Item 7. 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 might cause a difference include, but are not limited to, those discussed under Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K. The following section is qualified in its entirety by the more detailed information, including our consolidated financial statements and the notes thereto, which appears elsewhere in this Annual Report on Form 10-K.
Overview
Organization
We 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 and Global Trade and Macroeconomic Environment
In 2025, we delivered high-single digit revenue growth compared to 2024, driven by favorable pricing and volume growth, as well as the impact from acquisitions made during the year. Demand for electronic security products has also remained strong and continues to be a long-term growth driver.
Throughout 2025, the U.S. government announced tariffs on imports from several countries from which we manufacture and/or import products and components. In 2025, we offset inflation due to tariffs with pricing actions. We continue to analyze the impact of changes in tariffs and what, if any, steps, including pricing actions, we may take to mitigate the impact of the tariffs. We estimate we source approximately 20-25% of cost of goods sold ("COGS") from Mexico, less than 5% of COGS from China, and 5-10% of COGS from all other non-US countries. Additionally, this could impact future demand.
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."
2025 and 2024 Significant Events
Acquisitions
We have made several recent business acquisitions across our Allegion Americas and Allegion International segments. The acquisitions align with our strategy of expanding our mechanical and electronic product portfolios and adding complimentary software and services. This includes the acquisition of ELATEC, including Elatec GmbH and other group entities ("ELATEC") on July 1, 2025. ELATEC is a manufacturer of security and access technology based in Germany, and the acquisition helps expand our global electronics portfolio in attractive end markets while also increasing strategic relationships with channel partners.
The aggregate consideration, inclusive of contingent consideration and net of cash acquired, for all acquisitions completed in 2025 and 2024 was approximately $631.6 million and $147.2 million, respectively. Businesses acquired in 2025 generated $93.0 million of Net revenues since the acquisition dates, which is included within our Consolidated Statements of Comprehensive Income.
See Note 3 to the Consolidated Financial Statements for further information.
Financing Activities
On December 9, 2025, we amended and restated our unsecured revolving credit facility (the "Revolving Facility") which, among other things, increased the total commitment from $750.0 million to $1.0 billion, and extended the maturity from May 20, 2029 to May 20, 2030. We used borrowings under the Revolving Facility to repay our outstanding term loan, which was scheduled to mature in November 2026. Outstanding borrowings under the Revolving Facility were $190.6 million at December 31, 2025.
Dividends and Share Repurchases
During 2025, we paid quarterly dividends of $0.51 per ordinary share to shareholders on record as of March 14, 2025, June 13, 2025, September 15, 2025, and December 16, 2025, for a total of $175.3 million, and repurchased approximately 0.6 million ordinary shares for approximately $80.0 million.
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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.
Results of Operations - For the years ended December 31
Dollar amounts in millions, except per share amounts
% of Net
revenues
% of Net
revenues
Net revenues
Cost of goods sold
Selling and administrative expenses
Operating income
Interest expense
Other income, net
Earnings before income taxes
Provision for income taxes
Net earnings
Diluted net earnings per ordinary share:
The discussions that follow describe the significant factors contributing to the changes in our results of operations for the years presented and form the basis used by management to evaluate the financial performance of the business. For a discussion of our results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2024 Annual Report on Form 10-K filed with the SEC on February 18, 2025.
Net Revenues
Net revenues for the year ended December 31, 2025, increased by 7.8%, or $295.1 million, as compared to the year ended December 31, 2024, due to the following:
Pricing
Volume
Acquisitions / divestitures
Currency exchange rates
Total
The increase in Net revenues was driven by improved pricing, favorable impact from acquisitions / divestitures, higher volumes and favorable foreign currency exchange rate movements.
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.
Cost of Goods Sold
For the year ended December 31, 2025, Cost of goods sold as a percentage of Net revenues decreased to 54.8% from 55.8%, as compared to the year ended December 31, 2024, due to the following:
Pricing and productivity in excess of inflation and investment spending
Volume / product mix
Currency exchange rates
Restructuring / integration / acquisition expenses
Total
Cost of goods sold as a percentage of Net revenues decreased primarily due to favorable product mix, favorable foreign currency exchange rate movements, a year-over-year decrease in restructuring, integration, and acquisition expenses and pricing and productivity, which exceeded the impacts from inflation and investment spending.
Pricing and productivity in excess of inflation and investment spending includes the impact to Cost 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
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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.
