10-Q 1 alle-20210930.htm 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2021 alle-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________
FORM 10-Q
_______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-35971
_______________________________ 
alle-20210930_g1.jpg
ALLEGION PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
_______________________________
Ireland98-1108930
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Block D
Iveagh Court
Harcourt Road
Dublin 2, D02 VH94, Ireland
(Address of principal executive offices, including zip code)
+(353) (12546200
(Registrant’s telephone number, including area code)
_______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of exchange on which registered
Ordinary shares, par value $0.01 per shareALLENew York Stock Exchange
3.500% Senior Notes due 2029ALLE 3 ½New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x   No  ¨



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes     No  
The number of ordinary shares outstanding of Allegion plc as of October 18, 2021 was 89,695,862.


ALLEGION PLC
FORM 10-Q
INDEX
Item 1 -
Item 2 -
Item 3 -
Item 4 -
Item 1 -
Item 1A -
Item 2 -
Item 6 -



PART I-FINANCIAL INFORMATION

Item 1 – Financial Statements

Allegion plc
Condensed and Consolidated Statements of Comprehensive Income
(Unaudited)
Three months endedNine months ended
 September 30,September 30,
In millions, except per share amounts2021202020212020
Net revenues$717.0 $728.4 $2,158.2 $1,992.6 
Cost of goods sold416.5 409.2 1,239.8 1,133.7 
Selling and administrative expenses162.1 156.2 503.3 474.2 
Impairment of goodwill and intangible assets 2.6  98.9 
Operating income138.4 160.4 415.1 285.8 
Interest expense12.3 12.9 37.0 38.8 
Other income, net(14.7)(12.2)(21.4)(12.6)
Earnings before income taxes140.8 159.7 399.5 259.6 
(Benefit from) provision for income taxes(2.8)12.8 28.9 38.5 
Net earnings143.6 146.9 370.6 221.1 
Less: Net earnings attributable to noncontrolling interests0.1  0.4 0.1 
Net earnings attributable to Allegion plc$143.5 $146.9 $370.2 $221.0 
Earnings per share attributable to Allegion plc ordinary shareholders:
Basic net earnings$1.60 $1.59 $4.11 $2.39 
Diluted net earnings $1.59 $1.58 $4.08 $2.38 
Weighted-average shares outstanding:
Basic89.7 92.3 90.1 92.4 
Diluted90.3 92.7 90.7 92.9 
Total comprehensive income$121.2 $171.4 $326.7 $232.8 
Less: Total comprehensive income attributable to noncontrolling interests 0.3 0.4  
Total comprehensive income attributable to Allegion plc$121.2 $171.1 $326.3 $232.8 
See accompanying notes to condensed and consolidated financial statements.
1

Allegion plc
Condensed and Consolidated Balance Sheets
(Unaudited)
In millions, except share amountsSeptember 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$503.9 $480.4 
Accounts and notes receivable, net307.4 321.8 
Inventories345.7 283.1 
Other current assets45.4 53.9 
Assets held for sale 5.8 
Total current assets1,202.4 1,145.0 
Property, plant and equipment, net278.6 294.9 
Goodwill808.7 819.0 
Intangible assets, net459.8 487.1 
Other noncurrent assets367.2 323.4 
Total assets$3,116.7 $3,069.4 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$212.4 $220.4 
Accrued expenses and other current liabilities343.1 293.7 
Short-term borrowings and current maturities of long-term debt238.4 0.2 
Liabilities held for sale 7.2 
Total current liabilities793.9 521.5 
Long-term debt1,192.5 1,429.4 
Other noncurrent liabilities262.7 285.9 
Total liabilities2,249.1 2,236.8 
Equity:
Allegion plc shareholders’ equity:
Ordinary shares, $0.01 par value (89,695,508 and 91,212,741 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)
0.9 0.9 
Capital in excess of par value2.8  
Retained earnings1,061.5 985.6 
Accumulated other comprehensive loss(201.0)(157.1)
Total Allegion plc shareholders’ equity864.2 829.4 
Noncontrolling interests3.4 3.2 
Total equity867.6 832.6 
Total liabilities and equity$3,116.7 $3,069.4 
See accompanying notes to condensed and consolidated financial statements.

