PRA GROUP INC

14. Income Taxes

Income/(loss) before income taxes for the years ended December 31, 2025, 2024 and 2023 was as follows(in thousands):

(1)Includes certain unallocated corporate expenses.

Income tax expense/(benefit) for the years ended December 31, 2025, 2024 and 2023 was as follows (in thousands):

The following table, applying ASU 2023-09 prospectively, provides a reconciliation of the Company's expected tax benefit at the U.S. statutory federal tax rate to actual tax expense for the year ended December 31, 2025 (in thousands, except percentages):

(1)Includes the effect of goodwill impairment in Norway of $63.1 million (-26.0%), the UK of $7.8 million (-3.2%), Canada of $7.5 million (-3.1%) and Poland of $5.1 million (-2.1%).

As previously disclosed, prior to the adoption of ASU-2023-09, reconciliations of the Company's expected tax expense/(benefit) at the U.S. statutory federal tax rate to actual tax expense/(benefit) for the years ended December 31, 2024 and 2023 were as follows (in thousands, except percentages):

As of December 31, 2025 and 2024, the components of deferred tax assets and liabilities were as follows (in thousands):

As of December 31, 2025, the valuation allowance primarily related to foreign net operating loss carryforwards. The foreign and state net operating loss carryforwards generally have afive to 20 year carryforward period and will expire if not utilized, while the federal net operating loss carryforward has an indefinite carryforward period. The foreign tax credits have expiration dates of $2.4 million in 2034 and $10.2 million in 2035.

Cash paid for income taxes (net of refunds received) for the year ended December 31, 2025 was as follows (in thousands):

Aggregate changes in the balance of unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023 were as follows(in thousands):

(1)Relates to foreign transactions and is primarily due to foreign exchange rate fluctuations.

As of December 31, 2025 and 2024, the total amount of after-tax unrecognized tax benefits that, if recognized, would affect the effective tax rate, was $21.2 million and $20.7 million, respectively. As of December 31, 2025 and 2024, the Company had accrued for potential interest and penalties related to unrecognized tax benefits in the amounts of $5.9 million and $4.8 million, respectively.

The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Internal Revenue Service and other tax authorities routinely audit the Company's tax returns, and these audits can involve complex issues that may require an extended period of time to resolve. The Company records income tax liabilities based on estimates of the additional income taxes that may be due upon the conclusion of these audits. Due to the uncertain and complex application of income tax regulations, the ultimate resolution of such audits may result in liabilities that are materially different from those estimates, and the Company records additional income tax expense or income tax benefit in the period in which the matter is resolved.

As of December 31, 2025, tax years under examination in certain international jurisdictions include 2014 and subsequent years. The Company has received tax assessments from the Norwegian Tax Administration related to certain intercompany transactions that took place during the 2014 and 2015 tax years. The Company filed appeals for these assessments and believes that it is more-likely-than-not that its position will be sustained, and therefore, has not recorded tax liabilities in relation to these assessments.

As of December 31, 2025, the cumulative unremitted earnings of the Company's international subsidiaries were approximately$161.2 million. The Company intends for predominantly all foreign earnings to be indefinitely reinvested in its foreign operations; therefore, no deferred tax liabilities were recorded for such unremitted earnings. If foreign earnings were repatriated or deemed repatriated due to intercompany loans, the Company may need to accrue and pay taxes, although foreign tax credits and exemptions may be available to reduce or eliminate income and withholding taxes. Any deemed repatriations from intercompany loans would be expected to have little or no tax impact. It is impracticable to determine the total amount of unrecognized deferred taxes with respect to these indefinitely reinvested earnings.

15. Commitments and Contingencies

Forward flow agreements

The Company enters into forward flow agreements for the purchase of nonperforming loans. These agreements typically have terms ranging from six to 12 months, or they can be open-ended, and establish purchase prices and specific criteria for the accounts to be purchased. Some of the agreements establish a volume reference for the contract term in the form of a target or maximum, however, very few agreements establish a minimum contractual obligation, and many of the contracts contain early termination provisions allowing either party to cancel the agreements in accordance with a specified notice period. The amounts purchased are also dependent on actual delivery by the sellers, and in some cases, the impact of foreign exchange rate fluctuations, and while purchases under these agreements comprise a significant portion of the Company's overall purchases, as of December 31, 2025, the estimated minimum contractual purchase obligation under forward flow agreements was not significant.

Litigation and regulatory matters

The Company and its subsidiaries are from time-to-time subject to a variety of legal and regulatory claims, inquiries and proceedings and regulatory matters, most of which are incidental to the ordinary course of its business. The Company initiates lawsuits against customers and is occasionally countersued by them in such actions. Customers, either individually, as members of a class action or through a governmental entity on behalf of customers, may initiate litigation against the Company in which they allege that the Company has violated a law in the process of collecting on an account. From time-to-time, other types of lawsuits are brought against the Company. Additionally, the Company receives subpoenas and other requests or demands for information from regulators or governmental authorities who are investigating the Company's debt collection activities.

