1.04 Legal proceedings: no estimate of reasonably possible loss, or statement that none can be made, for matters where the company is defendant
Company G · a US-listed specialty pharmaceutical company · SEC-style question
In brief
Note 13 records a [amount] charge in 2025 for the [product] antitrust litigation, including a [amount] class settlement agreed on [date], and a further [amount] charge to settle [litigant]'s claims against the company. The prior-year 10-K, with the [product] trial set for [date] and [litigant]'s counterclaims set for trial in November and [date], gave neither an estimate of the reasonably possible loss nor a statement that one could not be made. This 10-K is equally silent for the [state] False Claims Act action now pending against the company.
The evidence, as filed
Screenshot withheld to protect the company’s identity. Even with names, figures and dates boxed out, the wording on these pages could be searched back to the filer. Pages relied on: Form 10-K 2024 (prior year), front matter; Form 10-K 2025, front matter.
What the filing shows, and what the rule requires
| What the filing shows | What the rule requires |
|---|---|
No loss-contingency statement (estimate of possible loss or range, or that no estimate can be made) for defendant matters: [product] antitrust and [litigant]'s counterclaims in the 2024 10-K (later charges [amounts], together 68.8% of 2024 pre-tax income); [state] qui tam action in this 10-K | For each matter where a loss is at least reasonably possible: its nature and an estimate of the possible loss or range, or a statement that an estimate cannot be made; otherwise a clear indication that the loss is judged remote |
The rule
Exchange Act Rule 12b-20
In addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading.
Version: Text in force at the date of this review · Source: 17 CFR 240.12b-20 (eCFR, as in force 2024-2025)
Why it applies here. under FASB Codification paragraph 450-20-50-4 a loss that is at least reasonably possible must be described with an estimate of the possible loss or range, or a statement that no estimate can be made; the staff's guidance in SAB Topic 5Y expects that disclosure to give early warning before a settlement. Matters in trial preparation months before settlements of this size were, on their face, at least reasonably possible. For 2025 the same question arises for the [state] action, unsealed on [date], which repeats claims already dismissed in [state]; management may well judge it remote, but the note does not say so.
Why it matters
Readers of the prior-year 10-K had no measure of exposures that were settled within the year at a combined cost of about two-thirds of that year's pre-tax income; the same gap, if repeated for a live matter, invites a staff comment on contingency disclosure, one of the most frequent comment themes.
How often the SEC staff raises this. In 1,100 SEC staff comment letters on fiscal 2023 and 2024 Forms 10-K, released January 2025 to October 2026, contingencies drew 14 of the 1,774 numbered comments (0.8%): topic 19 of 25 by frequency.
The SEC staff has raised this with other companies
The staff asked MacroGenics and Matthews International for an estimate of the reasonably possible loss or range, or a statement that an estimate cannot be made, for pending litigation.
Exposure
A question. If the answer shows a matter that was at least reasonably possible, the realistic consequence is a staff comment and a future-filings undertaking; no restatement of figures is implied.
Our workings
Note 13 states that in 2025 the company recognized [amount] in selling, general and administrative expenses for the resolution of the [product] antitrust litigation, including a [amount] lump-sum class settlement entered on [date]. The prior-year 10-K described the same litigation (class certified, trial rescheduled for [date]) and said only that the company 'may be required to pay significant monetary damages'. Neither 10-K contains the words 'reasonably possible', 'range of loss' or 'cannot be estimated' for any legal matter; the accounting policy on F-15 speaks only of accruals for probable and estimable losses. The prior-year 10-K also described [litigant]'s [wording masked] and trade secret misappropriation, with trials scheduled for [date] and [date], again with no estimate; this 10-K records an expense of [amount] for the lump sum paid in settlement of [litigant]'s pending claims under the [date] global settlement.
the [product] charge equals 49.6% of 2024 pre-tax income, and the two charges together 68.8% (workings).
| Step | Computation |
|---|---|
| [product] charge in thousands | [n] x [n] = [n] |
| Share of 2024 pre-tax income | [n] / [n] = 49.6% |
| [litigant] charge in thousands | [n] x [n] = [n] |
| Both charges | [n] + [n] = [n] |
| Share of 2024 pre-tax income | [n] / [n] = 68.8% |
Management’s best defense, and our reply
Management would say that at the prior-year filing date the outcome of a contested antitrust trial could not be estimated, that the risk wording on significant monetary damages told readers a loss was possible, and that the SEC staff reviewed that 10-K in [date], after the settlement, without raising contingencies. For the [state] action it would say the identical federal claims were dismissed with prejudice, so the loss is remote and nothing more is owed. However, the standard requires an explicit statement that an estimate cannot be made, not an inference from risk language, and neither 10-K contains one; whether the [state] action is remote is exactly what management is asked to confirm, which is why this is a question rather than a finding.
