Compass Diversified Holdings (CODI) FY2025 10-K Risk Factors: 11 New, 9 Dropped

What the changes say

The risk section is dominated by the fallout from the Lugano investigation, subsidiary bankruptcy, financial restatements, and government probes.
CODI faces NYSE delisting notices, massive debt exposure, and ongoing regulatory scrutiny over product safety and taxes.

What changed since the prior 10-K

New

New
Risk Factors Relating to the Lugano Investigation and Restatements
The Lugano Investigation forced CODI to restate financial statements for 2022 through 2025, triggering litigation and reputational harm.
New
Our intercompany loan to Lugano is subject to risk of loss
Lugano filed for Chapter 11 bankruptcy, and our secured intercompany loan faces recovery shortfalls and legal challenges.
New
We are subject to ongoing government investigations relating to the Lugano matters, and such investigations could result in enforcement actions, penalties, and additional costs
The SEC and DOJ launched investigations into the Lugano matter, restatements, and filing delays, risking penalties and enforcement actions.
New
We have received notice from the NYSE that we were not in compliance with certain continued listing standards, and if we fail to regain and maintain compliance with NYSE listing standards, our securities could be delisted
The NYSE issued non-compliance notices because we failed to hold a 2025 annual meeting, adding a .BC indicator to our ticker.
New
practicable in fiscal 2026, there can be no assurance that we will regain compliance within the timeframe expected or that we will not receive additional notices of noncompliance
Late periodic filings related to the Lugano probe risk NYSE delisting procedures if we fail to satisfy continued listing standards.
NewRisks Related to Our Business and Structure
We may experience challenges in identifying acquisition targets and, in the event we do acquire a target, we may be unable to effectively integrate or manage such target or it may fail to perform as expected which could adversely impact our financial condition and results of operations
Our reputation damage from the Lugano Investigation may impede our strategy of acquiring and integrating new business subsidiaries.
NewRisks Related to Our Business and Structure
We rely on distributions and other payments from our operating subsidiaries to meet our obligations and to make distributions to our shareholders, and minority owners of our subsidiaries may reduce amounts available to us
Minority owners of our operating subsidiaries take a pro rata share of distributions, reducing cash available for our debt and shareholders.
NewRisks Related to Our Business and Structure
Our substantial indebtedness and exposure to variable interest rates could materially adversely affect our liquidity, financial condition, and ability to operate our business, service our debt, and make distributions
We held approximately $1.89 billion of consolidated debt as of December 31, 2025, increasing vulnerability to interest rates and business downturns.
NewRisks Related to Velocity Outdoor
Our operations face continuing cybersecurity risks, including information technology and artificial intelligence (“AI”) system or process failures and data breaches, which may result in unexpected and significant remediation costs, increased liabilities, and reputational damage
Cybersecurity threats and third-party AI tool integrations create system failure and data breach risks that could cause unexpected remediation costs.
NewRisks Related to Velocity Outdoor
Our businesses are subject to unplanned business interruptions which may expose us to costly litigation, harm our reputation, and relationships with our customers, and adversely affect our performance
Production interruptions at our facilities can cause customer delivery delays, financial claims, and reputational harm.
NewRisks Related to Velocity Outdoor
Disruptions in our supply chain or increases in the cost or reduced availability of raw materials, components, or finished goods could materially adversely affect our businesses’ operations and profitability
Supply chain disruptions, tariffs, and raw material cost inflation can impair our subsidiaries' manufacturing operations and profitability.

Dropped

DroppedRisks Related to Our Business and Structure
We face risks with respect to the evaluation and management of future acquisitions
DroppedRisks Related to Our Business and Structure
We rely entirely on receipts from our businesses to make distributions to our shareholders
Evaluation and management of future acquisitions.
DroppedRisks Related to Our Business and Structure
Our 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
DroppedRisks Related to Our Business and Structure
Changes in interest rates could materially adversely affect our profitability, ability to service debt, and our business as a whole
DroppedRisks Relating to Our Manager
We cannot determine the amount of the management fee that will be paid over time with any certainty
Reliance entirely on receipts from businesses to make distributions.
DroppedRisks Related to Sterno
Sterno'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
DroppedRisks Related to Velocity Outdoor
We could be negatively impacted by cybersecurity attacks
DroppedRisks Related to Velocity Outdoor
Our businesses are subject to unplanned business interruptions which may adversely affect our performance
DroppedRisks Related to Velocity Outdoor
Our 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
Risks associated with $1,785 million of consolidated debt as of December 31, 2024.

