Allegion plc

Previous wording

Industry Trends and Outlook

Current wording

Business and Industry Trends and Outlook

Previous wording

Growth in electronic security products and solutions remained strong throughout 2023 and continues to outperform mechanical products. We expect growth in the global electronic security product and solution categories we serve to continue to outperform growth in mechanical products and solutions over the long-term, as end-users adopt newer technologies in their facilities and homes.

Current wording

Electronic security products and solutions revenue declined by a low single-digit percent in 2024, as comparisons to the prior year were impacted by supply chain dynamics. We expect growth in global electronic security product and solutions to continue to outperform growth in mechanical products and solutions over the long-term, as end-users continue to adopt newer technologies in their facilities and homes.

Previous wording

We expect the security products industry will benefit from favorable long-term demographic trends such as continued urbanization of the global population, increased concerns about safety and security and technology-driven innovation.

Current wording

We expect continued growth in 2025, and for the security products industry to benefit from increased concerns about safety and security and technology-driven innovation.

Previous wording

The economic conditions discussed above and a number of other challenges and uncertainties that could affect our businesses are described under Part I, Item 1A, "Risk Factors."

Current wording

The demand trends and macroeconomic conditions discussed above and a number of other challenges and uncertainties that could affect our businesses are described under Part I, Item 1A, "Risk Factors."

Previous wording

As discussed in Note 7 to the Consolidated Financial Statements, the results of our 2023 impairment test indicated that the estimated fair value of two indefinite-lived trade names in our International segment were determined to be less than book value. Consequently, intangible asset impairment charges totaling $7.5 million were recorded. The impairments related to declines in volumes which reduced the brands' expected future cash flows.

Current wording

As discussed in Note 7 to the Consolidated Financial Statements, the results of our 2023 impairment test indicated that the estimated fair value of two indefinite-lived trade names in our International segment were determined to be less than book value. Consequently, intangible asset impairment charges totaling $7.5 million were recorded in 2023 in our Allegion International segment. The impairments related to declines in volumes which reduced the brands' expected future cash flows.

Previous wording

On June 22, 2022, Allegion US Holding Company Inc., a wholly-owned subsidiary of the Company ("Allegion US Hold Co"), issued $600.0 million aggregate principal amount of its 5.411% Senior Notes due 2032 (the “5.411% Senior Notes”). The 5.411% Senior Notes require semi-annual interest payments on January 1 and July 1, and mature on July 1, 2032. We incurred and deferred $5.9 million of discounts and financing costs associated with the 5.411% Senior Notes, which is being amortized to Interest expense over their 10-year term, as well as $4.3 million of third party financing costs that were recorded within Interest expense on the Consolidated Statement of Comprehensive Income for the year ended December 31, 2022.

Current wording

On May 29, 2024, Allegion US Holding Company Inc. ("Allegion US Hold Co"), our wholly-owned subsidiary, issued $400.0 million principal amount of 5.600% Senior Notes due 2034 (the “5.600% Senior Notes”). The 5.600% Senior Notes require semi-annual interest payments on May 29 and November 29, and mature on May 29, 2034.

Previous wording

We paid quarterly dividends of $0.41 per ordinary share to shareholders on record as of March 16, 2022, June 16, 2022, September 16, 2022, and December 16, 2022, for a total of $143.9 million and repurchased approximately 0.5 million ordinary shares for approximately $61.0 million during the year ended December 31, 2022.

Current wording

During 2024, we paid quarterly dividends of $0.48 per ordinary share to shareholders on record as of March 15, 2024, June 14, 2024, September 20, 2024, and December 17, 2024, for a total of $167.0 million, and repurchased approximately 1.6 million ordinary shares for approximately $220.0 million.

Previous wording

We paid quarterly dividends of $0.45 per ordinary share to shareholders on record as of March 15, 2023, June 15, 2023, September 18, 2023, and December 18, 2023, for a total of $158.7 million and repurchased approximately 0.5 million ordinary shares for approximately $59.9 million during the year ended December 31, 2023.

Current wording

During 2023, we paid quarterly dividends of $0.45 per ordinary share to shareholders on record as of March 15, 2023, June 15, 2023, September 18, 2023, and December 18, 2023, for a total of $158.7 million, and repurchased approximately 0.5 million ordinary shares for approximately $59.9 million.

