Q Qnity Electronics, Inc. - 10-K

ITEM 1A. RISK FACTORS

RISK FACTORS

You should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating us and our common stock.

Any of the following risks, as well as additional risks and uncertainties not currently known to us, beyond our control or that we currently deem immaterial, could materially and adversely affect our business, results of operations or financial condition. Based on current information, we believe that the following identifies the most significant risks that could affect our business, results of operations or financial condition.

Risks Related to Our Business

Our results are affected by competitive conditions and customer preferences.

We operate in a highly competitive, global industry. Some of our competitors may have better-established customer relationships than we do, which may enable them to have their products specified for use more frequently and more quickly by these customers. Further, customers continually evaluate the benefits of internal manufacturing versus outsourcing, and a customer’s decision to internally manufacture products that we provide may negatively impact us. If we are unable to maintain our competitive position, we could experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and a loss of market share, any of which could have a material adverse effect on our results of operations. Further, we expect that existing and new competitors will improve their products and introduce new products with enhanced performance characteristics. The introduction of new products, more efficient production of existing products, or products sold at a lower cost by competitors could diminish our market share and increase pricing pressure on our products. Our competitors include companies outside of the U.S., including companies in countries where foreign governments seek to build a domestic-centric semiconductor ecosystem. From time to time, governments around the world may provide incentives or make other investments that could benefit and give competitive advantages to our competitors. Government incentives may not be available to us on acceptable terms or at all. If our competitors can benefit from such government incentives and we cannot, it could strengthen our competitors’ relative position and have a material adverse effect on our business.

We expect the demand for product offerings that align with sustainability goals (in areas such as substances of concern, circular economy, waste, water, nature/biodiversity, responsible procurement, human rights) to continue to increase, driven by end-user and customer demand, investor preference and government legislative and market-responsive product-specific actions. Failure to timely react to these trends and manage our product portfolio and innovation activities responsively could decrease the competitiveness of our products and result in the de-selection of us as a partner of choice.

Fluctuations in the demand for semiconductors and the overall volume of semiconductor manufacturing may decrease demand for our products and may adversely affect our business.

Our revenue is heavily dependent on demand from the global semiconductor ecosystem. The semiconductor industry has historically been, and is likely to continue to be, cyclical, with periodic downturns, resulting in decreased demand for our products. The semiconductor industry may be negatively impacted by factors such as decreased consumer spending, macroeconomic uncertainty and slow or negative economic growth, which could further decrease consumer spending and business investment in technologies and products that contain semiconductors. We have previously experienced a reduction in revenue and operating losses during cyclical downturns in the semiconductor industry, which can occur suddenly. During such cyclical downturns, we typically experience greater pricing pressure and shifts in product and customer mix, which can adversely affect our gross margin and net income. We are unable to predict the timing, duration or severity of any current or future downturns in the semiconductor industry. Furthermore, the semiconductor industry is subject to rapid advancements and demand for new and emerging technologies, such as artificial intelligence. Additionally, we may incur unexpected or additional costs to align our operations with demand. If we do not, or are unable to, adequately anticipate changes in our business environment, we may lack the infrastructure, manufacturing capacity and resources to scale up our business to meet customer expectations and compete successfully during a period of growth. Conversely, we may expand our capacity too rapidly, resulting in excess fixed costs, and lower profitability.

If we are unable to anticipate and respond to rapid technological change and customer requirements by continuing to innovate and introduce new and enhanced products and solutions, we may experience a loss of market share, decreased sales, revenue, profitability and damage to our reputation.

The electronics industry is subject to rapid technological change, changing customer requirements and frequent new product introductions. In our industry, the first company to introduce an innovative product that addresses an identified market need will often have a significant advantage over competing products. A failure to successfully anticipate and respond to technological

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changes by developing, marketing and manufacturing new products or enhancements to our existing products could harm our business prospects and significantly reduce our sales. Conversely, if a product concept does not progress beyond the development stage or only achieves limited acceptance in the marketplace, we may not receive a direct return on our expenditures, we may lose market share and our revenue and profitability may decline. Following development, it may take several years for sales of a new product to reach a substantial level, if ever. We cannot guarantee that the new products and technology we choose to develop and market will be successful. In addition, if new products have reliability or quality problems, we may experience reduced orders, higher manufacturing costs, delays in acceptance and payment, additional service and warranty expense and damage to our reputation.

A large percentage of our net sales are generated from our international operations and are subject to economic, geopolitical, foreign exchange and other risks.

We do business globally in approximately 80 countries. The percentage of net sales generated by international operations, including U.S. exports, was approximately 88% of our total net sales for the year ended December 31, 2025. Regionally, Asia Pacific represented approximately 79% of our net sales for the year ended December 31, 2025. We expect that the percentage of our net sales derived from international operations will continue to be significant.

Risks related to international operations that have adversely impacted and may continue to adversely impact our business, results of operations and reputation as well as our customers and suppliers include:

• economic uncertainty in the worldwide markets in which we operate;

• trade restrictions (including potential, new and changing regulations for exports of certain technologies and goods to China) and changes in tariffs;

• failure to comply with evolving international trade restrictions and economic sanctions, laws and regulations;

• positions taken by governmental agencies regarding possible national, commercial and/or security issues posed by the development, sale or export of certain raw materials, products and technologies;

• geopolitical tensions or conflicts, which may result in severely diminished liquidity and credit availability, rating downgrades of sovereign debt, declining valuation of certain investments, declines in consumer confidence, declines in economic growth, volatility in unemployment rates, increased logistics costs and delays and uncertainty about economic stability and raw materials;

• difficulty in staffing and managing widespread operations;

• differing labor regulations;

• challenges of maintaining appropriate business processes, procedures and internal controls and complying with legal, environmental, health and safety, anti-bribery, anti-corruption, data privacy, cybersecurity and other regulatory requirements that vary by jurisdiction, and the impact of improper conduct by our employees, agents or business partners;

• challenges in developing relationships with local customers, suppliers and governments;

• fluctuating pricing and availability of raw materials and supply chain disruptions;

• changes in global or local economic conditions, including inflation, hyperinflation, fluctuations in interest rates and other increasing price levels in certain sectors, such as energy, impacting availability and cost of goods and services;

• public health crises and related implications thereof;

• expense and complexity of complying with U.S. and foreign import and export regulations, including the ability to obtain and renew required import and export licenses;

• fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against foreign currencies that are important to our business;

• restrictions on the transfer of funds, potentially leading to the inability to readily repatriate earnings from foreign operations effectively;

• tax impacts and changes in global and local tax regulatory environments;

• challenges and costs associated with the protection of our intellectual property throughout the world;

• challenges associated with managing global and regional third-party service providers, including certain engineering, software development, manufacturing, information technology ("IT") and other functions; and

• customer or government efforts to encourage operations and sourcing in a particular country, including efforts to develop and grow local competitors, require local manufacturing and provide special incentives to government-backed local customers to buy from local competitors.

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We are subject to a variety of rapidly evolving environmental laws and regulations that could cause us to incur significant liabilities and expenses and subject us to environmental litigation.

We are subject to extensive federal, state, local and foreign laws, regulations, rules, ordinances and permit requirements relating to pollution, protection of the environment, product content, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances, which include certain substances of concern, and waste materials, which are rapidly evolving. Costs to comply with complex environmental laws and regulations, as well as internal voluntary programs and goals, are significant and we expect these costs will continue to be significant for the foreseeable future. Moreover, changes in the legal or regulatory environment could inhibit or interrupt our operations, require modifications to our products, processes or facilities or cause us to discontinue or relocate the production of certain products. Further changes to or our failure to comply with these and similar regulations may result in significant unanticipated costs, liabilities or capital expenditures or require changes in business practice that could result in reduced margins or profitability.

As a result of our operations, including past operations and those related to divested businesses and discontinued operations of DuPont and certain of our former affiliates (and their respective former affiliates), which will generally be contractually allocated between us and DuPont based on the Applicable Percentages under the Separation and Distribution Agreement (the "Separation and Distribution Agreement"), described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report, we incur environmental operating costs for pollution abatement activities including waste collection and disposal, installation and maintenance of air pollution controls and wastewater treatment, emissions testing and monitoring and obtaining permits. We also incur environmental operating costs related to environmental-related research and development activities including environmental field and treatment studies as well as toxicity and degradation testing to evaluate the environmental impact of products and raw materials. In addition, we maintain and periodically review and adjust our accruals for probable environmental remediation and restoration costs. Considerable uncertainty exists with respect to environmental remediation costs and, under adverse changes in circumstances, the potential liability may be materially higher than our accruals.

We face risks arising from various unasserted and asserted litigation matters arising out of the normal course of our current and former business operations, including intellectual property, commercial, product liability, environmental and antitrust lawsuits. We have noted a trend in public and private suits being filed on behalf of states, counties, cities and utilities alleging harm to the general public and the environment, including waterways and watersheds. It is not possible to predict the outcome of these various proceedings. An adverse outcome in any one or more of these matters could be material to our financial results. Various factors or developments can lead to changes in current estimates of liabilities. Such factors and developments may include, but are not limited to, additional data, safety or risk assessments, as well as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or unfavorable development could result in future charges that could have a material adverse effect on us.

