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What changed in Allegion's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Allegion's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+228 added−248 removedSource: 10-K (2024-02-20) vs 10-K (2023-02-22)

Top changes in Allegion's 2023 10-K

228 paragraphs added · 248 removed · 179 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

48 edited+15 added−31 removed41 unchanged
Biggest changeWe want to attract talent with core capabilities relevant to our long-term corporate business strategy: customer focus, innovation, partnering, pace and agility and collaboration. We use a variety of recruitment tactics to ensure a strong base of labor for manufacturing operations and to build the base of talent with these capabilities.
Biggest changeOur talent attraction efforts are focused on and highlight a culture that reflects our core values, Allegion leadership behaviors and business objectives. 12 Table of Contents We want to attract talent with core capabilities relevant to our long-term corporate business strategy: customer focus, innovation, partnering, pace and agility and collaboration.
We continue to adapt to changing health conditions at a local level and support a wide range of health and safety measures, including encouraging preventative measures such as COVID-19 and influenza vaccines and booster shots. The ELT, with oversight from our Board of Directors, is responsible for risk management, employee accountability, safety hazard recognition and executing safety initiatives.
We continue to adapt to changing health conditions at a local level and support a wide range of health and safety measures, including encouraging preventative health measures such as COVID-19 and influenza vaccines and booster shots. The ELT, with oversight from our Board of Directors, is responsible for risk management, employee accountability, safety hazard recognition and executing safety initiatives.
Further, we expect continued growth in connected security products and solutions as end-users continue to adopt newer technologies, including IoT, in their facilities and single and multi-family homes. The security products markets are highly competitive and fragmented throughout the world, with a number of large multi-national companies and thousands of smaller regional and local companies.
Further, we expect continued growth in connected security products and solutions as end-users continue to adopt newer technologies, including IoT and AI, in their facilities and single and multi-family homes. The security products markets are highly competitive and fragmented throughout the world, with a number of large multi-national companies and thousands of smaller regional and local companies.
The following table shows the location of our principal worldwide production and assembly facilities: Production and Assembly Facilities Allegion Americas Allegion International Blue Ash, Ohio Auckland, New Zealand Chino, California Blackburn, Australia Ensenada, Mexico Brooklyn, Australia Everett, Washington Clamecy, France Farmington, Connecticut Durchhausen, Germany Greenfield, Indiana Faenza, Italy Indianapolis, Indiana Feuquieres, France Irving, Texas Jinshan, China McKenzie, Tennessee Monsampolo, Italy Mississauga, Ontario Osterfeld, Germany Perrysburg, Ohio Renchen, Germany Princeton, Illinois Veenendaal, Netherlands Security, Colorado Zawiercie, Poland Snoqualmie, Washington Tecate, Mexico Tijuana, Mexico Research and Development We are committed to investing in our research and development capabilities with a focus on innovations that will deliver growth through the introduction of new products and solutions.
The following table shows the location of our principal worldwide production and assembly facilities: Production and Assembly Facilities Allegion Americas Allegion International Blue Ash, Ohio Auckland, New Zealand Chino, California Blackburn, Australia Ensenada, Mexico Brooklyn, Australia Everett, Washington Clamecy, France Farmington, Connecticut Durchhausen, Germany Greenfield, Indiana (2) Faenza, Italy Indianapolis, Indiana Feuquieres, France Irving, Texas Jinshan, China McKenzie, Tennessee Monsampolo, Italy Mississauga, Ontario Osterfeld, Germany Perrysburg, Ohio Renchen, Germany Princeton, Illinois Veenendaal, Netherlands Queretaro, Mexico Zawiercie, Poland Security, Colorado Snoqualmie, Washington Tecate, Mexico Tijuana, Mexico Research and Development We are committed to investing in our research and development capabilities with a focus on innovations that will deliver growth through the introduction of new products and solutions.
In addition, third-party manufacturing and logistics providers perform certain manufacturing, storage and distribution services for us to support certain parts of our manufacturing and distribution network. Raw Materials We support our region-of-use production strategy with corresponding region-of-use supplier partners for much of our supply base.
In addition, third-party manufacturing and logistics providers perform certain manufacturing, storage and distribution services for us to support certain parts of our manufacturing and distribution network. Raw Materials We continue to support our region-of-use production strategy with corresponding region-of-use supplier partners for much of our supply base.
We operate with principles that support our proactive commitments, including: • Integrating sound EHS and sustainability strategies in all elements of our business functions, including objectives and measurements; • Conducting periodic, formal evaluation of our compliance status and annual review of objectives and targets; • Creating a workplace culture where all employees are responsible for safety; • Making continuous improvements in EHS and sustainability management systems and performance, including the reduction in the usage of natural resources, waste minimization, prevention of pollution and prevention of workplace accidents, injuries and risks; 13 Table of Contents • Designing, operating and maintaining our facilities in a manner that minimizes negative EHS and sustainability impacts; • Using materials responsibly, including the recycling and reuse of materials, where feasible; and • Acting in a way that shows sensitivity to community concerns about EHS and sustainability issues.
We operate with principles that support our proactive commitments, including: • Integrating sound EHS and sustainability strategies in all elements of our business functions, including objectives and measurements; • Conducting periodic, formal evaluation of our compliance status and annual review of objectives and targets; • Creating a workplace culture where all employees are responsible for safety; • Making continuous improvements in EHS and sustainability management systems and performance, including the reduction in the usage of natural resources, waste minimization, prevention of pollution and prevention of workplace accidents, injuries and risks; • Designing, operating and maintaining our facilities in a manner that minimizes negative EHS and sustainability impacts; • Using materials responsibly, including the recycling and reuse of materials, where feasible; and • Acting in a way that shows sensitivity to community concerns about EHS and sustainability issues.
We believe the security products industry will continue to benefit from several global macroeconomic trends, including: • Expected growth in global electronic products and solutions as end-users adopt newer technologies in their facilities and homes; • Heightened awareness of security and privacy requirements; • Increased focus on touchless solutions that help promote a healthy environment; and • The shift to a digital, interconnected environment.
We believe the security products industry will continue to benefit from several global macroeconomic trends, including: • Expected growth in global electronic products and solutions as end-users adopt newer technologies in their facilities and homes; • Heightened awareness of security and privacy requirements; • Increased focus on touchless solutions that help promote a healthy environment; and • The shift to a digital, interconnected and increasingly interoperable environment.
We offer an extensive and versatile portfolio of security and access control products and solutions across a range of market-leading brands. Our experts across the globe deliver high-quality security products, services and systems, and we use our deep expertise to serve as trusted partners to end-users who seek customized solutions to their security needs.
We offer an extensive and versatile portfolio of security and access control products and solutions across a range of market-leading brands. Our experts across the globe deliver high-quality security hardware, software, services and systems, and we use our deep expertise to serve as trusted partners to end-users who seek customized solutions to their security needs.
On December 1, 2013, we became a stand-alone public company after Ingersoll Rand completed the separation of these businesses from the rest of Ingersoll Rand via the transfer of these businesses from Ingersoll Rand to us and the issuance by us of ordinary shares directly to Ingersoll Rand’s shareholders (the "Spin-off"). Our security businesses have long and distinguished operating histories.
On December 1, 2013, we became a stand-alone public company after Ingersoll Rand completed the separation of these businesses from the rest of Ingersoll Rand via the transfer of these businesses from Ingersoll Rand to us and the issuance by us of ordinary shares directly to Ingersoll Rand’s shareholders. Our security businesses have long and distinguished operating histories.
We utilize a variety of advertising and marketing strategies, including traditional consumer media, retail merchandising, digital marketing, retail promotions and builder and consumer trade shows, to support these teams. We also work actively with several industry bodies around the world to help promote effective and consistent safety and security standards.
We utilize a variety of advertising and marketing strategies, including traditional consumer media, retail merchandising, digital marketing, retail promotions and builder and consumer trade shows, to support these teams. We also work actively with several industry bodies around the world to help promote effective and consistent safety and security open platform standards.
As many of our businesses sell through wholesale distribution, our success also depends on building and partnering with a strong channel network.
As many of our businesses sell through distribution, our success also depends on building and partnering with a strong channel network.
In addition, with our recently acquired Access Technologies business, we now offer a full range of automatic entrance solutions, including sliding, swing, folding and ICU doors, as well as an array of sensors, controls and security options for commercial and institutional buildings; • Doors, accessories and other : A portfolio of hollow metal, glass and specialty doors, as well as a variety of additional security products and components, including hinges, door pulls, door stops, bike lights, louvers, weather stripping, thresholds and other accessories, as well as certain bathroom fittings and accessibility aids; and • Services and software : Our Access Technologies business offers extensive planned inspection, maintenance and repair services for its automatic entrance solutions throughout the U.S. and Canada.
In addition, we offer a full range of automatic entrance solutions, including sliding, swing, folding and ICU doors, as well as an array of sensors, controls and security options for commercial and institutional buildings; • Doors, accessories and other : A portfolio of hollow metal, glass and specialty doors, as well as a variety of additional security products and components, including hinges, door pulls, door stops, bike lights, louvers, weather stripping, thresholds and other accessories, as well as certain bathroom fittings and accessibility aids; and • Services and software : Our Access Technologies business offers extensive planned inspection, maintenance and repair services for its automatic entrance solutions throughout the U.S. and Canada.
Item 1. BUSINESS Overview Allegion plc ("Allegion," "we," "us" or "the Company") is a leading global provider of security products and solutions that keep people and assets safe and secure in the places they live, learn, work and visit. We create peace of mind by pioneering safety and security with a vision of seamless access and a safer world.
Item 1. BUSINESS Overview Allegion plc ("Allegion," "we," "us" or "the Company") is a leading global provider of security products and solutions that keep people and assets safe and secure in the places they live, learn, work and connect. We create peace of mind by pioneering safety and security with a vision of enabling seamless access and a safer world.
Inclusive talent development and succession planning takes place at all levels of the organization and is supported through the Allegion Leadership Behaviors, individual career mapping, assessment of performance and talent pipeline planning up to and including the executive leadership team ("ELT"). As part of their quarterly business review, the ELT reviews talent development, focusing on developing a diverse succession pipeline.
Talent development and succession planning takes place at all levels of the organization and is supported through individual career mapping, assessment of performance and talent pipeline planning up to and including the executive leadership team ("ELT"). As part of their quarterly business review, the ELT reviews talent development, focusing on developing a diverse succession pipeline.
For example, we are members of the American Association of Automatic Door Manufacturers (AAADM), Builders Hardware Manufacturers Association (BHMA), Connectivity Standards Alliance, Construction Specification Institute, Door and Hardware Institute (DHI), FiRa Consortium, National Association of State Fire Marshals (NASFM), Partner Alliance for Safer Schools (PASS), Physical Security Interoperability Alliance (PSIA), Security Industry Association, Security Technology Alliance, Z-Wave Alliance, The European Federation of Associations of Locks and Builders Hardware Manufacturers (ARGE), ASSOFERMA (Italy), BHE (Germany) and UNIQ (France).
For example, we are members of the American Association of Automatic Door Manufacturers (AAADM), Builders Hardware Manufacturers Association (BHMA), Connectivity Standards Alliance (CSA), Construction Specification Institute, Door and Hardware Institute (DHI), FiRa Consortium, National Association of State Fire Marshals (NASFM), Partner Alliance for Safer Schools (PASS), Physical Security Interoperability Alliance (PSIA), Security Industry Association (SIA), Security Technology Alliance, Z-Wave Alliance, The European Federation of Associations of Locks and Builders Hardware Manufacturers (ARGE), ASSOFERMA (Italy), BHE (Germany), Door Hardware Federation (UK), Open Security Standards Association (Germany) and UNIQ (France).
Engagement and Diversity, Equity and Inclusion ("DEI") Engagement and DEI are also parts of the Allegion Operating System. Engagement surveys provide a mechanism to gather direct employee feedback, give team leaders insights on potential areas of focus and allow leaders to prioritize and take action on their teams’ foundational, inclusion, growth and development needs.
Engagement and Diversity, Equity and Inclusion ("DEI") Engagement and DEI are also parts of the Allegion Operating System. Engagement surveys provide a mechanism to gather direct employee feedback, give team leaders insights on potential areas of focus and allow leaders to prioritize and act on their teams’ foundational, inclusion, growth and development needs.
Although certain proprietary intellectual property rights are important to our success, we do not believe we are materially dependent on any particular patent or license, or any particular group of patents or licenses. 10 Table of Contents Facilities We operate through a broad network of sales offices, engineering centers, 29 principal production and assembly facilities and several distribution centers throughout the world.
Although certain proprietary intellectual property rights are important to our success, we do not believe we are materially dependent on any particular patent or license, or any particular group of patents or licenses. 11 Table of Contents Facilities We operate through a broad network of sales offices, engineering centers, 31 principal production and assembly facilities and several distribution centers throughout the world.
No single customer represented 10% or more of our total Net revenues in 2022. 9 Table of Contents Sales and Marketing In markets where we sell through commercial and institutional distribution channels, we employ sales professionals around the world who work with a combination of end-users, security professionals, architects, contractors, engineers and distribution partners to develop specific, custom-configured solutions for our end-users’ needs.
No single customer represented 10% or more of our total Net revenues in 2023. 10 Table of Contents Sales and Marketing In markets where we sell through commercial and institutional distribution channels, we employ sales professionals around the world who work with a combination of end-users, security professionals, architects, contractors, engineers and distribution partners to develop specific, custom-configured solutions to meet our end-users’ needs.
Production and Distribution We manufacture products in several geographic markets around the world. We operate 29 principal production and assembly facilities – 16 in our Allegion Americas segment and 13 in our Allegion International segment. We own 16 of these facilities and lease the others.
