The Company’s manufacturing, processing, formulation, packaging, labeling, storage, distribution, advertising, and sale of its products and business operations must comply with extensive, increasingly varied, and complex federal, state, and foreign laws and regulations. In the U.S., this includes oversight from agencies such as the Environmental Protection Agency, the Food and Drug Administration (FDA) (including applicable current good manufacturing practice regulations), the Consumer Product Safety Commission, the Federal Trade Commission, and the Occupational Safety and Health Administration. Additionally, changes in regulatory priorities, enforcement approaches, or the interpretation of existing laws may create uncertainty, delay product launches, increase compliance risk, or otherwise impact the Company’s ability to operate efficiently. In particular, the Company's acquisition of GOJO has expanded its portfolio of products subject to FDA oversight, including products regulated as cosmetics and over-the-counter drugs, which are subject to distinct regulatory requirements. Changes in FDA regulations, priorities, or enforcement approaches applicable to these product categories could have a disproportionate impact on the Company's operations. The Company could also be subject to government inquiries, investigations or enforcement actions and any determination of non-compliance could result in fines, penalties, product recalls or other sanctions, which may adversely affect its business, reputation, and financial performance.
Moreover, federal, state, and foreign governments may introduce new or expand existing legislation and regulations, or impose more stringent interpretations of current laws, requiring the Company to enhance its resources, capabilities, and expertise. For instance, the Company is subject to environmental regulations related to the transportation, storage, and use of certain chemicals. It may also face increased costs or mandatory funding obligations under extended producer responsibility or similar regulations or restrictions on materials and packaging types. These requirements could increase compliance costs, limit material availability, or reduce the competitiveness of the Company’s products, which could adversely affect consumer demand. Furthermore, the Company is subject to rapidly evolving and increasingly complex legal and regulatory requirements in areas such as sustainability disclosure, sustainable packaging (including plastic packaging), data privacy, executive compensation, and corporate governance. The lack of regulatory convergence across jurisdictions, especially at the state level, may further increase compliance costs.
Due to its extensive international operations, the Company could be adversely affected by violations, or allegations of violations, of the FCPA and similar international anti-bribery laws. The Company’s internal controls, policies and procedures may not protect it from reckless, intentional or unintentional criminal acts committed by its employees, joint-venture partners or agents. Alleged or actual violations of these laws could adversely affect the Company's business, reputation, financial condition and results of operations.
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's multi-year phased upgrade of its digital capabilities, including replacement of its ERP system, as well as its increasing use of emerging technologies such as artificial intelligence, have required the Company to adapt and evolve its processes and internal control framework. These developments have resulted and will result in changes to its processes and procedures which, in turn, has resulted and could result in changes to its internal controls over financial reporting, which may require significant effort and judgment. In addition, the integration of acquired businesses, including GOJO, may further increase the complexity of the Company’s processes, systems and internal controls. Any failure to maintain an effective system of internal control over financial reporting, including as a result of failure of the ERP system to work properly, could limit the Company’s ability to report its results of operations accurately and on a timely basis, or to detect and prevent fraud and could expose it to regulatory enforcement action and shareholder claims, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Fluctuations in federal, state, local and foreign taxes, or changes in tax laws, regulations, interpretations or uncertain tax positions, including related interest and penalties, could create uncertainty, materially impact the Company's recorded liability, effective tax rate and results of operations. For example, recent U.S. tax legislation, including the One Big Beautiful Bill Act, introduced provisions applicable to U.S. corporate taxpayers. While the Company does not expect these changes to materially affect its effective tax rate, future developments could impact its tax position. In addition, the Organization for Economic Co-Operation and Development’s Global Anti-Base Erosion (GloBE rules) or “Pillar Two” framework, which has been adopted or is being implemented by multiple jurisdictions, establishes a global minimum tax regime and increases the complexity of compliance. Ongoing developments in the interpretation and implementation of these rules, including additional guidance and jurisdiction-specific approaches, may further increase complexity and uncertainty. The Company will continue to evaluate these developments, although it does not currently expect them to have a material impact on its effective tax rate or cash flows. See also “Critical Accounting Estimates—Income Taxes” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.1 for more information on factors influencing the determination of the Company’s effective tax rate and tax positions.
In addition, the Company sells certain products to government entities and other institutional customers, including through businesses acquired as part of the GOJO transaction, subjecting it to government procurement and compliance requirements. Failure to comply with such requirements, or any changes in government procurement policies, funding priorities or contract terms, could result in the loss of existing contracts, reduced demand, penalties, reputational harm, or heightened scrutiny, audits or investigations that could adversely affect the Company’s business, financial condition and results of operations.
If the Company is found to be noncompliant with applicable laws and regulations in these or other areas, it could be subject to governmental or regulatory actions, including fines, import detentions, injunctions, product withdrawals or recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on its business. Loss of or failure to obtain necessary permits and registrations, particularly with respect to its charcoal business, could delay or prevent the Company from meeting current product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect its financial condition and results of operations. In order to comply with any changes in these laws and regulations, the Company may be required to make changes to product formulation, labeling or marketing claims, perform additional testing to substantiate its product claims, make costly changes in its manufacturing processes or supply chain or stop selling certain products until corrective actions have been taken. Any of these developments could increase the Company’s costs significantly, which could have a material adverse effect on the Company’s financial condition and results of operations.