Previous wording

For the year ended December 31, 2023, Cost of goods sold as a percentage of Net revenues decreased to 56.7% from 59.6%, as compared to the year ended December 31, 2022, due to the following:

Current wording

For the year ended December 31, 2024, Cost of goods sold as a percentage of Net revenues decreased to 55.8% from 56.7%, as compared to the year ended December 31, 2023, due to the following:

Previous wording

Cost of goods sold as a percentage of Net revenues decreased primarily due to the pricing and productivity improvements, which exceeded the impacts from inflation and investment spending, and lower restructuring and acquisition costs year-over- year. These decreases were partially offset by unfavorable product mix, lower gross margins associated with our acquired Access Technologies business and unfavorable foreign currency exchange rate movements.

Current wording

Cost of goods sold as a percentage of Net revenues decreased primarily due to pricing and productivity, which exceeded the impacts from inflation and investment spending, favorable product mix and favorable foreign currency exchange rate movements. These decreases were partially offset by the impacts to gross margin associated with our acquired businesses.

Previous wording

Pricing and productivity in excess of inflation and investment spending includes the impact to Costs of goods sold from pricing, as defined above, in addition to productivity, inflation and investment spending. Productivity represents improvements in unit costs of materials and cost reductions related to improvements to our manufacturing design and processes. Inflation includes unit costs for the current period compared to the average actual cost for the prior period, multiplied by current year volumes. 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 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.

Current wording

Pricing and productivity in excess of inflation and investment spending includes the impact to Costs of goods sold from pricing, as defined above, in addition to productivity, inflation and investment spending. Productivity represents improvements in unit costs of materials and cost reductions related to improvements to our manufacturing design and processes. Inflation includes unit costs for the current period compared to the average actual cost for the prior period, multiplied by current year volumes.

Previous wording

For the year ended December 31, 2023, Selling and administrative expenses as a percentage of Net revenues increased to 23.7% from 22.5%, as compared to the year ended December 31, 2022, due to the following:

Current wording

For the year ended December 31, 2024, Selling and administrative expenses as a percentage of Net revenues decreased to 23.5% from 23.7%, as compared to the year ended December 31, 2023, due to the following:

Previous wording

Selling and administrative expenses as a percentage of Net revenues increased due to inflation in excess of productivity and investment spending, as well as unfavorable volume leverage and year-over-year increase in acquisition and integration expenses. These increases were partially offset by the beneficial impact from current and prior year acquisition and divestiture activity.

Current wording

Selling and administrative expenses as a percentage of Net revenues decreased due to a year-over-year decrease in restructuring, integration, and acquisition expenses and the beneficial impacts from current and prior year acquisition activity. These decreases were partially offset by inflation in excess of productivity and investment spending, as well as the unfavorable impact of lower volumes.

Previous wording

Inflation in excess of productivity is primarily the result of increases to variable compensation. Volume leverage represents the contribution margin related to changes in sales volume, excluding the impact of price, productivity, mix and inflation. Expenses related to increased head count for strategic initiatives, new facilities or significant spending for strategic initiatives or new product and channel development, are captured in Investment spending in the table above.

Current wording

Volume leverage represents the contribution margin related to changes in sales volume, excluding the impact of price, productivity, mix and inflation. Expenses related to increased head count for strategic initiatives, new facilities or significant spending for strategic initiatives or new product and channel development, are captured in investment spending in the table above.

Previous wording

Operating income for the year ended December 31, 2023, increased $122.0 million as compared to the year ended December 31, 2022, and Operating margin increased to 19.4% from 17.9%, due to the following:

Current wording

Operating income for the year ended December 31, 2024, increased $72.3 million as compared to the year ended December 31, 2023, and Operating margin increased to 20.7% from 19.4%, due to the following:

Previous wording

The increase in Operating income was driven by pricing and productivity improvements in excess of inflation and investment spending and the contribution from recent acquisition and divestiture activity. These increases were partially offset by unfavorable volume/product mix, unfavorable foreign currency exchange rate movements, a year-over-year increase in restructuring and acquisition costs and impairment charges on intangible assets recorded in the current year.