Production and Distribution We manufacture products in several geographic markets around the world. We operate 31 principal production and assembly facilities – 18 in our Allegion Americas segment and 13 in our Allegion International segment. We own 16 of these facilities and lease the others.
We have also been identified as a potentially responsible party ("PRP") for cleanup costs associated with off-site waste disposal at federal Superfund and state remediation sites. For all such sites, there are other PRPs and, in most instances, our involvement is minimal.
We have also been identified as a potentially responsible party ("PRP") for cleanup costs associated with off-site waste disposal at federal Superfund and state remediation sites. For all such sites, there are other PRPs and we believe our involvement is minimal.
This high degree of fragmentation primarily reflects local regulatory requirements and highly variable end-user needs. We believe our principal global competitors are Assa Abloy AB and dormakaba Group. We also face competition in various markets and product categories throughout the world, including from Spectrum Brands Holdings, Inc. in the North American residential market.
This high degree of fragmentation primarily reflects local regulatory requirements and highly variable end-user needs. We believe our principal global competitors are Assa Abloy AB and dormakaba Group. We also face competition in various markets and product categories throughout the world, including Fortune Brands Innovations, Inc. in the North American residential market.
Our global and regional commodity teams work with production leadership, product management and materials management teams to procure materials for production. Where appropriate, we may enter into fixed-cost contracts to lower overall costs.
Our global and regional commodity teams work with production leadership, product management and materials management teams to source materials for production. Where appropriate, we may enter fixed-cost contracts to lower overall costs.
Compensation and Benefits Compensation and benefit programs are tailored to be competitive in the geographies where we work, including a total rewards package (which varies by country/region) that includes hourly and salaried compensation, performance-based incentive and long-term equity incentive plans, retirement, insurance and government social welfare programs, disability and family leave, 11 Table of Contents health and wellness programs, education benefits to pursue degrees and certifications and additional offerings to support financial stability and personal planning.
Our compensation and benefit programs are designed to be competitive in the geographies where we work, including a total rewards package (which varies by country/region) that includes hourly and salaried compensation, performance-based incentive and long-term equity incentive plans, retirement, insurance and government social welfare programs, disability and family leave, health and wellness programs, education benefits to pursue degrees and certifications and additional offerings to support financial stability and personal planning.
Recent examples of successful product launches by Allegion are illustrated in the table below: Product Brands Year Innovation Electronic Locks, Locksets and Portable Locks Schlage, Gainsborough, CISA 2020/ 2021/2022 Schlage Encode Plus Smart WiFi Deadbolt, one of the first in the market to work with Apple home keys, allows lock or unlock access using an iPhone or Apple Watch.
Recent examples of successful product launches by Allegion are illustrated in the table below: Product Brands Year Innovation Electronic Locks, Locksets and Portable Locks Schlage, CISA, AXA 2021/2022/2023 Schlage Encode Plus Smart WiFi Deadbolt one of the first in the market to work with Apple home keys, allowing lock or unlock access using an iPhone or Apple Watch.
Our active properties represent approximately 6.7 million square feet, of which approximately 41% is leased.
Our active properties represent approximately 7.6 million square feet, of which approximately 48% is leased.
Several of our brands were established more than 100 years ago, and many originally created their categories: • Von Duprin, established in 1908, was awarded the first exit device patent; • Schlage, established in 1920, was awarded the first patents granted for the cylindrical lock and the push button lock; • LCN, established in 1926, created the first door closer; • CISA, established in 1926, devised the first electronically controlled lock; and • SimonsVoss, established in 1995, created the first keyless digital transponder.
Several of our brands were established more than 100 years ago, and many originally created their categories: • Von Duprin, established in 1908, was awarded the first exit device patent; • Schlage, established in 1920, was awarded the first patents granted for the cylindrical lock and the push button lock; • LCN, established in 1926, created the first door closer; • CISA, established in 1926, devised the first electronically controlled lock; • SimonsVoss, established in 1995, created the first keyless digital transponder; and • Stanley Access Technologies ("Access Technologies") patented the world's first hands-free door operator in 1931.
In markets in which we sell through retail and home-builder distribution channels, we have teams of sales, merchandising and marketing professionals who help drive brand and product awareness through our channel partners and to consumers.
In markets where we sell through retail and homebuilder distribution channels, we have teams of sales, merchandising and marketing professionals who help drive brand and product awareness through our channel partners and to consumers.
We have built upon these founding legacies since our entry into the security products market through the acquisition of Schlage, Von Duprin and LCN in 1974. Today, we continue to develop, acquire and introduce innovative and market-leading products.
We have built upon these founding legacies since our entry into the security products market through the acquisition of Schlage, Von Duprin and LCN in 1974.
Building on this success, in December 2021, Allegion Ventures announced a second fund with an additional allocation of $100 million to focus on investing in technologies like artificial intelligence, video monitoring, machine learning and cybersecurity.
Building on this success, in December 2021, Allegion Ventures announced a second fund with an additional allocation of $100 million to focus on investing in technologies like artificial intelligence (AI), video monitoring, machine learning and cybersecurity. For example, in 2023, Allegion Ventures made a $20 million investment in Ambient.ai, an AI powered computer vision intelligence company.
Additionally, we offer software as a service ("SaaS") offerings throughout the U.S. and internationally, including access control, IoT integration and workforce management solutions. We also offer ongoing aftermarket services, design and installation offerings and locksmith services in select locations. Customers We sell most of our products and solutions through distribution and retail channels, including specialty distribution, e-commerce and wholesalers.
Additionally, we offer software as a service ("SaaS") offerings throughout the U.S. and internationally, including access control, IoT integration and workforce management solutions through our Interflex business. We also offer ongoing aftermarket services, design and installation offerings and locksmith services in select locations.
Doors, Accessories and Other TGP 2021 North America's first fire-rated Full-Lite Door System (TGP), certified to meet forced entry standards. 8 Table of Contents Industry and Competition We serve customers within institutional, commercial and residential construction and remodeling markets throughout North America, Europe, Asia and Oceania.
Die-rolled steel profile swinging door with sidelite(s); North America’s first fire-rated full-lite door system certified to forced-entry standards (TGP TGProtect™ FR System). 9 Table of Contents Industry and Competition We serve customers within institutional, commercial and residential construction and remodeling markets throughout North America, Europe, Asia and Oceania.
New 6400 Compact Series (LCN) low-energy automatic operator retrofit solution with actuators reduces the cost and complexity of touchless access and adds ADA accessibility. Enhancements to the already durable 4040XP (LCN) door closer, making it even easier to install and maintain. Follows the introduction of a range of touchless solutions, including automatic operators, actuators and wireless transmitters.
New 6400 Compact Series (LCN) low-energy automatic operator retrofit solution with actuators reduces the cost and complexity of touchless access and adds ADA accessibility. Enhancements to the already durable 4040XP (LCN) door closer, making it even easier to install and maintain. NA new automatic door/window solution for increased efficiencies for drive through restaurants (Stanley Access Technologies DuraGlide DT).
We purchase a wide range of raw materials, including steel, zinc, brass and other non-ferrous metals, as well as other parts and components, such as electronic components, to support our production facilities.
We purchase a wide range of raw materials, including steel, zinc, brass and other non-ferrous metals, as well as other parts and components, such as electronic components, to support our production facilities. In late 2022, supply chain disruptions experienced in prior years moderated and the availability of many raw material categories improved.
Through this acquisition, we have added another innovative market leader to our portfolio of businesses and broadened our product and service offerings throughout the U.S. and Canada. 7 Table of Contents In 2018, we announced the formation of Allegion Ventures to invest in and help accelerate the growth of companies that have innovative, digital-first technologies and products such as touchless access and workspace monitoring solutions that complement our core business solutions.
Today, we continue to develop, acquire and introduce innovative products. 7 Table of Contents In 2018, we announced the formation of Allegion Ventures to invest in and help accelerate the growth of companies that have innovative, digital-first technologies and products such as touchless access and workspace monitoring solutions that complement our core business solutions.
We have built a network of channel partners that help our customers choose the right solution to meet their security needs and help commercial and institutional end-users fulfill and install orders. We also sell through a variety of retail channels, including large do-it-yourself home improvement centers, multiple online and e-commerce platforms, as well as small, specialty showroom outlets.
Customers We sell most of our products and solutions through distribution and retail channels, including specialty distribution, e-commerce and wholesalers. We have built a network of channel partners that help our customers choose the right solution to meet their security needs and help commercial and institutional end-users fulfill and install orders.
During the year ended December 31, 2022, we generated Net revenues of $3,271.9 million and Operating income of $586.4 million. History and Developments We were incorporated in Ireland on May 9, 2013, to hold the commercial and residential security businesses of what was then Ingersoll Rand plc ("Ingersoll Rand").
History and Developments We were incorporated in Ireland on May 9, 2013, to hold the commercial and residential security businesses of what was then Ingersoll Rand plc ("Ingersoll Rand").
Electronic and Electrified Door Controls and Systems and Exit Devices Von Duprin, LCN 2020/ 2021/2022 Security indicator (Von Duprin) for visual verification and lockdown. The 2SI security indicator provides at-a-glance verification of door status from inside the room. Also available as a retrofit conversion kit for existing 98/99 Series (Von Duprin) exit devices.
The -2SI security indicator provides at-a-glance verification of door status from inside the room. Also available as a retrofit conversion kit for existing 98/99 Series exit devices. Range of touchless solutions, including automatic operators, actuators and wireless transmitters (LCN).
We monitor leading and lagging indicators related to health and safety as part of our ongoing management of the Allegion Operating System and regularly update the Corporate Governance and Nominating Committee of the Board of Directors on key developments and employee health and safety topics.
We monitor leading and lagging indicators related to health and safety as part of our ongoing management of the Allegion Operating System and regularly update the Corporate Governance and Nominating Committee of the Board of Directors on key developments and employee health and safety topics. 13 Table of Contents Regulatory Matters We are subject to a variety of federal, state and local laws and regulations, both within and outside the U.S., relating to Environmental, Health and Safety ("EHS") matters.
We work with our retail partners on developing marketing and merchandising strategies to maximize their sales per square foot of shelf space. Through a few of our businesses, most notably our Access Technologies business, Interflex and our Global Portable Security brands, we also provide products and services directly to end-users.
Through a few of our businesses, most notably our Access Technologies business, Interflex and our Global Portable Security brands, we also provide products and services directly to end-users. Our 10 largest customers represented approximately 25% of our total Net revenues in 2023.
Throughout the recruitment cycle, we provide a technology-enabled seamless experience for internal and external candidates and hiring managers. Talent Development and Succession Planning Talent development and succession planning are key components of the Allegion Operating System, our system of annual operation that supports governance, reporting processes and management of the business.
Talent Development and Succession Planning Talent development and succession planning are key components of the Allegion Operating System, which supports governance, reporting processes and management of the business. Our performance management system includes annual performance reviews for all permanent salaried employees.
Strengths-based leadership is an element of our commitment to inclusion: the more employees understand their own strengths, the better equipped they are to add value and appreciate the contributions of diverse members of their teams. Engagement and DEI are topics for learning communities, employee roundtables and ongoing, regular analysis and dialogue among people leaders, executive leadership and Board of Directors.
Strengths-based leadership is an element of our commitment to inclusion: the more employees understand their own strengths, the better equipped they are to add value and appreciate the contributions of diverse members of their teams. We believe in fundamental standards that support our employees, while building and maintaining diverse and inclusive workplaces, safe and healthy practices.
Pure Access (ISONAS) enhanced support for mobile-ready MTB readers (Schlage) connected to an ISONAS IP-Bridge allows seamless integration with mobile credentials and enhanced functionality for the NDE/LE (Schlage) wireless locks. FSS1 High Security Door Position Sensors (Schlage) provide a high-security solution with adjustable anti-tamper features to help prevent against attacks through magnetic, electronic or physical means.
Expanded radio network technology to include European frequency band 868MHz and 920MHz technology. FSS1 High Security Door Position Sensors (Schlage) provide a high-security solution with adjustable anti-tamper features to help prevent against attacks through magnetic, electronic or physical means.
Employee Health and Safety Employee health and safety are top priorities, and we consistently rank as the safest among leading competitors on core measures such as the total recordable incident rate. ‘Be safe, be healthy’ is a core organizational value in our proactive safety culture and has guided our response throughout the COVID-19 pandemic.
Employee Health and Safety Employee health and safety are top priorities and integral to the Company's growth strategy. ‘Be safe, be healthy’ is a core organizational value in our proactive safety culture.
As a result of these actions, we have seen many of these supply chain related challenges improve over the second half of 2022, although shortages of electronic parts and components persist. See "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" for a more detailed discussion of these trends and challenges.
The prior actions taken to create supply flexibility and improved safety stocks permitted reliable supply during the year. See "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" for a more detailed discussion of these trends and challenges.
We offer programs to provide successive levels of development, including reskilling and upskilling existing employees, as well as strengths-based leadership curriculum and global programs for employee mentoring and coaching. Enterprise excellence initiatives and sprint teams expand skills in lean manufacturing and quality principles and lead to redesigning workflow to boost productivity and reduce waste.
The Allegion Academy is offered globally, supporting multiple languages and providing thousands of self-guided online courses. We offer programs to provide successive levels of development, including reskilling and upskilling existing employees, as well as strengths-based leadership curriculum and global programs for employee mentoring and coaching.
Outside the U.S., we have employees in certain countries, particularly in Europe, that are represented by an employee representative organization, such as a works council. The vast majority of our employees work on a full-time basis. Our employee base is supplemented by contingent labor where business demand fluctuates or we experience short-term needs for specialized skills.
Among our U.S. based employees, approximately 15% were subject to collective bargaining agreements with various labor unions. Outside the U.S., we have employees in certain countries, particularly in Europe, that are represented by an employee representative organization, such as a works council.