Selling and Administrative Expenses
For the year ended December 31, 2025, Selling and administrative expenses as a percentage of Net revenues increased to 24.1% from 23.5%, as compared to the year ended December 31, 2024, due to the following:
Inflation in excess of productivity and investment spending
Volume leverage
Restructuring / integration / acquisition expenses
Total
Selling and administrative expenses as a percentage of Net revenues increased due to inflation in excess of productivity and investment spending and a year-over-year increase in restructuring, integration, and acquisition expenses. These increases were partially offset by the favorable impact of higher volume leverage.
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.
Operating Income/Margin
Operating income for the year ended December 31, 2025, increased $78.8 million as compared to the year ended December 31, 2024, and Operating margin increased to 21.1% from 20.7%, due to the following:
In millions
Operating Income
Operating Margin
December 31, 2024
Pricing and productivity in excess of inflation and investment spending
Volume / product mix
Currency exchange rates
Acquisitions / divestitures
Restructuring / integration / acquisition expenses
December 31, 2025
The increase in Operating income was driven by favorable volume/product mix, the favorable impact from acquisitions/divestitures, favorable foreign currency exchange rate movements, and pricing and productivity improvements in excess of inflation and investment spending. These increases were partially offset by higher restructuring, integration, and acquisition expenses.
The increase in Operating margin was driven by favorable volume/product mix, which was partially offset by lower operating margin from pricing and productivity in excess of inflation and investment spending and higher restructuring, integration and acquisition expenses.
Interest Expense
Interest expense for the year ended December 31, 2025, decreased $1.0 million as compared to the year ended December 31, 2024, primarily due to a lower weighted-average interest rate on our outstanding indebtedness.
Other Income, net
The components of Other income, net, for the years ended December 31 were as follows:
In millions
Interest income
Currency translation loss
Earnings and gains from the sale of equity method investments, net
Net periodic pension and postretirement benefit (income) cost, less service cost
Other income
Other income, net
For the year ended December 31, 2025, Other income, net, decreased $10.2 million compared to 2024, primarily due to less interest income generated as a result of less cash on hand throughout the year due to the increase in acquisition activity.
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Provision for Income Taxes
For the year ended December 31, 2025, our effective tax rate was 16.2%, compared to 14.5% for the year ended December 31, 2024. The increase in the effective income tax rate was primarily due to the unfavorable mix of income earned in higher tax rate jurisdictions and year over year changes in amounts recognized for uncertain tax positions and income tax credits, which were partially offset by the enactment of legislative changes.
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 ("CODM") reviews our financial performance and makes operating decisions.
Segment operating income is the measure of profit and loss that our CODM 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 Segment operating income represents the most relevant measure of Segment profit and loss. Our CODM may exclude certain charges or gains, such as corporate charges and other special charges, to arrive at a Segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions. We define Segment operating margin as Segment operating income as a percentage of the segment's Net revenues.
The segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in Net earnings.
Segment Results of Operations - For the years ended December 31
In millions
% Change
Net revenues
Allegion Americas
Allegion International
Total
Segment operating income
Allegion Americas
Allegion International
Total
Segment operating margin
Allegion Americas
Allegion International
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, 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.
Net Revenues
Net revenues for the year ended December 31, 2025, increased by 6.9%, or $206.4 million, as compared to the year ended December 31, 2024, due to the following:
Pricing
Volume
Acquisitions
Currency exchange rates
Total
The increase in Net revenues was driven by improved pricing, the favorable impact of acquisitions and higher volumes. These increases were partially offset by unfavorable foreign currency exchange rate movements.
Excluding Net revenues of businesses acquired in 2025, Net revenues from non-residential products grew by a high-single digits percent compared to the prior year, driven by increased pricing and higher volumes, and Net revenues from residential
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products decreased by a low-single digits percent compared to the prior year, driven by lower volumes, partially offset by increased pricing.
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 increased by a low-double digits percent compared to 2024. We continue to believe electronic products are a long-term growth driver.
Operating Income/Margin
Segment operating income for the year ended December 31, 2025, increased $80.3 million, and Segment operating margin increased to 27.9% from 27.1% as compared to the year ended December 31, 2024, due to the following:
In millions
Operating Income
Operating Margin
December 31, 2024
Pricing and productivity in excess of inflation and investment spending
Volume / product mix
Currency exchange rates
Acquisitions
Restructuring / integration / acquisition expenses
December 31, 2025
The increase in Segment operating income was primarily driven by favorable volume/product mix, pricing and productivity in excess of inflation and investment spending, the favorable impact of recent acquisitions, lower restructuring, integration, and acquisition expenses and favorable foreign currency exchange rate movements.