Supply chain and operational disruptions and volatility in energy and raw material costs could adversely impact our sales and earnings and impact access to sources of liquidity.

Our manufacturing processes and operations depend on the continued availability of energy and raw materials, the costs of which are subject to worldwide supply and demand as well as other factors beyond our control, including potential legislation related to reducing greenhouse gas emissions, the introduction of tariffs, creating a carbon tax or implementing a cap and trade program which could create increases in costs and price volatility. Climate change increases the frequency and severity of potential supply chain and operational disruptions from weather events and natural disasters. The chronic physical impacts associated with increased temperatures, changes in weather patterns and rising sea levels, for example, could significantly increase costs and expenses and create additional supply chain and operational disruption risks.

Supply chain disruptions, including as a result of the relocation of certain low-cost and limited source suppliers to less-developed countries, plant and/or power outages, labor shortages and/or strikes, geopolitical activity, tariffs, weather events and natural disasters, including hurricanes or flooding that impact coastal regions, and global health risks or pandemics could seriously harm our operations as well as the operations of our customers and suppliers. Our manufacturing operations may be adversely affected by impacts of pandemics including government actions and other responsive measures, quarantines and health and availability of essential onsite personnel. In addition, our suppliers may experience capacity limitations in their own operations or may elect to reduce or eliminate certain product lines. To address this risk, generally, we seek to have many sources of supply for key raw materials in order to avoid significant dependence on one or a few suppliers. In addition, and where the supply market for key raw materials is concentrated, we take additional steps to manage exposure to supply chain risk and price fluctuations through, among other things, negotiated long-term contracts some of which include minimum purchase obligations. However, there can be no assurance that such mitigation efforts will prevent future difficulty in obtaining sufficient and timely delivery of certain raw materials.

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If we do not successfully execute our go-to-market strategy, our business and financial performance may suffer.

Our go-to-market strategy is focused on leveraging our existing portfolio of products and services as well as introducing new products and services to meet the demands of our customers in a continually changing technological landscape. To successfully execute this strategy, we must emphasize the aspects of our core business where demand remains strong, identify and capitalize on organic growth, and innovate by developing new products and services that will enable us to expand beyond our existing technology categories. Any failure to successfully execute this strategy, including any failure to invest sufficiently in strategic growth areas and support our research and development activities, could adversely affect our business, financial condition or results of operations.

Changes in the global and local tax regulatory environments in, and the distribution of income among, the various jurisdictions in which we operate, could adversely impact our results of operations.

Our future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, regulations and judicial rulings (or changes in the interpretation thereof), changes in United States Generally Accepted Accounting Principles, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently reinvested offshore, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures and various other governmental enforcement initiatives. We have ongoing federal, state and international income tax audits in various jurisdictions, and we evaluate uncertain tax positions that may be challenged by local tax authorities. The impact, if any, of these audits to our unrecognized tax benefits is not estimable. Our tax expense includes estimates of tax reserves and reflects other estimates and assumptions, including assessments of our future earnings which could impact the valuation of our deferred tax assets.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted in the United States and imposes a 15% corporate alternative minimum tax (“CAMT”) on certain corporations. We continue to monitor the impact and risk of this on our future effective tax rate.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) OBBBA was enacted into law in the United States. The OBBBA modifies international corporate income tax law by, among other things, changing the tax rates for certain Global Intangible Low-Taxed Income (now known as Net CFC Tested Income) and Foreign-Derived Intangible Income (now known as Foreign Derived Deduction Eligible Income), modifying the allocation of expenses in calculating foreign tax credits, as well as changing foreign tax credit limitations. Given the complexities of the changes and potential future clarifications of the provisions, we continue to evaluate the impact of the new legislation on future periods.

Changes in tax laws or regulations, including multi-jurisdictional changes enacted in response to the action items provided by the Organisation for Economic Co-operation and Development (the "OECD"), including the OECD’s Global Anti-Base Erosion rules under Pillar Two, which introduces a global minimum corporate tax rate set at 15% on multinational enterprises, can increase tax uncertainty and may impact our provision for income taxes. Many countries have enacted or drafted legislation using the Pillar Two framework to implement domestic tax laws requiring a minimum tax rate of 15% (“domestic top-up tax”) on income earned in the respective countries. The introduction of Pillar Two in countries where the Company operates has negatively impacted and may continue to negatively impact our effective tax rate. While the OECD released guidance on January 5, 2026 detailing a “side-by-side” framework that could exempt certain U.S.-parented groups, including Qnity, from certain of the Pillar Two rules, the final outcome remains uncertain. Given the unpredictability of possible further changes to and the potential interdependency of the United States or foreign tax laws and regulations, it is difficult to predict the cumulative effect of such tax laws and regulations on our results of operations.

If we are unable to attract or retain key personnel and qualified employees, or maintain relations with our employees, unions and other employee representatives, it could adversely affect our ability to compete and achieve our strategic goals.

Attracting, developing and retaining talented employees is essential to our successful delivery of products and services, ability to innovate, and ability to identify trends and develop new markets. Many of our key personnel have significant experience in the semiconductor industry and deep technical expertise. In addition, due to the specialized and technical nature of our business, our future performance depends upon our ability to attract, develop and retain skilled employees, particularly specialized research and development and engineering personnel, in order to maintain our efficient production processes, drive innovation in our product offerings and maintain our deep customer relationships. As the semiconductor industry has grown in recent years, competition for qualified talent, particularly those with significant industry experience, has intensified. We may be required to increase salary and/or benefits to attract and retain top performers which could increase our costs and adversely impact our results of operations.

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Certain of our employees in the U.S. are covered by collective bargaining agreements. These agreements typically contain provisions regarding the general working conditions of our employees, including provisions that could affect our ability to restructure our operations, close facilities or reduce our number of employees. We may not be able to extend existing collective bargaining agreements or, upon the expiration of such agreements, negotiate such agreements in a favorable and timely manner or without work stoppages, strikes or similar actions.

The loss of one or more key employees, our inability to successfully integrate, motivate and reward our employees, attract or develop additional qualified employees, any delay in hiring key personnel, any deterioration of the relationships with our employees, unions and other employee representatives, or any material work stoppage, strike or similar action could have a material adverse effect on our business results, cash flows, financial condition or prospects.

Our reliance on certain key customers, contract manufacturers and suppliers could adversely affect our overall sales and profitability.

Sales to a limited number of large customers constitute a significant portion of our overall revenue, shipments, cash flows, collections and profitability. Our top ten customers accounted for 34%, 34% and 32% of our net sales in 2025, 2024 and 2023, respectively. We would have no or limited contractual recourse if our large customers decided to stop buying and using our products in their manufacturing processes with limited advance notice to us. The cancellation, reduction or deferral of purchases of our products by any one of these customers could meaningfully reduce our revenues. The loss of one or more of these key customers, if our products are not specified for our large customers’ products or if we suffer a material reduction in their purchase orders, could impair our results of operations for the affected earnings periods. In addition, there is limited available manufacturing capacity that meets our quality standards and regulatory requirements. If we are unable to arrange for sufficient production capacity among our suppliers or contract manufacturers, or if our suppliers or contract manufacturers encounter production, quality, financial or other difficulties (including due to labor or geopolitical disturbances or natural disasters), we may be unable to meet our customers’ demands. To help ensure continuity of supply to our customers, we have increased our procurement efforts to shorten lead times. These increases in materials inventory and purchase commitments have resulted, and could continue to result, in excess and/or obsolete inventory charges if the demand for our products is ultimately less than our expectations. Finally, we rely on independent distributors to distribute our products and to assist us with the marketing and sale of certain of our products. There can be no assurance that our distributors will focus adequate resources on selling our products to end users, or will be successful in selling our products, which could materially adversely affect our business and results of operations.

Risks related to trade disputes, regulations and policies could have an adverse impact on our operations and reduce the competitiveness or availability of our products relative to local and global competitors.

There is inherent risk, based on the complex relationships among China, Japan, South Korea, Taiwan and the U.S., that political, diplomatic and national security influences could lead to trade disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry. Trade regulations, policies and disputes can and have increased tariffs and trade barriers, which can and have limited our ability to sell certain products to certain customers, and otherwise impacted our global supply and distribution chains and research and development activities, particularly those arising out of relations between the U.S. and China. The extent and duration of the tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of raw materials, and our buying organization’s ability to execute our raw materials sourcing model to offset the effects of the tariffs. In addition, we are subject to export control and economic sanctions laws and regulations that restrict the delivery of some of our products and services to certain countries (and nationals thereof), to certain end users, and for certain end uses. These restrictions may prohibit the transfer of certain of our products, services and technologies, and they may require us to obtain a license from the U.S. government before delivering the controlled item or service. Obtaining export licenses may be difficult, costly and time-consuming, and we may fail to receive licenses that we apply for on a timely basis or at all. We must also comply with export control and economic sanctions laws and regulations imposed by other countries. Our export and trade control compliance program may be ineffective or circumvented, exposing us to legal liabilities. Compliance with these laws could meaningfully limit our sales in the future. Ultimately, changes in, and responses to, U.S. trade controls have the potential to reduce the competitiveness of our products and cause our sales to decline, which could have a material adverse effect on our business, financial condition and results of operations. Such risks may be especially exacerbated as they relate to China, a market that is important to our business, representing approximately 33% of our net sales for the year ended December 31, 2025.

