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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.00pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.00pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.00pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Risk Factors (Item 1A)
5,546 words
ITEM 1A. RISK FACTORS
Our operations face certain risks that should be considered in evaluating our business. We manage and mitigate these risks on a proactive basis, using an enterprise risk management program. Nevertheless, the following risk factors, some of which may be beyond our control, could materially affect our business, financial condition, results of operations, brand and reputation, and may cause future results to be materially different from our current expectations. These risk factors are not intended to be all inclusive.
Mailing and Shipping Industry Risks
The financial condition and governance model of the USPS, or the national posts in our other major markets, has affected, and could, in the future, adversely affect client demand for our offerings and thus our financial performance.
We are dependent on financially viable national posts in the geographic markets where we operate, particularly in the United States. A significant portion of our revenue depends upon the ability of these posts, especially the USPS, to provide reliable, competitive mail and package delivery services to our clients. Their ability to provide high quality reliable service at affordable rates relates to their ongoing financial . The USPS and other national posts continue to face financial which could lead to changes in governance models. If these or changes with these posts’ ability to provide the services they currently provide, our financial performance may be affected.
MD&A (Item 7)
6,119 words
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and operating results should be read in conjunction with our risk factors, consolidated financial statements and related notes. This discussion includes forward-looking statements based on management's current expectations, estimates and projections and involves risks and uncertainties. Actual results may differ significantly from those currently expressed. A detailed discussion of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements is outlined under "Forward-Looking Statements" and "Item 1A. Risk Factors" in this Form 10-K. All table amounts are presented in thousands of dollars.
We are subject to postal regulations and processes, which could adversely affect our financial performance.
A significant portion of our business is subject to regulation and oversight by the USPS, posts in other major markets, and the governmental bodies that regulate the posts themselves. These postal authorities have the power to regulate some of our current products and services and to establish guidelines for postage rates. They also must approve many of our new product and service offerings before we can bring them to market. If new product and service offerings are not approved or there are significant conditions to approval, our ability to grow the business and in turn, our financial performance, could be adversely affected. Additionally, if favorable postage rates are reversed, regulations on existing products, rates or services are changed, legal or regulatory changes cause posts to change their operating models in a way that disadvantages our business, posts utilize their position in the market or their role as product regulator to limit competition in areas where the posts themselves offer solutions, or if we fall out of compliance with the posts’ regulations, our financial performance could be adversely affected.
If we are not able to respond to the continuing decline in the volume of physical mail delivered via traditional postal services, our financial performance could be adversely affected.
Continuing declines in traditional mail volumes impact our financial results. An accelerated or sudden decline in mail volumes could result from one or more of the following factors: changes in communication technologies and their use; changes in frequency and quality of mail delivery from national posts; changes in law that favor alternative means of communication, burden mail, or limit how the mail may be used; significant rate increases; or other external events affecting physical mail delivery. If we are not successful at meeting the continuing challenges faced in our mailing business, or if physical mail volumes experience an accelerated or sudden decline, our financial performance could be adversely affected.
Our ability to compete in the shipping market in the United States depends upon certain contractual relationships we have with the USPS and other carriers, as well as their service.
Our SendTech Solutions offerings depend upon certain contractual relationships with the USPS and other carriers to enable us to offer these services profitably. Should the USPS or other carriers make changes to how they contract with us for our solutions, our profitability could be adversely affected.
Business Operational Risks
The markets for our products and services are highly competitive.
SendTech Solutions faces competition from other mail equipment and solutions providers, companies that offer products and services as alternative means of message communications and those that offer online shipping and mailing products and services solutions. SendTech Solutions’ digital shipping business competes with technology providers ranging from large, established companies and national posts to smaller companies offering negotiated carrier rates. In addition, our financing operations face competition, in varying degrees, from large, diversified financial institutions, leasing companies, commercial finance companies, commercial banks and smaller specialized firms. Presort Services faces competition from regional and local presort providers, cooperatives of multiple local presort providers, consolidators and service bureaus that offer presort solutions as part of a larger bundle of outsourcing services and large volume mailers that have sufficient volumes and the capability to presort their own mailings in-house and could use excess capacity to offer presort services to others. We compete on the basis of a variety of factors, including price and the breadth and quality of our products and services. If we are not able to differentiate ourselves from our competitors or effectively compete with them, we may lose clients and the financial results of these segments may be adversely affected.
If we fail to effectively manage our third party suppliers, or if their ability to perform were negatively impacted, our business, financial performance and reputation could be adversely affected.
SendTech Solutions operations rely on third party suppliers for services and components for our mailing equipment, spare parts, supplies and services and for the hosting of our SaaS offerings. Presort Services relies on third party suppliers to help equip our facilities, provide warehouse support and assist with logistical operations. In certain instances, we rely on single-sourced or limited-sourced suppliers around the world because of advantages in quality, price or lack of alternative sources. Like many other companies, we and our suppliers have experienced interruptions, delays and increased supply costs in the past, due to, among other things, volatility in the semiconductor industry, threats of strikes, rising inflation, tariffs and geopolitical instability. If we experience supply chain constraints in the future or these constraints were to worsen, or if other unknown events cause our suppliers to not be able to provide their services, components or equipment to us in a timely and cost-effective manner, and we were not able to find alternate suppliers, we could lose clients, incur significant disruptions in manufacturing and operations and increased costs.
Fluctuations in transportation costs or disruptions to transportation services in Presort Services could adversely affect client satisfaction or our financial performance.
In addition to our reliance on the USPS, Presort Services relies upon third party transportation service providers to transport a significant portion of our mail volumes. The use of these providers is subject to risks, including our ability to negotiate acceptable terms due to, increased competition during peak periods, capacity issues, increased fuel costs, labor shortages, performance problems, extreme weather, natural or man-made disasters, pandemics, or other unforeseendifficulties. Given our reliance upon these providers, any unforeseendisruptions affecting the availability of these services or any dramatic increase in the cost of these services (each of which we have experienced, at times), could adversely affect client satisfaction and our financial performance.
Our business depends on our ability to attract, retain, and engage with, employees at a reasonable cost to meet the needs of our business and to consistently deliver highly differentiated, competitive offerings.
During the second half of 2025, we approved a voluntary, early retirement initiative in the U.S. and a globally targeted, involuntaryrestructuring initiative (together, the “2025 Plan”). Such actions may cause us to experience a loss of continuity, experience and institutional knowledge, a reduction in productivity and efficiency, the unexpectedloss of key employees and/or other retention issues during transitional periods. Such actions may also make it more difficult to attract and retain qualified employees.