The efforts of Allegion’s DEI Steering Committee, our ELT and the employee-led Inclusion Council, are driving expectations and accountability while creating role models and change champions. Our DEI strategy has three core pillars: 12 Table of Contents • Learn & listen deeply: Learn to recognize biases and mitigate them.
Our DEI strategy has three core pillars: • Learn & listen deeply: Learn to recognize biases and mitigate them.
Employee led resource and affinity groups provide enrichment opportunities for women's leadership, early career professionals, allies and members of the LBGTQIA+, veteran and Hispanic communities, working parents, innovation, health and fitness, site-specific engagement and community volunteering and philanthropy.
Employee led resource and affinity groups provide opportunities for women's leadership, early career professionals, allies and members of the LGBTQIA+, Black, veteran and Hispanic communities. The efforts of Allegion’s DEI Steering Committee, our ELT and our employee resource groups, are driving expectations and accountability while creating role models and change champions.
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Our leading brands include CISA®, Interflex®, LCN®, Schlage®, SimonsVoss® and Von Duprin®. We believe LCN, Schlage and Von Duprin hold the No. 1 or No. 2 position in their primary product categories in North America while CISA, Interflex and SimonsVoss hold the No. 1 or No. 2 position in their primary product categories in certain European markets.
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Our leading brands include CISA®, Interflex®, LCN®, Schlage®, SimonsVoss® and Von Duprin®. During the year ended December 31, 2023, we generated Net revenues of $3,650.8 million and Operating income of $708.4 million.
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For example, in 2022, we acquired Stanley Access Technologies LLC and assets related to the automatic entrance solutions business from Stanley Black & Decker, Inc. (the "Access Technologies business"), which patented the world's first hands-free door operator in 1931.
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Schlage Encode Smart WiFi Lever is for use in doors without a deadbolt; connects to home WiFi and pairs with the Schlage app. Narrow profile smart lock for Australia and New Zealand for use on aluminum and timber doors, utilizing the Schlage Breeze app (Schlage Artus).
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NDEBSi and LEBSi (Schlage) wireless electronic locks expand access control. Introduction of MIFARE® DESFire® EV3 family (Schlage) provides increased levels of security, flexibility and freedom of choice for customers when it comes to providing access using credential technology.
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Next-generation smart entry door lock for the New Zealand market, operating on the Schlage Breeze app and offering a retrofit solution to Schlage S-6000 and competitor products (Schlage Resolute). Upgraded mortice lock platform for the Australia and New Zealand OEM market, providing increased functionality and improving installation time (Schlage Virtus).
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In Australia, a next generation smart lock, Freestyle Trilock (Gainsborough), features passage, privacy or dead lock modes and can be operated using the built-in keypad, a key override or through the mobile app. In conjunction with the optional WiFi bridge, the Trilock can be programmed and operated from anywhere in the world.
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First CISA motorized lock solution for high-security connected smart doors (Domo Connexa), manageable in proximity and remotely using a mobile app.
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In Europe, new high security connected solutions (CISA Domo Connexa) and integration of Smart Access functionalities include CISA ACS platform solutions for hospitality, with both cloud-based (Aero) and on-premise hardware (eServer), as well as wall mount energy saver with card intelligent detection.
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Electronic Key Systems and Access Control, Mobile and Web Applications SimonsVoss, CISA, Schlage, Interflex, ISONAS, Zentra 2021/2022/2023 SimonsVoss new option for wireless online connections to a virtual network (SmartHandle AX, SmartIntego) and a retrofit, no-drill locking option for lockers and furniture in schools, hospitals and industry facilities that integrates into the existing SimonsVoss digital ecosystem for offline and online access (SmartLocker).
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Electronic Key Systems and Access Control, Mobile and Web Applications Schlage, ISONAS, SimonsVoss 2020/ 2021/2022 Mobile Student ID (Schlage) allows university students, faculty and staff to add student ID cards to their virtual wallets for door access, payments, attendance tracking and ticketing.
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Visitor management modules and managed service featuring a cloud-based solution of time recording (Interflex); cloud-hosted access control platform with real-time events, alerts and user-initiated door control (ISONAS). Pure Access enhanced support for mobile ready Schlage TB readers connected to an ISONAS IP-Bridge to allow seamless integration with Schlage Mobile Credentials and enhanced functionality for the NDE/LE wireless locks.
Removed
AX Manager Classic (SimonsVoss) for management of digital locking systems based on a new Microsoft SQL-based backend system with new user interface. Mechanical Locks, Locksets, Portable Locks and Key Systems CISA, Bricard, AXA 2020/ 2021/2022 New flat key European cylinders for multiple entrance buildings (CISA Asix P8).
Added
Multi-family access control solution providing a turnkey, simple, secure and smart offering of software and integrated hardware covering all access needs for the building (Zentra). 8 Table of Contents Product Brands Year Innovation Mechanical Locks, Locksets, Portable Locks and Key Systems CISA, Schlage, Legge, Bricard, AXA, Kryptonite, Trelock 2021/2022/2023 Mortice self-locking system with a mono-point motorized lock variant, new multi-point exit mortice self-locking system for panic exit doors with narrow profile (CISA) and new platformed, modular replacement of cylindrical locks (Schlage ALX).
Removed
Evidence (Bricard) handle ranges for commercial and residential markets, with an exclusive rose fixation and adjustment design, functionality and finishes. Innovation in bike safety including Fold Lite (AXA) folding bike lock with a bracket that can be mounted on the frame.
Added
Next generation of multi-function mortice locks, 991 Multi-Function Mortice Lock Series (Legge), allows easy conversions and anti-lockout function. New key override safety feature option on mortise locks (Schlage L Series). Six mechanical and two electrified options available. Large format interchangeable core options to fit competitive locksets.
Removed
Our 10 largest customers represented approximately 26% of our total Net revenues in 2022.
Added
Bricard Evidence handle range for commercial and residential markets, with an exclusive and unique rose fixation and adjustment design, functionality and finishes. Electronic and Electrified Door Controls and Systems and Exit Devices Von Duprin, LCN, CISA, Stanley Access Technologies 2021/2022/2023 Security indicator (Von Duprin) for visual verification and lockdown.
Removed
Through much of 2022, we continued to experience supply chain disruptions and delays, including logistical challenges; shortages in parts and materials (particularly shortages of electronic components); and increased material and other inflation.
Added
Telescopic manual and automatic version of ICU doors providing the biggest clear door opening in the industry, proprietary handle design and the slimmest header (ProCare 8500). Doors, Accessories and Other TGP, AXA 2021/2022/2023 North America's first fire-rated Full-Lite Door System (TGP), certified to meet forced entry standards (TGP ASTM E2395).
Removed
While these trends have negatively impacted our results of operations, we have taken multiple actions to address these challenges, including product redesigns, carrying increased levels of safety stock and working with our supplier base, including establishing new and diverse supplier relationships, to increase part and component availability and our overall supply chain agility.
Added
Smoke-rated partition featuring doors, sidelites/transoms and standalone windows suitable for enclosed elevator lobbies in multifamily buildings. It is comprised of glass, frames and hardware and is the first system fully tested to UL 1784 (TGP SmokeSafe™ Window & Door System).
Removed
To ensure we attract and retain top talent, we strive for a diverse and inclusive culture that rewards performance, provides growth and development opportunities and supports employees through competitive compensation, benefits and numerous volunteer and charitable giving opportunities.
Added
We also sell through a variety of retail channels, including large do-it-yourself home improvement centers, multiple online and e-commerce platforms, as well as small, specialty showroom outlets. We work with our retail partners on developing marketing and merchandising strategies to maximize their sales per square foot of shelf space.
Removed
As of December 31, 2022, we had approximately 12,300 employees worldwide, with approximately 46% employed within the U.S. and approximately 54% based outside the U.S. Among our U.S. based employees, approximately 15% were subject to collective bargaining agreements with various labor unions.
Added
Our workplace culture is based on practices that reward performance, provide growth and development opportunities, and support employees with competitive compensation and benefits packages. As of December 31, 2023, we had approximately 12,400 employees worldwide, of which approximately 12,200 are full-time employees. Approximately 48% of employees are employed within the U.S. and approximately 52% based outside the U.S.
Removed
We believe our relations with our workforce in both unionized and non-unionized settings are generally positive.
Added
Our employee base is supplemented by contingent labor where business demand fluctuates or we experience short-term needs for specialized skills. We believe our relations with our workforce in both unionized and non-unionized settings are generally positive. Talent Attraction and Retention Our employer brand creates a differentiated employee experience intended to attract and retain the right talent for Allegion.
Removed
The Allegion Leadership Behaviors – break boundaries, innovate, be courageous, engage and develop, champion change and be inclusive – work in concert with our performance management system to reinforce our values and code of conduct in assessing how people lead and deliver top performance.
Added
We use a variety of recruitment tactics to ensure a strong base of labor for manufacturing operations and to build the base of talent with these capabilities. Throughout the recruitment cycle, we provide a technology-enabled seamless experience for internal and external candidates and hiring managers.
Removed
Talent Attraction Our employer brand strength creates a differentiated employee experience that attracts and retains the right talent for Allegion. Our talent attraction efforts are focused on and highlight a culture that reflects our core values, Allegion Leadership Behaviors and business objectives. These efforts begin well before people work for us.
Removed
Around the world, our sites partner with schools and support teachers, providing mentoring, grants, scholarships, internships, co-op programs, classroom technology and on-site activities and full-time rotational programs after graduation. Our sites sponsor science, technology, engineering and math ("STEM") programs and competitions to spur interest in fields like robotics, IT and engineering.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

43 edited+15 added−9 removed148 unchanged
Biggest changeAs a consequence, our global effective tax rate could be materially impacted by such legislation, or any resulting local country legislation enacted in response to any potential global minimum tax rates. Additionally, the European Commission has been investigating whether various tax regimes or private tax rulings provided by a country to particular taxpayers may constitute State Aid.
Biggest changeAdditionally, the European Commission has been investigating whether various tax regimes or private tax rulings provided by a country to a particular taxpayer may constitute State Aid. We continue to examine the impact the above items may have on our business and the amount of tax we must pay.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures About Market Risk." Approximately 25% of our 2022 Net revenues were derived outside the U.S., and we expect sales to non-U.S. customers to continue to represent a significant portion of our consolidated Net revenues.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures About Market Risk." Approximately 25% of our 2023 Net revenues were derived outside the U.S., and we expect sales to non-U.S. customers to continue to represent a significant portion of our consolidated Net revenues.
Accordingly, we are subject to multiple risks that are inherent in operating and sourcing globally, including: • Changes to trade agreements, sanctions, import and export regulations, including imposition of burdensome tariffs and quotas, and customs duties; • Changes in applicable tax regulations and interpretations; • Economic downturns; • Social and political unrest, instability, national and international conflict, including war, border closures, civil disturbances, terrorist acts and other geographical disputes and uncertainties; • Government measures to restrict business activity, for example, to prevent the spread of a communicable disease; • Changes in laws and regulations or imposition of currency restrictions and other restraints in various jurisdictions; • Limitation of ownership rights, including expropriation of assets by a local government, and limitation on the ability to repatriate earnings; 15 Table of Contents • Sovereign debt crises and currency instability in developed and developing countries; • Difficulty in staffing and managing global operations; • Difficulty in enforcing agreements, collecting receivables and protecting assets through non-U.S. legal systems; and • Difficulty in transporting materials, components and products.
Accordingly, we are subject to multiple risks that are inherent in operating and sourcing globally, including: • Changes to trade agreements, sanctions, import and export regulations, including imposition of burdensome tariffs and quotas, and customs duties; • Changes in applicable tax regulations and interpretations; • Economic downturns; • Social and political unrest, instability, national and international conflict, including the conflicts in the Middle East and the war between Russia and Ukraine, border closures, civil disturbances, terrorist acts and other geographical disputes and uncertainties; • Government measures to restrict business activity, for example, to prevent the spread of a communicable disease; • Changes in laws and regulations or imposition of currency restrictions and other restraints in various jurisdictions; 15 Table of Contents • Limitation of ownership rights, including expropriation of assets by a local government, and limitation on the ability to repatriate earnings; • Sovereign debt crises and currency instability in developed and developing countries; • Difficulty in staffing and managing global operations; • Difficulty in enforcing agreements, collecting receivables and protecting assets through non-U.S. legal systems; and • Difficulty in transporting materials, components and products.
Applicable variable interest rates have increased throughout 2022, resulting in increased Interest expense. We are also exposed to the risk of continued rising interest rates to the extent we fund our short or long-term financing needs with variable-rate borrowings under the 2021 Revolving Facility.
Applicable variable interest rates have increased throughout 2023, resulting in increased Interest expense. We are also exposed to the risk of continued rising interest rates to the extent we fund our short or long-term financing needs with variable-rate borrowings under the 2021 Revolving Facility.
End users are continually adopting more advanced technologies in their facilities and homes, accelerated by the increasing adoption of IoT technologies and connected devices, which will require us to devote significant effort and resources to the development, maintenance and enhancement of the IT systems and other infrastructure required to support and/or enhance the functionality of our electronic products and solutions.
End users are continually adopting more advanced technologies in their facilities and homes, accelerated by the increasing adoption of IoT technologies and connected devices, which will require us to devote significant effort and resources to the development, maintenance and enhancement of our IT Systems (as defined below) and other infrastructure required to support and/or enhance the functionality of our electronic products and solutions.
An overall or prolonged labor shortage, lack of skilled labor, increased turnover or sustained level of wage inflation could have a material adverse impact on our business, financial position, results of operations and cash flows. Disruptions in our global supply chain, including product manufacturing and logistical services provided by our supplier partners, may negatively impact our business.