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Our business, results of operations and reputation could be adversely affected by industry-specific risks, including process safety, product stewardship and regulatory compliance issues.

Our business exposes us to industry-specific risks which include, but are not limited to risks arising from: product safety or quality, shifting public perception, federal, state and local regulations on manufacturing or labeling, packaging, environmental, health and safety laws and regulations and customer product liability claims.

In most jurisdictions, we must test the safety, efficacy and environmental impact of our products to satisfy regulatory requirements and obtain the needed approvals. In certain jurisdictions, we must periodically renew our approvals, which may require us to demonstrate compliance with then-current standards. The regulatory approvals process is lengthy, complex and in some markets unpredictable, with requirements that can vary by product, technology, industry and country. Regulatory standards and trial procedures are continuously changing in response to technological developments, changes in legislation and governmental, non-governmental organization (“NGO”) and societal demands for increasing levels of product safety and environmental protection. The pace of change, together with any lack of regulatory harmony could result in unintended noncompliance. Each of these laws, rules and regulations imposes costs on our business, including financial costs and potential diversion of our management’s attention, and may present risks to our business, including potential fines, restrictions on our actions and reputational damage if we do not fully comply. To maintain our right to produce or sell existing products or to commercialize new products, we must be able to demonstrate our ability to satisfy the requirements of regulatory agencies, industries and customers.

Efforts to comply with new and changing regulations have resulted in, and are likely to continue to result in, increased administrative expenses and diversion of management’s time and attention from revenue-generating activities to compliance activities. The failure to meet existing and new requirements or receive necessary permits or approvals could have near- and long-term effects on our ability to produce and sell certain current and future products which could increase operating costs and adversely affect our business, results of operations and financial condition. In addition, negative publicity related to product liability, safety, health and environmental matters may damage our reputation.

Our business, results of operations, financial condition and cash flows could be adversely affected by interruption or regulation of our information technology or network systems and storage of information and other business disruptions. Our actual or perceived failure to comply with laws and regulations regarding data privacy could also lead to regulatory investigations, litigation, fines, or other adverse business consequences.

We rely on centralized and local information technology and physical networks and systems, some of which are managed or accessible by third parties, to process, transmit and store electronic information and to otherwise manage or support our business. Additionally, we collect, store, process, use and have access to certain data, including proprietary business and personal information or data that is subject to privacy and security laws, regulations, orders and controls or rules imposed by customer or other contracts. The processing and storage of personal information is increasingly subject to privacy and data security regulations, and many such regulations are country or territory-specific. The interpretation and application of data protection laws in the U.S., Europe, Asia Pacific, Latin America and elsewhere are continuing to evolve and may be different across these jurisdictions. Violations of these laws or standards could result in criminal or civil sanctions, investigations or enforcement actions. Even the mere allegation of such violations, could harm our ability to do business, our results of operations, financial position and reputation.

Information technology system and/or network disruptions, whether caused by internal or external factors, could have an adverse impact on our operations as well as the operations of our customers and suppliers. Other business disruptions may also be caused by security breaches. We and/or our suppliers may fail to effectively prevent, detect and recover from security breaches and, therefore, such breaches could result in misuse of our assets, loss of property including trade secrets and confidential or personal information, and other business disruptions. As a result, we may be subject to legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales, interference with regulatory compliance, which could result in sanctions or penalties, liability or penalties under privacy laws, disruption in our operations and damage to our reputation, which could adversely affect our business, results of operations, financial condition and cash flows.

Like other major corporations, we are the target of cyber-attacks, from time to time, which include phishing, spam emails, hacking, social engineering, industrial espionage and malicious software. We have determined that these attacks have resulted, and could result in the future, in unauthorized parties gaining access to certain confidential business information. However, risks from previous cybersecurity incidents, have not materially affected us, including our business strategy and results of operations. Further, the use of artificial intelligence by us, our customers, suppliers and other business partners and third-party providers may further introduce vulnerabilities onto our IT systems and data.

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We seek to actively manage the risks within our control that could lead to business disruptions and security breaches. As these threats continue to evolve, we may be required to expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, such events could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our revenues and operating results have fluctuated in the past and may do so in the future, which could impact our stock price.

Our revenues and operating results may fluctuate significantly from quarter-to-quarter or year-to-year due to a number of factors, many of which are outside our control. We manage our expenses based in part on our expectations of future revenues. Because some of our expenses are relatively fixed in the short term, a change in the timing of revenue or the amount of profit we generate from a small number of transactions can unfavorably affect operating results in a particular period. Factors that may cause our financial results to fluctuate unpredictably include:

• our ability to develop, introduce and market new, enhanced and competitive products in a timely manner;

• trends in the semiconductor industry, macroeconomic and market conditions and geopolitical uncertainty;

• legal, tax, accounting or regulatory changes (including changes in import/export regulations and tariffs, such as regulations imposed by the U.S. government on product imports from certain countries, including China and Mexico, as well as the related trade disputes and trade barriers) or changes in the interpretation or enforcement of existing requirements;

• the size and timing of customer orders;

• consolidation of our customers, which could impact their purchasing decisions and negatively affect our revenues;

• procurement shortages, increased prices, the failure of suppliers to perform their obligations and additional expenses to respond promptly to any supply shortages or other supplier problems;

• decisions to increase or accelerate our purchasing of raw materials, components or other supplies in an effort to mitigate supply risk;

• changes in our capital expenditure requirements, and the schedule and timing, including potential delays, thereof;

• manufacturing difficulties;

• customer decisions to decelerate orders in order to draw down their inventory;

• customer cancellations of or delays in shipments, installations or customer acceptances or, alternatively, acceleration of orders from customers to increase their inventory;

• our customers’ rate of replacement of our consumable products or decision to delay expansion projects;

• changes in average selling prices, customer mix and product mix;

• our competitors’ introduction of new products;

• disruptions in transportation, communication, demand, information technology or supply, including strikes, acts of God, wars, terrorist activities and natural or man-made disasters;

• changes in our estimated tax rate; and

• foreign currency exchange rate fluctuations.

Enforcing our intellectual property rights, or defending against intellectual property claims asserted by others, could adversely affect our business, results of operations, financial condition and cash flows.

Intellectual property rights, including patents, trade secrets, know-how and confidential information, trademarks, tradenames and trade dress, are important to our business. We endeavor to protect our business, including our products, processes and services, by protecting and enforcing our intellectual property rights under the intellectual property laws of certain jurisdictions around the world. However, we may be unable to protect or enforce our intellectual property rights in key jurisdictions for various reasons including government policies and regulations. Further, changes in government policies and regulations, including changes made in reaction to pressure from NGOs, or the public generally, could impact the extent of intellectual property protection afforded by such jurisdictions.

We have designed and implemented internal controls intended to restrict unauthorized access to and use of our intellectual property, including our trade secrets and confidential information. Despite these precautions, our intellectual property is vulnerable to infringement, misappropriation and other unauthorized access and use, including through employee or licensee error or actions, theft by employees or third parties and cybersecurity incidents and other security breaches. When unauthorized access and use or counterfeit products are discovered, we report such incidents to governmental authorities for investigation, as appropriate, and take measures intended to mitigate any potential impact and to stop any unauthorized access.

Third parties may also claim our products, processes or services, or our names and marks, including new names and marks adopted by us in connection with our recent spin-off from DuPont (the "Spin-Off"), violate their intellectual property rights. Defending such claims, even those without merit, can be time-consuming and expensive. In addition, as a result of such claims, we and/or certain of our subsidiaries have been, and may in the future be, required to enter into license agreements, modify the

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design of our products, processes or services, rebrand our offerings or cease the sale or other commercial exploitation of the affected products, services or brands. If challenges are resolved adversely, it could negatively impact our ability to obtain licenses on competitive terms, commercialize new products and generate sales from existing products, and we could become liable for damages.

Any one or more of the above factors could significantly affect our business, results of operations, financial condition and cash flows.

Failure to effectively manage acquisitions, divestitures, partnerships and other portfolio actions could adversely impact our business, results of operations, financial condition and cash flows.

We continuously evaluate acquisition candidates that may strategically fit our business and/or growth objectives. If we are unable to successfully integrate and develop acquired businesses, we could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse effect on our financial results. We expect to continually review our portfolio of assets for contributions to our objectives and alignment with our growth strategy. Moreover, we might incur asset impairment charges related to acquisitions or divestitures that reduce our earnings. In addition, if the execution or implementation of acquisitions, divestitures, partnerships, joint ventures and other portfolio actions is not successful and/or we fail to effectively manage cost as our portfolio evolves, it could adversely impact our business, results of operations, financial condition and cash flows.