2

Allegion plc
Condensed and Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
 September 30,
In millions20212020
Cash flows from operating activities:
Net earnings$370.6 $221.1 
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization62.0 60.3 
Impairment of goodwill and intangible assets 98.9 
Changes in assets and liabilities and other non-cash items(76.2)(90.9)
Net cash provided by operating activities356.4 289.4 
Cash flows from investing activities:
Capital expenditures(28.7)(33.3)
Acquisition of and equity investments in businesses, net of cash acquired(6.5) 
Proceeds from sale of equity method investment7.6  
Other investing activities, net12.7 (6.0)
Net cash used in investing activities(14.9)(39.3)
Cash flows from financing activities:
 Debt repayments, net(0.1)(0.1)
Dividends paid to ordinary shareholders(96.9)(88.3)
Repurchase of ordinary shares(212.7)(94.1)
Other financing activities, net0.4 3.2 
Net cash used in financing activities(309.3)(179.3)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(8.7)1.3 
Net increase in cash, cash equivalents and restricted cash23.5 72.1 
Cash, cash equivalents and restricted cash - beginning of period480.4 358.7 
Cash, cash equivalents and restricted cash - end of period$503.9 $430.8 
See accompanying notes to condensed and consolidated financial statements.

3

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION

The accompanying Condensed and Consolidated Financial Statements of Allegion plc, an Irish public limited company, and its consolidated subsidiaries ("Allegion" or "the Company"), reflect the consolidated operations of the Company and have been prepared in accordance with United States ("U.S.") Securities and Exchange Commission ("SEC") interim reporting requirements. Accordingly, the accompanying Condensed and Consolidated Financial Statements do not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for full financial statements and should be read in conjunction with the Consolidated Financial Statements included in the Allegion Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, the accompanying Condensed and Consolidated Financial Statements contain all adjustments, which include normal recurring adjustments, necessary to state fairly the consolidated unaudited results for the interim periods presented.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements:

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

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

Recently Issued Accounting Pronouncements

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

NOTE 3 - INVENTORIES
Inventories are stated at the lower of cost and net realizable value using the first-in, first-out (FIFO) method.
The major classes of inventories were as follows:
In millionsSeptember 30,
2021
December 31,
2020
Raw materials$131.9 $114.0 
Work-in-process42.4 42.3 
Finished goods171.4 126.8 
Total$345.7 $283.1 


4

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4 - GOODWILL
The changes in the carrying amount of goodwill for the nine months ended September 30, 2021, were as follows:
In millionsAllegion AmericasAllegion InternationalTotal
December 31, 2020 (gross)$501.1 $891.5 $1,392.6 
Accumulated impairment (573.6)(573.6)
December 31, 2020 (net)501.1 317.9 819.0 
Acquisitions and adjustments0.1 4.6 4.7 
Currency translation (15.0)(15.0)
September 30, 2021 (net)$501.2 $307.5 $808.7 
As a result of the global economic disruption and uncertainty due to the COVID-19 pandemic arising during the first quarter of 2020, the Company concluded a triggering event had occurred as of March 31, 2020, and performed interim impairment tests on the goodwill balances, at that time, of its previous EMEA and Asia Pacific reporting units (which were combined to form the new Allegion International segment effective January 1, 2021). The results of the interim impairment testing indicated that the estimated fair value of the former Asia Pacific reporting unit was less than its carrying value. Consequently, a goodwill impairment charge of $88.1 million was recorded, which is included in Impairment of goodwill and intangible assets in the Condensed and Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2020.

NOTE 5 - INTANGIBLE ASSETS

The gross amount of the Company’s intangible assets and related accumulated amortization were as follows:
September 30, 2021December 31, 2020
In millionsGross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Completed technologies/patents$58.3 $(27.9)$30.4 $59.9 $(25.1)$34.8 
Customer relationships401.0 (138.6)262.4 415.5 (130.2)285.3 
Trade names (finite-lived)85.5 (57.1)28.4 90.2 (57.4)32.8 
Other44.9 (21.2)23.7 27.0 (11.1)15.9 
Total finite-lived intangible assets589.7 $(244.8)344.9 592.6 $(223.8)368.8 
Trade names (indefinite-lived)114.9 114.9 118.3 118.3 
Total$704.6 $459.8 $710.9 $487.1 
Intangible asset amortization expense was $25.2 million and $23.2 million for the nine months ended September 30, 2021 and 2020, respectively. Future estimated amortization expense on existing intangible assets in each of the next five years amounts to approximately $32.1 million for full year 2021, $27.8 million for 2022, $27.6 million for 2023, $27.6 million for 2024 and $26.7 million for 2025.