An overall or prolonged labor shortage, lack of skilled labor, increased turnover or sustained level of wage inflation could have a material adverse impact on our business, financial position, results of operations and cash flows. 21 Table of Contents Disruptions in our global supply chain, including product manufacturing and logistical services provided by our supplier partners, may negatively impact our business.
Subsequent developments in legal proceedings and other contingencies may affect our assessment and estimates of the loss contingency recorded as a reserve, and we may incur additional costs or be required to make material payments beyond our previously recorded reserves. Allegations that we have infringed the intellectual property rights of third parties could negatively affect us.
Subsequent developments in legal 22 Table of Contents proceedings and other contingencies may affect our assessment and estimates of the loss contingency recorded as a reserve, and we may incur additional costs or be required to make material payments beyond our previously recorded reserves. Allegations that we have infringed the intellectual property rights of third parties could negatively affect us.
Although uniform transfer pricing standards are emerging in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent subjectivity in complying with these rules. To the extent that any tax authority disagrees with our transfer pricing policies, we could become subject to significant tax liabilities and penalties.
Although uniform transfer pricing standards are emerging in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent subjectivity in complying 23 Table of Contents with these rules. To the extent that any tax authority disagrees with our transfer pricing policies, we could become subject to significant tax liabilities and penalties.
The loss or material reduction of business, either due to a reduction in demand 17 Table of Contents from one or more of our significant customers, or our inability to timely meet any elevated level of customer demand for various reasons, the lack of success of sales initiatives or changes in customer preferences or loyalties for our products related to any such significant customer could have a material adverse impact on our business.
The loss or material reduction of business, either due to a reduction in demand from one or more of our significant customers, or our inability to timely meet any elevated level of customer demand for various reasons, the lack of success of sales initiatives or changes in customer preferences or loyalties for our products related to any such significant customer could have a material adverse impact on our business.
Any improper conduct could damage our reputation and subject us to, among other things, civil and 22 Table of Contents criminal penalties, material fines, equitable remedies (including profit disgorgement and injunctions on future conduct), securities litigation, adverse publicity and a general loss of investor or public confidence. Our operations are subject to regulatory risks.
Any improper conduct could damage our reputation and subject us to, among other things, civil and criminal penalties, material fines, equitable remedies (including profit disgorgement and injunctions on future conduct), securities litigation, adverse publicity and a general loss of investor or public confidence. Our operations are subject to regulatory risks.
Also, Irish companies, including us, may alter their Memorandum of Association and Articles of Association only with the approval of at least 75% of the votes of the company’s shareholders cast in person or by proxy at a general meeting of the company. Item 1B. UNRESOLVED STAFF COMMENTS None.
Also, Irish companies, including us, may alter their Memorandum of Association and Articles of Association only with the approval of at least 75% of the votes of the company’s shareholders cast in person or by proxy at a general meeting of the company. 25 Table of Contents Item 1B. UNRESOLVED STAFF COMMENTS None.
The speed of development by our competitors and new market entrants is increasing. We cannot provide any assurance that any new product or service will be successfully commercialized in a timely manner, if ever, or, if commercialized, will result in returns greater than our investment.
The speed of development by our competitors and new market entrants is increasing. We cannot provide any assurance that any new product or service will be successfully commercialized in 17 Table of Contents a timely manner, if ever, or, if commercialized, will result in returns greater than our investment.
In particular, if we are unable to access capital and credit markets on terms that are acceptable to us, we may not be able to execute potential merger and acquisition plans, make other investments or fully execute our business plans and strategy. Our suppliers and customers are also dependent upon the capital and credit markets.
In particular, if we are unable to access capital and credit markets on terms that are acceptable to us, we may not be able to execute potential merger and acquisition plans, make other investments or fully execute our business plans and strategy. 16 Table of Contents Our suppliers and customers are also dependent upon the capital and credit markets.
You should carefully consider the risk factors discussed below, together with all the other information included in this Form 10-K, in evaluating us, our ordinary shares and our senior notes. If any of the events, risks or uncertainties below actually occurs, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
You should carefully consider the risk factors discussed below, together with all the other information included in this Form 10-K, in evaluating us and our securities. If any of the events, risks or uncertainties below actually occurs, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Any such adverse effect may cause the trading price of our ordinary shares to decline, and as a result, you could lose all or part of your investment in us.
Any such adverse effect may cause the trading price of our securities to decline, and as a result, you could lose all or part of your investment in us.
We may be required to recognize impairment charges for our goodwill, indefinite-lived intangible assets and other long-lived assets. At December 31, 2022, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $1.4 billion and $110 million, respectively.
We may be required to recognize impairment charges for our goodwill, indefinite-lived intangible assets and other long-lived assets. At December 31, 2023, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled approximately $1.4 billion and $104 million, respectively.
Acquisitions also involve numerous other risks, including: • Difficulties in obtaining and verifying the financial statements and other business information of acquired businesses; • Inability to obtain regulatory approvals and/or required financing on favorable terms; • Potential loss of key employees, key contractual relationships or key customers of acquired companies or of us; • Difficulties competing in any new markets we may enter; • Assumption of the liabilities and exposure to unforeseen liabilities (including, but not limited to, regulatory, legal and product or personal liability claims) of acquired companies; 18 Table of Contents • Cybersecurity related vulnerabilities or data security incidents that may be present in the IT Systems of acquired companies, or emerge when integrating the acquired company into our IT Systems; • Dilution of interests of holders of our ordinary shares through the issuance of equity securities or equity-linked securities; • Labor disruptions, work stoppages or other employee-related issues, particularly if employees of the acquired companies are represented by labor unions or trade councils; and • Difficulty in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure controls and procedures and internal control over financial reporting appropriate for public companies of our size at companies that, prior to the acquisition, had lacked such controls, procedures and policies.
We may not be successful in this regard, the costs of doing so may exceed our original estimates or we may encounter other potential difficulties. 18 Table of Contents Acquisitions also involve numerous other risks, including: • Difficulties in obtaining and verifying the financial statements and other business information of acquired businesses; • Our ability to raise capital on reasonable terms to finance attractive acquisitions; • Inability to obtain regulatory approvals and/or required financing on favorable terms; • Potential loss of key employees, key contractual relationships or key customers of acquired companies or of us; • Difficulties competing in any new markets we may enter; • Assumption of the liabilities and exposure to unforeseen liabilities (including, but not limited to, regulatory, legal and product or personal liability claims) of acquired companies; • Cybersecurity related vulnerabilities or data security incidents that may be present in the IT Systems of acquired companies, or emerge when integrating the acquired company into our IT Systems; • Dilution of interests of holders of our ordinary shares through the issuance of equity securities or equity-linked securities; • Labor disruptions, work stoppages or other employee-related issues, particularly if employees of the acquired companies are represented by labor unions or trade councils; and • Difficulty in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure controls and procedures and internal control over financial reporting appropriate for public companies of our size at companies that, prior to the acquisition, had lacked such controls, procedures and policies.
Labor shortages and increased turnover rates have led to, and could in the future lead to, increased costs, such as increased overtime to meet customer demand and increased wage rates to attract and retain employees and could negatively affect our ability to efficiently operate our production facilities or otherwise operate at full capacity.
In recent years, we have experienced labor shortages and increased turnover rates that have led to, and could in the future lead to, increased costs, such as increased overtime to meet customer demand and increased wage rates to attract and retain employees and could negatively affect our ability to efficiently operate our production facilities or otherwise operate at full capacity.
The continual development of new technologies by existing and new competitors, including non-traditional competitors with significant resources, could adversely affect our ability to sustain operating margins and desirable levels of sales volumes. To remain competitive, we must develop new products and service offerings and respond to new technologies in a timely manner.
The continual development of new technologies, such as artificial intelligence and machine learning, by existing and new competitors, including non-traditional competitors with significant resources, could adversely affect our ability to sustain operating margins and desirable levels of sales volumes. To remain competitive, we must develop new products and service offerings and respond to new technologies in a timely manner.
These events and disruptions could also adversely affect our customers’ and 19 Table of Contents suppliers’ financial condition or ability to operate, resulting in reduced customer demand, delays in payments received or supply chain disruptions.
These events and disruptions could also adversely affect our customers’ and suppliers’ financial condition or ability to operate, resulting in reduced customer demand, delays in payments received or supply chain disruptions.
Cybersecurity attacks and intrusion efforts are continuous and evolving, and in certain cases they have been successful at the most robust institutions.
Cybersecurity attacks and intrusion efforts are continuous and evolving, and in certain cases they have been successful at the 20 Table of Contents most robust institutions.
Additionally, at December 31, 2022, our borrowings included a variable rate term loan facility (the "2021 Term Facility", and together with the 2021 Revolving Facility, the "2021 Credit Facilities"). The 2021 Credit Facilities had a combined outstanding variable rate balance of $306.5 million at December 31, 2022, which exposes us to variable interest rate risk.
At December 31, 2023, our borrowings included a variable rate term loan facility (the "2021 Term Facility", and together with the 2021 Revolving Facility, the "2021 Credit Facilities"). The 2021 Credit Facilities had a combined outstanding variable rate balance of $225.0 million at December 31, 2023, which exposes us to variable interest rate risk.
If we are unable to effectively manage these relationships, or if these third parties experience delays, disruptions, shortages of materials, labor, electronic and other components, capacity constraints, regulatory issues or quality control problems in their operations, freight delays and other supply chain constraints and disruptions, or otherwise fail to meet our future requirements for timely delivery, our ability to ship and deliver certain of our products to our customers could be impaired and our business could be harmed. 21 Table of Contents Legal and Compliance Risks We are subject to risks related to corporate social responsibility and reputational matters.
If we are unable to effectively manage these relationships, or if these third parties experience delays, disruptions, shortages of materials, labor, electronic and other components, capacity constraints, regulatory issues or quality control problems in their operations, freight delays and other supply chain constraints and disruptions, or otherwise fail to meet our future requirements for timely delivery, our ability to ship and deliver certain of our products to our customers could be impaired and our business could be harmed.
Although we may enter into currency exchange contracts to reduce our risk related to currency exchange fluctuations, changes in the relative fair values of currencies occur from time to time and in some instances, as was the case in 2022, have had a significant impact on our Net revenues.
Although we may enter into currency exchange contracts to reduce our risk related to currency exchange fluctuations, changes in the relative fair values of currencies occur from time to time and in some instances have had a significant impact on our results of operations.
In particular, any changes and/or differing interpretations of applicable tax law that have the effect of disregarding our incorporation in Ireland, limiting our ability to take advantage of tax treaties between jurisdictions, modifying or eliminating the deductibility of various currently deductible payments or increasing the tax burden of operating or being resident in a particular country, could subject us to increased taxation. 24 Table of Contents Dividends received by our shareholders may be subject to Irish dividend withholding tax.
In particular, any changes and/or differing interpretations of applicable tax law that have the effect of disregarding our incorporation in Ireland, limiting our ability to take advantage of tax treaties between jurisdictions, modifying or eliminating the deductibility of various currently deductible payments or increasing the tax burden of operating or being resident in a particular country, could subject us to increased taxation.
In certain circumstances, we are required to deduct Irish dividend withholding tax of 25% from dividends paid to our shareholders.
Dividends received by our shareholders may be subject to Irish dividend withholding tax. In certain circumstances, we are required to deduct Irish dividend withholding tax of 25% from dividends paid to our shareholders.
Limitations on the ability of customers, suppliers or financial counterparties to access credit could lead to insolvencies of key suppliers and customers, limit or prevent customers from obtaining credit to finance purchases of our products and services, delay institutional, commercial and/or residential construction and remodeling projects and cause delays in the delivery of key products from suppliers. 16 Table of Contents There are risks associated with our outstanding and future indebtedness.
Limitations on the ability of customers, suppliers or financial counterparties to access credit could lead to insolvencies of key suppliers and customers, limit or prevent customers from obtaining credit to finance purchases of our products and services, delay institutional, commercial and/or residential construction and remodeling projects and cause delays in the delivery of key products from suppliers.
Our long-term growth strategies include the acquisition of businesses or product lines to strengthen our industry position, enhance our existing set of products and services offerings or expand into adjacent markets. For example, in July 2022, we completed the acquisition of the Access Technologies business.
Our long-term growth strategies include the acquisition of businesses or product lines to strengthen our industry position, enhance our existing set of products and services offerings or expand into adjacent markets.
If variable base rates under the 2021 Credit Facilities continue to increase in the future, our Interest expense could increase as well. For more details about our interest rate exposure under the 2021 Credit Facilities, please see Part II. Item 7A. Strategic and Operational Risks Increased competition, including from technological developments, could adversely affect our business.
If variable base rates under the 2021 Credit Facilities continue to increase in the future, our Interest expense could increase as well. For more details about our interest rate exposure under the 2021 Credit Facilities, please see Part II. Item 7A.
If we are unable to successfully manage and implement restructuring and other organizational changes, we may not achieve or sustain the expected growth or cost savings benefits of these activities or do so within the expected timeframe. These effects could recur in connection with future acquisitions and other organizational changes and our results of operations could be negatively affected.
If we are unable to successfully manage and implement restructuring and other organizational changes, we may not achieve or sustain the expected growth or cost savings benefits of these activities or do so within the expected timeframe.
For example, many countries in Europe, as well as a number of other countries and organizations, have recently proposed, recommended or implemented changes to existing tax laws or have enacted new laws that could significantly increase our effective tax rate or cash tax obligations in countries where we do business or require us to change the manner in which we operate our business. 23 Table of Contents The Organization for Economic Cooperation and Development (“OECD”) has led international efforts in recent years to devise a permanent two-pillar solution to address the tax challenges arising from the digitization of the economy.