Current wording

The increase in Operating income was driven by pricing and productivity improvements in excess of inflation and investment spending, favorable foreign currency exchange rate movements, the contributions from recent acquisition activity, a year-over-year decrease in restructuring, integration, and acquisition costs and impairment charges on intangible assets recorded in the prior year. These increases were partially offset by unfavorable volume/product mix.

Previous wording

The increase in Operating margin was driven by pricing and productivity improvements in excess of inflation and investment spending. The increase was partially offset due to an unfavorable volume/product mix, unfavorable foreign currency exchange rate movements, the year-over-year increase in restructuring, integration and acquisition expenses and the full year dilutive impact to Operating margin from our Access Technologies business as well as the impairment charges recorded in the current year.

Current wording

The increase in Operating margin was driven by pricing and productivity improvements in excess of inflation and investment spending, favorable foreign currency exchange rate movements, the year-over-year decrease in restructuring, integration and acquisition expenses, as well as the impairment charges recorded in the prior year.

Previous wording

For the year ended December 31, 2023, our effective tax rate was 12.4%, compared to 10.9% for the year ended December 31, 2022. The increase in the effective tax rate was primarily due to the mix of income earned in higher tax rate jurisdictions, which was partially offset by the favorable resolutions of uncertain tax positions.

Current wording

For the year ended December 31, 2024, our effective tax rate was 14.5%, compared to 12.4% for the year ended December 31, 2023. The increase in the effective tax rate was primarily due to the enactment of Global Minimum Tax and the mix of income earned in higher tax rate jurisdictions.

Previous wording

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 2022 summary of operations by reportable segment below have been recast to conform with the current period presentation. The impact of this recast was to realign approximately $20.9 million of Net revenues and $2.1 million of Segment operating income for the year ended December 31, 2022, from the Allegion Americas segment to the Allegion International segment.

Current wording

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

Previous wording

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, portable locks, 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).

Current wording

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, portable locks, key systems, door controls and door control systems, exit devices, doors, glass and door systems, 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 an agreement with Stanley Black & Decker ("Stanley" is the property of Stanley Logistics L.L.C).

Previous wording

Growth in electronic security products and solutions is a metric monitored by management and a focus of our investors. Electronic products encompass both residential and non-residential products, 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. Net revenues from the sale of electronic products increased by a low twenties percent compared to the prior year, driven by improved pricing and higher volumes. Continued strong demand and improvements around the availability of materials and components helped drive the increase in revenues compared to 2022. We expect continued growth from the sale of electronic products in 2024 given the combination of stable demand and our pricing initiatives.

Current wording

Growth in Americas electronic security products and solutions is a metric monitored by management and a focus of our investors. Electronic products encompass both residential and non-residential products, 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. Net revenues from the sale of electronic products decreased by a low single-digits percent compared to 2023. In 2023, we experienced a low-twenties percent increase compared to 2022, driven by improvements around the availability of materials and components. We continue to believe electronic products are a long-term growth driver.

Previous wording

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

Current wording

The increase in Segment operating income was primarily driven by pricing and productivity improvements in excess of inflation and investment spending, favorable volume/product mix, favorable foreign currency exchange rate movements, operating income from our acquired businesses and a year-over-year decrease in restructuring, integration, and acquisition expenses.

Previous wording

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

Current wording

The increase in Segment operating margin was driven by pricing and productivity improvements in excess of inflation and investment spending, favorable foreign currency exchange rate movements, and a year-over-year decrease in restructuring, integration and acquisition expenses.

Previous wording

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 controls 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.

Current wording

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 controls and door control 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, CISA, Gainsborough, Interflex, and SimonsVoss.

Previous wording

The decreases in Segment operating income and Segment operating margin were primarily driven by unfavorable volume/product mix, a year-over-year increase in restructuring, integration and acquisition expenses, and impairment charges on intangible assets recorded in the current year. These decreases were partially offset by pricing and productivity improvements in excess of inflation and investment spending, favorable movements in foreign currency exchange rates and both prior year and current year acquisition and divestiture activity.

Current wording

The increases in Segment operating income and Segment operating margin were primarily driven by pricing and productivity improvements in excess of inflation and investment spending, favorable movements in foreign currency exchange rates, current year acquisition activity and impairment charges on intangible assets recorded in the prior year. These increases were partially offset by unfavorable volume/product mix and a year-over-year increase in restructuring, integration and acquisition expenses.