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

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


5

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6 - ACQUISITIONS

In July 2021, the Company acquired, through its subsidiaries, certain assets of Astrum Benelux B.V. ("Astrum Benelux") and 100% of the equity of WorkforceIT B.V. in the Netherlands ("WorkforceIT"), both of which were previously held under common control and offer workforce management technology products and solutions in the Benelux region of Europe. Neither the assets acquired from Astrum Benelux nor the acquisition of WorkforceIT had a material impact on the Condensed and Consolidated Financial Statements for the three or nine months ended September 30, 2021. Both WorkforceIT and the assets acquired from Astrum Benelux have been accounted for as a business combination and have been integrated into the Allegion International segment.

NOTE 7 - DIVESTITURES

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

On February 28, 2021, the Company completed its divestiture of QMI. The completion of the divestiture did not have a material impact to the Condensed and Consolidated Financial Statements for the nine months ended September 30, 2021.

NOTE 8 - DEBT AND CREDIT FACILITIES

Long-term debt and other borrowings consisted of the following:
In millionsSeptember 30,
2021
December 31,
2020
Term Facility$238.8 $238.8 
Revolving Facility  
3.200% Senior Notes due 2024
400.0 400.0 
3.550% Senior Notes due 2027
400.0 400.0 
3.500% Senior Notes due 2029
400.0 400.0 
Other debt0.4 0.6 
Total borrowings outstanding1,439.2 1,439.4 
Discounts and debt issuance costs, net(8.3)(9.8)
Total debt1,430.9 1,429.6 
Less current portion of long-term debt238.4 0.2 
Total long-term debt$1,192.5 $1,429.4 

Unsecured Credit Facilities

As of September 30, 2021, the Company has an unsecured Credit Agreement in place, consisting of a $700.0 million term loan facility (the “Term Facility”), of which $238.8 million is outstanding at September 30, 2021, and a $500.0 million revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Credit Facilities”). The Credit Facilities mature on September 12, 2022, and are unconditionally guaranteed jointly and severally on an unsecured basis by the Company and Allegion US Holding Company Inc. ("Allegion US Hold Co"), the Company’s wholly-owned subsidiary. Principal amounts repaid on the Term Facility may not be reborrowed, and the Company has satisfied its obligation to make quarterly installments on the Term Facility up to the maturity date, with the remaining outstanding balance due on September 12, 2022.

The Revolving Facility provides aggregate commitments of up to $500.0 million, which includes up to $100.0 million for the issuance of letters of credit. At September 30, 2021, there were no borrowings outstanding on the Revolving Facility and the Company had $14.1 million of letters of credit outstanding. Commitments under the Revolving Facility may be reduced at any time without premium or penalty, and amounts repaid may be reborrowed.

Outstanding borrowings under the Credit Facilities accrue interest, at the option of the Company, of (i) a LIBOR rate plus the applicable margin or (ii) a base rate plus the applicable margin. The applicable margin ranges from 1.125% to 1.500% depending on the Company’s credit ratings. At September 30, 2021, the Company's outstanding borrowings under the Credit
6

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Facilities accrue interest at LIBOR plus a margin of 1.250%, resulting in an interest rate of 1.34%. The Credit Facilities also contain negative and affirmative covenants and events of default that, among other things, limit or restrict the Company’s ability to enter into certain transactions. In addition, the Credit Facilities require the Company to comply with a maximum leverage ratio and a minimum interest expense coverage ratio, as defined within the agreement. As of September 30, 2021, the Company was in compliance with all covenants.

Senior Notes

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

NOTE 9 - FINANCIAL INSTRUMENTS

In the normal course of business, the Company uses various financial instruments, including derivative instruments, to manage the risks associated with interest and currency rate exposures. These financial instruments are not used for trading or speculative purposes. When a derivative contract is entered into, the Company designates the derivative instrument as a cash flow hedge of a forecasted transaction, a cash flow hedge of a recognized asset or liability or as an undesignated derivative. The Company formally documents its hedge relationships, including identification of the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivative instruments that are designated as hedges to specific assets, liabilities or forecasted transactions.