For example, many countries in Europe, as well as a number of other countries and organizations, have recently proposed, recommended or implemented changes to existing tax laws or have enacted new laws that could significantly increase our effective tax rate or cash tax obligations in countries where we do business or require us to change the manner in which we operate our business.
We need highly skilled and qualified personnel in multiple areas, including engineering, sales, manufacturing, information technology, cybersecurity, business development, strategy and management. We must therefore continue to effectively recruit, retain and motivate highly qualified, skilled and diverse personnel to maintain our current business and support our projected growth.
We must therefore continue to effectively recruit, retain and motivate highly qualified, skilled and diverse personnel to maintain our current business and support our projected growth.
Changes in tax laws, regulations or treaties, changes in our status under the tax laws of many jurisdictions or adverse determinations by taxing authorities could increase our tax burden or otherwise affect our financial condition or operating results, as well as subject our shareholders to additional taxes.
If the Directors' authority to issue ordinary shares is not renewed, then we may be limited in our ability to use our shares, for example, as consideration for acquisitions. 24 Table of Contents Changes in tax laws, regulations or treaties, changes in our status under the tax laws of many jurisdictions or adverse determinations by taxing authorities could increase our tax burden or otherwise affect our financial condition or operating results, as well as subject our shareholders to additional taxes.
Further, while we maintain insurance coverage that may, subject to policy terms and exclusions, cover certain aspects of our cyber risks, such insurance coverage may be insufficient to cover our losses or all types of claims that may arise in the continually evolving area of cyber risk. 20 Table of Contents Our daily business operations also require us to collect and/or retain sensitive data such as intellectual property, proprietary business information and data related to customers, employees, suppliers and business partners within our networking infrastructure including data from individuals subject to the European Union's General Data Protection Regulation, that is subject to privacy and security laws, regulations and/or customer-imposed controls.
Our daily business operations also require us to collect and/or retain sensitive data such as intellectual property, proprietary business information and data related to customers, employees, suppliers and business partners within our networking infrastructure including data from individuals subject to the European Union's General Data Protection Regulation, that is subject to privacy and security laws, regulations and/or customer-imposed controls.
Our ability to successfully grow and expand our business depends on our ability to recruit and retain a highly qualified and diverse workforce. Our ability to successfully grow and expand our business is dependent upon our ability to recruit and retain a workforce with the skills necessary to develop, manufacture and deliver the products and services desired by our customers.
Our ability to successfully grow and expand our business is dependent upon our ability to recruit and retain a workforce with the skills necessary to develop, manufacture and deliver the products and services desired by our customers. We need highly skilled and qualified personnel in multiple areas, including engineering, sales, manufacturing, information technology, cybersecurity, business development, strategy and management.
We had approximately $2.1 billion of outstanding indebtedness at December 31, 2022. Included in this total was $69 million outstanding under our senior unsecured revolving credit facility (the "2021 Revolving Facility") that permits borrowings of up to $500 million.
There are risks associated with our outstanding and future indebtedness. We had approximately $2 billion of outstanding indebtedness at December 31, 2023. In addition, we have a senior unsecured revolving credit facility (the "2021 Revolving Facility") that permits borrowings of up to $500 million.
The effects of global climate change or other unexpected events, including global health crises, may disrupt our operations and have a negative impact on our business.
These effects could recur in connection with future acquisitions and other organizational changes and our results of operations could be negatively affected. 19 Table of Contents The effects of global climate change or other unexpected events, including global health crises, may disrupt our operations and have a negative impact on our business.
For these businesses to achieve acceptable levels of profitability, we may need to improve their management, operations, products and market penetration or incur significant capital expenditures. We may not be successful in this regard, the costs of doing so may exceed our original estimates or we may encounter other potential difficulties.
For these businesses to achieve acceptable levels of profitability, we may need to improve their management, operations, products and market penetration or incur significant capital expenditures.
Both of these authorizations will expire after a certain period unless renewed by our shareholders, and we cannot guarantee that the renewal of these authorizations will always be approved. If the Directors' authority to issue ordinary shares is not renewed, then we may be limited in our ability to use our shares, for example, as consideration for acquisitions.
Both of these authorizations will expire after a certain period unless renewed by our shareholders, and we cannot guarantee that the renewal of these authorizations will always be approved.
The U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters.
Risks Related to Our Incorporation in Ireland Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities. The U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters.
A number of countries are currently proposing to implement core elements of the Pillar Two proposal by the start of 2024, and on December 15, 2022, the European Union adopted a Council Directive which requires certain Pillar Two rules to be transposed into member states’ national laws starting in 2024.
Over 130 countries agreed to the general framework of the GMT rules and approximately 25 countries have implemented the GMT rules. Further, on December 15, 2022, the European Union adopted a Council Directive which requires GMT rules to be transposed into member states’ national laws starting in 2024.
Our reputation and the reputation of our brands, including the perception held by our customers, end-users, business partners, investors, other key stakeholders and the communities in which we do business are influenced by various factors. There is an increased focus from our stakeholders, as well as regulatory authorities both within the U.S. and internationally, on ESG practices and disclosure.
There is an increased focus from our stakeholders, as well as regulatory authorities both within the U.S. and internationally, on ESG practices and disclosure.
Any charges relating to such impairments could have a material adverse impact on our results of operations in the periods when recognized. The capital and credit markets are important to our business.
Any charges relating to such impairments could have a material adverse impact on our results of operations in the periods when recognized. Based on our 2023 assessment, it was determined that two of the Company's indefinite-lived trade names in the International segment were impaired, and we recorded a $7.5 million impairment charge.
Removed
Additionally, as we have experienced in recent years, the COVID-19 pandemic created significant volatility, uncertainty and economic disruption, both for our business (and many of our customers and suppliers) and the U.S. and global economy more generally.
Added
The capital and credit markets are important to our business.
Removed
It also led, both directly and indirectly, to significant operating challenges, including disruptions to our and our suppliers’ operations, shortages of electronic and other parts and components, freight delays, increased labor shortages and logistical challenges.
Added
If we are not able to maintain compliance with stated financial covenants or if we breach other covenants in any debt agreement, we could be in default under such agreement or trigger a cross-default of other debt instruments.
Removed
Although most governments have eased or eliminated their restrictions on travel and social interactions, and lifted non-essential business closures, several jurisdictions in which we have operations, such as China, have public health and government mandates that restrict business activities.
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Such a default would adversely affect our credit ratings, may allow our creditors to accelerate the related indebtedness, and may result in the acceleration of any other indebtedness to which a cross-acceleration or cross-default provision applies. Strategic and Operational Risks Increased competition, including from technological developments, could adversely affect our business.
Removed
These mandates and restrictions have, and could continue to have, an impact on our business and operations, and on the operations of some of our suppliers.
Added
Many governmental and other regulatory bodies worldwide are enacting regulations to mitigate the impacts of climate change.
Removed
We continue to experience increased labor shortages at some of our production and distribution facilities. While we have historically experienced some level of ordinary course turnover of employees, the COVID-19 pandemic increased turnover and the ensuing negative macroeconomic environment exacerbated labor shortages and contributed to further increases in employee turnover.
Added
If we or others in our supply chain are required to comply with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on the climate, we may experience increased costs for energy, production, transportation, and raw materials, increased capital expenditures, or increased insurance premiums and deductibles, each of which could adversely impact our operations.
Removed
Pillar One focuses on nexus and profit allocation. Pillar Two provides for a global minimum effective corporate tax rate of 15%, applied on a jurisdiction-by-jurisdiction basis. We currently expect to be outside the scope of the Pillar One proposals.
Added
In addition, inconsistent regulations among jurisdictions may also affect our cost to comply with such laws and regulations. Any assessment of the potential impact of future climate change legislation, regulations, or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change in the countries in which we operate.
Removed
In December 2021, the OECD published detailed rules that define the scope of the Pillar Two proposal and, based on our current understanding of the minimum revenue thresholds contained in these rules, we expect to be within their scope and implementation.
Added
Further, while we maintain insurance coverage that may, subject to policy terms and exclusions, cover certain aspects of our cyber risks, such insurance coverage may be insufficient to cover our losses or all types of claims that may arise in the continually evolving area of cyber risk.
Removed
We cannot currently predict the outcome of any of these potential changes or investigations in any jurisdiction, but if any of the above occurs and impacts us, this could increase our tax burden and/or effective tax rate.
Added
Finally, the regulatory environment around cybersecurity is increasingly challenging, with additional reporting requirements around cybersecurity, risk management, strategy and governance, as well as increased disclosure obligations around the occurrence of material cybersecurity incidents. These requirements may present material obligations and risks to our business, including significantly expanded compliance burdens, costs and enforcement risks.
Removed
We continue to examine the impact the above items may have on our business, including their impact on the amount of tax we must pay. Risks Related to Our Incorporation in Ireland Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities.
Added
We may also be obligated to report a cybersecurity incident before we have been able to fully assess its impact or remediate the underlying issue, and it could potentially reveal system vulnerabilities to threat actors.
Added
Failure to timely report incidents under these or other similar rules could also result in monetary fines, sanctions, or subject us to other forms of liability. Our ability to successfully grow and expand our business depends on our ability to recruit and retain a highly qualified and diverse workforce.
Added
Legal and Compliance Risks We are subject to risks related to corporate social responsibility and reputational matters. Our reputation and the reputation of our brands, including the perception held by our customers, end-users, business partners, investors, other key stakeholders and the communities in which we do business are influenced by various factors.
Added
Moreover, we may determine that it is in the best interest of our Company and our stockholders to prioritize other business, social, governance or sustainable investments over the achievement of our current commitments based on economic, technological developments, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders.
Added
The implementation of global tax reforms could negatively impact our financial results. In recent years, the Organization for Economic Cooperation and Development (“OECD”) has led international efforts to implement various international tax reforms, including the introduction of a global minimum effective corporate tax (“GMT”) rate of 15%, applied on a jurisdiction-by-jurisdiction basis.
Added
On December 18, 2023, Ireland, the location of our incorporation, enacted legislation which includes provisions regarding the implementation of GMT. We are currently assessing the impact of the legislation, but we expect our effective income tax rate to increase beginning in 2024. Further, we anticipate the continued and ongoing release of OECD GMT interpretive guidance.
Added
We are continuing to evaluate the potential impact of this interpretative guidance and the release of GMT-implementation legislation in other countries, and such guidance or legislation could result in a material increase in our effective tax rate.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. PROPERTIES We operate through a broad network of sales offices, engineering centers, 29 principal production and assembly facilities and several distribution centers throughout the world. Our active properties represent about 6.7 million square feet, of which approximately 41% is leased. We own 16 of our production and assembly facilities, with the remainder under long-term lease arrangements.
Biggest changeItem 2. PROPERTIES We operate through a broad network of sales offices, engineering centers, 31 principal production and assembly facilities and several distribution centers throughout the world. Our active properties represent about 7.6 million square feet, of which approximately 48% is leased. We own 16 of our production and assembly facilities, with the remainder under long-term lease arrangements.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn our opinion, pending legal matters are not expected to have a material adverse impact on our results of operations, financial condition, liquidity or cash flows. This item should be read in conjunction with the Risk Factors set forth in Part I. Item 1A of this Form 10-K. 25 Table of Contents
Biggest changeIn our opinion, pending legal matters are not expected to have a material adverse impact on our results of operations, financial condition, liquidity or cash flows. This item should be read in conjunction with the Risk Factors set forth in Part I. Item 1A of this Form 10-K.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividend Policy Our Board of Directors declared dividends of $0.41 per ordinary share on February 4, 2022, April 7, 2022, September 1, 2022 and December 1, 2022. On February 9, 2023, our Board of Directors declared a dividend of $0.45 per ordinary share payable on March 31, 2023, to shareholders of record on March 15, 2023.
Biggest changeDividend Policy Our Board of Directors declared dividends of $0.45 per ordinary share on February 9, 2023, April 13, 2023, September 7, 2023 and December 7, 2023. On February 7, 2024, our Board of Directors declared a dividend of $0.48 per ordinary share payable on March 29, 2024, to shareholders of record on March 15, 2024.
Based on market conditions, share repurchases may be made from time to time in the open market at the discretion of management. 27 Table of Contents Performance Graph The annual changes for the five-year period shown below are based on the assumption that $100 had been invested in Allegion plc ordinary shares, the Standard & Poor’s 500 Stock Index ("S&P 500") and the Standard & Poor's 400 Capital Goods Index ("S&P 400 Capital Goods") on December 31, 2017, and that all quarterly dividends were reinvested.
Based on market conditions, share repurchases may be made from time to time in the open market at the discretion of management. 28 Table of Contents Performance Graph The annual changes for the five-year period shown below are based on the assumption that $100 had been invested in Allegion plc ordinary shares, the Standard & Poor’s 500 Stock Index ("S&P 500") and the Standard & Poor's 400 Capital Goods Index ("S&P 400 Capital Goods") on December 31, 2018, and that all quarterly dividends were reinvested.
Under the Irish Companies Act, dividends and distributions may only be made from distributable reserves. Distributable reserves, broadly, means the accumulated realized profits of Allegion plc ("ALLE-Ireland") which are unrelated to any GAAP reported amounts (e.g., retained earnings). As of December 31, 2022, we had distributable reserves of $3.8 billion.
Under the Irish Companies Act, dividends and distributions may only be made from distributable reserves. Distributable reserves, broadly, means the accumulated realized profits of Allegion plc ("ALLE-Ireland") which are unrelated to any GAAP reported amounts (e.g., retained earnings). As of December 31, 2023, we had distributable reserves of $3.9 billion.
The total cumulative dollar returns shown on the graph represent the value that such investments would have had on December 31, 2022.