The increase in Segment operating margin was driven by favorable volume/product mix, lower restructuring, integration and acquisition expenses and favorable foreign currency exchange rate movements. These increases were partially offset by lower operating margin from pricing and productivity in excess of inflation and investment spending and the unfavorable impact on operating margin from recent acquisitions.
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 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, ELATEC, Gainsborough, Interflex, and SimonsVoss.
Net Revenues
Net revenues for the year ended December 31, 2025, increased by 11.7%, or $88.7 million, as compared to the year ended December 31, 2024, due to the following:
Pricing
Volume
Acquisitions / divestitures
Currency exchange rates
Total
The increase in Net revenues was driven by the favorable impact from recent acquisitions/divestitures, favorable foreign currency exchange rate movements and improved pricing. These increases were partially offset by lower volumes.
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Operating Income/Margin
Segment operating income for the year ended December 31, 2025, increased $10.2 million, and Segment operating margin increased to 9.0% from 8.7% as compared to the year ended December 31, 2024, due to the following:
In millions
Operating Income
Operating Margin
December 31, 2024
Inflation and investment spending in excess of pricing and productivity
Volume / product mix
Currency exchange rates
Acquisitions / divestitures
Restructuring / integration / acquisition expenses
December 31, 2025
The increases in Segment operating income and Segment operating margin were primarily driven by the favorable impact from acquisitions/divestitures and favorable movements in foreign currency exchange rates. These increases were partially offset by higher restructuring, integration and acquisition expenses, unfavorable volume/product mix and inflation and investment spending in excess of pricing and productivity improvements. Macroeconomic conditions in our International markets remain mixed.
Liquidity and Capital Resources
Liquidity Outlook, Sources and Uses
Our primary source of liquidity is cash provided by operating activities. Cash provided by operating activities is used to invest in new product development and fund capital expenditures and working capital requirements. Our ability to generate cash from our operating activities, our unused availability under 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.
Our short-term financing needs primarily consist of working capital requirements, restructuring initiatives, capital spending, potential acquisitions, 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 December 31, 2025, approximately 90% 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 availability under the Revolving Facility, as of December 31, 2025, 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 twelve months. Further, we do not anticipate any covenant compliance challenges with any of our outstanding indebtedness for at least the next twelve months. We also believe unused availability under the Revolving Facility and access to credit and capital markets are sufficient to achieve our longer-term strategic plans.
The following table reflects the major categories of cash flows for the years ended December 31. For additional details, see the Consolidated Statements of Cash Flows in the Consolidated Financial Statements.
In millions
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Operating activities : Net cash provided by operating activities for the year ended December 31, 2025, increased by $108.8 million compared to 2024, driven primarily by higher net earnings and less cash used for working capital.
Investing activities : Net cash used in investing activities for the year ended December 31, 2025, increased by $457.1 million compared to 2024, primarily due to higher cash used for acquisitions and an increase in capital expenditures.
Financing activities : Net cash used in financing activities for the year ended December 31, 2025, decreased by $127.8 million compared to 2024. The change in cash used in financing activities was primarily due to a decrease in cash used for share repurchases, partially offset by higher net repayments on debt and higher dividend payments.
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Capitalization
At December 31, long-term debt and other borrowings consisted of the following:
In millions
Term Facility
Revolving Facility
3.550% Senior Notes due 2027
3.500% Senior Notes due 2029
5.411% Senior Notes due 2032
5.600% Senior Notes due 2034
Other debt
Total borrowings outstanding
Discounts and debt issuance costs, net
Total debt
Less current portion of long-term debt
Total long-term debt
We have an unsecured revolving credit facility (the "Revolving Facility") in place, of which $190.6 million was outstanding at December 31, 2025. We paid the outstanding $212.5 million principal balance and interest on a term loan facility during the year ended December 31, 2025 using cash on hand and borrowings under the Revolving Facility. On December 9, 2025, we amended and restated the Revolving Facility which, among other things, increased the total commitment from $750.0 million to $1.0 billion, and extended the maturity from May 20, 2029 to May 20, 2030.