There is also significant competition for the talent needed for research and development of new products and services and talent needed to sell and service our other products and services within all our business units.
At times, Presort Services has experienced increased demand and competition for labor, driving up costs. We supplement our workforce with contingent hourly workers from staffing agencies on an as-needed basis; however, if we experience labor shortages, and are unable to attract and utilize contingent workers, or if our staffing agencies terminate their relationship with us and we cannot find alternative providers, we could incur higher costs and our operations could be adversely affected. Moreover, given the nature of our Presort Services employee base, if we cannot continue to maintain good relationships, we could experience increased employee dissatisfaction and turnover, which could result in increased operating costs and reduced operational flexibility.
If we fail to comply with government contracting regulations, our financial performance, brand name and reputation could suffer.
We have a significant number of contracts with governmental entities. Government contracts are subject to extensive and complex procurement laws and regulations, along with regular audits and investigations by government agencies. If we were subjected to a claim of contractual noncompliance by a government agency and were found noncompliant, then we could be subject to various civil or criminalpenalties and administrative sanctions, which could include the termination of the contract, reimbursement of payments received, fines and debarment from doing business with other government agencies. Any of these events could not only affect our financial performance, but also adversely affect our brand and reputation.
Difficulty in obtaining and protecting our intellectual property, and the risk of infringementclaims by others may negatively impact our financial performance.
Our business success depends in part upon protecting our intellectual property rights, including proprietary technology developed (internally or by third party partners and subcontractors) or obtained through acquisitions. We rely on copyrights, patents, trademarks, trade secrets and other intellectual property laws to establish and protect our proprietary rights. If we are unable to protect our intellectual property rights, our competitive position may suffer, which could adversely affect our revenue and profitability. The continued evolution of patent law and the nature of our innovation work may affect the number of patents we are able to receive for our development efforts. As we continue to transition our business to more software and service-based offerings, patent protection of these innovations will be more difficult to obtain. As a result, we will rely more on copyrights and, when appropriate, trade secret protection for those software and service-based offerings. In addition, from time to time, third parties may claim that we, our clients, or our suppliers, have infringed their intellectual property rights. Although third parties also face the same difficulties in patenting software and service-based offerings, these claims, if successful, may require us to redesign affected products, enter into costly settlement or license agreements, pay damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain products.
Our capital investments to develop new products and offerings may not yield the anticipated benefits.
We make significant capital investments in new products and services to meet the evolving needs of our customers, improve and grow our business and remain competitive. If we are not successful in these new product or service introductions, or if our past capital investments do not yield the results anticipated when making the investments, there may be an adverse effect on our financial performance.
We are subject to risks relating to claims arising from the Ecommerce Restructuring and related transactions.
On August 8, 2024, we entered into a series of transactions designed to facilitate an orderly wind-down of a majority of our Global Ecommerce reporting segment, including the sale of 81% of the voting interests of DRF Logistics, LLC (“DRF Logistics”), which owned a majority of the Global Ecommerce segment’s net assets and operations (the “GEC Sale”). Following the GEC Sale, DRF Logistics and DRF LLC, a subsidiary of DRF Logistics (together, the “Ecommerce Debtors”), at the direction of their own governing bodies, filed voluntary petitions to commence Chapter 11 bankruptcy cases. We refer to the GEC Sale, the Chapter 11 cases and any associated transactions collectively as the “Ecommerce Restructuring.” On November 25, 2024, the Bankruptcy Court entered an order confirming the liquidation plan, and the timely and orderly wind-down of the Ecommerce Debtors is ongoing. Risks and uncertainties may continue to be associated with the Ecommerce Restructuring, including, among others, continuing claims asserted against the Company or its affiliates related to the Ecommerce Restructuring as described in Part I, Item 3, “Legal Proceedings.”
Changes within our senior management and our Board of Directors could create uncertainties and impact our business.
We have undergone recent changes in our senior management and in the composition of our Board of Directors. Leadership transitions may create continuity risks and operational challenges and could adversely affect our ability to execute our strategy. These changes also may create uncertainty among investors, customers, employees, and other stakeholders regarding our future direction and performance, and could make it more difficult to attract and retain qualified personnel. Our senior management team is focused on initiatives to strengthen our business and improve long-term value for our shareholders. If we fail to effectively implement any of these initiatives or to do so on a timely basis, our business, results of operations, financial condition and cash flows could be adversely affected.
Cybersecurity and Technology Risks
Our financial performance and our reputation could be adversely affected, and we could be subject to legal liability or regulatory enforcement actions, if we or our suppliers are unable to protect against, or effectively respond to, cyberattacks or other cybersecurity incidents.
We depend on the security and integrity of our information technology systems and those of certain third-party service providers and suppliers to support numerous business processes and activities, to service our clients, and to enable consumer transactions and postal services. There are numerous cybersecurity risks to these systems, including, but not limited to, individual and group criminal hackers, industrial espionage, denial of service attacks, ransomware and malware attacks, attacks on the software supply chain, and employee errors and/or malfeasance, phishing and other social engineering attacks, credential theft, insider threats and exploitation of vulnerabilities in third-party software and systems. These cyber threats are diverse and constantly evolving, especially given the advances in, and the rise of the use of, artificial intelligence, thereby increasing the difficulty of preventing, detecting, and successfullydefendingagainst them and may be more difficult to detect and mitigate, including as threat actors use artificial intelligence and other advanced tools to enhance attacks and impersonation tactics. Successful cybersecurity breaches could, among other things, disrupt our operations or degrade service delivery or result in the unauthorized disclosure, theft and misuse of company, client, consumer and employee sensitive and confidential information, all of which could adversely affect our financial performance. Cybersecurity breaches could result in legal claims or proceedings, financial liability to other parties, governmental investigations, regulatory enforcement actions and penalties, and damage to our brand and reputation. Although we maintain insurance coverage relating to cybersecurity incidents, we may incur costs or financial losses that are either not insured against or not fully covered through our insurance and such insurance may be subject to exclusions, sub-limits and retentions and may become more expensive or less available on acceptable terms. We and certain of our suppliers have experienced cybersecurity incidents in the past, and may experience additional incidents in the future. Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cyberattack will not occur or that we will be able to prevent, detect or respond to all incidents in a timely and effective manner. Our goal is to prevent meaningful incursions and minimize the overall impact of those that occur. For more information on how the Company handles cybersecurity, see Item 1C. Cybersecurity.
Failure to comply with data privacy and protection laws and regulations could subject us to legal liability and adversely affect our reputation and our financial performance.