The total cumulative dollar returns shown on the graph represent the value that such investments would have had on December 31, 2023.
Issuer Purchases of Equity Securities Period Total number of shares purchased (000s) Average price paid per share Total number of shares purchased as part of the 2020 Share Repurchase Authorization (000s) Approximate dollar value of shares still available to be purchased under the 2020 Share Repurchase Authorization (000s) October 1 - October 31 — $ — — $ 140,454 November 1 - November 30 — — — 140,454 December 1 - December 31 — — — 140,454 Total — $ — — $ 140,454 In February 2020, our Board of Directors approved a share repurchase authorization of up to, and including, $800 million of the Company’s ordinary shares (the "2020 Share Repurchase Authorization").
Issuer Purchases of Equity Securities Period Total number of shares purchased (000s) Average price paid per share Total number of shares purchased as part of the Share Repurchase Authorization (000s) Approximate dollar value of shares still available to be purchased under the Share Repurchase Authorization (000s) October 1 - October 31 — $ — — $ 500,000 November 1 - November 30 — — — 500,000 December 1 - December 31 342 116.85 342 460,024 Total 342 $ 116.85 342 $ 460,024 In February 2020, our Board of Directors approved a share repurchase authorization of up to, and including, $800 million of the Company’s ordinary shares (the "Share Repurchase Authorization").
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our ordinary shares are traded on the New York Stock Exchange under the symbol ALLE. As of February 16, 2023, the number of record holders of ordinary shares was 2,054.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our ordinary shares are traded on the New York Stock Exchange under the symbol ALLE. As of February 14, 2024, the number of record holders of ordinary shares was 1,920.
We paid a total of $143.9 million in cash for dividends to ordinary shareholders during the year ended December 31, 2022.
We paid a total of $158.7 million in cash for dividends to ordinary shareholders during the year ended December 31, 2023.
Removed
The 2020 Share Repurchase Authorization does not have a prescribed expiration date.
Added
On June 8, 2023, our Board of Directors reauthorized the Company's existing share repurchase program and, as a result, authorized the repurchase of up to, and including, $500 million of the Company's ordinary shares. The Share Repurchase Authorization does not have a prescribed expiration date.
Removed
December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Allegion plc 100.00 101.18 159.74 151.14 173.89 140.42 S&P 500 100.00 95.62 125.72 148.85 191.58 156.88 S&P 400 Capital Goods 100.00 85.99 114.15 136.80 174.64 157.15 Item 6. [RESERVED] 28 Table of Contents
Added
December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Allegion plc 100.00 157.88 149.38 171.86 138.78 169.74 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 S&P 400 Capital Goods 100.00 132.75 159.09 203.10 182.76 251.41

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWhile we continue to experience delays and shortages of electronic components from key suppliers, we expect continued growth from the sale of electronic products in 2023 given the combination of our pricing initiatives and our actions taken to mitigate these delays and shortages. 34 Table of Contents Operating income/margin Segment operating income for the year ended December 31, 2022, increased $88.3 million, and Segment operating margin decreased to 24.0% from 25.3% as compared to the year ended December 31, 2021, due to the following: In millions Operating Income Operating Margin December 31, 2021 $ 525.0 25.3 % Pricing and productivity in excess of inflation 57.1 — % Volume / product mix 52.2 1.7 % Currency exchange rates (4.4) (0.1) % Investment spending (10.4) (0.5) % Acquisitions 16.4 (1.3) % Acquisition expenses (22.6) (1.1) % December 31, 2022 $ 613.3 24.0 % The increase in Segment operating income was primarily driven by pricing improvements in excess of inflation and productivity, favorable volume/product mix and the contribution to Segment operating income from our acquired Access Technologies business.
Biggest changeOperating Income/Margin 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: In millions Operating Income Operating Margin December 31, 2022 $ 586.4 17.9 % Pricing and productivity in excess of inflation and investment spending 154.9 3.1 % Volume / product mix (40.3) (0.8) % Currency exchange rates (10.8) (0.3) % Acquisitions/ divestitures 29.7 (0.2) % Impairment of intangible assets (7.5) (0.2) % Restructuring / integration / acquisition expenses (4.0) (0.1) % December 31, 2023 $ 708.4 19.4 % 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.
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 and SimonsVoss.
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.
Review of Business Segments We operate in and report financial results for two segments: Allegion Americas and Allegion International. These segments represent the level at which our chief operating decision maker reviews our financial performance and makes operating decisions.
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 (the "CODM") reviews our financial performance and makes operating decisions.
At December 31, 2022, 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 9 to the Consolidated Financial Statements.
At December 31, 2023, we analyzed our working capital requirements and the potential tax liabilities that would be incurred if certain subsidiaries made distributions and concluded that no material changes to our historic permanent reinvestment assertions were required. Scheduled future principal repayments on our outstanding indebtedness can be found in Note 9 to the Consolidated Financial Statements.
Principal amounts repaid on the Term Facility may not be reborrowed. 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. On July 1, 2022, we borrowed $340.0 million under the 2021 Revolving Facility to partially fund our acquisition of the Access Technologies business.
Principal amounts repaid on the Term Facility may not be reborrowed. 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.
Based upon our operations, existing cash balances and unused availability under the 2021 Revolving Facility, as of December 31, 2022, 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.
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.
During our most recent annual impairment analysis, none of our reporting units were determined to be at risk of impairment. • 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.
During our most recent annual impairment analysis, none of our reporting units were determined to be impaired. • 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.
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, navigating the COVID-19 pandemic, 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.
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.
This acquisition helps us create a more comprehensive portfolio of access solutions, with the addition of automated entrance solutions. Additionally, the Access 29 Table of Contents Technologies business adds an expansive service and support network throughout the U.S. and Canada, broadening our solutions to national, regional and local customers, and complementing our existing strengths in these non-residential markets.
This acquisition helps us create a more comprehensive portfolio of access solutions, with the addition of automated entrance solutions. Additionally, the Access Technologies business adds an expansive service and support network throughout the U.S. and Canada, broadening our solutions to national, regional and local customers, and complementing our existing strengths in these non-residential markets.
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 41 Table of Contents subsequent to the acquisition that are not reasonably anticipated when finalizing our purchase accounting estimates and 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.
See Note 11 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 2023 and future years.
See Note 11 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 2024 and future years.
We incurred and deferred $5.9 million of discounts and financing costs associated with the 5.411% Senior Notes, which will be 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.
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.
In addition, the Credit Agreement requires us to comply with a maximum leverage ratio as defined within the agreement. As of December 31, 2022, our leverage ratio of approximately 2.5 was significantly below the covenant requirement, and we do not anticipate any potential concerns for at least the next 12 months.
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.
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.
We assess the appropriateness of each royalty rate assumption annually, based on our 41 Table of Contents 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.
The Senior Notes are structurally subordinated to indebtedness and other liabilities of the 38 Table of Contents subsidiaries of the Guarantor, none of which guarantee the notes.
The Senior Notes are structurally subordinated to indebtedness and other liabilities of the 39 Table of Contents subsidiaries of the Guarantor, none of which guarantee the notes.
For a discussion of our results of operations for the year ended December 31, 2021, compared to the year ended December 31, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Annual Report on Form 10-K filed with the SEC on February 15, 2022.
For a discussion of our results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Annual Report on Form 10-K filed with the SEC on February 22, 2023.
An estimated 0.5% rate decline in the discount rate would have increased net periodic pension benefit cost by approximately $0.6 million in 2022, 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.
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.
Segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for resource allocation, performance reviews and compensation. For these reasons, we believe Segment operating income represents the most relevant measure of Segment profit and loss.
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.
At December 31, 2022, outstanding borrowings under the 2021 Credit Facilities accrued interest at BSBY plus a margin of 1.125%, resulting in an interest rate of 5.498%. 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.
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.
Discount rate assumptions typically consider the discount rate conclusions for 40 Table of Contents the reporting unit in which an underlying business operates, plus an incremental spread, where appropriate, to consider size, country or other company-specific risk.
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.
These increases were partially offset by unfavorable foreign currency exchange rate movements and lower volumes for our residential products. Increased pricing was the result of multiple pricing initiatives implemented to help mitigate the impact of persistent, elevated levels of inflation. We will continue to monitor the inflationary pressures to our businesses and address them through pricing initiatives where appropriate.
These increases were partially offset by lower volumes and unfavorable foreign currency exchange rate movements. Increased pricing was the result of multiple pricing initiatives implemented to help mitigate the impact of inflation. We will continue to monitor the inflationary pressures to our businesses and address them through pricing initiatives where appropriate.
The 2021 Credit Facilities mature on November 18, 2026. The 2021 Term Facility will amortize in quarterly installments at the following rates: 1.25% per quarter starting March 31, 2022 through March 31, 2025, 2.5% per quarter starting June 30, 2025 through September 30, 2026, with the balance due on November 18, 2026.
The 2021 Credit Facilities mature on November 18, 2026. The 2021 Term Facility amortizes in quarterly installments at the following rates: 1.25% per quarter from March 31, 2022 through March 31, 2025, 2.5% per quarter starting June 30, 2025 through September 30, 2026, with the remaining balance due on November 18, 2026.
Income Taxes – At December 31, 2022, we have total unrecognized tax benefits for uncertain tax positions of $45.2 million and $11.0 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.
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.
Expected principal and interest payments related to our long-term indebtedness in 2023 amount to $12.6 million and $90.9 million, respectively, given our current level of indebtedness and effective interest rates as of December 31, 2022. 37 Table of Contents 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: 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.
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. 38 Table of Contents 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: 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.
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, 2022, approximately 85% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.
Long-term financing needs depend largely on 36 Table of Contents 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, 2023, approximately 89% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.
Further, our business operates with strong operating cash flows, low leverage and low capital intensity, providing financial flexibility, including sufficient access to credit markets. Our short-term financing needs primarily consist of working capital requirements, restructuring initiatives, capital spending, dividend payments and principal and interest payments on our long-term debt.
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, dividend payments and principal and interest payments on our long-term debt.
The Access Technologies business has been integrated into our Allegion Americas segment The Access Technologies business is a leading manufacturer, installer and service provider of automatic entrance solutions in North America, primarily in the U.S. and Canada. Its diversified customer base centers on non-residential settings, including retail, healthcare, education, commercial offices, hospitality and government.
The Access Technologies business is a leading manufacturer, installer and service provider of automatic entrance solutions in North America, primarily in the U.S. and Canada. Its diversified customer base centers on non-residential settings, including retail, healthcare, education, commercial offices, hospitality and government.
Our leading brands include CISA, Interflex, LCN, Schlage, SimonsVoss and Von Duprin. Recent Developments Industry Trends and Outlook Throughout 2022 we experienced strong demand for our non-residential products and services in our Allegion Americas segment.
Our leading brands include CISA, Interflex, LCN, Schlage, SimonsVoss and Von Duprin. Recent Developments Industry Trends and Outlook During 2023, we experienced stable demand for our non-residential products and services in our Allegion Americas segment.
These decreases were partially offset by pricing and productivity improvements in excess of inflation and both prior year and current year acquisition and divestiture activity. Liquidity and Capital Resources Liquidity Outlook, Sources and Uses Our primary source of liquidity is cash provided by operating activities.
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. Liquidity and Capital Resources Liquidity Outlook, Sources and Uses Our primary source of liquidity is cash provided by operating activities.
As of December 31, 2022, 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”) and $400.0 million outstanding of 3.500% Senior Notes due 2029 (the “3.500% Senior Notes”, and all four senior notes collectively, the "Senior Notes").
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").
Financing activities 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”).
Financing activities 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.
At December 31, 2022, we had net pension liabilities of $12.1 million, which consist of plan assets of $490.7 million and benefit obligations of $502.8 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, 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.
The 3.200% Senior Notes, 3.550% Senior Notes and 3.500% Senior Notes all require semi-annual interest payments on April 1 and October 1 of each year, and will mature on October 1, 2024, October 1, 2027, and October 1, 2029, respectively.
The 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.
The proceeds of $250.0 million from the 2021 Term Facility were primarily used to repay in full our previously outstanding unsecured Term Facility. 2022 Dividends and Share Repurchases 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. 30 Table of Contents Results of Operations - For the years ended December 31 Dollar amounts in millions, except per share amounts 2022 % of Net revenues 2021 % of Net revenues Net revenues $ 3,271.9 $ 2,867.4 Cost of goods sold 1,949.5 59.6 % 1,662.5 58.0 % Selling and administrative expenses 736.0 22.5 % 674.7 23.5 % Operating income 586.4 17.9 % 530.2 18.5 % Interest expense 75.9 50.2 Loss on divestitures 7.6 — Other income, net (11.6) (44.0) Earnings before income taxes 514.5 524.0 Provision for income taxes 56.2 40.7 Net earnings 458.3 483.3 Less: Net earnings attributable to noncontrolling interests 0.3 0.3 Net earnings attributable to Allegion plc $ 458.0 $ 483.0 Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders: $ 5.19 $ 5.34 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.
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. 31 Table of Contents Results of Operations - For the years ended December 31 Dollar amounts in millions, except per share amounts 2023 % of Net revenues 2022 % of Net revenues Net revenues $ 3,650.8 $ 3,271.9 Cost of goods sold 2,069.3 56.7 % 1,949.5 59.6 % Selling and administrative expenses 865.6 23.7 % 736.0 22.5 % Impairment of intangible assets 7.5 0.2 % — — % Operating income 708.4 19.4 % 586.4 17.9 % Interest expense 93.1 75.9 Loss on divestitures — 7.6 Other income, net (1.9) (11.6) Earnings before income taxes 617.2 514.5 Provision for income taxes 76.6 56.2 Net earnings 540.6 458.3 Less: Net earnings attributable to noncontrolling interests 0.2 0.3 Net earnings attributable to Allegion plc $ 540.4 $ 458.0 Diluted net earnings per ordinary share attributable to Allegion plc ordinary shareholders: $ 6.12 $ 5.19 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.