The Revolving Facility provides aggregate commitments of up to $1.0 billion, which includes up to $100.0 million for the issuance of letters of credit. We had $25.2 million and $18.4 million of letters of credit outstanding at December 31, 2025 and 2024, respectively. Borrowings under the Revolving Facility may be repaid at any time without premium or penalty, and amounts repaid may be reborrowed. We pay certain fees with respect to the Revolving Facility, including an unused commitment fee on the undrawn portion of between 0.080% and 0.200% per year, depending on the Company's credit ratings, as well as certain other fees.
Outstanding borrowings under the Revolving Facility accrue interest, at our option, of (i) a SOFR 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, 2025, our outstanding borrowings under the Revolving Facility accrued interest at SOFR plus a margin of 1.125%, resulting in an interest rate of 4.902%. 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 Revolving Facility requires us to comply with a maximum leverage ratio as defined in the credit agreement. As of December 31, 2025, we were in compliance with all applicable covenants under the credit agreement.
As of December 31, 2025, we also have $400.0 million outstanding of our 3.550% Senior Notes due 2027 (the “3.550% Senior Notes”), $600.0 million outstanding of our 5.411% Senior Notes due 2032 (the “5.411% Senior Notes”), $400.0 million outstanding of the 5.600% Senior Notes due 2034 (the "5.600% Senior Notes") and $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 3.550% Senior Notes and 3.500% Senior Notes both require semi-annual interest payments on April 1 and October 1 of each year and mature on October 1, 2027 and October 1, 2029, respectively. The 5.411% Senior Notes require semi-annual interest payments on January 1 and July 1 of each year and mature on July 1, 2032. The 5.600% Senior Notes require semi-annual interest payments on May 29 and November 29 of each year and mature on May 29, 2034.
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 December 31, 2025, 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 were required.
Scheduled future principal repayments on our outstanding indebtedness can be found in Note 8 to the Consolidated Financial Statements. Interest payments related to our long-term indebtedness in 2026 are expected to be $90-95 million, given our current level of indebtedness and effective interest rates as of December 31, 2025.
Contractual Obligations and Other Commitments
In addition to the scheduled principal and interest payments discussed above, our material cash requirements include the following contractual and other obligations:
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Purchase Commitments – We occasionally enter into short-term, firm purchase commitments to mitigate pricing risk related to certain of our commodity, parts and component purchases, which represent commitments under enforceable and legally binding agreements. Such purchase commitments are made in the normal course of business and are not anticipated to materially impact our liquidity or financial position over the next twelve months. See Note 19 to the Consolidated Financial Statements for further information.
Leases – We have numerous real estate and equipment leasing arrangements for which we are a lessee. See Note 10 to the Consolidated Financial Statements for further information as to the short and long-term lease liabilities included within the Consolidated Balance Sheets, as well as future minimum lease payments for 2026 and future years.
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.
At December 31, 2025, we had net pension assets of $14.6 million, which consist of plan assets of $498.5 million and benefit obligations of $483.9 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, 2025, the funded status of our U.S. pension plans increased to 101.0% from 100.8% at December 31, 2024. The funded status for our non-U.S. pension plans increased to 104.8% at December 31, 2025 from 101.4% at December 31, 2024. The funded status for all of our pension plans at December 31, 2025 increased to 103.0% from 101.1% at December 31, 2024. We currently expect to contribute approximately $3.9 million to our plans worldwide in 2026.
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 2025, 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 11 to the Consolidated Financial Statements.
Income Taxes – At December 31, 2025, we have total unrecognized tax benefits for uncertain tax positions of $54.8 million and $12.0 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 16 to the Consolidated Financial Statements for additional information regarding matters relating to income taxes, including unrecognized tax benefits and tax authority disputes.
Contingent Liabilities – We are involved in various litigation, claims and administrative proceedings, including those related to environmental, asbestos-related and product liability matters. We believe that these liabilities are subject to the uncertainties inherent in estimating future costs for contingent liabilities and will likely be resolved over an extended period of time. See Note 19 to the Consolidated Financial Statements for additional information.
Guarantor Financial Information
Allegion US Hold Co is the issuer of the 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 the issuer of the 3.500% Senior Notes and is the guarantor of the 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.
The 3.550% Senior Notes, 5.411% Senior Notes, and 5.600% 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 3.550% Senior Notes, 5.411% Senior Notes, and 5.600% 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 applicable 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
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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 applicable 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 applicable 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 June 22, 2022, and May 29, 2024.