Our businesses use, process, and store proprietary information and personal, sensitive, or confidential data relating to our business, clients, and employees. Privacy laws and similar regulations in many jurisdictions where we do business require that we take significant steps to safeguard that information, and these laws and regulations continue to evolve. The scope of the laws that may be applicable to us is often uncertain and may be conflicting, and the growth of our cloud-based services increases the scope and
complexity of laws that might apply. In addition, new laws may add an array of requirements on how we handle or use information and increase our compliance obligations. For example, India's Digital Personal Data Protection Act of 2023, and implemented rules notified in 2025, established a framework regulating the processing of digital personal data. The European Union’s Artificial Intelligence Act, which entered into force in August 2024, introduces additional requirements for certain AI systems and practices and will apply on a phased timeline, and may increase compliance obligations for organizations that develop, deploy or use AI-enabled tools. In the United States, a growing number of states have enacted different laws regarding personal information, privacy and artificial intelligence that impose significant new requirements on consumer personal information. In some instances (e.g., California), these laws also expand the definition of consumer personal information to include information related to employees and business contacts. Some of these state laws have established independent agencies with rule making and enforcement authority, whose initial guidance, actions, and regulations continue to evolve and may be adopted or become effective on a phased basis. Other countries or states have enacted and will continue to enact and amend laws or regulations in the future that have similar or additional requirements. Although we endeavor to continually monitor and assess the impact of these laws and regulations, and continually update our systems to protect our data and comply with these laws, their interpretation and enforcement are uncertain, subject to change, and may require substantial costs to monitor and implement. Failure to comply with data privacy and protection laws and regulations could also result in government enforcement actions (which could result in substantial civil and/or criminalpenalties) and private litigation, which could adversely affect our reputation and financial performance.
If we or our third party service providers and suppliers encounter interruptions or difficulties in the operation of our cloud-based applications, our business could be disrupted, our reputation and relationships may be harmed, and our financial performance could be adversely affected.
Our business relies upon the continuous and uninterrupted performance of our cloud-based applications and systems and those of certain third-party service providers and suppliers to support numerous business processes, to service our clients and to support their transactions with their customers and postal services. Our applications and systems, and those of our third-party service providers and suppliers, may be subject to interruptions due to technological errors, system capacity constraints, software errors or defects, human errors, computer or communications failures, power loss, adverse acts of nature and other unexpected events. We have business continuity and disaster recovery plans in place designed to reduce the impact on our business operations in case of such events and we also require our suppliers to have the same . and, where appropriate, contractually obligate certain third-party service providers and suppliers to maintain similar plans. Nonetheless, there can be no guarantee that these plans will function as designed or will be sufficient to address all contingencies. If we are unable to limit interruptions or successfully correct them in a timely manner or at all, such interruptions could result in lost revenue, loss of critical data, significant expenditures of capital, a delay or loss in market acceptance of our services and damage to our reputation, brand and relationships, any of which could have an adverse effect on our business and our financial performance.
Macroeconomic and General Regulatory Risks
Periods of difficult economic conditions, other macroeconomic events, or a public health crisis could adversely affect our business.
Our operations and financial performance are impacted by economic conditions in the United States and the other countries where we and our clients do business. Any significant or perceived weakening of these economies, reduction in business confidence, change in business or consumer spending habits, concerns of a domestic or global recession, rising inflation or interest rates, limited availability of credit, or other macroeconomic events (including public health crises, severe weather events, government shutdowns or other disruptions in government operations), not within our control, may impact our clients’ businesses or reduce our clients’ demand for shipping and mailing products and services and thus, negatively affect our financial performance. These economic conditions, at times, have arisen and can arise suddenly, and the duration and full impact of such conditions can be difficult to predict, which could adversely impact our business, financial condition, and results of operations.
A significant decline in cash flows, changes in our credit ratings, capital market disruptions, noncompliance with any of our debt covenants, or significant withdrawals by depositors at the Bank, could adversely affect our ability to maintain adequate liquidity, provide competitive financing services and to fund various discretionary priorities.
We provide competitive finance offerings and fund discretionary priorities, such as capital investments, strategic acquisitions, dividend payments and share repurchases through a combination of cash generated from operations, and access to capital markets. Our ability to access U.S. capital markets and the associated cost of borrowing is dependent upon our credit ratings and is subject to capital market volatility. We maintain a revolving credit facility to provide funding as needed, however, our ability to borrow under this facility is subject to compliance with the covenants set forth in the credit agreement governing the revolving credit facility.
A significant decline in cash flows, or changes in our credit ratings, material capital market disruptions or noncompliance with any of our debt covenants that adversely affects our ability to access capital markets, could impact our ability to maintain adequate liquidity, continue to provide competitive finance offerings, repay or refinance maturing debt, and fund other strategic or discretionary activities, and adversely affect our operational and financial performance.
Changes in tax rates, laws or regulations could adversely impact our financial results.
We are subject to taxes in the U.S. and in the foreign jurisdictions where we do business. Due to continuing global fiscal challenges and political conditions, tax laws and enforcement approaches have been and may continue to be subject to significant change. Changes in tax laws may be on a prospective or retroactive basis and could have a material impact on our tax expense and cash flows. The Organization for Economic Co-operation and Development (OECD) has set forth a Two-Pillar Solution fundamentally overhauling the international tax rules. Pillar One focuses on reallocation of profits while Pillar Two applies a global minimum corporate tax. The OECD has issued Model Rules and ongoing administrative guidance to support implementation and coordination of these initiatives, and a number of jurisdictions have enacted or are implementing rules based on the OECD framework, including the Pillar Two global minimum tax. Although some jurisdictions have issued guidance or passed tax laws based on the OECD Model Rules, the final nature, timing and extent of any such tax reforms or other legislative or regulatory actions (including their scope, interpretation, implementation, enforcement and interaction with other jurisdictions’ rules) are evolving and it is difficult to assess their overall effect. These developments could increase our compliance and reporting obligations and, depending on the jurisdictions in which we operate and the interaction among applicable rules, could result in incremental tax expense (including “top-up” taxes), potential double taxation and adversely impact our financial results and cash flows. We continuously monitor developments and evaluate the impact these new rules are anticipated to have on our tax rate.
We are subject to tax audits in the various jurisdictions in which we operate. Given the complexity of the current and changing tax laws and regulations, tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly review the strength of our positions based on current law, court cases, rulings and proposed legislative changes to determine the appropriateness of our tax provision, however, there can be no assurance that we will accurately predict the outcomes of these audits, which could have a material impact on our effective tax rate and adversely impact our financial results and cash flows.