We may not be able to access the capital and credit markets on terms that are favorable to us, or at all.

Our business relies in part on the availability of financing for our products and services. The capital and credit markets may experience extreme volatility or disruptions that may lead to uncertainty and liquidity issues for both borrowers and investors. Certain customers and suppliers, as well as our business, may need access to credit and trade finance lines and other financing instruments for certain transactions and to provide financial assurance as required by regulatory agencies. Additionally, we may need to access the capital markets to supplement our existing funds and cash generated from operations to satisfy our needs for example, for working capital or capital expenditure requirements. A variety of factors beyond our control could impact the availability or cost of capital, including domestic or international economic conditions, increases in key benchmark interest rates and/or credit spreads, the adoption of new or amended banking or capital market laws or regulations, and the repricing of market risks and volatility in capital and financial markets. In the event of adverse capital and credit market conditions, we may be unable to obtain capital market financing on favorable terms, or at all, and changes in credit ratings issued by nationally recognized credit-rating agencies could adversely affect our ability to obtain capital market financing and the cost of such financing. Additionally, a large portion of our total consolidated cash is held overseas and may not be efficiently accessible to finance or to otherwise support our capital market requirements. Such factors may impact our ability, or the ability of our customers or suppliers, to obtain debt financing, guarantees or hedging from financial institutions which may negatively impact our business.

Risks Related to our Recent Spin-Off from DuPont

We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.

We believe that, as an independent, publicly traded company, we are better positioned to, among other things: focus our financial and operational resources on our specific business, growth profile and strategic priorities; design and implement corporate strategies and policies targeted to our operational focus and strategic priorities; guide our processes and infrastructure to focus on our core strengths; implement and maintain a capital structure designed to meet our specific needs; and more effectively respond to industry dynamics. However, we may be unable to achieve some or all of these benefits in the time we expect, if at all, for a variety of reasons, including: compliance with the requirements of being an independent, publicly traded company require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our business; we may be more susceptible to market fluctuations, actions by activist stockholders and other adverse events than if we were still a part of DuPont; our businesses are less diversified than DuPont’s businesses prior to the Spin-Off; we may not enjoy the same benefit of leverage and market reputation that we enjoyed as part of DuPont; we are more exposed to matters such as foreign currency exchange rates as a smaller, stand-alone company than we had been as a part of the larger DuPont enterprise; under the terms of the Tax Matters Agreement (the "Tax Matters Agreement") with DuPont, we are restricted from taking certain actions that could cause the distribution to fail to qualify as a tax-free transaction and these restrictions may limit us for a period of time from pursuing strategic transactions and equity issuances or engaging in other transactions that may increase the value of our business; and under the terms of the Corteva Letter Agreement and the Legacy Liabilities Assignment Agreement (as defined herein), we are restricted in our ability to transfer to third parties or separate our businesses and assets without assigning certain Legacy Liabilities (as defined in the Corteva Letter Agreement) contractually allocated to us in connection with the Spin-Off to such separated businesses and assets or transferees or meeting certain other alternative conditions. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, financial condition, cash flows and results of operations could be materially and adversely affected.

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We could incur substantial additional costs and experience temporary business interruptions, and we may not be adequately prepared to meet the requirements of an independent, publicly traded company on a timely or cost-effective basis.

We have historically operated as part of DuPont, and DuPont has provided us with various corporate functions. DuPont does not provide us with assistance other than the transition and other services described in the Transition Services Agreements. These services do not include every service that we have received from DuPont in the past, and DuPont is only obligated to provide the transition services for limited periods following completion of the Spin-Off. Following the cessation of the Transition Services Agreements, we will need to provide internally or obtain from unaffiliated third parties the services we will no longer receive from DuPont. We may be unable to replace these services in a timely manner or on terms and conditions as favorable as those we receive from DuPont.

In connection with the Spin-Off, we have been installing and implementing information technology infrastructure to support certain of our business functions, including accounting and financial reporting, research and development, human resources, legal and compliance, insurance, communications and indirect sourcing. If we are unable to transition effectively, we may incur temporary interruptions in business operations. Any delay in implementing, or operational interruptions suffered while implementing, our new information technology infrastructure could disrupt our business and have a material adverse effect on our results of operations.

In addition, in connection with the Spin-Off, we are now subject to reporting and other obligations under the Exchange Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Beginning with our second required Annual Report on Form 10-K, we will be required to comply with Section 404 of the Sarbanes Oxley Act of 2002, as amended (the “Sarbanes Oxley Act”), which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm on the effectiveness of internal control over financial reporting. Under the Sarbanes Oxley Act, we are also required to maintain effective disclosure controls and procedures. To comply with these requirements, we may need to upgrade our systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. These reporting and other obligations may place large demands on management, administrative and operational resources, including accounting systems and resources. If we are unable to upgrade our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired, and we may be unable to conclude that our internal control over financial reporting is effective. If we are not able to comply with the requirements of Section 404 of the Sarbanes Oxley Act in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of shares of our common stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

We have incurred indebtedness in connection with the Spin-Off

In connection with the Spin-Off, we incurred indebtedness in an aggregate principal amount of $4.1 billion, consisting of the $2.35 billion Senior Secured Term Loan Facility, which was entered into on October 31, 2025, and the $1.0 billion of Senior Secured Notes due 2032 and $750 million of Senior Unsecured Notes due 2033, which were issued on August 15, 2025. We also entered into the Senior Secured Revolving Facility of $1.25 billion on October 31, 2025. We may also add incremental term loan facilities, increase commitments under the revolving credit facility or otherwise incur additional indebtedness in the future. Such debt obligations could potentially have important consequences to us and our debt and equity investors, including:

• requiring a substantial portion of our cash flow from operations to make interest payments;

• making it more difficult to satisfy debt service and other obligations;

• reducing the amount of borrowings that may be obtained through offering certain of our assets as security;

• increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;

• increasing our vulnerability to general adverse economic and industry conditions;

• reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;

• limiting our flexibility in planning for, or reacting to, changes in our business and our industry;

• placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt;

• requiring us to repatriate earnings to the United States, causing withholding taxes to be applied, which in turn could increase our effective tax rate; and

• limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pursue our business strategies, pay cash dividends or repurchase common stock.

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To the extent that we incur additional indebtedness, the foregoing risks could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.

We may have received better terms from unaffiliated third parties than the terms received in the commercial agreements we and/or certain of our subsidiaries will enter into with DuPont and/or certain of its subsidiaries.

In connection with the Spin-Off, we and/or certain of our subsidiaries have entered into various other agreements with DuPont and/or certain of its subsidiaries, including, but not limited to, the Tax Matters Agreement, the Employee Matters Agreement, the Transition Services Agreements, the Intellectual Property Cross-License Agreement, the Transitional House Marks Trademark License Agreement, the ESL Cost Sharing Agreement and certain other intellectual property-related, real estate-related, confidentiality-related, regulatory-related and commercial agreements, which govern certain relationships between us and DuPont that were previously provided within DuPont. Such agreements were intended to be entered into on arm’s-length terms similar to those that would be agreed with an unaffiliated third party such as a buyer in a sale transaction, but we did not have an independent board of directors or a management team independent of DuPont representing our interests while such agreements were being negotiated. In addition, until the Spin-Off was completed, we continued to be a wholly owned subsidiary of DuPont and, accordingly, DuPont still had the sole discretion to determine and change the terms of the separation through the distribution date. As a result of these factors, some of the terms of such agreements may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties, and it is possible that we might have been able to achieve more favorable terms if the circumstances differed.

If the Spin-Off were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, DuPont could be subject to significant tax liabilities, and our indemnification obligations to DuPont related to such taxes could adversely affect our business, financial condition, and results of operations.

DuPont received a written opinion (the "Tax Opinion") from Skadden, Arps, Slate, Meagher & Flom LLP to the effect that, among other things, DuPont's distribution of our stock, together with certain related transactions, will qualify as a tax-free transaction for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Tax Opinion relies on certain facts, assumptions and undertakings, and certain representations from DuPont and us, regarding the past and future conduct of both respective businesses and other matters. Notwithstanding the Tax Opinion, the Internal Revenue Service (“IRS”) could determine on audit that the distribution and/or certain related transactions should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or that the distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions of the Tax Opinion.

Generally, taxes resulting from the failure of the Spin-Off to qualify for non-recognition treatment for U.S. federal income tax purposes would be imposed on DuPont or DuPont stockholders who received shares of Qnity common stock in the Spin-Off. Under the Tax Matters Agreement that we entered into with DuPont, we are generally obligated to indemnify DuPont against some or all of such taxes imposed on DuPont in certain circumstances. Such indemnifiable taxes could be significant. To the extent that we are responsible for any liability under the Tax Matters Agreement, there could be a material adverse impact on our business, financial condition, results of operations and cash flows in future reporting periods.