The Company assesses at inception and at least quarterly thereafter, whether the derivatives used in cash flow hedging transactions are effective in offsetting the changes in the cash flows of the hedged item. To the extent the derivative is deemed to be an effective hedge, the fair market value changes of the instrument are recorded to Accumulated other comprehensive loss and subsequently reclassified to Net earnings when the hedged transaction affects earnings, while changes in the fair market value of derivatives not deemed to be an effective hedge are recorded in Net earnings in the period of change. The fair market value of derivative instruments is determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded. If the hedging relationship ceases to be effective subsequent to inception, or it becomes probable that a forecasted transaction is no longer expected to occur, the hedging relationship will be undesignated and any future gains and losses on the derivative instrument will be recorded in Net earnings.
Currency Hedging Instruments
The gross notional amount of the Company’s currency derivatives was $181.6 million and $218.9 million at September 30, 2021 and December 31, 2020, respectively. The fair values of currency derivatives included within the Condensed and Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 were not material, nor were either the balances included in Accumulated other comprehensive loss or the amount expected to be reclassified into Net earnings over the next twelve months related to currency derivatives designated as cash flow hedges, although the actual amounts that will be reclassified to Net earnings may vary as a result of future changes in market conditions.
The amounts associated with currency derivatives designated as hedges affecting Net earnings and Accumulated other comprehensive loss for the three months ended September 30 were as follows:
7

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  Amount of gain recognized in Accumulated other comprehensive lossLocation of (loss) gain recognized
in Net earnings
Amount of (loss) gain reclassified from Accumulated other comprehensive loss and
recognized into Net earnings
In millions2021202020212020
Currency derivatives$0.4 $0.9 Cost of goods sold$(1.0)$1.7 
The amounts associated with currency derivatives designated as hedges affecting Net earnings and Accumulated other comprehensive loss for the nine months ended September 30 were as follows:
  
Amount of gain recognized in Accumulated other comprehensive lossLocation of gain recognized
in Net earnings
Amount of gain reclassified from Accumulated other comprehensive loss and
recognized into Net earnings
In millions2021202020212020
Currency derivatives$2.8 $3.9 Cost of goods sold$0.2 $3.8 
Gains and losses associated with the Company’s non-designated currency derivatives, which are offset by changes in the fair value of the underlying transactions, are included within Other income, net in the Condensed and Consolidated Statements of Comprehensive Income. At September 30, 2021, the maximum term of the Company’s currency derivatives, both those that are designated as cash flow hedges and those that are not, was less than one year.

Concentration of Credit Risk

The counterparties to the Company’s forward contracts consist of a number of investment grade major international financial institutions. The Company could be exposed to losses in the event of nonperformance by the counterparties. However, the credit ratings and the concentration of risk in these financial institutions are monitored on a continuous basis and present no significant credit risk to the Company.

NOTE 10 - LEASES

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

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

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

The Company’s real estate leases include leased production and assembly facilities, warehouses and distribution centers, office space and to a lesser degree, employee housing. The terms and conditions of real estate leases can vary significantly from lease
8

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

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

Amounts included within the Condensed and Consolidated Balance Sheets related to the Company’s ROU asset and lease liability were as follows:
September 30, 2021December 31, 2020
In millionsBalance Sheet classificationReal estateEquipmentTotalReal estateEquipmentTotal
ROU assetOther noncurrent assets$58.1 $31.7 $89.8 $59.5 $32.5 $92.0 
Lease liability - currentAccrued expenses and other current liabilities14.4 13.4 27.8 14.7 12.9 27.6 
Lease liability - noncurrentOther noncurrent liabilities45.5 18.4 63.9 46.5 19.8 66.3 
Other information:
Weighted-average remaining term (years)6.82.87.03.2
Weighted-average discount rate3.6 %2.2 %3.9 %2.7 %
The following table summarizes additional information related to the Company’s leases for the nine months ended September 30:
20212020
In millionsReal estateEquipmentTotalReal estateEquipmentTotal
Cash paid for amounts included in the measurement of lease liabilities$14.7 $12.9 $27.6 $14.4 $11.0 $25.4 
ROU assets obtained in exchange for new lease liabilities12.0 8.8 20.8 18.3 18.3 36.6 
The Company frequently enters into both real estate and equipment leases in the normal course of business. While there have been lease agreements entered into that have not yet commenced as of September 30, 2021, none of these leases provide new rights or obligations to the Company that are material individually or in the aggregate.