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
Year ended December 31, 2025
In millions
Allegion plc
Allegion US Hold Co
Net revenues
Gross profit
Operating loss
Equity earnings in affiliates, net of tax
Transactions with related parties and subsidiaries (a)
Net earnings
Net earnings attributable to the entity
(a) Transactions with related parties and subsidiaries include intercompany interest and fees.
Selected Condensed Balance Sheet Information
December 31, 2025
In millions
Allegion plc
Allegion US Hold Co
Current assets:
Amounts due from related parties and subsidiaries
Total current assets
Noncurrent assets:
Amounts due from related parties and subsidiaries
Total noncurrent assets
Current liabilities:
Amounts due to related parties and subsidiaries
Total current liabilities
Noncurrent liabilities:
Amounts due to related parties and subsidiaries
Total noncurrent liabilities
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires management to use judgment 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, revenues 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. If updated information or actual amounts are different from previous estimates, the revisions are included in our results for the period in which they become known.
The following is a summary of certain accounting estimates and assumptions made by management that we consider critical:
• Goodwill – Goodwill is tested annually during the fourth quarter for impairment or when there is a significant change in events or circumstances that indicate the fair value of a reporting unit is, more likely than not, less than its carrying amount. Recoverability of goodwill is measured at the reporting unit level and starts with a comparison of the carrying amount of a reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. To the extent that the carrying value of a reporting unit exceeds
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its estimated fair value, a goodwill impairment charge will be recognized for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the carrying amount of the reporting unit's goodwill.
As quoted market prices are not available for our reporting units, the calculation of their estimated fair values is based on two valuation techniques, a discounted cash flow model (income approach) and a market multiple of earnings (market approach), with each method being weighted in the calculation. The income approach relies on our estimates of revenue growth rates, margin assumptions and discount rates to estimate future cash flows and explicitly addresses factors such as timing, with due consideration given to forecasting risk. These assumptions are subject to varying degrees of judgment and complexity. Estimates of future revenue growth rates and margin assumptions represent our best estimates of future cash flows given our expectations of market growth for the security products industry in the specific markets in which we operate, as well as factors such as our market positioning, brand strength, pricing and marketing efforts and other growth and productivity opportunities and initiatives. Discount rate assumptions represent our best estimates of market participant adjusted weighted-average costs of capital. Although these assumptions represent our best estimates as of the assessment date, certain factors could potentially create variances in these estimates, including, but not limited to:
• Decreases in estimated market sizes or market growth rates due to greater than expected declines in volumes, pricing pressures or disruptive technology;
• Declines in our market share and penetration assumptions due to increased competition or an inability to develop or launch new products;
• The impacts of market volatility, including but not limited to, impacts of global pandemics, greater than expected inflation, supply chain disruption and delays, declines in pricing, reductions in volumes or fluctuations in foreign currency exchange rates;
• The level of success of on-going and future research and development efforts, including those related to acquisitions, and increases in the research and development costs necessary to obtain regulatory approvals and launch new products; and
• Volatility in market interest rates that could impact the selection of an appropriate discount rate.
The market approach requires determining an appropriate peer group, which is utilized to derive estimated fair values of our reporting units based on selected market multiples. The market approach reflects the market’s expectations for future growth and risk, with adjustments to account for differences between the selected peer group companies and the subject reporting units. While market multiples are based on observable, arm’s-length evidence of value, these assumptions are still subject to inherent uncertainty, as the peer-group companies may differ in significant ways from one or more of our reporting units in terms of size, growth or business characteristics.
The critical accounting estimates and assumptions discussed above, include our estimates of revenue growth rates and margin assumptions, discount rates, our selection of an appropriate peer group and selected market multiples. These estimates and assumptions are considered critical, as they are subject to a high degree of judgment and complexity. Forecasted revenue growth rates and margin assumptions are updated annually and often fluctuate from year to year due to a myriad of factors, such as our assessment of the macroeconomic conditions throughout the major markets in which we do business, supply chain challenges, elevated levels of inflation in recent years and pricing initiatives to offset inflation, market acceptance of new product innovation, investments in productivity projects, restructuring efforts, among other economic, strategic and operational factors impacting our businesses. Discount rate and market multiple assumptions are similarly updated annually, based on our best estimates of market participants, which typically include observable, arm's length-evidence of value, where possible. While we make every effort to estimate fair value as accurately as possible with the information available at the assessment date, changes in assumptions and estimates may affect the estimated fair value of the reporting unit and could result in charges in future periods. During our most recent annual analysis, none of our reporting units were determined to be .