Even if the distribution otherwise constitutes a tax-free transaction to stockholders under Section 355 of the Code, DuPont may be required to recognize corporate-level tax on the distribution and certain related transactions under Section 355(e) of the Code if, as a result of transactions considered part of a plan with the distribution, there is a 50% or greater change of ownership in DuPont or us. If DuPont is required to recognize corporate-level tax on the distribution and/or certain related transactions under Section 355(e) of the Code, then under the Tax Matters Agreement, we may be required to indemnify DuPont for all or a portion of such taxes, which could be a significant amount, if such taxes were the result of either direct or indirect transfers of Qnity common stock or certain reasons relating to the overall structure of the distribution.

We agreed to numerous restrictions to preserve the tax-free treatment of the Spin-Off, which may reduce our strategic and operating flexibility.

Our ability to engage in certain transactions could be limited or restricted after the distribution to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution and certain related transactions. These covenants include certain restrictions on our activity for a period of two years following the Spin-Off, including on our ability to enter into acquisition, merger, liquidation, sale and stock redemption and certain other transactions with respect to our stock or assets. In addition, under the Tax Matters Agreement, we may be required to indemnify DuPont against any such tax liabilities as a result of the acquisition of our stock or assets, even if we do not participate in or otherwise facilitate the acquisition. Furthermore, we are subject to specific restrictions on discontinuing the active conduct of our trade or business, the issuance or sale of stock or other securities, and sales of assets outside the ordinary course of business.

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These covenants and indemnification obligations may significantly limit our ability to pursue certain transactions that we may believe to otherwise be in the best interests of our stockholders or that might increase the value of our business, and might discourage or delay a strategic transaction that our stockholders may consider favorable.

In connection with the Spin-Off, we have been contractually allocated, and directly pay or indemnify DuPont for, certain liabilities, including certain PFAS liabilities. If we are required to make payments pursuant to these indemnification obligations, we may need to divert cash to meet those obligations and our business, financial condition, and results of operations and cash flows could be negatively impacted. In addition, DuPont will indemnify us for certain liabilities. These indemnification obligations may not be sufficient to insure us against the full amount of liabilities we incur, and DuPont may not be able to satisfy its indemnification obligations in the future.

Pursuant to the Separation and Distribution Agreement, the Employee Matters Agreement and the Tax Matters Agreement with DuPont, we have been contractually allocated, and directly pay or indemnify DuPont for, certain liabilities (including those contractually allocated between DuPont and Qnity based on the Applicable Percentages as defined in the Separation and Distribution Agreement) for uncapped amounts, which may include, among other items, historical tax obligations, associated defense costs, settlement amounts and judgments. Payments pursuant to these indemnification obligations, including those in respect of certain legacy and other liabilities (including Legacy Liabilities (as defined in the Corteva Letter Agreement), any funding obligations of DuPont under the Memorandum of Understanding, legacy PFAS liabilities and liabilities related to businesses and operations of DuPont that were previously discontinued or divested), may be significant and could negatively impact our business, particularly indemnification obligations relating to our actions that could impact the tax-free nature of the distribution. Furthermore, with respect to such liabilities contractually allocated between DuPont and Qnity based on the Applicable Percentages, Qnity has irrevocably granted to DuPont, coupled with an interest, sole and exclusive authority to, among other things, commence, notice, prosecute, manage, control, conduct, administer, handle, manage, defend (or assume the defense of), litigate, arbitrate, mediate, settle, resolve, dispose of, cover or otherwise determine all matters with respect to any claims related to, arising out of or resulting from any such liabilities. DuPont may also, in its sole discretion, require Qnity to remit any amounts owed in respect of Qnity’s share of such liabilities directly to the relevant third-party owed such amount. DuPont’s exercise of this authority could result in an increase in the financial burden of such liabilities borne by us, and such increase could be material to our business, financial condition and results of operations and cash flows.

Third parties could also seek to hold us responsible for any of the liabilities contractually allocated to DuPont, including those related to DuPont’s Industrials business and DuPont’s share of those contractually allocated between DuPont and Qnity based on their respective Applicable Percentage (including Legacy Liabilities (as defined in the Corteva Letter Agreement), any funding obligations of DuPont under the Memorandum of Understanding, legacy PFAS liabilities and liabilities related to businesses and operations of DuPont that were previously discontinued or divested). DuPont will agree to indemnify us for such applicable liabilities, but such indemnification may not be sufficient to protect us against the full amount of such liabilities or our Applicable Percentage thereof, as applicable. In addition, DuPont may not be able to fully satisfy its indemnification obligations with respect to the liabilities we incur that have been contractually allocated to DuPont. Even if we ultimately succeed in recovering from DuPont any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, financial condition, results of operations and cash flows.

Although we have not identified any conflicts of interest, certain of our directors and employees may have actual or potential conflicts of interest because of their financial or equity interests in DuPont, or because of their previous positions with DuPont.

Because of their former positions with DuPont, certain of our executive officers and directors own equity interests in both us and DuPont. Continuing ownership of DuPont shares and equity awards could create, or appear to create, potential conflicts of interest if we and DuPont face decisions that could have implications for both us and DuPont. For example, our officers and directors could be motivated or seen to be motivated to make decisions benefiting DuPont that would not have been made if they had no ownership of DuPont shares or equity awards, which may in turn cause harm to our reputation. We have not currently identified any conflicts of interest; however, potential conflicts of interest could arise in connection with the resolution of any dispute between us and DuPont regarding the terms of the agreements governing the Spin-Off and our relationship with DuPont. Potential conflicts of interest may also arise out of any commercial arrangements that we or DuPont, and/or our respective affiliates, may enter into in the future. For example, due to the existing relationships between our officers and directors who have historically been employed by DuPont, our officers and directors may make or be seen to be making decisions benefiting DuPont that would not have been made if we had no such officers or directors. A dispute regarding a potential or actual conflict of interest involving us and DuPont could negatively impact our businesses, results of operations, cash flows and financial condition. In addition, public perception of such an actual or apparent conflict of interest could pose reputational risks and expose us to increased scrutiny from investors and regulators.

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We are subject to certain restrictions in the Corteva Side Letter, which may restrict our ability to pursue our business strategies.

In connection with their separation, DuPont entered into a letter agreement with Corteva (the “Corteva Letter Agreement”) that imposes limitations intended to preserve the agreed allocation of certain legacy liabilities among the parties following the separation. In accordance with the terms and conditions of the Corteva Letter Agreement, in addition to the Separation and Distribution Agreement, we entered into the Legacy Liabilities Assignment Agreement pursuant to which, among other things, we are bound by, and subject to, on a partially assigned basis, certain terms and conditions of the Corteva Letter Agreement, including the same limitations on our ability to transfer to third parties or separate our businesses and assets without assigning certain Legacy Liabilities (as defined in the Corteva Letter Agreement) contractually allocated to us in connection with the Spin-Off to such separated businesses and assets or transferees or meeting certain other alternative conditions, except that the value of the Minimum EBITDA is equal to $1,100,000,000.

Restrictions under our Intellectual Property Cross-License Agreement with DuPont will limit our ability to prosecute, maintain and enforce certain intellectual property.

We are dependent to a certain extent on DuPont to prosecute, maintain, defend and enforce certain of the intellectual property licensed under our Intellectual Property Cross-License Agreement with DuPont. For example, DuPont has the sole right to file, prosecute maintain and defend the patents, including patents filed on trade secrets and other know-how, licensed to us. DuPont also has the sole right to enforce the intellectual property, including patents, trade secrets and other know-how, licensed to us. If DuPont chooses to not enforce the intellectual property licensed to us under the Intellectual Property Cross-License Agreement, we may not be able to prevent competitors from making, using and selling competitive products and services.

Risks Related to our Capital Stock

We cannot be certain that an active trading market for our common stock will be sustained and our stock price may fluctuate significantly.

Qnity became an independent, publicly traded company, and Qnity common stock commenced trading on the New York Stock Exchange under the symbol "Q" at the start of trading on November 3, 2025. We cannot guarantee that an active trading market will be sustained for our common stock. If an active trading market is not sustained, our stockholders may have difficulty selling their shares of our common stock at an attractive price, or at all.

The trading price of our common stock is determined in the public markets and may be influenced by many factors that may cause the price to fluctuate significantly, some of which may be beyond our control, including:

• our quarterly or annual earnings, or those of other companies in our industry;

• the failure of securities analysts to continue to cover our common stock;

• actual or anticipated fluctuations in our operating results;

• changes in earnings estimates by securities analysts or our ability to meet those estimates or our earnings guidance;

• the operating and stock price performance of other comparable companies;

• overall market fluctuations and domestic and worldwide economic conditions; and

• other factors described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

A large number of shares of our common stock are or will be eligible for future sale, which may cause our stock price to decline.

Upon completion of the distribution, there was an aggregate of approximately 209,443,730 million shares of our common stock issued and outstanding, giving effect to a distribution ratio of one share of our common stock for every two shares of DuPont common stock. These shares are freely tradable without restriction or further registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), unless the shares are owned by one of our “affiliates”, as that term is defined in Rule 405 under the Securities Act.

Any sales of a substantial number of shares of our common stock in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of our common stock to decline. We are unable to predict whether large amounts of our common stock will be sold in the open market. In addition, a portion of DuPont common stock was held by index funds tied to stock indices prior to the distribution. If we were included in these indices at the time of the distribution, these index funds may be required to sell our common stock they receive in the distribution.