Our chief operating decision maker may exclude certain charges or gains, such as corporate charges and other special charges, to arrive at a Segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions.
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.
Additionally, cash used to repurchase shares was $351.8 million lower in 2022 compared to 2021. 36 Table of Contents Capitalization At December 31, long-term debt and other borrowings consisted of the following: In millions 2022 2021 2021 Term Facility $ 237.5 $ 250.0 2021 Revolving Facility 69.0 — 3.200% Senior Notes due 2024 400.0 400.0 3.550% Senior Notes due 2027 400.0 400.0 3.500% Senior Notes due 2029 400.0 400.0 5.411% Senior Notes due 2032 600.0 — Other debt 0.2 0.3 Total borrowings outstanding 2,106.7 1,450.3 Discounts and debt issuance costs, net (12.2) (8.2) Total debt 2,094.5 1,442.1 Less current portion of long-term debt 12.6 12.6 Total long-term debt $ 2,081.9 $ 1,429.5 As of December 31, 2022, we have an unsecured Credit Agreement in place, consisting of the $250.0 million 2021 Term Facility, of which $237.5 million was outstanding at December 31, 2022, and the 2021 Revolving Facility (together with the 2021 Term Facility, the “2021 Credit Facilities”).
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. 37 Table of Contents Capitalization At December 31, long-term debt and other borrowings consisted of the following: In millions 2023 2022 2021 Term Facility $ 225.0 $ 237.5 2021 Revolving Facility — 69.0 3.200% Senior Notes due 2024 400.0 400.0 3.550% Senior Notes due 2027 400.0 400.0 3.500% Senior Notes due 2029 400.0 400.0 5.411% Senior Notes due 2032 600.0 600.0 Other debt 0.1 0.2 Total borrowings outstanding 2,025.1 2,106.7 Discounts and debt issuance costs, net (10.1) (12.2) Total debt 2,015.0 2,094.5 Less current portion of long-term debt 412.6 12.6 Total long-term debt $ 1,602.4 $ 2,081.9 As of December 31, 2023, we have an unsecured Credit Agreement in place, consisting of the $250.0 million 2021 Term Facility, and the 2021 Revolving Facility (together with the 2021 Term Facility, the “2021 Credit Facilities”).
Selected Condensed Statement of Comprehensive Income Information Year ended December 31, 2022 In millions Allegion plc Allegion US Hold Co Net revenues $ — $ — Gross profit — — Operating loss (6.7) (14.4) Equity earnings in affiliates, net of tax 505.9 195.5 Transactions with related parties and subsidiaries (a) (21.1) (79.6) Net earnings 458.0 85.0 Net earnings attributable to the entity 458.0 85.0 (a) Transactions with related parties and subsidiaries include intercompany interest and fees.
Selected Condensed Statement of Comprehensive Income Information Year ended December 31, 2023 In millions Allegion plc Allegion US Hold Co Net revenues $ — $ — Gross profit — — Operating loss (7.4) (0.5) Equity earnings in affiliates, net of tax 606.5 330.6 Transactions with related parties and subsidiaries (a) (30.8) (77.0) Net earnings 540.4 232.6 Net earnings attributable to the entity 540.4 232.6 (a) Transactions with related parties and subsidiaries include intercompany interest and fees.
The funded status for all of our pension plans at December 31, 2022 decreased to 97.6% from 103.0% at December 31, 2021. We currently expect to contribute approximately $12 million to our plans worldwide in 2023.
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.
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 39 Table of Contents amount.
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. 40 Table of Contents 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.
Selling and Administrative Expenses For the year ended December 31, 2022, Selling and administrative expenses as a percentage of Net revenues decreased to 22.5% from 23.5%, as compared to the year ended December 31, 2021, due to the following: Productivity in excess of inflation (1.5) % Volume leverage (0.2) % Acquisitions / divestitures (0.3) % Investment spending 0.3 % Restructuring / acquisition expenses 0.7 % Total (1.0) % Selling and administrative expenses as a percentage of Net revenues decreased primarily due to productivity improvements exceeding the impact of inflation, as well as favorable volume leverage and the beneficial impact from current and prior year acquisition and divestiture activity.
Selling and Administrative Expenses 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: Inflation in excess of productivity and investment spending 0.7 % Volume leverage 0.5 % Acquisitions / divestitures (0.3) % Restructuring / integration / acquisition expenses 0.3 % Total 1.2 % 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.
Other Income, net The components of Other income, net, for the years ended December 31 were as follows: In millions 2022 2021 Interest income $ (1.3) $ (0.4) Foreign currency exchange loss 2.4 2.7 Earnings and gains from the sale of equity method investments, net (0.8) (6.4) Net periodic pension and postretirement benefit income, less service cost (9.4) (7.1) Other (2.5) (32.8) Other income, net $ (11.6) $ (44.0) For the year ended December 31, 2022, Other income, net decreased $32.4 million compared to 2021, primarily due to a non-operating investment gain of $20.7 in 2021 that did not recur in 2022.
Other Income, net The components of Other income, net, for the years ended December 31 were as follows: In millions 2023 2022 Interest income $ (6.8) $ (1.3) Foreign currency exchange loss 3.9 2.4 Earnings and gains from the sale of equity method investments, net (1.0) (0.8) Net periodic pension and postretirement benefit cost (income), less service cost 1.0 (9.4) Other expense (income) 1.0 (2.5) Other income, net $ (1.9) $ (11.6) For the year ended December 31, 2023, Other income, net, decreased $9.7 million compared to 2022, primarily due to an unfavorable net periodic pension and postretirement benefit cost (income), less service cost in 2023 compared to 2022, which was partially offset by an increase in interest income in 2023 compared to 2022.
Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements included in Item 8 herein for a discussion of recently issued and adopted accounting pronouncements.
Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements. 42 Table of Contents
Given these factors, we anticipate softness in demand for our residential products to continue into 2023. Growth in electronic security products and solutions is a metric monitored by management and a focus of our investors.
Further, market conditions for new residential construction remained soft throughout 2023 and we anticipate softness in demand for our residential products to continue into 2024. Growth in electronic security products and solutions is a metric monitored by management and a focus of our investors.
Net revenues Net revenues for the year ended December 31, 2022, increased by 23.1%, or $479.4 million, as compared to the year ended December 31, 2021, due to the following: Pricing 11.4 % Volume 3.0 % Acquisitions 9.0 % Currency exchange rates (0.3) % Total 23.1 % The increase in Net revenues was driven by significantly improved pricing, higher volumes for our non-residential products and our Access Technologies business acquisition.
Net revenues Net revenues for the year ended December 31, 2023, increased by 15.1%, or $382.9 million, as compared to the year ended December 31, 2022, due to the following: Pricing 8.3 % Volume (0.9) % Acquisitions 7.9 % Currency exchange rates (0.2) % Total 15.1 % The increase in Net revenues was driven by improved pricing and the acquisition of our Access Technologies business.
Selected Condensed Balance Sheet Information December 31, 2022 In millions Allegion plc Allegion US Hold Co Current assets: Amounts due from related parties and subsidiaries $ — $ 380.2 Total current assets 3.3 417.4 Noncurrent assets: Amounts due from related parties and subsidiaries — 1,523.9 Total noncurrent assets 1,792.6 1,596.6 Current liabilities: Amounts due to related parties and subsidiaries $ 45.9 $ 278.8 Total current liabilities 65.3 303.5 Noncurrent liabilities: Amounts due to related parties and subsidiaries 659.5 2,694.5 Total noncurrent liabilities 1,282.0 4,166.1 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.
Selected Condensed Balance Sheet Information December 31, 2023 In millions Allegion plc Allegion US Hold Co Current assets: Amounts due from related parties and subsidiaries $ 0.1 $ 558.6 Total current assets 16.3 595.6 Noncurrent assets: Amounts due from related parties and subsidiaries — 1,439.9 Total noncurrent assets 1,792.2 1,525.7 Current liabilities: Amounts due to related parties and subsidiaries $ 64.8 $ 826.6 Total current liabilities 84.5 1,250.4 Noncurrent liabilities: Amounts due to related parties and subsidiaries 564.2 2,458.9 Total noncurrent liabilities 1,174.5 3,454.7 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.
Operating income margin Segment operating income for the year ended December 31, 2022, decreased $14.1 million, and Segment operating margin decreased to 9.5% from 10.4% as compared to the year ended December 31, 2021, due to the following: 35 Table of Contents In millions Operating Income Operating Margin December 31, 2021 $ 82.4 10.4 % Pricing and productivity in excess of inflation 23.7 2.4 % Volume / product mix (15.6) (1.5) % Currency exchange rates (17.6) (1.3) % Investment spending (5.5) (0.7) % Acquisitions / divestitures 2.1 0.3 % Restructuring / acquisition expenses (1.2) (0.1) % December 31, 2022 $ 68.3 9.5 % The decreases in Segment operating income and Segment operating margin were primarily driven by unfavorable volume/product mix, unfavorable foreign currency exchange rate movements, increased investment spending and a year-over-year increase in restructuring and acquisition expenses.
Operating income margin Segment operating income for the year ended December 31, 2023, decreased $12.3 million, and Segment operating margin decreased to 7.9% from 9.5% as compared to the year ended December 31, 2022, due to the following: In millions Operating Income Operating Margin December 31, 2022 $ 70.4 9.5 % Pricing and productivity in excess of inflation and investment spending 16.0 1.6 % Volume / product mix (23.1) (2.6) % Currency exchange rates 3.0 0.3 % Acquisitions / divestitures 4.7 0.8 % Restructuring/ integration / acquisition expenses (5.4) (0.7) % Impairment of intangible assets (7.5) (1.0) % December 31, 2023 $ 58.1 7.9 % 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.
At December 31, 2022, the funded status of our U.S. pension plans increased to 97.8% from 97.2% at December 31, 2021. The funded status for our non-U.S. pension plans decreased to 97.4% at December 31, 2022 from 107.7% at December 31, 2021.
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.
Cost of Goods Sold For the year ended December 31, 2022, Cost of goods sold as a percentage of Net revenues increased to 59.6% from 58.0%, as compared to the year ended December 31, 2021, due to the following: Inflation in excess of pricing and productivity 0.7 % Volume / product mix (0.9) % Acquisitions / divestitures 0.7 % Investment spending 0.2 % Currency exchange rates 0.3 % Restructuring / acquisition expenses 0.6 % Total 1.6 % 31 Table of Contents Cost of goods sold as a percentage of Net revenues increased primarily due to the impact inflation had on Cost of goods sold, which exceeded the beneficial impacts from pricing and productivity, lower gross margins associated with our acquired Access Technologies business, increased investment spending, higher restructuring and acquisition and integration costs year-over-year and unfavorable foreign currency exchange rate movements.
Cost of Goods Sold 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: Pricing and productivity in excess of inflation and investment spending (3.8) % Volume / product mix 0.3 % Acquisitions / divestitures 0.5 % Currency exchange rates 0.3 % Restructuring / integration / acquisition expenses (0.2) % Total (2.9) % 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- 32 Table of Contents year.
Net Revenues Net revenues for the year ended December 31, 2022, increased by 14.1%, or $404.5 million, as compared to the year ended December 31, 2021, due to the following: Pricing 9.8 % Volume 0.9 % Acquisitions / divestitures 6.4 % Currency exchange rates (3.0) % Total 14.1 % The increase in Net revenues was driven by improved pricing across our major businesses, our acquisition of the Access Technologies business and higher volumes in our Allegion Americas segment.
Net Revenues Net revenues for the year ended December 31, 2023, increased by 11.6%, or $378.9 million, as compared to the year ended December 31, 2022, due to the following: Pricing 7.5 % Volume (2.3) % Acquisitions / divestitures 6.2 % Currency exchange rates 0.2 % Total 11.6 % The increase in Net revenues was driven by improved pricing across our major businesses, our acquisitions of the Access Technologies and plano businesses and favorable foreign currency exchange rate movements.
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.
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.
In millions 2022 2021 Net cash provided by operating activities $ 459.5 $ 488.6 Net cash used in investing activities (994.1) (31.6) Net cash provided by (used in) financing activities $ 437.0 $ (529.3) Operating activities : Net cash provided by operating activities for the year ended December 31, 2022, decreased by $29.1 million compared to 2021, driven primarily by changes in working capital.
In millions 2023 2022 Net cash provided by operating activities $ 600.6 $ 459.5 Net cash used in investing activities (129.1) (994.1) Net cash (used in) provided by financing activities $ (298.7) $ 437.0 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.
Operating Income/Margin Operating income for the year ended December 31, 2022, increased $56.2 million as compared to the year ended December 31, 2021, and Operating margin decreased to 17.9% from 18.5%, due to the following: In millions Operating Income Operating Margin December 31, 2021 $ 530.2 18.5 % Pricing and productivity in excess of inflation 79.7 0.9 % Volume / product mix 36.5 1.1 % Currency exchange rates (21.9) (0.2) % Investment spending (16.0) (0.6) % Acquisitions/ divestitures 18.6 (0.4) % Restructuring / acquisition expenses (40.7) (1.4) % December 31, 2022 $ 586.4 17.9 % The increase in Operating income was driven by pricing improvements in excess of inflation and productivity, favorable volume/product mix and the contribution to Operating income from our acquired Access Technologies business.
