4.02 The MD&A does not mention the planned elimination of [amount] of pass-through material revenue that the earnings release announced the day before
Company H · a US-listed aerospace services company · Compliance or disclosure gap
In brief
The fourth-quarter earnings release furnished on [date] gives 2026 revenue guidance that excludes 'the elimination of [amount] to [amount] in material pass-through revenue'. The Form 10-K filed the next day describes the known trends affecting the business (installed base, supply chain, tariffs) but says nothing about this expected reduction in revenue, which is about 5% to [n]% of 2025 revenue. Item 303(b)(2)(ii) of Regulation S-K requires known trends or uncertainties reasonably likely to have a material effect on revenue to be described.
The evidence, as filed
4 further page extracts: screenshot withheld to protect the company’s identity. The rows below say what each shows.
What the filing shows, and what the rule requires
| What the filing shows | What the rule requires |
|---|---|
Earnings release ([date]): 2026 guidance footnote 'Excludes effect from the elimination of [amount] to [amount] in material pass-through revenue'. Form 10-K ([date]), MD&A 'Key Factors and Trends Affecting Our Business': installed base, supply chain, tariffs; no reference to pass-through revenue or its elimination anywhere in the report. | A known-trends disclosure in the MD&A describing the expected elimination of pass-through material revenue in 2026: what it is (for example a change in contract terms under which customers or the OEM supply material), the expected revenue reduction, the segments and end markets affected, and the expected effect (or absence of effect) on earnings and cash flow. |
The rule
Regulation S-K Item 303(b)(2)(ii)
Describe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.
Version: Text in force at the date of this review · Source: 17 CFR 229.303 (Regulation S-K Item 303), as amended by Release 33-10890
Why it applies here. Management had quantified the change a day before filing, so the trend was known. [amount] to [amount] is [n]% to [n]% of 2025 revenue; the item covers revenue as well as income, so a thin margin on pass-through material does not take it out of scope.
Why it matters
- Investors reading the 10-K alone would not know that 2026 revenue is expected to fall by [amount] to [amount] for a reason unrelated to demand, which affects growth comparisons and margin percentages.
- The staff routinely compares earnings materials with MD&A and asks why a trend discussed with investors is not in the periodic report; a comment and an undertaking for future filings is the realistic outcome. No reported amount changes.
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, MD&A results of operations drew 239 of the 1,774 numbered comments (13.5%): the third most frequent topic.
Exposure
A staff comment asking for the known trend to be described in future filings, typically raised by comparing earnings materials with MD&A; no monetary penalty.
Our workings
Item 303(b)(2)(ii) requires a description of any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.
the earnings release furnished under Item 2.02 on [date] (page 4) attaches to its 2026 revenue guidance the footnote that it excludes the effect of eliminating [amount] to [amount] of material pass-through revenue.
the Form 10-K was filed on [date]; its known-trends section and the rest of the report contain no reference to pass-through revenue (whole-report search).
[n] / [n] = [n]% and [n] / [n] = [n]% of 2025 revenue (workings).
management had quantified the effect a day before filing, so the trend was known; a 5-[n]% reduction in revenue meets any reasonable reading of 'reasonably likely to have a material impact on net sales or revenues', even if margin is unaffected because pass-through material is billed at or near cost. The staff routinely compares earnings materials with MD&A and asks why a trend discussed with investors is not in the periodic report.
| Item | Amount (USD thousand) | Share of 2025 revenue |
|---|---|---|
| 2025 revenue | [n] | |
| Pass-through revenue to be eliminated: low end | [n] | [n] / [n] = [n]% |
| Pass-through revenue to be eliminated: high end | [n] | [n] / [n] = [n]% |
Management’s best defense, and our reply
Management would say the change is presentational: pass-through material carries little or no margin, so operating income, net income and cash flow are unaffected, and Item 303(b)(2)(ii) is aimed at trends that change the economics of the business; it would add that forward-looking guidance belongs in earnings materials, not the 10-K. The answer: the item covers trends reasonably likely to have a material impact on net sales or revenues, not only on income, and a [amount] reduction is [n]-[n]% of revenue; the company itself judged it significant enough to footnote in its guidance, and a short description in MD&A is not guidance.
The fix
- Add to Key Factors and Trends: 'Beginning in 2026, [customers/OEM] will supply certain material directly under revised contract terms, eliminating approximately [amount] to [amount] of pass-through material revenue that we previously recognized at [minimal margin]; we do not expect a material effect on Adjusted EBITDA or cash flow.'
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | the earnings release furnished the day before the 10-K quantifies the elimination of pass-through revenue | Document | |
| 2 | the footnote attaches to the 2026 revenue guidance | Document | |
| 3 | the MD&A known-trends section | Document | Form 10-K 2025, page 54 |
| 4 | 2025 revenue, the base for the size of the reduction | Document | Form 10-K 2025, page 59 |
Absence check
- Document
- Form 10-K 2025
- Where it would appear
- Key Factors and Trends Affecting Our Business
- What is missing
- any description of the expected elimination of pass-through material revenue in 2026
- Pages looked at
- p.53-67 (MD&A), p.90-93 (revenue note)
- Result
- none of the terms hits anywhere in the report; the only similar wording is on p.54, where the company expects to 'pass associated cost increases through to customers' (tariff costs), which is not the item.
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.
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