Reworded

70% rewrittenRisks Relating to Our Manager
We 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
Added that removing our Manager cannot be done without shareholder approval and incurs significant costs and reimbursements.
63% rewrittenRisks Related to Taxation
Future 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
Updated tax risks to explicitly cite 2025 tax law changes affecting interest deductibility and leveraged businesses.
54% rewrittenRisks Relating to Our Manager
We cannot determine the amount of profit allocation that will be paid over time with any certainty
Clarified that management fee calculations depend on adjusted net assets and can increase if company performance declines.
43% rewrittenRisks Related to Velocity Outdoor
Certain 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
Added specific regulatory scrutiny regarding PFAS, noting hazardous substance designations and state-level bans.
39% rewrittenRisks Relating to Our Manager
Our 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
Retitled and formatted management fee and transaction influence risk.
29% rewrittenRisks Related to Our Business and Structure
Changes to U.S. tariff and import/export regulations may have a negative effect on economic activity, financial conditions and results of our businesses
Updated U.S. tariff and import/export regulation risk wording.
28% rewrittenRisks Related to Our Business and Structure
Our 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
Added that the Lugano Investigation and restatements increase employee turnover risk and hinder recruiting.
24% rewrittenRisks Related to Our Business and Structure
The 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
Added that the Board actually reduced or eliminated distributions in fiscal year 2025.
24% rewrittenRisks Related to Our Business and Structure
The success of our branded consumer businesses depends on our ability to maintain the value and reputation of the brand and the failure to do so could reduce profits and adversely impact our financial condition
Was: The success of our branded consumer businesses depends on our ability to maintain the value and reputation of the brand

All 45 risk factors

Headings as the filing states them, in filing order.

Other

01Risk Factors Relating to the Lugano Investigation and RestatementsNew
02Our intercompany loan to Lugano is subject to risk of lossNew
03We are subject to ongoing government investigations relating to the Lugano matters, and such investigations could result in enforcement actions, penalties, and additional costsNew
04We have received notice from the NYSE that we were not in compliance with certain continued listing standards, and if we fail to regain and maintain compliance with NYSE listing standards, our securities could be delistedNew
05practicable in fiscal 2026, there can be no assurance that we will regain compliance within the timeframe expected or that we will not receive additional notices of noncomplianceNew

Risks Related to Our Business and Structure

06Our 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 operations28% rewritten
07The success of our branded consumer businesses depends on our ability to maintain the value and reputation of the brand and the failure to do so could reduce profits and adversely impact our financial condition24% rewritten
08We may experience challenges in identifying acquisition targets and, in the event we do acquire a target, we may be unable to effectively integrate or manage such target or it may fail to perform as expected which could adversely impact our financial condition and results of operationsNew
09Under 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
10The 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 shares24% rewritten
11We rely on distributions and other payments from our operating subsidiaries to meet our obligations and to make distributions to our shareholders, and minority owners of our subsidiaries may reduce amounts available to usNew
12The Company’s Board has the power to change the terms of our shares in its sole discretion in ways with which you may disagree
13Certain 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
14We may have conflicts of interest with the noncontrolling shareholders of our businesses
15Our substantial indebtedness and exposure to variable interest rates could materially adversely affect our liquidity, financial condition, and ability to operate our business, service our debt, and make distributionsNew
16We 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
17If, 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
18Certain 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
19Our 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
20Changes to U.S. tariff and import/export regulations may have a negative effect on economic activity, financial conditions and results of our businesses29% rewritten

Risks Related to Taxation

21The Trust is subject to U.S. corporate income taxes which reduce 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
22Future 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 Election63% rewritten

Risks Related to the Preferred Shares

23Distributions on the Series A Preferred Shares are discretionary and non-cumulative
24The 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

25Our 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
26Our Manager and its affiliates, including members of our management team, may engage in activities that compete with us or our businesses
27Our 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
28We 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 shares70% rewritten
29Our 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
30We must pay our Manager the base management fee regardless of our performance
31We cannot determine the amount of profit allocation that will be paid over time with any certainty54% rewritten
32Our 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 shareholders39% rewritten
33Our profit allocation may induce our Manager to make suboptimal decisions regarding our operations
34The obligations to pay management fees and profit allocation may cause the Company to liquidate assets or incur debt

Risks Related to Arnold

35Arnold'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 Velocity Outdoor

36Velocity’s products are subject to product safety and liability lawsuits, which could materially adversely affect its financial condition, business and results of operations
37Our operations face continuing cybersecurity risks, including information technology and artificial intelligence (“AI”) system or process failures and data breaches, which may result in unexpected and significant remediation costs, increased liabilities, and reputational damageNew
38Impairment 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
39Our businesses are subject to unplanned business interruptions which may expose us to costly litigation, harm our reputation, and relationships with our customers, and adversely affect our performanceNew
40Disruptions in our supply chain or increases in the cost or reduced availability of raw materials, components, or finished goods could materially adversely affect our businesses’ operations and profitabilityNew
41We 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
42Our 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
43Certain 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-compliance43% rewritten
44Defects 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
45Our businesses are subject to certain risks associated with their foreign operations or business they conduct in foreign jurisdictions

Other Compass Diversified Holdings 10-Ks

FY2024 10-K risk factors
43 risks
This filing reflects an initial public risk profile dominated by structural dependencies on external managers, leveraged financing, and diverse operating subsidiaries.
Filed Feb 27, 2025

About this page

The headings are the filing's own. The one-line readings and the overview are automated and can be wrong: read Item 1A of the 10-K for the exact wording.