The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that such liability has been incurred and the loss can be reasonably estimated. The Company's estimate involves significant judgment given the varying stages of the proceedings, the number of unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the related uncertainty of the potential outcomes of these proceedings. Accordingly, the Company's estimate will change from time-to-time and actual losses could exceed the current estimate. The Company believes that the estimate of the aggregate range of reasonably possible losses in excess of the amount accrued for its legal proceedings outstanding at December 31, 2025, where the range of loss can be estimated, was not material.

The matter described below falls outside of the normal parameters of the Company's routine legal proceedings.

Multi-State Investigation

On November 17, 2015, the Company received civil investigative demands from multiple state Attorneys General offices ("AGOs") broadly relating to its U.S. debt collection practices. The Company believes that it has fully cooperated with the investigations and discussed resolution of the investigations with the AGOs. The Company and the AGOs are in continued negotiations to resolve the matter, and the Company has accrued for the estimated loss on this matter. Although the Company has settled certain claims with one of the states, it is possible that one or more of the remaining individual state AGOs may file claims against the Company if the Company is unable to resolve its differences with them.

16. Business Segments

The Company's primary business is the purchase, collection and management of nonperforming loan portfolios. The Company is organized on a geographic basis, with its principal markets in the U.S. and Europe, where it has operations in 12 countries and the United Kingdom. On a significantly smaller scale, the Company also operates in South America, Canada and Australia. Subject to globally-established parameters for capital allocation, portfolio profitability and leverage, each market functions under a similar debt management business model, which is predicated on purchasing nonperforming loans and generating returns through disciplined collection strategies over extended collection periods. As part of an ancillary business, the Company purchases and provides fee-based services for class action claims recoveries in the U.S.

During the three months ended December 31, 2025, the Company reorganized its business segment structure from a single operating segment intotwo operating and reportable segments, comprised of its U.S. and European businesses. The reorganization resulted from the appointment of a new chief executive officer ("CEO") in 2025, which led to changes in the organizational structure and how the Company's operating results are evaluated by the Company's chief operating decision maker ("CODM"). The Company has determined that its operations in South America, Canada and Australia are not operating segments individually or collectively. The U.S. reportable segment includes the operating results of the Company's class action claims recoveries business, which are not material to the segment as a whole.

The CODM is the Company’s CEO, and the primary profitability measure used by the CEO to evaluate performance and allocate resources is segment operating income/(loss). The measure used by the CEO represents a GAAP measure (Income/(loss) from operations) adjusted to exclude the goodwill impairment charge in 2025, which does not represent an integral part of segment operational performance, as well as certain unallocated corporate expenses, and does not include any non-operating income or expenses. The CEO uses segment operating income/(loss) to review actual results in comparison with budgeted and forecasted results and in deciding how to allocate resources, which may include decisions about employees, properties, operational initiatives and the deployment of capital and other financial resources.

Intersegment and other intercompany transactions are executed at negotiated prices. The Company does not report a measure of segment assets as that information is not regularly provided to the CEO. All prior year disclosures have been recast to reflect the reportable segment reorganization that occurred in 2025.

Segment financial information

Segment operating results for the years ended December 31, 2025, 2024 and 2023 were as follows(in thousands):

(1)Includes revenues from external customers in South America, Canada and Australia.

(2)Amounts include intersegment and intercompany expenses, which are not material.

(3)Primarily reflects Communication expenses, Agency fees and Other operating expenses.

(4)Includes operating income in South America, Canada and Australia, excluding goodwill impairment, and certain unallocated corporate personnel, administrative and other overhead expenses.

Other segment information for the years ended December 31, 2025, 2024 and 2023 was as follows(in thousands):

Reconciliation of segment totals to consolidated totals for the years ended December 31, 2025, 2024 and 2023 was as follows(in thousands):

(1)Primarily reflects activity in South America, Canada and Australia. Interest expense, net also includes the elimination of intersegment and intercompany interest.

Revenues and long-lived assets by country

Revenues for the years ended December 31, 2025, 2024 and 2023, and long-lived assets held as of December 31, 2025 and 2024, by country in which the Company operates, were as follows (in thousands):

(1)Based on the financial information used to produce the Company's general-purpose financial statements, it is impracticable to report further breakdowns of revenues from external customers.

(2)Comprised of Property and equipment, net and ROU assets.

(3)None of the countries included comprise greater than 10% of the Company's consolidated revenues or long-lived assets.