Previous wording

Our primary source of liquidity is cash provided by operating activities. Cash provided by operating activities is used to invest in new product development and fund capital expenditures and working capital requirements. Our ability to generate cash from our operating activities, our unused availability under 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 us financial flexibility.

Current wording

Our primary source of liquidity is cash provided by operating activities. Cash provided by operating activities is used to invest in new product development and fund capital expenditures and working capital requirements. Our ability to generate cash from our operating activities, our unused availability under the 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 us financial flexibility.

Previous wording

Based upon our operations, existing cash balances and unused availability under the 2021 Revolving Facility, as of December 31, 2023, we expect cash flows from operations to be sufficient to maintain a sound financial position and liquidity and to meet our financing needs for at least the next 12 months. Further, we do not anticipate any covenant compliance challenges with any of our outstanding indebtedness for at least the next 12 months. We also believe existing availability under the 2021 Credit Facilities and access to credit and capital markets are sufficient to achieve our longer-term strategic plans.

Current wording

Based upon our operations, existing cash balances and unused availability under the Revolving Facility, as of December 31, 2024, we expect cash flows from operations to be sufficient to maintain a sound financial position and liquidity and to meet our financing needs for at least the next 12 months. Further, we do not anticipate any covenant compliance challenges with any of our outstanding indebtedness for at least the next 12 months. We also believe existing availability under the Credit Facilities and access to credit and capital markets are sufficient to achieve our longer-term strategic plans.

Previous wording

Operating activities: Net cash provided by operating activities for the year ended December 31, 2023, increased by $141.1 million compared to 2022, driven primarily by higher net earnings and higher cash provided by working capital.

Current wording

Operating activities: Net cash provided by operating activities for the year ended December 31, 2024, increased by $74.4 million compared to 2023, driven primarily by higher net earnings and improvements in working capital.

Previous wording

Investing activities: Net cash used in investing activities for the year ended December 31, 2023, decreased by $865.0 million compared to 2022, primarily due to the Access Technologies acquisition in 2022, which was partially offset by an increase of $20.2 million in capital expenditures compared to 2022 and an increase in other investments by $6.2 million compared to 2022.

Current wording

Investing activities: Net cash used in investing activities for the year ended December 31, 2024, increased by $99.3 million compared to 2023, primarily due to the acquisition activity in 2024 and a $7.9 million increase in capital expenditures compared to 2023. These increases were partially offset by a decrease in other investments compared to 2023.

Previous wording

Financing activities: Net cash used in financing activities for the year ended December 31, 2023, changed by $735.7 million compared to 2022. In 2022, we issued $600.0 million of Senior Notes and had net borrowings of $69.0 million on the 2021 Revolving Facility to finance the acquisition of the Access Technologies business. In 2023, we repaid the remaining borrowings on the 2021 Revolving Facility. The remaining change in cash used in financing activities was primarily due to an increase in dividend payments partially offset by slightly less cash used to repurchase shares in 2023 compared to 2022.

Current wording

Financing activities: Net cash used in financing activities for the year ended December 31, 2024, increased by $95.8 million compared to 2023. The change in cash used in financing activities was primarily due to an increase in cash used for share repurchases and dividend payments, partially offset by lower net repayments on debt compared to 2023.

Previous wording

The 2021 Revolving Facility provides aggregate commitments of up to $500.0 million, which includes up to $100.0 million for the issuance of letters of credit. In July 2022, we borrowed $340.0 million under the 2021 Revolving Facility to partially fund our acquisition of the Access Technologies business. We subsequently repaid $271.0 million, resulting in $69.0 million of borrowings outstanding on the 2021 Revolving Facility as of December 31, 2022. In 2023, we repaid the remaining balance, resulting in no outstanding balance on the 2021 Revolving Facility as of December 31, 2023. We also had $18.4 million of letters of credit outstanding as of December 31, 2023. Outstanding borrowings under the 2021 Revolving Facility may be repaid at any time without premium or penalty, and amounts repaid may be reborrowed.