Our operations and financial performance may be negatively affected by changes in trade policies, tariffs and regulations.
In recent years, the United States increased tariffs for certain goods, which triggered other nations to also increase tariffs on certain of their goods. These increased tariffs resulted in additional costs on certain components used in SendTech products. In addition, there continues to be significant uncertainty about the future relationship between the United States and various other countries with respect to trade policies, treaties, tariffs, taxes, and other limitations on cross-border operations. Changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements could have an adverse effect on our business, prospects, financial condition and operating results, the extent of which cannot be predicted with certainty at this time.
Our business could be negatively affected as a result of shareholder activism .
We value constructive input from investors and regularly engage with our stockholders regarding strategy and performance. Our Board of Directors and management team are committed to acting in the best interests of all our stockholders; however, there is no assurance that the results of actions taken by our Board of Directors and management team will be successful.
We have been and may continue to be subject to shareholder activism in the future. Such activism or perceived uncertainties as to our future direction could adversely affect our results of operations and financial condition, as well as the market performance of our securities, including fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
We also face evolving and diverging requirements and expectations from investors, regulators, customers and other stakeholders across the jurisdictions in which we operate, including on environmental, social, governance and sustainability matters. Any actual or perceived failure to meet any expectations of our key stakeholders, including any regulatory requirements or expectations, could expose us to legal, operational and reputational risks, which could negatively impact our business.
Our indebtedness and the terms of our debt agreements could limit our financial and operating flexibility and adversely affect our
Business.
As of December 31, 2025, we had total debt of approximately $2 billion. Our debt service obligations could require us to dedicate a portion of our cash flows from operations to interest and principal payments. This could reduce the funds available to support operations, capital expenditures, and strategic initiatives and could increase our vulnerability to adverse business, industry, or economic conditions.
In addition, the agreements governing our indebtedness contain financial covenants and other restrictions that may limit our ability to take actions that could be in our best interests, including limitations on incurring additional indebtedness, granting liens, making certain investments, selling assets, entering into certain strategic transactions, or making certain restricted payments. For example, under our senior secured credit agreement, we are required to satisfy quarterly tested maintenance covenants, including a minimum interest coverage ratio and maximum secured net leverage and total net leverage ratios. Our ability to comply with these covenants and restrictions may be affected by events beyond our control. If we fail to comply, we may be required to seek waivers or amendments, which may not be available on acceptable terms, and a default could result in acceleration of amounts due and other remedies (including pursuant to any cross-default or cross-acceleration provisions).
We may need to refinance, redeem, or repay indebtedness as it matures (or in certain circumstances earlier than scheduled), and we
cannot guarantee that we will be able to do so on acceptable terms, or at all. In particular, our senior secured credit agreement contains provisions pursuant to which, if the notes due March 2027 have not been redeemed in full by specified dates and liquidity falls below
specified levels, certain of our term loans and any borrowings under our revolving credit facility could become due earlier than their
stated maturities. Further, a portion of our indebtedness bears interest at variable rates and increases in interest rates could increase our borrowing costs and adversely affect our cash flows.
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the Convertible Notes is triggered, holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, the conversion would be settled through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which could result in a reduction of our net working capital.
Certain provisions in the Indenture governing the Convertible Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Certain provisions in the Convertible Notes and the Indenture could make it more difficult or expensive for a third party to acquire us. For example, if an attempted acquisition constitutes a fundamental change, holders of the Convertible Notes will have the right to require us to repurchase their Convertible Notes in cash. In addition, if an attempted acquisition constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their Convertible Notes. In either case, our obligations under the Convertible Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us, including in a transaction that holders of the Convertible Notes or holders of our common stock may view as favorable.
The Capped Call Transactions may affect the value of the Convertible Notes and the market price of our common stock.
In connection with the pricing of the Convertible Notes, we entered into privately negotiated Capped Call Transactions with the option counterparties. The Capped Call Transactions are expected to reduce potential dilution to our common stock upon conversion of any Convertible Notes, with such reduction subject to a cap. If the market price per share of our common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution to the extent that such market price exceeds the cap price of the Capped Call Transactions. In addition, to the extent any observation period for any Convertible Notes does not correspond to the period during which the market price of our common stock is measured under the terms of the Capped Call Transactions, there could also be dilution and/or a reduced offset of any such cash payments as a result of the different measurement periods.
The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and may do so on each exercise date for the Capped Call Transactions or following any termination of any portion of the Capped Call Transactions in connection with any repurchase, redemption or early conversion of the Convertible Notes). This activity could also cause an increase or a decrease in the market price of our common stock or the Convertible Notes, which could affect holders’ ability to convert the Convertible Notes and, to the extent the activity occurs following conversion or during any observation period related to a conversion of Convertible Notes, it could affect the amount and value of the consideration that holders will receive upon conversion of such Convertible Notes.
We are subject to counterparty risk with respect to the Capped Call Transactions.
The option counterparties are financial institutions, and we are subject to the risk that any or all of them might default under the Capped Call Transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Global economic conditions from time to time have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty were to default under the Capped Call Transactions, we would become an unsecured creditor with a claim equal to our exposure at that time under the Capped Call Transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may sufferadverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the financial stability or viability of the option counterparties.
Interest expense, net
Other components of net pension and postretirement cost
Other expense
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes
Income from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Years Ended December 31,
Favorable/(Unfavorable)
Actual % Change
Total revenue
Total cost of revenue
Selling, general and administrative
Research and development
Restructuring charges
Goodwill impairment
Interest expense, net
Other components of net pension and postretirement cost
Other expense (income)
Loss from continuing operations before income taxes
(Benefit) provision for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net loss
Refer to Segment Results and Consolidated Expenses sections for detailed information.
CHANGES IN REPORTING
We recast our reporting presentation of revenue and cost of revenue to better align with our offerings. We now report Services revenue and Cost of services, which includes the previously reported Business services and Support services, Products revenue and Cost of products, which includes the previously reported Equipment sales and Supplies, and Financing and other revenue and Cost of financing and other, which includes the previously reported Financing and Rentals.
We recast our corporate expense allocation methodology to allocate all marketing and innovation expenses to our SendTech Solutions segment due to a change in how these functions are now managed.
We recast our segment reporting to report the revenue and related expenses of a cross-border services contract in our SendTech Solutions reporting segment, which was previously reported in Other operations.
Prior periods presented in this Form 10-K have been recast to conform to the current period presentation.
