Compass Diversified Provides an Update on its Financial Statements Amid the Ongoing Investigation into Lugano Holding, Inc.

Rhea-AI Summary

Compass Diversified (NYSE: CODI) has announced non-reliance on its financial statements for fiscal years 2022 and 2023, following a similar disclosure for 2024 statements made on May 7. The announcement comes amid an ongoing investigation into subsidiary Lugano Holding, Inc., where irregularities in financing, accounting, and inventory practices have been preliminarily identified.

CEO Elias Sabo emphasized that the investigation is limited to Lugano and does not affect CODI's eight other subsidiaries, which continue to operate normally with strong balance sheets. The company maintains ample liquidity and access to capital through its revolving credit facility and is working with banking partners and bondholders to ensure stability during this period.

Positive

• Investigation is isolated to Lugano subsidiary, not affecting other eight subsidiaries
• Other subsidiaries continue normal operations with strong balance sheets
• Company maintains ample liquidity and significant access to capital
• Constructive relationship with banking partners and bondholders

Negative

• Non-reliance on financial statements for 2022, 2023, and 2024
• Irregularities identified in Lugano's financing, accounting, and inventory practices
• Potential material weaknesses in internal control over financial reporting
• Risk of commercial litigation related to the investigation
• Delay in financial reporting and potential delay in annual stockholder meeting

Insights

Forensic Accounting Expert

CODI's accounting irregularities at Lugano subsidiary require restating three years of financials, creating material uncertainty despite management reassurances.

The disclosure from Compass Diversified represents a significant financial reporting issue that warrants careful investor attention. CODI has now expanded the scope of financial statements under question to include fiscal years 2022 and 2023, in addition to the previously disclosed 2024 statements. This three-year span of potential misstatements suggests the accounting irregularities at Lugano are more extensive than initially indicated.

The preliminary findings point to irregularities in three critical areas: financing practices, accounting methods, and inventory management at Lugano. This combination typically signals potential revenue recognition issues, improper expense capitalization, or inventory valuation problems – all of which could materially impact reported earnings.

While management is attempting to contain investor concerns by emphasizing that the issues are isolated to Lugano and not affecting other subsidiaries, this reassurance must be viewed cautiously. The need to restate multiple years of financials indicates the controls that should have detected these issues failed repeatedly, raising questions about the overall control environment.

The CEO's statement about "ample liquidity" and "working constructively with banking partners" suggests potential covenant compliance concerns or refinancing discussions. When companies highlight banking relationships during accounting investigations, it often indicates they're negotiating for waivers or amendments to debt agreements that might otherwise be breached due to the restatements.

Investors should closely monitor several key upcoming disclosures: the quantification of the misstatements, any identified material weaknesses in internal controls, potential violations of debt covenants, and the full scope of the investigation's findings. The language about "maximizing long-term value" amid this uncertainty suggests management is preparing shareholders for potential near-term volatility.

WESTPORT, Conn., June 25, 2025 (GLOBE NEWSWIRE) -- Compass Diversified (NYSE: CODI) (“CODI”) today disclosed non-reliance on its financial statements for fiscal years 2022 and 2023 amid an ongoing investigation into its subsidiary Lugano Holding, Inc. (“Lugano”). This follows CODI’s May 7 disclosure concerning non-reliance on its 2024 financial statements. As previously disclosed, the investigation has preliminarily identified irregularities in Lugano’s financing, accounting, and inventory practices.

CODI is focused on completing the investigation, which is progressing in line with expectations, and actively working to finalize the necessary financial restatements. Importantly, the investigation is focused on Lugano and does not involve any of CODI’s other subsidiaries.

“We remain confident in the performance and integrity of CODI’s eight other subsidiary companies, all of which continue to operate normally, have strong balance sheets, and collectively generate substantial cash flow,” said Elias Sabo, CEO of CODI. “We have ample liquidity and significant access to capital via our revolving credit facility. We continue to work constructively with our banking partners and bondholders to ensure flexibility and stability as we move forward. Our primary focus remains on maximizing long-term value for all stakeholders.”

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, CODI’s expectations as to the timing and outcome of the Lugano investigation, CODI’s credit availability and future liquidity, actions taken in response to the outcome of the investigation, the future performance of Lugano and CODI’s other subsidiaries, the filing or delay of CODI’s periodic reports, and the amount of any potential misstatements associated with Lugano and the impact any such misstatements may have on CODI’s previously issued financial statements or results of operations. Such forward looking statements may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,” “would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These statements are based on beliefs and assumptions by the Board of Directors and management, and on information currently available to CODI’s Board of Directors and management. These statements involve risk and uncertainties that could cause CODI’s actual results and outcomes to differ, perhaps materially, including but not limited to: the discovery of additional information relevant to the investigation; the conclusions (and timing of those conclusions) concerning matters relating to the investigation; the timing of the review by, and the conclusions of, Grant Thornton regarding the investigation and CODI’s financial statements; a further material delay in CODI’s financial reporting or ability to hold an annual meeting of stockholders; the impacts of restatement reviews; the likelihood that the control deficiencies identified or that may be identified in the future will result in material weaknesses in CODI’s internal control over financial reporting; and commercial litigation relating to the investigation, including CODI’s representations regarding its financial statements, and the possibility of future litigation or investigation relating to CODI’s internal controls, restatement reviews, the investigation, or related matters. Please see CODI’s Annual Report on Form 10-K for the year ended December 31, 2024 for other risk factors that you should consider in connection with such forward-looking statements. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date such statements have been made. Except as required by law CODI does not undertake any public obligation to update any forward-looking statements to reflect events, circumstances, or new information after the date of this press release, or to reflect the occurrence of unanticipated events.

Investor Relations
Compass Diversified
irinquiry@compassdiversified.com 

FAQ

What financial statements has CODI declared non-reliance on?

CODI has declared non-reliance on financial statements for fiscal years 2022, 2023, and 2024.

What irregularities were found at Lugano Holding, Inc.?

The investigation has preliminarily identified irregularities in Lugano's financing, accounting, and inventory practices.

How many of CODI's subsidiaries are affected by the investigation?

Only one subsidiary (Lugano Holding, Inc.) is affected. The other eight subsidiaries continue to operate normally with strong balance sheets.

What is CODI's current liquidity situation?

CODI maintains ample liquidity and significant access to capital through its revolving credit facility, and is working constructively with banking partners and bondholders.

What are the potential risks CODI faces from this investigation?

Risks include potential material weaknesses in internal controls, further delays in financial reporting, possible commercial litigation, and potential impact on stockholder meetings.