Current wording

The Term Facility requires quarterly principal payments through its maturity on November 18, 2026. Future payments total$21.9 million due in 2025 and $190.6 million due in 2026. We repaid $12.5 million of principal on the Term Facility during the year ended December 31, 2024. Principal amounts repaid on the Term Facility may not be reborrowed. The Revolving Facility aggregate commitments of up to $750.0 million includes up to $100.0 million for the issuance of letters of credit. We had $18.5 million of letters of credit outstanding at December 31, 2024. Borrowings under the Revolving Facility may be repaid at any time without premium or penalty, and amounts repaid may be reborrowed.

Previous wording

Outstanding borrowings under the 2021 Credit Facilities accrue interest at our option of (i) a Bloomberg Short-Term Bank Yield Index (“BSBY”) rate plus an applicable margin, or (ii) a base rate (as defined in the Credit Agreement) plus an applicable margin. The applicable margin ranges from 0.875% to 1.375% depending on our credit ratings. At December 31, 2023, outstanding borrowings under the 2021 Credit Facilities accrued interest at BSBY plus a margin of 1.125%, resulting in an interest rate of 6.581%. The Credit Agreement also contains 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 Credit Agreement requires us to comply with a maximum leverage ratio as defined within the agreement. As of December 31, 2023, our leverage ratio of approximately 2.0 was significantly below the covenant requirement, and we do not anticipate any potential concerns for at least the next 12 months.

Current wording

Outstanding borrowings under the Credit Facilities accrue interest, at our option, equal to either: (i) SOFR 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 December 31, 2024, our outstanding borrowings under the Credit Facilities accrued interest at SOFR plus a margin of 1.225%, resulting in an interest rate of 5.582%. The 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 Credit Facilities require us to comply with a maximum leverage ratio as defined in the credit agreement. As of December 31, 2024, we were in compliance with all applicabl e covenants under the credit agreement, and we do not anticipate any potential concerns for at least the next 12 months.

Previous wording

As of December 31, 2023, we also have $400.0 million outstanding of 3.200% Senior Notes due 2024 (the “3.200% Senior Notes”), $400.0 million outstanding of 3.550% Senior Notes due 2027 (the “3.550% Senior Notes”), $400.0 million outstanding of 3.500% Senior Notes due 2029 (the “3.500% Senior Notes”), and $600.0 million outstanding of 5.411% Senior Notes due 2032 (the “5.411% Senior Notes” and all four senior notes collectively, the "Senior Notes"). The 3.200% Senior Notes, 3.550% Senior Notes, 3.500% Senior Notes, and 5.411% Senior Notes all require semi-annual interest payments, and will mature on October 1, 2024, October 1, 2027, October 1, 2029, and July 1, 2032, respectively. We expect the availability on the 2021 Revolving Facility, along with cash on hand, will provide sufficient liquidity to repay the 3.200% Senior Notes due in the fourth quarter of 2024, if needed.

Current wording

As of December 31, 2024, we also have $400.0 million outstanding of 3.550% Senior Notes due 2027 (the “3.550% Senior Notes”), $400.0 million outstanding of 3.500% Senior Notes due 2029 (the “3.500% Senior Notes”), $600.0 million outstanding of 5.411% Senior Notes due 2032 (the “5.411% Senior Notes”), and $400.0 million outstanding of our 5.600% Senior Notes (all four senior notes collectively, the "Senior Notes"). The 3.550% Senior Notes, 3.500% Senior Notes, 5.411% Senior Notes, and 5.600% Senior Notes all require semi-annual interest payments, and mature on October 1, 2027, October 1, 2029, July 1, 2032, and May 29, 2034, respectively.

Previous wording

Scheduled future principal repayments on our outstanding indebtedness can be found in Note 9 to the Consolidated Financial Statements. Expected principal and interest payments related to our long-term indebtedness in 2024 amount to $412.6 million and $97.1 million, respectively, given our current level of indebtedness and effective interest rates as of December 31, 2023.

Current wording

Scheduled future principal repayments on our outstanding indebtedness can be found in Note 9 to the Consolidated Financial Statements. Expected principal and interest payments related to our long-term indebtedness in 2025 amount to$21.9 million and approximately $95.0 million, respe ctively, given our current level of indebtedness and effective interest rates as of December 31, 2024.

Previous wording

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. None of our defined benefit plans have experienced a significant impact on their liquidity due to volatility in the markets.