SEGMENT RESULTS
We operate in two segments: SendTech Solutions and Presort Services. Management measures segment profitability and performance as segment revenues less the related costs and expenses attributable to the segment. Segment results exclude interest, taxes, corporate expenses, restructuring charges and other items not allocated to the segments.
In the Consolidated Statements of Operations, we allocate a portion of total interest expense to finance interest expense, included in Cost of financing and other. For segment reporting, we exclude the allocated finance interest expense from the determination of adjusted segment EBIT.
SendTech Solutions
SendTech Solutions provides clients with physical and digital shipping and mailing technology solutions and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats, as well as supplies and maintenance services for these offerings. We offer financing alternatives that enable clients to finance Company and other manufacturers' equipment and product purchases, a revolving credit solution that allows clients to make meter rental payments and purchase postage, services and supplies, an interest-bearing deposit solution to clients that prefer to prepay postage and meet working capital needs.
Financial performance for the SendTech Solutions segment was as follows:
Years Ended December 31,
Favorable/(Unfavorable)
% change
Services
Products
Financing and other
Total revenue
Cost of services
Cost of products
Cost of financing and other
Total costs of revenue
Gross margin
Gross margin %
Selling, general and administrative
Research and development
Other components of pension and post retirement costs
Adjusted Segment EBIT
SendTech Solutions revenue decreased $98 million in 2025 compared to 2024. Products revenue declined $66 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment, the impact of
the prior year product migration and a significant deal in the prior year. Services revenue declined $19 million primarily due to the declining meter population. Financing and other revenue declined $13 million driven by the impact of the prior year product migration and mix of business. Revenue in 2025 includes an unfavorable adjustment of $4 million related to prior periods (see Note 1 to the Consolidated Financial Statements for further information).
Gross margin declined $41 million compared to the prior year. The impact of lower revenue was partially offset by headcount reductions and other cost savings initiatives resulting in an increase in gross margin percentage to 66.4% from 64.6%.
Selling, general and administrative ("SG&A") expense declined $64 million and research and development ("R&D") expense declined $14 million, primarily driven by lower employee-related expenses and overall cost savings initiatives.
Adjusted segment EBIT was $412 million in 2025, which includes the $4 million charge from the unfavorable revenue adjustment related to prior periods compared to $385 million for the prior year.
Years Ended December 31,
Favorable/(Unfavorable)
% change
Services
Products
Financing and other
Total revenue
Cost of services
Cost of products
Cost of financing and other
Total costs of revenue
Gross margin
Gross margin %
Selling, general and administrative
Research and development
Other components of pension and post retirement costs
Adjusted Segment EBIT
SendTech Solutions revenue decreased $52 million in 2024 compared to 2023. Products revenue declined $41 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. Services revenue declined $7 million primarily due to the declining meter population and continuing shift to cloud-enabled products, which was partially offset by an increase in our shipping subscriptions, including enterprise subscriptions and growth in digital delivery services due to client mix.
Gross margin declined $14 million primarily due to the decline in revenue; however, gross margin percentage increased to 64.6% from 63.2% compared to the prior year. The increase in gross margin percentage was primarily driven by improvements in gross margin due to growth in enterprise shipping subscriptions and digital delivery services.
SG&A expense declined $23 million, primarily driven by lower employee-related expenses of $17 million due to savings from the 2023 and 2024 Plans, lower credit loss provision of $4 million and lower expenses driven by overall cost savings initiatives, partially offset by higher professional and outsourcing fees of $13 million.
Adjusted segment EBIT was $385 million in 2024 compared to $375 million in 2023.
Presort Services
Presort Services is the largest workshare partner of the USPS and national outsource provider of mail sortation services that allow clients to qualify large volumes of First Class Mail, First Class Flats, Marketing Mail, and Marketing Mail Flats/Bound Printed Matter for postal worksharing discounts.
Financial performance for the Presort Services segment was as follows:
Years Ended December 31,
Favorable/(Unfavorable)
% Change
Services
Cost of services
Gross Margin
Gross Margin %
Selling, general and administrative
Other components of net pension and postretirement cost
Adjusted segment EBIT
Revenue decreased $26 million in 2025 compared to 2024 primarily due to a 7% decline in total mail volumes driven by client losses and a broader market decline, partially mitigated by pricing actions. The processing of First Class Mail and First Class Flats, Marketing Mail Flats/Bound Printed Matter and Marketing Mail contributed revenue decreases of $15 million, $6 million and $5 million, respectively. Prior year revenue includes a $5 million favorable adjustment related to prior periods. See Note 1 to the Consolidated Financial Statements for more information.
Gross margin decreased $7 million compared to the prior year primarily due to the decline in revenue, partially offset by a $5 million favorable cost adjustment related to prior periods (see Note 1 to the Consolidated Financial Statements for further information). Gross margin percentage increased slightly to 37.4% from 37.0%.
SG&A expense declined $6 million compared to the prior year driven primarily by lower credit loss provision of $2 million, lower employee related expenses of $2 million and overall cost savings initiatives.
Adjusted segment EBIT was $165 million in 2025 compared to $166 million in 2024.
Years Ended December 31,
Favorable/(Unfavorable)
% Change
Services
Cost of services
Gross Margin
Gross Margin %
Selling, general and administrative
Other components of net pension and postretirement costs
Adjusted segment EBIT
Revenue increased $45 million in 2024 compared to 2023 primarily due to pricing actions and product mix. The processing of First Class Mail and First Class Flats and Marketing Mail Flats/Bound Printed Matter contributed revenue increases of $40 million and $7 million, respectively, which was partially offset by a revenue decrease from Marketing Mail of $2 million. The revenue increase includes a $5 million favorable adjustment related to prior periods. Refer to Note 1 Basis of Presentation for further information.
Gross margin increased $59 million and gross margin percentage increased to 37.0% from 30.0% in the prior year primarily due to the increase in revenue, lower transportation costs of $5 million driven by lane optimization, cost savings as a result of the 2023 Plan, and the benefits from investments made in automation and higher-throughput sortation equipment.
SG&A expense increased $5 million compared to 2023 primarily due to higher credit loss provision of $3 million.
Adjusted segment EBIT was $166 million in 2024, including the $5 million benefit from the favorable revenue adjustment, compared to $111 million in 2023.
CORPORATE EXPENSES
The majority of operating expenses are recorded directly or allocated to our reportable segments. Operating expenses not recorded directly or allocated to our reportable segments are reported as corporate expenses. Corporate expenses primarily represents corporate administrative functions such as finance, human resources, legal and information technology.