• Indefinite-lived intangible assets – Similar to goodwill, indefinite-lived intangible assets are tested annually during the fourth quarter for impairment or when there is a significant change in events or circumstances that indicate the fair value of the asset is, more likely than not, less than its carrying amount. Recoverability of indefinite-lived intangible assets is determined on a relief from royalty methodology, which is based on the implied royalty paid, at an appropriate discount rate, to license the use of an asset rather than owning the asset. The present value of the after-tax cost savings (i.e. royalty relief) indicates the estimated fair value of the asset. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess. The critical assumptions utilized in our annual impairment analysis for indefinite-lived intangible assets include our estimates of revenue growth rate, royalty rates and discount rates, which often differ amongst our various indefinite-lived assets. We assess the appropriateness of each royalty rate assumption annually, based on our assessment of observable market royalty rates and an analysis of the profitability of the primary business that owns or otherwise uses the indefinite-lived asset. Discount rate assumptions typically consider the discount rate conclusions for the reporting unit in which an underlying business operates, plus an incremental spread, where appropriate, to consider size, country or other company-specific risk. A significant change in any or a combination of the assumptions used to estimate fair value of our indefinite-lived intangible assets could have a impact on the estimated fair values.
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• Income taxes – We account for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. We recognize future tax benefits, such as net operating losses and non-U.S. tax credits, to the extent that realizing these benefits is considered in our judgment to be more likely than not. The recoverability of our deferred tax assets, which we consider to be a critical estimate, is reviewed regularly by considering our historic profitability, projected future taxable income, timing of the reversals of existing temporary differences and the feasibility of our tax planning strategies. Where appropriate, we record a valuation allowance with respect to future tax benefits. We establish valuation allowances against the realizability of any deferred tax assets based on our consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers the nature, frequency and amount of recent losses, the duration of statutory carryforward periods and tax planning strategies. Although our assessments of the valuation and recoverability of our deferred tax assets can change given a change in facts and circumstances (such as a change in a statutory tax rate), in making such judgments and estimates, significant weight is given to evidence that can be objectively verified.
The provision for income taxes also involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which we operate. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by us. In addition, tax authorities periodically review income tax returns filed by us and can raise issues regarding our filing positions, timing and amount of income or deductions and the allocation of income among the jurisdictions in which we operate. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a tax authority with respect to that return. We believe we have adequately provided for any reasonably foreseeable resolution of these matters and will adjust our estimates if significant events so dictate. To the extent that the ultimate results differ from our original or adjusted estimates, the effect will be recorded in the Provision for income taxes in the period the matter is finally resolved.
• Business combinations – The accounting for business combinations involves a considerable amount of judgment and estimation, including the identification of and fair values determined for acquired intangible assets, which typically include trade names, customer relationships and completed technologies. The determination of fair values of acquired intangible assets involves projections of future revenues and cash flows that are either discounted at an estimated discount rate or measured at an estimated royalty rate; fair values of other acquired assets and assumed liabilities, including potential contingent consideration; and the useful lives of the acquired assets. Due to the level of judgment and estimation required, in the case of significant acquisitions, we normally obtain the assistance of a third-party valuation specialist in estimating fair values of acquired tangible and intangible assets and assumed liabilities. An income approach or market approach (or both) is utilized in accordance with accepted valuation models to determine fair value. The determination of fair value of acquired assets typically requires the use of assumptions that include projections developed using historical information, internal forecasts, available industry and market data, estimates of revenue growth rates, profitability, customer attrition and discount and royalty rates, which are estimated at the time of acquisition, considering the perspective of marketplace participants. While we believe expectations and assumptions utilized for historical business combinations have been reasonable, they are inherently uncertain, and market or macroeconomic events and circumstances occasionally do occur, and may occur in the future, which could affect the accuracy and validity of such assumptions.
The impact of future business combinations on our financial condition or results of operations may also be materially impacted by the change in or initial selection of assumptions and estimates, in addition to events and circumstances subsequent to the acquisition that are not reasonably anticipated when finalizing our purchase accounting estimates and assumptions.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements.