The fix
- In Note 13, for each matter in which the company is a defendant, state either the estimated reasonably possible loss or range, or: 'We are currently unable to estimate the reasonably possible loss or range of loss, if any', or that the loss is considered remote.
Question for the company
At [date] and at [date], how did management assess the [product] antitrust litigation, [litigant]'s counterclaims and the [state] False Claims Act action under ASC 450 (probable, reasonably possible or remote)? Where a matter was at least reasonably possible, why does the note give neither an estimate of the possible loss or range nor a statement that an estimate cannot be made?
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | F-30: the 2025 charge for resolving the [product] antitrust litigation | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 2 | F-30: settlement date, weeks after the prior-year 10-K | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 3 | F-30: the class settlement amount | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 4 | Prior-year 10-K F-33: the litigation was heading to trial | Document | Form 10-K 2024 (prior year), financial-statement pages (printed F-n; see folios) |
| 5 | Prior-year 10-K F-33: the only statement about loss, with no estimate or range | Document | Form 10-K 2024 (prior year), financial-statement pages (printed F-n; see folios) |
| 6 | F-15: the policy covers accruals only, not reasonably possible losses | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 7 | F-34: a defendant matter pending at the filing date | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 8 | F-34: the closing statement covers only 'other' litigation, not the matters described | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 9 | F-4: 2024 pre-tax income used in the workings | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 10 | Prior-year 10-K: [litigant]'s antitrust counterclaims were set for trial in [date] | Document | Form 10-K 2024 (prior year), financial-statement pages (printed F-n; see folios) |
| 11 | and its trade secret claims for [date] | Document | Form 10-K 2024 (prior year), financial-statement pages (printed F-n; see folios) |
| 12 | This 10-K (F-31): the claims were settled in [date] for [amount] | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
| 13 | The charge recognized in fiscal 2025 | Document | Form 10-K 2025, financial-statement pages (printed F-n; see folios) |
Absence check
- Document
- Form 10-K 2025
- Where it would appear
- Qui Tam Matters
- What is missing
- an estimate of the reasonably possible loss or range, or a statement that no estimate can be made (or that the loss is remote), for the [state] False Claims Act action
- Pages looked at
- financial-statement pages (printed F-n; see folios) (contingency policy) and p.147-152 (Note 13 legal proceedings)
- Result
- 'unable to estimate' hits p.78 only (number of holders of record in Item 5); the other terms do not hit anywhere in the 10-K
Absence check
- Document
- Form 10-K 2024 (prior year)
- Where it would appear
- The plaintiffs in certain of these lawsuits
- What is missing
- an estimate of the reasonably possible loss or range, or a statement that no estimate can be made, for the [product] antitrust litigation
- Pages looked at
- Form 10-K 2024 (prior year) financial-statement pages (printed F-n; see folios) (contingency policy) and p.148-155 (Note 13 legal proceedings)
- Result
- 'reasonably possible' hits financial-statement pages (printed F-n; see folios) only (unrecognized tax benefits); 'unable to estimate' hits p.74 only (holders of record); the other terms do not hit
Absence check
- Document
- Form 10-K 2024 (prior year)
- Where it would appear
- The Court scheduled a trial regarding [litigant]
- What is missing
- An estimate of the reasonably possible loss on [litigant]'s counterclaims, or a statement that one cannot be made
- Pages looked at
- Form 10-K 2024 (prior year) p.148-156
- Result
- 'reasonably possible' hits only financial-statement pages (printed F-n; see folios) (unrecognized tax benefits); 'range of loss', 'possible loss', 'cannot be estimated' and 'estimate of loss' have no hits in the prior-year 10-K.
Prepared by Pramanex from the company’s public SEC filings, without the company’s involvement, to show how a 10-K Pre-filing Check reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other attestation or assurance engagement, and not legal advice. An SEC-style question is a question, not a conclusion.
Want this on your own 10-K, before you file?
Start with three free findings on your latest 10-K, or book a fixed-price 10-K Pre-filing Check.
Your next 10-K will be in draft before the audit is done.
Have it read before you file.
Start with three free findings on your latest 10-K, or book a fixed-price 10-K check. Drafts only under NDA, inside your insider trading policy.