Years Ended December 31,
Favorable/(Unfavorable)
Actual % change
Corporate expenses
Corporate expenses for 2025 decreased $36 million compared to the prior year primarily due to lower salary expense of $38 million driven by actions taken under the 2024 Plan and overall cost savings initiatives.
Years Ended December 31,
Favorable/(Unfavorable)
Actual % change
Corporate expenses
Corporate expenses for 2024 decreased $23 million compared to the prior year primarily due to lower salary expense of $22 million due to savings from the 2023 and 2024 Plans, lower professional and outsourcing fees of $12 million, non-cash foreign currency revaluation gains on intercompany loans of $8 million, lower insurance costs of $3 million and various other expense savings totaling approximately $15 million from cost savings initiatives. These cost savings were partially offset by higher variable compensation expense of $37 million.
CONSOLIDATED EXPENSES
SG&A Expense
SG&A expense decreased $96 million in 2025 compared to 2024 primarily due to lower employee-related expenses of $88 million driven by actions taken under our restructuring plans, lower professional and outsourcing fees of $28 million, lower insurance expense of $18 million and general cost savings initiatives, partially offset by higher non-cash foreign currency revaluation losses on intercompany loans of $32 million.
SG&A expense decreased $64 million in 2024 compared to 2023 primarily driven by lower employee-related costs of $10 million, due to lower salary expense of $40 million from headcount reductions partially offset by higher variable compensation of $33 million and a favorable impact of $16 million from the revaluation of intercompany loans. SG&A expense also benefited from overall cost savings initiatives that resulted in expense savings of approximately $38 million from savings in areas such as marketing, travel, real estate and insurance.
R&D Expense
R&D expense decreased $17 million in 2025 compared to 2024 primarily due to headcount reductions and general cost savings initiatives.
R&D expense increased $2 million in 2024 compared to 2023.
Restructuring charges
Restructuring charges decreased $18 million in 2025 compared to 2024. Employee severance charges decreased $25 million driven by the significant number of actions taken under the 2024 Plan in the prior year, partially offset by a $7 million abandonment charge in the current year related to the closure of our corporate office in Stamford, Connecticut. See Note 12 to the Consolidated Financial Statements for further information.
Restructuring charges increased $25 million in 2024 compared to 2023 primarily driven by actions taken under the 2023 and 2024 Plans.
Other components of net pension and postretirement cost
Other components of net pension and postretirement cost were $8 million, $89 million and a benefit of $8 million in 2025, 2024 and 2023, respectively. Other components of net pension and postretirement cost in 2024 includes a settlement charge of $91 million from a targeted campaign to offer lump sum settlements to vested participants. The amount of other components of net pension and postretirement cost recognized each year will vary based on actuarial assumptions and actual results of our pension plans. See Note 14 to the Consolidated Financial Statements for further information.
Other expense (income)
Other expense (income) declined $62 million in 2025 compared to 2024 primarily due to lower charges in connection with the Ecommerce Restructuring of $55 million and a $10 million prior year asset impairment, partially offset by a higher loss on the redemption/refinancing of debt of $3 million.
Other expense (income) increased $92 million in 2024 compared to 2023 due to $67 million of charges related to the Ecommerce Restructuring, a $14 million increase in debt redemption/refinancing costs and a $10 million asset impairment charge.
Income taxes
See Note 15 to the Consolidated Financial Statements for further information.
OUTLOOK
For 2026, we expect low to mid-single digit decline in revenue driven by the continued secular decline in mailing. We expect low single digit decline in EBIT and EBIT margin, primarily driven by expected competitive pricing pressures in Presort Services, partially offset by lower worldwide operating costs from previous and continued cost-cutting actions, including savings under the 2025 Plan. Lower interest costs and share repurchases are expected to benefit earnings per share and partially offset the impacts of lower EBIT.
Within SendTech Solutions, we intend to pursue strategies that will leverage the segment's strong position, customer base and current product and technology offerings to mitigate the secular downward pressures in the mailing industry.
Within Presort Services, we are focused on increasing volume growth by maintaining competitive pricing and pursuing strategic growth opportunities.
We will also continue to implement capital allocation strategies to opportunistically reduce debt and lower interest costs, return capital to our shareholders through share repurchases and dividends and pursue other long-term investment opportunities.
LIQUIDITY AND CAPITAL RESOURCES
Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our ability to manage costs and improve productivity, our clients' ability to pay their balances on a timely basis and the impacts of changing macroeconomic and geopolitical conditions. At December 31, 2025 we had cash, cash equivalents and short-term investments of $297 million, which includes $44 million held at our foreign subsidiaries used to support the liquidity needs of those subsidiaries. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity under our revolving credit facility will be sufficient to fund our cash needs for the next 12 months. Our future capital requirements will depend on many factors, including our strategic plans, investments and stock repurchase activity levels.
Cash Flow Summary
The change in cash and cash equivalents is as follows:
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Operating activities
Cash flows from operating activities in 2025 improved $154 million compared to the prior year, which includes an improvement of $47 million related to discontinued operations. Excluding discontinued operations, cash flows from continuing operations improved $107 million driven primarily by changes in working capital.
Cash flows from operating activities in 2024 improved $149 million compared to the prior year driven primarily by a decline in finance receivables and lower payments of accounts payable and accrued liabilities. Cash flow from operations also benefited from lower cash outflows from discontinued operations of $107 million.
Investing activities
Cash flows from investing activities for 2025 declined $76 million compared to the prior year primarily due to higher investments in loan receivables of $52 million and lower cash from investment activities of $53 million. These declines were partially offset by higher cash under the DIP Facility of $26 million as we received reimbursements of $9 million in the current year compared to net disbursements of $17 million in the prior year.
Cash flows from investing activities for 2024 improved $75 million compared to the prior year primarily due to higher cash from investment activities of $40 million, lower investments in loan receivables of $20 million, lower cash outflows from discontinued operations of $17 million, and lower capital expenditures of $6 million, partially offset by net DIP Facility funding of $17 million.
Financing activities
Cash flows from financing activities for 2025 declined $140 million compared to the prior year primarily due to common stock repurchases of $378 million, lower cash from changes in customer account deposits at the Bank of $40 million and higher dividend payments of $15 million. These declines were partially offset by higher cash from debt activity of $280 million and prior year cash outflows related to discontinued operations of $7 million.
Cash flows from financing activities for 2024 declined $275 million compared to the prior year primarily due to higher net debt repayments of $178 million and lower cash from changes in customer account deposits at the Bank of $97 million.