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Our stockholders’ percentage of ownership in Qnity may be diluted in the future.

Our stockholders’ percentage ownership in Qnity may be diluted in the future because of equity issuances of our common stock for acquisitions, capital market transactions or otherwise, including, without limitation, outstanding equity awards resulting from the treatment of DuPont equity awards in connection with the distribution and equity awards that we may grant to our directors, officers and employees in the future. Such issuances may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.

In addition, our amended and restated certificate of incorporation will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant holders of Qnity preferred stock the right to elect some number of our directors in all events or on the happening of specified events or to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of Qnity preferred stock could affect the residual value of our common stock.

Our Series A Preferred Stock has separate voting rights over certain potentially material matters and transactions, and the Trust is required to vote against such matters and transactions.

In addition to our common stock, we have Series A Preferred Stock, all issued and outstanding shares of which are held by a noncharitable purpose trust (the "Trust") established for the purpose of enforcing the rights of the Series A Preferred Stock under the Certificate of Designation and our amended and restated certificate of incorporation.

Under our amended and restated certificate of incorporation, without the prior affirmative and unanimous vote of the holders of all of the outstanding shares of Series A Preferred Stock, we are not be permitted to, among other things, (i) amend, alter, change, modify, supplement, repeal or adopt any provision inconsistent with, directly or indirectly (including, without limitation, through any Corporate Event (as defined therein)), (a) any provisions of our amended and restated certificate of incorporation or our amended and restated bylaws that expressly limit our corporate purpose and the authority of our board of directors such that, as a matter of Delaware corporate law, we and our board of directors will not be able to take any action, directly or indirectly, to challenge, breach, question, dispute, undermine, diminish, revoke, circumvent, impair, negate, supersede, prohibit, restrict, hinder, prevent, interfere with or otherwise contravene DuPont’s sole and exclusive authority to determine the matters described in the first paragraph of the section entitled “—We are subject to risks associated with certain of our indemnification obligations under the Separation and Distribution Agreement, pursuant to which we may be required to make substantial cash payments to DuPont or the applicable third party for matters solely and exclusively controlled by DuPont”, or in a manner that would circumvent, revoke, impair, negate, supersede, prohibit, restrict, diminish, hinder, prevent, interfere with or otherwise adversely affect any of the powers, designations, preferences, privileges, protections or rights of the holders of the Series A Preferred Stock, or (b) any provision of the Certificate of Designation, or (ii) take, or attempt to take, any action, enter into any agreement, or consummate any transaction (including, without limitation, any financing transaction or Corporate Event) that would result in the Series A Preferred Stock no longer being outstanding or being held (either beneficially or of record) by any person other than the Trust, or that would otherwise circumvent, revoke, impair, negate, supersede, prohibit, restrict, diminish, hinder, prevent, interfere with or otherwise adversely affect any of the powers, designations, preferences, privileges, protections or rights of the Series A Preferred Stock. Additionally, as all shares of the Series A Preferred Stock are held by the Trust, and the Trust is prohibited under the terms of its trust documents from voting in favor of any such actions, we expect and intend that the aforementioned limitations on our corporate purpose and the authority of our board of directors is perpetual.

Such separate voting rights by our Series A Preferred Stock may discourage or prevent third parties from initiating or entering into transactions with Qnity, or Qnity from entering into transactions, that would otherwise be attractive to Qnity or its common stockholders.

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Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws, Delaware law and in the Tax Matters Agreement and other Spin-Off-related agreements may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.

Provisions of the Delaware General Corporation Law could discourage potential acquisition proposals and could delay, deter or prevent a change in control. Section 203 of the Delaware General Corporation Law, to which we are subject, imposes various impediments to the ability of a third-party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Additionally, provisions of our amended and restated certificate of incorporation and amended and restated bylaws could deter, delay or prevent a third-party from acquiring us, even if doing so would benefit our stockholders, including without limitation, the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Several of the agreements that we and/or certain of our subsidiaries entered into with DuPont and/or certain of its subsidiaries in connection with the Spin-Off require DuPont’s consent to any assignment of our rights and obligations, or a change of control of us, under the agreements. These consent rights may discourage, delay or prevent a change of control or similar transaction that you may consider favorable.

In addition, indemnity obligations and/or certain restrictive covenants in the Tax Matters Agreement might discourage, delay or prevent a change of control that you may consider favorable.

The exclusive forum provisions in our amended and restated bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers or employees, or our stockholders, or the underwriters of any offering giving rise to such claim, which may discourage lawsuits with respect to such claims.

Our amended and restated bylaws provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of us, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, other employees, stockholders or agents to us or our stockholders, any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim governed by the internal affairs doctrine. Notwithstanding the foregoing, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or any rules or regulations promulgated thereunder. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other employees, stockholders or agents, which may discourage such lawsuits against us or our directors, officers other employees, stockholders or agents. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provisions. These exclusive forum provisions will not apply to any action brought to enforce a duty or liability created by the Exchange Act or any rules or regulations promulgated thereunder. If a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of Qnity’s financial condition and results of operations. Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and related notes to enhance the understanding of the Company’s operations and present business environment. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Annual Report. Carefully read the information under “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report. Qnity assumes no obligation to update any of these forward-looking statements except as required by law. Actual results may differ materially from those contained in any forward-looking statements.

BUSINESS OVERVIEW

We are one of the largest global leaders in materials and solutions for the semiconductor and electronics industries. We empower our customers’ technology roadmaps to enable advancements in megatrends such as AI, high-performance computing and advanced connectivity. We partner with leading semiconductor and advanced device manufacturers to address complex challenges and develop solutions that facilitate next-generation technological innovations. With over 50 years of experience in systems engineering and material science, a global manufacturing footprint, and major application labs across the world, we are well-positioned to capitalize on emerging opportunities across various sectors including data centers, communications infrastructure, industrials, automotive, and consumer electronics.

We are organized into two operating segments:

• Semiconductor Technologies: Our Semiconductor Technologies segment provides a portfolio of innovative materials and solutions utilized across multiple stages of the semiconductor manufacturing process. These advanced materials are qualified into customers’ roadmaps, designed to improve chip performance, enhance yield and enable leading-edge node technology.

• Interconnect Solutions: Our Interconnect Solutions segment offers what we believe to be a comprehensive range of best-in-class material solutions that address the evolving complexities of signal integrity, thermal and power management and advanced packaging. These solutions are integral for advanced electronics hardware, including complex printed circuit boards and advanced semiconductor packaging.

Our broad portfolio of solutions and materials across both Semiconductor Technologies and Interconnect Solutions segments positions us as a comprehensive solutions provider for our customers. We are often the partner of choice due to our strong innovation capabilities and extensive materials and engineering expertise. In a fast-paced electronics industry, our customers’ needs are highly performance-driven and our long-standing relationships and strong renewal rates demonstrate our commitment to delivering excellence in a demanding market.

MACROECONOMIC ENVIRONMENT

Recent and continuing developments in U.S. and foreign policy related to trade, such as the imposition of new or increased tariffs on product imports from certain countries have heightened global trade tensions and sparked significant uncertainty in macroeconomic and geopolitical environments, particularly with respect to China. The nature of our global business exposes us to risks associated with trade conflicts between the U.S. and its trading partners, including about the ultimate extent and duration of the tariffs, responsive actions from other countries and the resulting impacts, including on general economic conditions and on our financial condition, liquidity, or results of operations. As a result, we may face a reduction in the demand for, and in the competitiveness of, our products, particularly from local or domestically sourced competition, harm to our relationships with our customers, and decreased profitability, which have the potential to adversely affect our business, financial condition and results of operations. While we have meaningful exposure to global trade dynamics, our local‑for‑local sourcing of raw materials limits exposure to tariff risk.

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KEY FACTORS AFFECTING OUR BUSINESS

We believe that our performance and future success depend on a number of factors that present significant opportunities, but also pose risks and challenges. Our ability to take advantage of these opportunities is subject to various risks, including general economic, business and market dynamic risks, the impact of the Spin-Off and the debt we have incurred in connection with the Spin-Off. See the section entitled “Risk Factors” for a discussion of these risks, which you should consider carefully.

Market and Technology Drivers

Demand for our products is driven by advances in semiconductor technology, including AI‑enabled high-performance computing, advanced packaging and higher layer counts, which increase material intensity and pricing. These trends are discussed further in Item 1.

Supply chain, manufacturing capacity and customer inventories

Our ability to meet customer commitments relies on an uninterrupted flow of critical raw materials, global semiconductor and advanced electronics supply chain, and manufacturing capacity. Tight industry constraints, geopolitical events, global trade disruptions, or weather-related disruptions could constrain supply, increase costs, and lengthen lead times, potentially delaying production and pressuring margins. To bolster resilience, we leverage multi-sourcing strategies for raw materials, maintain long-term agreements with key customers, and periodically build strategic inventory when demand visibility warrants.

