt issuance costs, net			(10.5)						(12.2)
Total debt			2,017.7						2,094.5
Less current portion of long-term debt			12.6						12.6
Total long-term debt			$	2,005.1					$	2,081.9

We are party to an unsecured credit agreement consisting of a $250.0 million term loan facility (the “2021 Term Facility”), of which $228.1 million was outstanding at September 30, 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 $0.0 million was outstanding at September 30, 2023. The 2021 Credit Facilities mature on November 18, 2026.

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. We repaid $9.4 million of principal on the 2021 Term Facility during the nine months ended September 30, 2023. Principal amounts repaid on the 2021 Term Facility may not be reborrowed. The 2021 Revolving Facility provides aggregate commitments of up to $500.0 million, including up to $100.0 million for the issuance of letters of credit. We had $13.4 million of letters of credit outstanding at September 30, 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 our option, 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 our credit ratings. At September 30, 2023, outstanding borrowings under the 2021 Credit Facilities accrued interest at BSBY plus a margin of 1.125%, resulting in an interest rate of 6.513%. 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 credit agreement. As of September 30, 2023, we were in compliance with all applicable covenants under the credit agreement.

As of September 30, 2023, Allegion US Hold Co has $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"), 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. The 5.411% Senior Notes require semi-annual interest payments on January 1 and July 1 of each year, beginning January 1, 2023, and will mature on July 1, 2032.

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, 2023, 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.

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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 9 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, 2022.

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 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, 2023												Year ended December 31, 2022
In millions			Allegion plc						Allegion US Hold Co						Allegion plc						Allegion US Hold Co
Net revenues			$	—					$	—					$	—					$	—
Gross profit			—						—						—						—
Operating loss			(5.2)						(0.4)						(6.7)						(14.4)
Equity earnings in affiliates, net of tax			465.6						239.7						505.9						195.5
Transactions with related parties and subsidiaries(a)			(16.2)						(57.6)						(21.1)						(79.6)
Net earnings			421.8						168.3						458.0						85.0
Net earnings attributable to the entity			421.8						168.3						458.0						85.0

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

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Selected Condensed Balance Sheet Information

			September 30, 2023												December 31, 2022
In millions			Allegion plc						Allegion US Hold Co						Allegion plc						Allegion US Hold Co
Current assets:
Amounts due from related parties and subsidiaries			$	0.1					$	379.2					$	—					$	380.2
Total current assets			10.9						410.1						3.3						417.4
Noncurrent assets:
Amounts due from related parties and subsidiaries			—						1,404.9						—						1,523.9
Total noncurrent assets			1,792.3						1,489.1						1,792.6						1,596.6
Current liabilities:
Amounts due to related parties and subsidiaries			$	40.9					$	625.5					$	45.9					$	278.8
Total current liabilities			64.1						648.5						65.3						303.5
Noncurrent liabilities:
Amounts due to related parties and subsidiaries			476.5						2,458.9						659.5						2,694.5
Total noncurrent liabilities			1,089.8						3,855.0						1,282.0						4,166.1

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, 2023, 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, 2022.

Recent Accounting Pronouncements

There have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our consolidated financial statements.

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, as amended (the "Exchange Act"). 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.

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. 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 including, among other things:

• ongoing macroeconomic challenges and continued economic instability;

• increased prices and inflation;

• volatility and uncertainty in the political, economic and regulatory environments in which we operate, including changes to trade agreements, sanctions, import and export regulations, custom duties and applicable tax regulations and interpretations, social and political unrest, instability, national and international conflict, terrorist acts and other geographical disputes and uncertainties;

• the strength and stability of the institutional, commercial and residential construction and remodeling markets;

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• fluctuations in currency exchange rates;

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

• instability in the U.S. and global capital and credit markets;

• our ability to make scheduled debt payments or to refinance our debt obligations;

• increased competition, including from technological developments;

• the development, commercialization and acceptance of new products and services;

• changes in customer and consumer preferences and our ability to maintain beneficial relationships with large customers;

• our products or solutions failing to meet certification and specification requirements, being defective, causing property damage, bodily harm or injury, or otherwise falling short of customers’ needs and expectations;

• our ability to identify and successfully complete and integrate acquisitions, including achieving their anticipated strategic and financial benefits;

• business opportunities that diverge from our core business;

• our ability to achieve the expected improvements or financial returns we expect from our strategic initiatives;

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

• global climate change or other unexpected events, including global health crises, such as COVID-19;

• the proper functioning of our information technology and operational technology systems, including disruption or breaches of our information systems, such as cybersecurity attacks;

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

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

• disruptions in our global supply chain, including product manufacturing and logistical services provided by our supplier partners;

• our ability to effectively manage real or perceived issues related to product quality, safety, corporate social responsibility and other reputational matters;

• our ability to protect our brand reputation and trademarks;

• legal judgments, fines, penalties or settlements imposed against us or our assets as a result of legal proceedings, claims and disputes;

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

• 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 in the countries in which we operate;

• changes in tax rates, the adoption of new tax legislation or exposure to additional tax liabilities; and

• risks related to our incorporation in Ireland, including the possible effects on us of future legislation or adverse determinations by taxing authorities that could increase our tax burden.

These events, risks and uncertainties are described more fully in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. 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 actual results to differ materially from our projections and expectations. We do not undertake to update any forward-looking statements, except as required by applicable law.