Future Repayments

Scheduled minimum lease payments required under non-cancellable operating leases for both the real estate and equipment lease portfolios for the remainder of 2021 and for each of the years thereafter as of September 30, 2021, are as follows:
9

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In millionsRemainder of 20212022202320242025ThereafterTotal
Real estate leases$4.1 $15.9 $11.7 $8.7 $7.4 $20.5 $68.3 
Equipment leases3.9 13.0 8.8 4.7 2.1 0.2 32.7 
Total$8.0 $28.9 $20.5 $13.4 $9.5 $20.7 $101.0 
The difference between the total undiscounted minimum lease payments and the combined current and noncurrent lease liabilities as of September 30, 2021, is due to imputed interest of $9.3 million.

NOTE 11 - DEFINED BENEFIT PLANS
The Company sponsors several U.S. and non-U.S. defined benefit pension plans to eligible employees and retirees. The noncontributory defined benefit pension plans covering non-collectively bargained U.S. employees provide benefits on an average pay formula while most plans for collectively bargained U.S. employees provide benefits on a flat dollar benefit formula. The non-U.S. pension plans generally provide benefits based on earnings and years of service. The Company also maintains other supplemental plans for officers and other key employees.

The components of the Company’s Net periodic pension benefit cost (income) for the three and nine months ended September 30 were as follows:
U.S.
Three months endedNine months ended
In millions2021202020212020
Service cost$1.6 $1.2 $5.0 $5.0 
Interest cost1.7 2.3 5.1 7.2 
Expected return on plan assets(3.6)(3.5)(10.5)(10.8)
Administrative costs and other0.3 0.2 0.9 1.1 
Net amortization of:
Prior service costs0.1 0.1 0.2 0.2 
Plan net actuarial losses0.8 0.7 2.6 2.7 
Net periodic pension benefit cost$0.9 $1.0 $3.3 $5.4 
Non-U.S.
Three months endedNine months ended
In millions2021202020212020
Service cost$0.6 $0.5 $1.7 $1.5 
Interest cost1.3 1.7 3.8 5.1 
Expected return on plan assets(3.4)(3.3)(10.3)(9.8)
Administrative costs and other0.4 0.4 1.4 1.1 
Net amortization of:
Prior service costs 0.1 0.1 0.1 
Plan net actuarial losses0.4 0.3 1.1 1.0 
Net periodic pension benefit income$(0.7)$(0.3)$(2.2)$(1.0)
Service cost is recorded in Cost of goods sold and Selling and administrative expenses, while the remaining components of Net periodic pension benefit cost (income) are recorded in Other income, net within the Condensed and Consolidated Statements of Comprehensive Income.

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

10

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 12 - FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a framework that utilizes the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
Level 1 – Inputs based on quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Assets and liabilities measured at fair value at September 30, 2021, were as follows:
 Fair value measurementsTotal
fair value
In millionsQuoted prices in active markets for identical assets (Level 1)Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)
Recurring fair value measurements
Assets:
Investments$ $23.5 $ $23.5 
Derivative instruments 1.3  1.3 
       Total asset recurring fair value measurements$ $24.8 $ $24.8 
Liabilities:
Derivative instruments$ $1.1 $ $1.1 
Deferred compensation and other retirement plans 24.8  24.8 
Total liability recurring fair value measurements$ $25.9 $ $25.9 
Financial instruments not carried at fair value
Total debt$ $1,525.6 $ $1,525.6 
Total financial instruments not carried at fair value$ $1,525.6 $ $1,525.6 
11