Customer inventory practices can further influence our short-term performance. In periods of tight supply, customers may build buffer inventory, inflating near-term orders; conversely, destocking cycles can suppress demand even when underlying consumption remains healthy. We manage these dynamics through customer-based forecasting, disciplined allocation processes, and a measured pricing approach. Together, these actions help us navigate supply chain volatility while supporting reliable delivery and business continuity.

Supply chain disruptions and geopolitical concerns over the last several years highlight the critical need for resilient global supply networks. In response, governments worldwide are co-investing in semiconductor industries to ensure domestic supply, creating new opportunities for semiconductor companies including Qnity.

For a discussion of the risks associated with supply chain, manufacturing capacity and customer inventories, see “ Supply chain and operational disruptions and volatility in energy and raw material costs could adversely impact our sales and earnings and impact access to sources of liquidity” and “ Our reliance on certain key customers, contract manufacturers and suppliers could adversely affect our overall sales and profitability” in Part I, Item 1A. Risk Factors.

Design wins with new and existing customers

Our growth depends on our ability to secure design “wins”, which are instances when a customer validates one of our materials for use in a new node, package architecture, or end-product. Because the qualification cycle in semiconductors and advanced electronics can extend multiple quarters and often requires upfront expense, the timing, size, and scope are often difficult to predict. When we secure a win, we typically benefit from multi-year revenue streams tied to the life of that program.

Revenue conversion is neither immediate nor uniform; customers ramp new designs at different speeds, and capital spending priorities can shift with end-market conditions. As a result, the cadence at which design wins translate into volume orders can cause variability in our sales and working-capital needs. Maintaining our pace of wins therefore requires sustained research and development investment, close customer collaboration, and a disciplined project-selection process that focuses on high-value, extensible projects where our materials science leadership provides measurable differentiation.

For a discussion of the risks associated with our ability to anticipate and respond to customer requirements, see “ If we are unable to anticipate and respond to rapid technological change and customer requirements by continuing to innovate and introduce new and enhanced products and solutions, we may experience a loss of market share, decreased sales, revenue, profitability and damage to our reputation” in Part I, Item 1A. Risk Factors.

Seasonality

Demand for several of our end-markets follows well-established seasonal patterns, with order activity typically accelerating in the second and third fiscal quarters as customers build inventory ahead of holiday production runs. This seasonality is most pronounced in our Interconnect Solutions segment, where historical sales peak during mid-year and moderate in the first and fourth quarters; although this seasonality pattern has decreased over the past few years and we expect this seasonality to further diminish going forward.

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We mitigate these swings through flexible manufacturing planning, balanced geographic exposure, and disciplined inventory management. Nevertheless, mismatches between our production profile and customers’ seasonal demand can affect capacity utilization, gross margin, and working capital. Accordingly, we closely monitor sell-through data and downstream macro indicators to align procurement, staffing, and logistics with expected seasonal inflections.

For a discussion of the risks associated with fluctuations in demand for semiconductors, see ““ Fluctuations in the demand for semiconductors and the overall volume of semiconductor manufacturing may decrease demand for our products and may adversely affect our business” in Part I, Item 1A. Risk Factors.

TRANSITION TO STAND-ALONE COMPANY

On May 22, 2024, DuPont de Nemours, Inc. (“DuPont” or “Parent”), of which we have historically been a part, announced its plan to separate its Electronics business, which included its semiconductor technologies and interconnect solutions businesses, from the other businesses of DuPont (the "Separation"). On November 1, 2025 (the "Separation and Distribution Date"), the Separation was completed through a tax-free pro rata distribution of all of the then issued and outstanding shares of our common stock to DuPont stockholders at a ratio of one share of our common stock for every two shares of DuPont’s common stock held at the close of business on the record date of October 22, 2025 (the "Distribution"). As a result of the Distribution, as of the Separation and Distribution Date, Qnity became an independent, publicly traded company, and Qnity common stock commenced trading on the New York Stock Exchange under the symbol "Q" at the start of trading on November 3, 2025.

Relationship with DuPont

Historically, we have relied on DuPont to manage certain aspects of our operations and provide us with certain services, the costs of which have historically been either allocated or directly billed to us. Historical costs for such services may not necessarily reflect the actual expenses we would have incurred, or will incur, as an independent company. In connection with the Separation, we and/or certain of our subsidiaries entered into the Separation and Distribution Agreement, by and between DuPont de Nemours, Inc. and Qnity Electronics, Inc., dated as of the Separation and Distribution Date (the “Separation and Distribution Agreement”) and certain other agreements with DuPont and/or certain of its subsidiaries as of the Separation and Distribution Date, including, but not limited to, the Tax Matters Agreement, the Employee Matters Agreement, the Transition Services Agreement (as defined below), the Ex-Station Lease ("ESL") Cost Sharing Agreement (as defined below) and other agreements governing aspects of the Company's relationship with DuPont following the Separation, including the Intellectual Property Cross-License Agreement and Legal Liabilities Assignment Agreement, among others. DuPont will not provide us with ongoing assistance other than the transition and other services described in these agreements. These services do not include every service that we have received from DuPont in the past, and DuPont is only obligated to provide the transition services for limited periods following the Separation. Following the cessation of the Transition Services Agreement, we will need to provide internally or obtain from unaffiliated third parties the services we will no longer receive from DuPont. The cost of replacing such services may vary from the historical costs directly allocated to us.

Stand-Alone Company Expenses

As a result of the Separation, we are required to operate as an independent company. Under the Transition Services Agreement with DuPont, dated as of the Separation and Distribution Date (the "Transition Services Agreement"), we are receiving certain services, including information technology services, from DuPont. As we transition from those services, we will incur additional expenditures. We currently estimate it will cost approximately $180 million in one-time costs, incurred over two years, to establish stand-alone information technology systems, not including the cost of maintenance or employee-related expenditures. In addition, we are incurring costs related to expanding, internally or through third parties, our functional capabilities such as information technology, finance, human resources, legal, tax, facilities, branding, government relations and insurance. We are subject to the requirements of the federal and state securities laws and stock exchange requirements and have established, or are in the process of establishing, additional procedures and practices as a stand-alone public company. As a result, we will incur incremental costs including, but not limited to, costs relating to external reporting, internal audit, treasury, investor relations, board of directors and officers and stock administration.

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Cost Sharing Arrangements

Under the ESL Cost Sharing Agreement, dated as of August 28, 2025, by and between FCC Acquisition Corporation, a Delaware corporation and DuPont subsidiary, and DuPont Electronics, Inc., a Delaware corporation and Qnity subsidiary (the “ESL Cost Sharing Agreement’), DuPont and Qnity will be responsible for 60% and 40%, respectively, of certain costs and expenses that exceed the net revenues received by DuPont from certain third parties at the Experimental Station facility ("Experimental Station"). As a result, we may have to pay certain additional costs, including in the event that certain portions of Experimental Station not occupied by us, DuPont or their respective subsidiaries as of the Separation become vacant and DuPont does not lease such portions to a new tenant for rental rates that are at least equal to the current rental rates. Because DuPont will operate Experimental Station following the Separation, such costs will be beyond our control, and our obligation to bear such costs may negatively impact our business, results of operations, financial condition and cash flows.

Certain Indemnification Obligations to DuPont

In connection with the Separation, we have been contractually allocated, and directly pay or indemnify DuPont for, the Applicable Qnity Percentage of certain liabilities, including funding obligations of DuPont under the Memorandum of Understanding ("MOU"), legacy PFAS liabilities and liabilities related to businesses and operations of DuPont that were previously discontinued or divested. The Applicable Qnity Percentage is equal to the trailing twelve month Pro Forma Operating EBITDA attributable to the Qnity business and assets (measured at the time of the distribution, but prior to giving effect to the distribution) divided by the trailing twelve month Pro Forma Operating EBITDA (measured at the time of the distribution, but prior to giving effect to the distribution) of DuPont, multiplied by 100. On December 2, 2025, we and DuPont determined and agreed, pursuant to the Separation and Distribution Agreement, that the Applicable Qnity Percentage is 44%. Indemnification liabilities have been determined and recorded based on this Applicable Qnity Percentage and in accordance with the applicable provisions in the Separation and Distribution Agreement (including adjustments therein related to estimated income tax benefits arising from the liabilities allocated to us).

See Note 15 in the Consolidated Financial Statements for further discussion on indemnification obligations.

For a discussion of the risks associated with our Spin-Off from DuPont, see the section entitled “Risks Related to our Recent Spin-Off from DuPont” in in Part I, Item 1A. Risk Factors

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RESULTS OF OPERATIONS

The Company utilized various allocation and carve-out methodologies through the date of the Distribution to prepare historical financial statements. The Consolidated Financial Statements for periods prior to the Separation herein may not be indicative of our future performance, do not necessarily include the actual expenses that would have been incurred by us and may not reflect our results of operations, financial position and cash flows had we been a separate, standalone company during the historical periods presented. For additional information, see “Basis of Presentation” in Note 1 – Background and Significant Accounting Policies to the accompanying Consolidated Financial Statements.