Debt and Financing Activities
In the first quarter of 2025, we redeemed the remaining outstanding balance of the Notes due March 2028 and recorded a loss of $17 million. Additionally, we entered into a new senior secured credit agreement (the "New Credit Agreement"), which provided a $265 million revolving credit facility (subsequently increased to $400 million during 2025) maturing March 2028, a $160 million term loan maturing March 2028 and a $615 million term loan maturing March 2032. The proceeds from the new term loans were used to repay the outstanding balances of the Term loan due March 2026 and Term loan due March 2028, under our prior credit agreement and for general corporate purposes. We recorded a loss of $8 million in connection with this refinance.
Under the New Credit Agreement, we are required to maintain (i) a Consolidated Interest Coverage Ratio (as defined in the New Credit Agreement) of not less than 2.00 to 1.00, (ii) a Consolidated Secured Net Leverage Ratio (as defined in the New Credit
Agreement) of no greater than 3.00 to 1.00 and (iii) a Consolidated Total Net Leverage Ratio (as defined in the New Credit Agreement) of no greater than 5.25 to 1.00 for the fiscal quarters ending March 31, 2025 and June 30, 2025, 5.00 to 1.00 for the fiscal quarters ending September 30, 2025 and December 31, 2025 and 4.75 to 1.00 for each fiscal quarter ending on or after March 31, 2026. At December 31, 2025, we were in compliance with these financial covenants and there were no outstanding borrowings under the revolving credit facility. Borrowings under our New Credit Agreement are secured by assets of the Company.
The New Credit Agreement also contains provisions whereby if, on any day between the period commencing on September 14, 2026 and ending on March 15, 2027, the Notes due March 2027 have not been redeemed in full and liquidity is less than an amount equal to the amount to redeem the Notes due March 2027 plus $100 million, the Term loan due March 2028 and any borrowings under the revolving credit facility would become due on such date (the "Pro Rata Springing Maturity Date"), and if on any date during the period beginning on December 14, 2026 and ending on March 15, 2027, the Notes due March 2027 remain outstanding and the Pro Rata Springing Maturity Date has occurred, the Term loan due March 2032 would be become due on the date that is 91 days after the Pro Rata Springing Maturity Date. We are considering various strategies and intend to redeem the Notes due March 2027 before September 2026 either with available liquidity or refinance through the capital markets.
In August 2025, we issued an aggregate $230 million convertible senior notes due 2030 (the "Convertible Notes"). The Convertible Notes accrue interest at a rate of 1.50% per annum, payable semi-annually in arrears on February 15 and August 15 of each year and mature on August 15, 2030, unless earlier repurchased, redeemed or converted. The initial conversion rate is 70.1533 shares of common stock per $1,000 principal amount, which represents an initial conversion price of approximately $14.25 per share of common stock, subject to adjustment. Net proceeds were $221 million. We used $24.7 million of the proceeds to enter into privately negotiated capped call transactions (the "Capped Call Transactions") with certain of the initial purchasers or their respective affiliates and certain other financial institutions. The Capped Call Transactions are expected to reduce the potential dilution of our common stock upon conversion of any Convertible Notes, with such reduction subject to a cap. We also used $61.9 million of the proceeds to repurchase 5.5 million of our common stock. The remaining proceeds will be used for general corporate purposes and other strategic investments.
The Convertible Notes are senior unsecured obligations of the Company and are guaranteed jointly and severally, on a senior unsecured basis, by each of the Company’s existing and future wholly owned U.S. subsidiaries that guarantee the Company’s existing credit agreement, existing senior notes or any other series of capital market debt with an aggregate principal amount outstanding in excess of $150 million.
Conversions of the Convertible Notes will be settled by paying cash up to the aggregate principal amount of the Convertible Notes being converted and by delivering shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.
See Note 13 to the Consolidated Financial Statements for further information regarding the Convertible Notes and Capped Call Transactions.
In November 2025, we commenced a tender offer to purchase, subject to certain terms and conditions, up to $80 million aggregate principal amount of our Notes due January 2037 and Notes due March 2043. The tender offer was completed in December 2025 by purchasing validly tendered and accepted notes in the aggregate principal amount of $80 million. We recorded a gain of $10 million for the tender offer.
During 2025, we purchased an aggregate $57 million of the Notes due March 2027 and Notes due March 2029 in the open market and we repaid $32 million of principal related to our term loans.
In connection with the GEC Chapter 11 Cases, the Company, through one of its wholly owned subsidiaries, agreed to provide funding to the Ecommerce Debtors through a DIP Facility. We provided initial funding of $28 million and have received repayments of $20 million. The remaining balance on the DIP Facility is fully reserved and any future repayments will be recorded as income in the period received.
While we are focused on reducing our leverage and interest costs, we may incur additional debt or issue additional equity securities in the future.
Future Cash Requirements
The following table summarizes our known and contractually committed cash requirements at December 31, 2025.
Payments due in (in millions)
Total
Thereafter
Debt maturities
Lease obligations
Purchase obligations
Retiree medical payments
Total
Debt
Required debt repayments over the next 12 months are $17 million, which we anticipate satisfying through available cash on hand and cash generated from operations. We estimate that cash interest payments for the next 12 months will be $130 - $140 million. See Note 13 to the Consolidated Financial Statements for information regarding our debt.
Lease obligations
We lease real estate and equipment under operating and capital lease arrangements. These leases have terms of up to 10 years and include renewal options. See Note 7 and Note 17 to the Consolidated Financial Statements for further information.
Purchase obligations
Purchase obligations include unrecorded open purchase orders for goods and services.
Off Balance Sheet Arrangements
At December 31, 2025, we had approximately $27 million outstanding letters of credit guarantees with financial institutions that are primarily issued as security for insurance, leases, customs and other performance obligations. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations, the probability of which we believe is remote. Outstanding letters of credit reduce the amount we can borrow under our revolving credit facility.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions about certain items that affect the reported amounts of assets, liabilities, revenues, expenses and accompanying disclosures, including the disclosure of contingent assets and liabilities. The accounting policies below have been identified by management as those policies that are most critical to our financial statements due to the estimates and assumptions required. Management believes that the estimates and assumptions used are reasonable and appropriate based on the information available at the time the financial statements were prepared; however, actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial Statements for a summary of our accounting policies.
Revenue recognition
We derive revenue from multiple sources including the sale and lease of equipment, equipment rentals, financing, support services and business services. Certain transactions are consummated at the same time and can therefore generate revenue from multiple sources. The most common form of these arrangements involves a sale or noncancelable lease of equipment, meter services and an equipment maintenance agreement. We are required to determine whether each product and service within the contract should be treated as a separate performance obligation (unit of accounting) for revenue recognition purposes. We recognize revenue for performance obligations when control is transferred to the customer. Transfer of control may occur at a point in time or over time, depending on the nature of the contract and the performance obligation.