Current wording

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 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. None of our defined benefit plans have experienced a significant impact on their liquidity due to volatility in the markets.

Previous wording

At December 31, 2023, we had net pension liabilities of $0.3 million, which consist of plan assets of $512.1 million and benefit obligations of $512.4 million. It is our objective to contribute to our pension plans in order to ensure adequate funds are available to make benefit payments to plan participants and beneficiaries when required. At December 31, 2023, the funded status of our U.S. pension plans increased to 101.6% from 97.8% at December 31, 2022. The funded status for our non-U.S. pension plans increased to 98.5% at December 31, 2023 from 97.4% at December 31, 2022. The funded status for all of our pension plans at December 31, 2023 increased to 99.9% from 97.6% at December 31, 2022. We currently expect to contribute approximately $5 million to our plans worldwide in 2024.

Current wording

At December 31, 2024, we had net pension assets of $5.3 million, which consist of plan assets of $473.0 million and benefit obligations of $467.7 million. It is our objective to contribute to our pension plans in order to ensure adequate funds are available to make benefit payments to plan participants and beneficiaries when required. At December 31, 2024, the funded status of our U.S. pension plans decreased to 100.8% from 101.6% at December 31, 2023. The funded status for our non-U.S. pension plans increased to 101.4% at December 31, 2024 from 98.5% at December 31, 2023. The funded status for all of our pension plans at December 31, 2024 increased to 101.1% from 99.9% at December 31, 2023. We currently expect to contribute approximately $5 million to our plans worldwide in 2025.

Previous wording

Determining the costs and obligations associated with our defined benefit plans is dependent on various actuarial assumptions including discount rates, expected returns on plan assets, employee mortality and turnover rates. Changes in any of the assumptions can have an impact on the net periodic pension benefit cost. An estimated 0.5% rate decline in the discount rate would have increased net periodic pension benefit cost by approximately $0.4 million in 2023, while a 0.5% rate decline in the estimated return on assets would have increased net periodic pension benefit cost by approximately $2.4 million. For further details on defined benefit plan activity, see Note 12 to the Consolidated Financial Statements.

Current wording

Determining the costs and obligations associated with our defined benefit plans is dependent on various actuarial assumptions including discount rates, expected returns on plan assets, employee mortality and turnover rates. Changes in any of the assumptions can have an impact on the net periodic pension benefit cost. An estimated 0.5% rate decline in the discount rate would have increased net periodic pension benefit cost by approximately $0.4 million in 2024, while a 0.5% rate decline in the estimated return on assets would have increased net periodic pension benefit cost by approximately $2.2 million. For further details on defined benefit plan activity, see Note 12 to the Consolidated Financial Statements.

Previous wording

Income Taxes– At December 31, 2023, we have total unrecognized tax benefits for uncertain tax positions of $45.1 million and $9.0 million of related accrued interest and penalties, net of tax, although we are unable to reasonably estimate the timing over which these liabilities might be paid. See Note 18 to the Consolidated Financial Statements for additional information regarding matters relating to income taxes, including unrecognized tax benefits and tax authority disputes.

Current wording

Income Taxes– At December 31, 2024, we have total unrecognized tax benefits for uncertain tax positions of $44.5 million and $9.2 million of related accrued interest and penalties, net of tax, although we are unable to reasonably estimate the timing over which these liabilities might be paid. See Note 18 to the Consolidated Financial Statements for additional information regarding matters relating to income taxes, including unrecognized tax benefits and tax authority disputes.

Previous wording

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.

Current wording

Allegion US Hold Co is or was, as applicable, the issuer of the 3.200% Senior Notes, 3.550% Senior Notes, 5.411% Senior Notes, and 5.600% Senior Notes and is the guarantor of the 3.500% Senior Notes. Allegion plc (the “Parent”) is or was, as applicable, the issuer of the 3.500% Senior Notes and is or was, as applicable, the guarantor of the 3.200% Senior Notes, 3.550% Senior Notes, 5.411% Senior Notes, and 5.600% 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.

Previous wording

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.

Current wording

The 3.200% Senior Notes, 3.550% Senior Notes, 5.411% Senior Notes, and 5.600% Senior Notes are or were, as applicable, 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, 5.411% Senior Notes, and 5.600% Senior Notes is or was, as applicable, 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.