Operating income/margin Segment operating income for the year ended December 31, 2023, increased $146.0 million, and Segment operating margin increased to 26.0% from 24.2% as compared to the year ended December 31, 2022, due to the following: In millions Operating Income Operating Margin December 31, 2022 $ 611.2 24.2 % Pricing and productivity in excess of inflation and investment spending 159.2 3.9 % Volume / product mix (17.1) (0.5) % Currency exchange rates (13.8) (0.5) % Acquisitions 25.0 (0.8) % Restructuring/ integration / acquisition expenses (7.3) (0.3) % December 31, 2023 $ 757.2 26.0 % 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.
The decrease in Segment operating margin was primarily due to the year-over-year increase in acquisition and integration expenses, the impact to Segment operating margin from our Access Technologies business, increased investment spending and unfavorable foreign currency exchange rate movements. These decreases were partially offset by favorable volume/product mix.
This increase was partially offset by unfavorable volume/product mix, unfavorable foreign currency 35 Table of Contents 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.
We define Segment operating margin as Segment operating income as a percentage of the segment's Net revenues. 33 Table of Contents Segment Results of Operations - For the years ended December 31 In millions 2022 2021 % Change Net revenues Allegion Americas $ 2,551.6 $ 2,072.2 23.1 % Allegion International 720.3 795.2 (9.4) % Total $ 3,271.9 $ 2,867.4 Segment operating income Allegion Americas $ 613.3 $ 525.0 16.8 % Allegion International 68.3 82.4 (17.1) % Total $ 681.6 $ 607.4 Segment operating margin Allegion Americas 24.0 % 25.3 % Allegion International 9.5 % 10.4 % Allegion Americas Our Allegion Americas segment is a leading provider of security products, services and solutions throughout North America.
Segment Results of Operations - For the years ended December 31 In millions 2023 2022 % Change Net revenues Allegion Americas $ 2,913.6 $ 2,530.7 15.1 % Allegion International 737.2 741.2 (0.5) % Total $ 3,650.8 $ 3,271.9 Segment operating income Allegion Americas $ 757.2 $ 611.2 23.9 % Allegion International 58.1 70.4 (17.5) % Total $ 815.3 $ 681.6 Segment operating margin Allegion Americas 26.0 % 24.2 % Allegion International 7.9 % 9.5 % 34 Table of Contents Allegion Americas Our Allegion Americas segment is a leading provider of security products, services and solutions throughout North America.
Financing activities : Net cash provided by (used in) financing activities for the year ended December 31, 2022, changed by $966.3 million compared to 2021, primarily due to the $600.0 million issuance of our 5.411% Senior Notes to help finance the acquisition of the Access Technologies business.
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.
Net revenues from non-residential products (excluding Net revenues from our acquired Access Technologies business), increased by a low twenties percent compared to the prior year, driven by improved pricing and higher volumes.
Net revenues from non-residential products (excluding Net revenues from our acquired Access Technologies business), increased by a low double-digits percent compared to the prior year, driven by improved pricing which was offset by lower volumes. Pricing improvements reflect the realization of initiatives taken by the Company in response to inflation pressures.
Strong demand throughout 2022 and improvements around the availability of materials and components, driven in part by our actions to mitigate these supply-chain challenges, helped drive the increase in volumes compared to 2021. Net revenues from residential products decreased by a low single digits percent compared to the prior year. Increased pricing was offset by lower volumes during the year.
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.
Net revenues Net revenues for the year ended December 31, 2022, decreased by 9.4%, or $74.9 million, as compared to the year ended December 31, 2021, due to the following: Pricing 5.6 % Volume (4.6) % Acquisitions / divestitures (0.3) % Currency exchange rates (10.1) % Total (9.4) % The decrease in Net revenues was driven by lower volumes and unfavorable foreign currency exchange rate movements, due to the strengthening of the U.S. dollar relative to most of the currencies in which we do business throughout our Allegion International segment.
Net revenues Net revenues for the year ended December 31, 2023, decreased by 0.5%, or $4.0 million, as compared to the year ended December 31, 2022, due to the following: Pricing 4.9 % Volume (7.4) % Acquisitions / divestitures 0.7 % Currency exchange rates 1.3 % Total (0.5) % The decrease in Net revenues was driven by lower volumes, particularly within our Global Portable Security 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. We also had $13.2 million of letters of credit outstanding as of December 31, 2022. Outstanding borrowings under the 2021 Revolving Facility may be repaid at any time without premium or penalty, and amounts repaid may be reborrowed.
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.
The decrease in Operating margin was primarily due to the year-over-year increase in restructuring and acquisition expenses, unfavorable foreign currency exchange rate movements, increased investment spending and the dilutive impact to Operating 32 Table of Contents margin from our Access Technologies business.
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.
These increases were partially offset by unfavorable foreign currency exchange rate movements, increased investment spending and a year-over-year increase in restructuring and acquisition and integration expenses, which were primarily related to our acquisition of the 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. The increase in Segment operating margin was driven by pricing and productivity improvements in excess of inflation and investment spending.
Investing activities : Net cash used in investing activities for the year ended December 31, 2022, increased by $962.5 million compared to 2021, primarily due to $923.1 million of cash paid for our acquisition of the Access Technologies business, as well as an increase of $18.6 million in capital expenditures compared to 2021.
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.
These increases were partially offset by unfavorable foreign currency exchange rate movements, lower volumes in our Allegion International segment and a divestiture in each of the prior and current year. Increased pricing was the result of multiple pricing initiatives implemented to help mitigate the impact of the persistent, elevated levels of inflation.
These increases were partially offset by lower volumes and a divestiture in the prior year. Increased pricing was the result of multiple pricing initiatives implemented to help mitigate the impact of inflation. We will continue to monitor the inflationary pressures to our businesses and address them through pricing initiatives where appropriate.
Risk Factors". 2022 and 2021 Significant Events Acquisition of the Access Technologies business On July 5, 2022, we completed the acquisition of the Access Technologies business for a closing purchase price of $923.1 million. This acquisition was financed by the net proceeds from the issuance of our 5.411% Senior Notes, together with borrowings under the 2021 Revolving Facility.
This acquisition was financed by the net proceeds from the issuance of our 5.411% Senior Notes, together with borrowings under the 2021 Revolving Facility. The Access Technologies business has been integrated into our Allegion Americas segment.
Additionally, COVID-19 related lockdowns in China throughout the year also contributed to lower volumes. While we anticipate pricing initiatives to continue to positively contribute to revenue growth in 2023, volume growth will likely continue to be tempered until prevailing macroeconomic and geopolitical conditions improve.
A softening demand throughout much of Europe, Asia and Oceania in 2023 has impacted several of our businesses. While we anticipate pricing initiatives to continue to positively contribute to revenue growth in 2024, volume growth will likely continue to be tempered until prevailing macroeconomic and geopolitical conditions improve.
Provision for Income Taxes For the year ended December 31, 2022, our effective tax rate was 10.9%, compared to 7.8% for the year ended December 31, 2021.
Provision for Income Taxes 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.
These increases to Cost of goods sold as a percentage of Net revenues were partially offset by favorable product mix, due to increased volumes in the Allegion Americas segment. Inflation in excess of pricing and productivity includes the impact to Costs of goods sold from pricing, as defined above, in addition to productivity and inflation.
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. 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 in excess of inflation includes the impact from reductions in selling and administrative expenses due to productivity projects and current period costs of ongoing selling and administrative functions compared to the same ongoing expenses in the prior period. Volume leverage represents the contribution margin related to changes in sales volume, excluding the impact of price, productivity, mix and inflation.
These increases were partially offset by the beneficial impact from current and prior year acquisition and divestiture activity. 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.
The rise in interest rates over the course of 2022 also contributed to a higher weighted-average interest rate on our variable rate outstanding indebtedness. Loss on Divestiture As discussed above, in September 2022 we sold Milre for an immaterial amount, resulting in a net loss of $7.6 million.
Interest Expense Interest expense for the year ended December 31, 2023, increased $17.2 million as compared to the year ended December 31, 2022 due to the full year impact of interest on our 5.411% Senior Notes issued in June of 2022 as well as an increase in the variable interest rate on borrowings under our 2021 Term Facility. 33 Table of Contents Loss on Divestiture As discussed above, in September 2022 we sold Milre for an immaterial amount, resulting in a net loss of $7.6 million.
These increases were partially offset by unfavorable foreign currency exchange rate movements, increased investment spending and a year-over-year increase in acquisition and integration expenses, which were primarily related to our acquisition of the Access Technologies business.
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. The increase in Operating margin was driven by pricing and productivity improvements in excess of inflation and investment spending.
During the second half of 2022, we experienced a softening in market demand for our residential products, due in part to elevated inflation and lower consumer sentiment, which resulted in reduced sales volumes. Further, market conditions for new residential construction deteriorated over the latter half of 2022, due in part to a rapid and substantial increase in mortgage rates.
Net revenues from residential products decreased by a low single digits percent compared to the prior year. Stable pricing was offset by lower volumes during the year. During 2023, we experienced a softening in market demand for our residential products, due in part to lower consumer sentiment, which resulted in reduced sales volumes.
Since the acquisition date and through December 31, 2022, the Access Technologies business generated $185.9 million in Net revenues. Divestiture of Milre In September 2022, we sold Milre Systek Co. Ltd. ("Milre") in South Korea for an immaterial amount. As a result of the sale, we recorded a net loss on divestiture of $7.6 million.
Divestiture of Milre In September 2022, we sold Milre Systek Co. Ltd. ("Milre") in South Korea for an immaterial amount.
We expect this pricing momentum to continue to drive revenue growth and help offset the impact of inflation into 2023. While 2022 began with similar strong demand for our residential products in our Allegion Americas segment, macroeconomic conditions had a more challenging impact on demand as the year progressed.
As the year progressed, customers began adjusting ordering patterns in response to our reduced lead times due to improved supply chain and operational execution, which resulted in abnormal seasonality of non-residential revenues in 2023. Macroeconomic conditions had a more challenging impact on the demand for our residential products in our Allegion Americas segment which negatively impacted revenues.
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Our ability to meet this elevated level of customer demand improved substantially as the year progressed, due in part to our actions taken to address industry-wide supply-chain challenges (particularly shortages of electronic components), as well as improving availability of non-electronic parts and materials.
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We also experienced a continued softening of demand in our Global Portable Security and China businesses in our Allegion International segment. Growth in electronic security products and solutions remained strong throughout 2023 and continues to outperform mechanical products.
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Further, in response to the persistent, elevated levels of inflation seen throughout the year, we implemented a series of pricing initiatives across our global businesses. Not only did these pricing initiatives significantly contribute to revenue growth in 2022, they also helped mitigate the inflationary pressures on our cost base.
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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.
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A combination of elevated inflation and lower consumer sentiment impacted sales volumes of residential products within our Allegion Americas segment. We also experienced a softening of demand throughout many of the Eurozone economies during the second half of 2022, reflecting increased economic and geopolitical concerns in this region, which impacted several of our businesses in our Allegion International segment.
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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.
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While supply chain challenges around the availability of electronic parts and components persist, and will likely continue to impact our ability to meet the elevated levels of demand for our electronic security products into 2023, we remain focused on providing exceptional service and innovation to our customers.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe are also exposed to the risk of rising interest rates to the extent that we fund our operations with short-term or variable-rate borrowings, as we currently have unused availability of $417.8 million under the 2021 Revolving Facility as of December 31, 2022.
Biggest changeWe are also exposed to the risk of rising interest rates to the extent that we fund our operations with short-term or variable-rate borrowings. We have $18.4 million of letters of credit outstanding and unused availability of $481.6 million under the 2021 Revolving Facility as of December 31, 2023.
However, outstanding borrowings under the 2021 Credit Facilities do accrue variable rate interest at our option of (i) a BSBY rate plus the 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.
However, outstanding borrowings under the 2021 Credit Facilities accrue variable rate interest at our option of (i) a BSBY rate plus the 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.
If the BSBY or other applicable base rates of the 2021 Credit Facilities increase in the future, our Interest expense could increase. 42 Table of Contents
If the BSBY or other applicable base rates of the 2021 Credit Facilities increase in the future, our Interest expense could increase. 43 Table of Contents
We use fixed price contracts to manage this exposure where appropriate. We do not have committed commodity derivative instruments in place at December 31, 2022. Interest Rate Exposure Of our total outstanding indebtedness of $2.1 billion as of December 31, 2022, approximately 85% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.
We use fixed price contracts to manage this exposure where appropriate. We do not have committed commodity derivative instruments in place at December 31, 2023. Interest Rate Exposure Of our total outstanding indebtedness of $2.0 billion as of December 31, 2023, approximately 89% incurs fixed-rate interest and is therefore not exposed to the risk of rising variable interest rates.
Based on the firmly committed currency derivative instruments in place at December 31, 2022, a hypothetical change in fair value of those derivative instruments assuming a 10% adverse change in exchange rates would result in an additional unrealized loss of approximately $1.5 million.
Based on the firmly committed currency derivative instruments in place at December 31, 2023, a hypothetical change in fair value of those derivative instruments assuming a 10% adverse change in exchange rates would result in an additional unrealized loss of approximately $2.9 million.
At December 31, 2022, the outstanding borrowings of $306.5 million under the 2021 Credit Facilities accrue interest at BSBY plus a margin of 1.125%, resulting in an interest rate of 5.498%. Applicable variable interest rates increased throughout 2022, resulting in increased Interest expense.
At December 31, 2023, the outstanding borrowings of $225.0 million under the 2021 Credit Facilities accrue interest at BSBY plus a margin of 1.125%, resulting in an interest rate of 6.581%. Applicable variable interest rates increased throughout 2023, resulting in increased Interest expense.
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A hypothetical increase of 1% in the interest rate on the variable rate borrowings under our 2021 Credit Facilities would increase our interest expense over the next twelve months by $2.2 million based on the balances outstanding for these borrowings as of December 31, 2023.

Other ALLE 10-K year-over-year comparisons