For contracts that include multiple performance obligations, the total transaction price is typically determined based on the sum of standalone selling prices (SSP) for each performance obligation, which are a range of selling prices that we would sell a product or service to a customer on a separate basis. SSP are established for each performance obligation at the inception of the contract and can be observable prices or estimated. Revenue is allocated to the meter service and equipment maintenance agreement elements using their respective observable selling prices charged in standalone and renewal transactions. For sale and lease transactions, the SSP of the equipment is based on a range of observable selling prices in standalone transactions. We recognize revenue on non-lease transactions when control of the equipment transfers to the customer, which is upon delivery for customer installable models and upon installation or customer acceptance for other models. We recognize revenue on equipment for lease transactions upon shipment for customer installable models and upon installation or customer acceptance for other models.
Allowances for credit losses
Finance receivables are comprised of sales-type leases, secured loans and unsecured revolving loans. We provide an allowance for expected credit losses based on historical loss experience, the nature of our portfolios, adverse situations that may affect a client's ability to pay and current economic conditions and outlook based on reasonable and supportable forecasts. Total allowance for credit losses as a percentage of finance receivables was 2% at both December 31, 2025 and 2024. Holding all other assumptions constant, a 0.25% increase in the allowance rate at December 31, 2025 would have reduced pre-tax income by $3 million.
Trade accounts receivable are generally due within 30 days after the invoice date. We provide an allowance for expected credit losses based on historical loss experience, the age of the receivables, specific troubled accounts and other currently available information. Accounts deemed uncollectible are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible, or when they are 365 days past due, if sooner. The allowance for credit losses as a percentage of trade accounts receivables was 4% and 5% at December 31, 2025 and 2024, respectively. Holding all other assumptions constant, a 0.25% increase in the allowance rate at December 31, 2025 would have reduced pre-tax income by less than $1 million.
Income taxes and valuation allowance
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our annual tax rate is based on income, statutory tax rates, tax reserve changes and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining the annual tax rate and in evaluating our tax positions. We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the related financial statement implications. We have established tax reserves that we believe are appropriate given the possibility of tax adjustments. Determining the appropriate level of tax reserves requires judgment regarding the uncertain application of tax laws. Reserves are adjusted when information becomes available or when an event occurs indicating a change in the reserve is appropriate. Changes in tax reserves could have a material impact on our financial condition or results of operations.
Significant judgment is also required in determining the amount of deferred tax assets that will ultimately be realized and corresponding deferred tax asset valuation allowance. When estimating the necessary valuation allowance, we consider all available evidence for each jurisdiction including historical operating results, estimates of future taxable income and the feasibility of tax planning strategies. If new information becomes available that would alter our estimate of the amount of deferred tax assets that will ultimately be realized, we adjust the valuation allowance through income tax expense. Changes in the deferred tax asset valuation allowance could have a material impact on our financial condition or results of operations.
Pension benefits
The calculation of net periodic pension expense and determination of net pension obligations are dependent on assumptions and estimates relating to, among other things, the discount rate (interest rate used to discount the future estimated liability) and the expected rate of return on plan assets. These assumptions are evaluated and updated annually.
We manage significant defined benefit pension obligations. As part of our strategy to mitigate risks associated with these plans, in 2025, we entered into buy-in contracts (the "Buy-In") with insurance carriers to secure a portion of the defined benefit pension obligations (see Note 14 to the Consolidated Financial Statements).
These transactions involved transferring the risk for a select group of plan participants of the U.S. Qualified Pension Plan and the Canada Pension Plan to high-quality insurance carriers. The purchase of these buy-in contracts were made by transferring plan assets. While the related obligations and assets remain on our balance sheet, this action reduces our exposure to future fluctuations in the value of assets and liabilities for the covered population. We anticipate this will lead to a more stable funded status in future periods. We continue to evaluate opportunities for future de-risking activities, which could include additional buy-in or potentially buy-out transactions depending on market conditions and regulatory considerations.
As a result of the de-risking of the pension plan assets, the expected rate of return on Plan assets assumption used in the determination of net periodic pension costs is lower than the prior year, and as a result, we estimate that 2026 net periodic pension costs will increase approximately $35 million over 2025 levels.
The discount rate for our largest plan, the U.S. Qualified Pension Plan (the U.S. Plan) and our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan) used to determine net periodic pension expense for 2025 was 5.65% and 5.45%, respectively. The discount rate used to determine 2026 net periodic pension expense for the U.S. Plan and the U.K. Plan was 5.34% and 5.50%, respectively. A 0.25% change in the discount rate would not materially impact annual pension expense for the U.S. Plan or the U.K. Plan. A 0.25% change in the discount rate would impact the projected benefit obligation of the U.S. Plan and U.K. Plan by $16 million and $11 million, respectively.
Actual pension plan results that differ from our assumptions and estimates are accumulated and amortized primarily over the life expectancy of plan participants and affect future pension expense. Net pension expense is also based on a market-related valuation of plan assets where differences between the actual and expected return on plan assets are recognized over a five-year period in the U.S. and a two-year period in the U.K. Plan benefits for participants in a majority of our U.S. and foreign pension plans are frozen.
Residual value of leased assets
Equipment residual values are determined at the inception of the lease using estimates of the equipment's fair value at the end of the lease term. Fair value estimates of equipment at the end of the lease term are based on historical renewal experience, used equipment markets, competition and technological changes.
We evaluate residual values on an annual basis or sooner if circumstances warrant. Declines in estimated residual values considered "other-than-temporary" are recognized immediately. Increases in estimated future residual values are not recognized until the equipment is remarketed. If the actual residual value of leased assets were 10% lower than management's current estimates and considered "other-than-temporary", pre-tax income would be $4 million lower.
Legal and Regulatory Matters
See Regulatory Matters in Item 1 and Other Tax Matters in Note 15 to the Consolidated Financial Statements for regulatory matters regarding our tax returns and Note 16 to the Consolidated Financial Statements for information regarding our legal proceedings.
Foreign Currency Exchange
The functional currency for most of our foreign operations is the local currency. Changes in the value of the U.S. dollar relative to the currencies of countries in which we operate impact our reported assets, liabilities, revenue and expenses. Exchange rate fluctuations can also impact the settlement of intercompany receivables and payables between our subsidiaries in different countries. During 2025, 16% of our consolidated revenue was from operations outside the United States.