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Assets and liabilities measured at fair value at December 31, 2020, were as follows:
 Fair value measurementsTotal
fair value
In millionsQuoted prices in active markets for identical assets (Level 1)Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)
Recurring fair value measurements
Assets:
Investments$ $23.5 $ $23.5 
Derivative instruments 1.6  1.6 
Total asset recurring fair value measurements$ $25.1 $ $25.1 
Liabilities:
Derivative instruments$ $3.4 $ $3.4 
Deferred compensation and other retirement plans 25.1  25.1 
Total liability recurring fair value measurements$ $28.5 $ $28.5 
Financial instruments not carried at fair value
Total debt$ $1,541.4 $ $1,541.4 
Total financial instruments not carried at fair value$ $1,541.4 $ $1,541.4 
The Company determines the fair value of its financial assets and liabilities using the following methodologies:
Investments – These instruments include equity mutual funds and corporate bond funds. The fair value is obtained based on observable market prices quoted on public exchanges for similar instruments.
Derivative instruments – These instruments include foreign currency contracts for non-functional currency balance sheet exposures, including both those that are and are not designated as cash flow hedges. The fair value of the foreign currency contracts is determined based on a pricing model that uses spot rates and forward prices from actively quoted currency markets that are readily accessible and observable.
Deferred compensation and other retirement plans – These include obligations related to deferred compensation and other retirement plans adjusted for market performance. The fair value is obtained based on observable market prices quoted on public exchanges for similar instruments.
Debt – These instruments are recorded at cost and include senior notes maturing through 2029. The fair value of the long-term debt instruments is obtained based on observable market prices quoted on public exchanges for similar instruments.
The carrying values of Cash and cash equivalents, Accounts and notes receivable, Accounts payable and Accrued expenses and other current liabilities are a reasonable estimate of their fair value due to the short-term nature of these instruments.
The Company had investments in debt and equity securities without readily determinable fair values of $12.4 million and $13.7 million as of September 30, 2021 and December 31, 2020, respectively, which are classified as Other noncurrent assets within the Condensed and Consolidated Balance Sheets. These investments are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer and are qualitatively assessed for impairment indicators at each reporting period. These investments are considered to be nonrecurring fair value measurements, and thus, are not included in the fair value tables above.

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

12

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 13 - EQUITY
The changes in the components of Equity for the nine months ended September 30, 2021, were as follows:
Allegion plc shareholders' equity
Ordinary shares
In millionsTotal equityAmountSharesCapital in excess of par valueRetained earningsAccumulated other comprehensive lossNoncontrolling
interests
Balance at December 31, 2020$832.6 $0.9 91.2 $ $985.6 $(157.1)$3.2 
Net earnings108.2 — — — 108.0 — 0.2 
Other comprehensive loss, net (32.0)— — — — (32.0) 
Repurchase of ordinary shares(149.7) (1.3)(4.4)(145.3)— — 
Share-based compensation activity4.4  0.1 4.4 — — — 
Dividends to ordinary shareholders ($0.36 per share)
(32.5)— — — (32.5)— — 
Other — — — 0.1 — (0.1)
Balance at March 31, 2021731.0 0.9 90.0  915.9 (189.1)3.3 
Net earnings118.8 — — — 118.7 — 0.1 
Other comprehensive income, net10.5 — — — — 10.4 0.1 
Repurchase of ordinary shares(50.1) (0.4)(9.7)(40.4)— — 
Share-based compensation activity9.7  0.2 9.7 — — — 
Dividends to noncontrolling interests(0.1)— — — — — (0.1)
Dividends to ordinary shareholders ($0.36 per share)
(32.4)— — — (32.4)— — 
Balance at June 30, 2021787.4 0.9 89.8  961.8 (178.7)3.4 
Net earnings143.6 — — — 143.5 — 0.1 
Other comprehensive loss, net(22.4)— — — — (22.3)(0.1)
Repurchase of ordinary shares(12.9) (0.1)(1.4)(11.5)— — 
Share-based compensation activity4.2   4.2 — — — 
Dividends to ordinary shareholders ($0.36 per share)
(32.3)— — — (32.3)— — 
Balance at September 30, 2021$867.6 $0.9 89.7 $2.8 $1,061.5 $(201.0)$3.4 

13

ALLEGION PLC
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The changes in the components of Equity for the nine months ended September 30, 2020, were as follows:
Allegion plc shareholders' equity
Ordinary shares
In millionsTotal equityAmountSharesCapital in excess of par valueRetained earningsAccumulated other comprehensive lossNoncontrolling
interests
Balance at December 31, 2019$760.4 $0.9 92.7 $ $975.1 $(218.6)$3.0 
Cumulative effect of adoption of ASC 326, Financial Instruments Credit Losses
(2.2)— — — (2.2)— — 
Net earnings0.5 — — — 0.4 — 0.1 
Other comprehensive loss, net (33.4)— — — — (32.8)(0.6)
Repurchase of ordinary shares(94.1) (0.9)(12.2)(81.9)— — 
Share-based compensation activity12.2  0.4 12.2 — — — 
Dividends to ordinary shareholders ($0.32 per share)
(29.6)— — — (29.6)— — 
Balance at March 31, 2020613.8 0.9 92.2