Compass Diversified Holdings (CODI) risk factors, FY2024 10-K

Risks Related to Our Business and Structure

1. 01Our future success is dependent on the employees of our Manager and the management teams of our businesses, the loss of any of whom could materially adversely affect our financial condition, business and results of operations
2. 02We face risks with respect to the evaluation and management of future acquisitions
3. 03Under the Trust Agreement, the Company’s Board will have the power to cause the Trust to be converted to a corporation in the future at its sole discretion in ways with which our shareholders may disagree
4. 04The Company’s Board has full authority and discretion over the distributions of the Company, other than the profit allocation, and it may decide to reduce or eliminate distributions at any time, which may materially adversely affect the market price for our shares
5. 05We rely entirely on receipts from our businesses to make distributions to our shareholders
6. 06The Company’s Board has the power to change the terms of our shares in its sole discretion in ways with which you may disagree
7. 07Certain provisions of the LLC Agreement of the Company and the Trust Agreement make it difficult for third parties to acquire control of the Trust and the LLC and could deprive you of the opportunity to obtain a takeover premium for your shares
8. 08We may have conflicts of interest with the noncontrolling shareholders of our businesses
9. 09Our financing arrangements expose us to additional risks associated with leverage, inhibit our operating flexibility and reduce earnings and cash available for distributions to our shareholders
10. 10Changes in interest rates could materially adversely affect our profitability, ability to service debt, and our business as a whole
11. 11We may engage in a business transaction with one or more target businesses that have relationships with our officers, our directors, or our Manager, which may create potential conflicts of interest
12. 12If, in the future, we cease to control and operate our businesses, we may be deemed to be an investment company under the Investment Company Act of 1940, as amended, which may adversely affect our business, financial conditions and otherwise
13. 13Certain of our businesses are dependent on a limited number of customers to derive a large portion of their revenue, and the loss of one of these customers may adversely affect the financial condition, business and results of operations of these businesses
14. 14Our businesses do not have and may not have long-term contracts with their customers and clients and the loss of customers and clients could materially adversely affect their financial condition, business and results of operations
15. 15Changes to U.S. tariff and import/export regulations may have a negative effect on economic activity, financial conditions and results of our businesses

Risks Related to Taxation

1. 16The Trust is subject to U.S. corporate income taxes which reduces the earnings and cash available for distributions to holders of Trust common shares in respect of such investments and could adversely affect the value of Trust common shareholders’ investment
2. 17Future changes to tax laws are uncertain and may result in the Trust paying corporate income tax at rates higher than expected or result in the Trust failing to realize the anticipated benefits of the Election

Risks Related to the Preferred Shares

1. 18Distributions on the Series A Preferred Shares are discretionary and non-cumulative
2. 19The Series A, Series B and Series C Preferred Shares are equity securities and are subordinated to our existing and future indebtedness

Risks Relating to Our Manager

1. 20Our Chief Executive Officer, directors, Manager and management team may allocate some of their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs, which may materially adversely affect our operations
2. 21Our Manager and its affiliates, including members of our management team, may engage in activities that compete with us or our businesses
3. 22Our Manager need not present an acquisition or disposition opportunity to us if our Manager determines on its own that such acquisition or disposition opportunity does not meet the Company’s acquisition or disposition criteria
4. 23We cannot remove our Manager solely for poor performance, which could limit our ability to improve our performance and could materially adversely affect the market price of our shares
5. 24Our Manager can resign on 180 days’ notice and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could materially adversely affect our financial condition, business and results of operations as well as the market price of our shares
6. 25We must pay our Manager the base management fee regardless of our performance
7. 26We cannot determine the amount of the management fee that will be paid over time with any certainty
8. 27We cannot determine the amount of profit allocation that will be paid over time with any certainty
9. 28Our Manager’s influence on conducting our operations, including on our conducting of transactions, gives it the ability to increase its fees, which may reduce the amount of earnings and cash available for distribution to our shareholders
10. 29Our profit allocation may induce our Manager to make suboptimal decisions regarding our operations
11. 30The obligations to pay management fees and profit allocation may cause the Company to liquidate assets or incur debt

Risks Related to Arnold

1. 31Arnold's operations and the prior operations of predecessor companies expose it to the risk of material environmental liabilities, which could have a negative effect on its financial condition or results of operations

Risks Related to Sterno

1. 32Sterno's products operate at high temperatures and use flammable fuels, each of which could subject our business to product liability claims, which could adversely affect its reputation and reduce customer demand

Risks Related to Velocity Outdoor

1. 33Velocity’s products are subject to product safety and liability lawsuits, which could materially adversely affect its financial condition, business and results of operations
2. 34We could be negatively impacted by cybersecurity attacks
3. 35Impairment of our goodwill, indefinite-lived intangible assets or other long-lived assets could result in significant charges that would adversely impact our future operating results
4. 36Our businesses are subject to unplanned business interruptions which may adversely affect our performance
5. 37Our businesses could experience fluctuations in the costs and availability of raw materials, components or whole goods which could result in significant disruptions to supply chains, production disruptions and increased costs for our businesses
6. 38We could be adversely affected if we experience shortages of components from our suppliers or if disruptions in the supply chain lead to parts shortages for our customers
7. 39Our businesses are and may be subject to federal, state and foreign environmental laws and regulations that expose them to potential financial liability. Complying with applicable environmental laws requires significant resources, and if our businesses fail to comply, they could be subject to substantial liability
8. 40Certain of our businesses are subject to increased product regulations which may cause an increase to our expenses or result in increased litigation in the event of non-compliance
9. 41Defects in the products provided by our companies could result in financial or other damages to their customers, which could result in reduced demand for our companies’ products and/or liability claims against our companies
10. 42Our businesses are subject to certain risks associated with their foreign operations or business they conduct in foreign jurisdictions
11. 43The success of our branded consumer businesses depends on our ability to maintain the value and reputation of the brand