Summary of Sales Results

For the Years Ended December 31,

In millions

Net sales

Sales Variances by Segment and Geographic Region

For the Year Ended December 31, 2025

For the Year Ended December 31, 2024

Percentage change from prior year

Local Price & Product Mix

Currency

Volume

Portfolio & Other

Total

Local Price & Product Mix

Currency

Volume

Portfolio & Other

Total

Semiconductor Technologies

Interconnect Solutions

Total

Americas

EMEA 1

Asia Pacific

Total

1. Europe, Middle East and Africa.

2025 versus 2024

We reported net sales for the year ended December 31, 2025 of $4.8 billion, up 10% from $4.3 billion for the year ended December 31, 2024, primarily due to an 11% increase in sales volume partially offset by a 1% decrease in local price including metals pass-through and product mix. The volume increase was attributable to both Interconnect Solutions (up 14%) and Semiconductor Technologies (up 9%). Local price and product mix declined in both Interconnect Solutions (down 2%) and Semiconductor Technologies (down 1%).

2024 versus 2023

We reported net sales for the year ended December 31, 2024 of $4.3 billion, up 7% from $4.0 billion for the year ended December 31, 2023, primarily due to a 10% increase in sales volume partially offset by a 2% decrease in local price including metals pass-through and product mix and a 1% unfavorable currency impact. The volume increase was attributable to both Semiconductor Technologies (up 12%) and Interconnect Solutions (up 9%). Local price and product mix declined in both Interconnect Solutions and Semiconductor Technologies (both down 2%). The unfavorable currency impact was primarily driven by Japanese Yen, Chinese Yuan and South Korean Won.

Cost of Sales

Cost of sales was $2.6 billion for the year ended December 31, 2025, up from $2.3 billion for the year ended December 31, 2024. Cost of sales increased for the year ended December 31, 2025 primarily due to an increase in sales volume. Cost of sales as a percentage of net sales remained flat at 54% for the years ended December 31, 2025 and 2024.

For the year ended December 31, 2024, cost of sales was $2.3 billion, flat when compared to $2.3 billion for the year ended December 31, 2023. Cost of sales increased for the year ended December 31, 2024 due to increased sales volume of 6% were offset by decreases in raw materials, logistics and energy costs. Cost of sales as a percentage of net sales for the years ended December 31, 2024 was 54% compared with 57% for the year ended December 31, 2023.

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Research and Development ("R&D") Expense

R&D expense was $354 million for the year ended December 31, 2025, up from $314 million for the year ended December 31, 2024 and $303 million for the year ended December 31, 2023. R&D as a percentage of net sales was 7% for the years ended December 31, 2025 and 2024, and 8% for the year ended December 31, 2023.

The increases in 2025 compared to 2024 and 2024 compared to 2023 were primarily due to increased investments and higher employee costs in each given year.

Selling, General and Administrative ("SG&A") Expenses

For the year ended December 31, 2025, SG&A expenses totaled $620 million, up from $603 million for the year ended December 31, 2024 and $533 million for the year ended December 31, 2023. SG&A as a percentage of net sales was 13%, 14%, and 13% for the years ended December 31, 2025, 2024 and 2023, respectively.

The increase in SG&A cost in 2025 compared to 2024 was primarily due to higher employee related costs, partially offset by a decrease in legal expenses. The increase in SG&A costs in 2024 compared with 2023 was primarily due to higher employee compensation and personnel related expenses.

Amortization of Intangibles

Amortization of intangibles was $207 million, $232 million and $262 million for the years ended December 31, 2025, 2024 and 2023, respectively. The decrease in amortization of intangibles from 2024 to 2025 and 2023 to 2024 was primarily due to the absence of amortization from fully amortized assets. See Note 13 to the Consolidated Financial Statements for additional information on intangible assets.

Restructuring and Asset Related Charges - Net

Restructuring and asset related charges - net were $20 million, $8 million and $52 million for the years ended December 31, 2025, 2024 and 2023, respectively. Activity for the years ended December 31, 2025, 2024 and 2023 represent nonrecurring charges in connection with DuPont approved restructuring programs to simplify certain organizational structures and operations, including operations related to transformational projects initiated prior to the Separation.

Activity in the year ended December 31, 2025 primarily relates to $19 million in charges for severance and related benefits and $1 million for an asset related charge. All charges were incurred prior to Separation with no charges subsequent to the Spin-Off. Activity in the year ended December 31, 2024 primarily relates to asset related charges. Activity in the year ended December 31, 2023 relates to a $39 million charge for severance and related benefits and $13 million for asset related charges. See Note 4 to the Consolidated Financial Statements for additional information.

Acquisition, Integration and Separation Costs

Acquisition, integration and separation costs were $25 million for the year ended December 31, 2025 and zero for each of the years ended 2024 and 2023. For the year ended December 31, 2025 these costs primarily related to financial advisory, accounting, legal, consulting, and other professional advisory fees related to the Separation.

Equity in Earnings of Nonconsolidated Affiliates

Our share of the earnings of nonconsolidated affiliates was $47 million, $37 million and $16 million for the years ended December 31, 2025, 2024 and 2023, respectively. The increase in earnings of nonconsolidated affiliates for the year ended December 31, 2025 and 2024 compared to the prior years is primarily due to higher earnings in the underlying nonconsolidated affiliates. See Note 12 to the Consolidated Financial Statements for additional information.

Interest Expense

Interest expense was $65 million for the year ended December 31, 2025 and zero for the years ended December 31, 2024 and 2023. Interest expense in 2025 was driven by interest associated with the Secured and Unsecured Notes and the Senior Secured Term Loan Facility (each as defined in Note 14 to the Consolidated Financial Statements), which were entered into during the year. Refer to Note 14 to the Consolidated Financial Statements for additional information.

Other Income (Expense) - Net

Other income (expense) - net includes a variety of income and expenses such as gain or loss on sale of assets and foreign currency exchange gains and losses. Other income (expense) - net for the year ended December 31, 2025 was $11 million of income compared with $25 million and $11 million of income in the years ended December 31, 2024 and 2023, respectively. See Note 6 to the Consolidated Financial Statements for additional information.

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Provision for Income Taxes

Our effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. For the year ended December 31, 2025, our effective tax rate was 24.2% on pre-tax income from operations of $962 million. The main drivers in the effective tax rate in 2025 are Pillar Two Qualified Domestic Minimum Top-up tax, unrecognized tax benefits, and the mix of earnings in the jurisdictions in which we operate.

For the year ended December 31, 2024, our effective tax rate was 19.6% on pre-tax income from operations of $901 million. The effective tax rate is lower than the U.S. corporate tax rate primarily as a result of the geographic mix of earnings, offset by a settlement in the second quarter of an international tax audit.

For the year ended December 31, 2023, our effective tax rate was 15.7% on pre-tax income from operations of $632 million. The effective tax rate is lower than the U.S. corporate tax rate primarily as a result of the geographic mix of earnings.

The underlying factors affecting our overall tax rate are summarized in Note 7 to the Consolidated Financial Statements.

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SEGMENT RESULTS

Our measure of profit/loss for segment reporting purposes is Adjusted Operating EBITDA as this is the manner in which our Chief Operating Decision Maker ("CODM") assesses performance and allocates resources. Beginning with this reporting period, we are referring to our previously disclosed “Operating EBITDA” metric as “Adjusted Operating EBITDA". This represents a change in name only. We define Adjusted Operating EBITDA as earnings (i.e., “Income (loss) before income taxes") before interest, depreciation, amortization, non-operating pension / other post-employment benefits (“OPEB”) / charges, and foreign exchange gains / losses, indirect legacy costs, and adjusted for significant items.

SEMICONDUCTOR TECHNOLOGIES

Semiconductor Technologies

For the Years Ended December 31,

In millions

Net sales

Adjusted Operating EBITDA

Equity in earnings of nonconsolidated affiliates

Semiconductor Technologies

For the Years Ended December 31,

Percentage change from prior year

Change in Net Sales from Prior Period due to:

Local price & product mix

Currency

Volume

Portfolio & other

Total

2025 Versus 2024

Semiconductor Technologies net sales were $2,642 million for the year ended December 31, 2025, up 8% from $2,450 million for the year ended December 31, 2024. Net sales increased primarily due to a 9% increase in volume partially offset by a 1% decline in local price and product mix. The increase in sales volume was due to ongoing end-market demand strength due to content gains in advanced nodes, share gains, and improved customer utilization rates, including in AI driven applications.

Adjusted Operating EBITDA was $945 million for the year ended December 31, 2025, up 7% compared with $884 million for the year ended December 31, 2024 primarily due to volume growth partially offset by select growth investments primarily within R&D.

2024 Versus 2023

Semiconductor Technologies net sales were $2,450 million for the year ended December 31, 2024, up 9% from $2,251 million for the year ended December 31, 2023. Volume gains were driven by end market demand recovery, led by artificial intelligence technology applications, advanced node transitions and higher China demand, as well as growth in OLED materials led by new product launches. Volume increases were partially offset by channel inventory destocking primarily within Kalrez®. The unfavorable currency impact was primarily driven by the Japanese Yen and South Korean Won.

Adjusted Operating EBITDA was $884 million for the year ended December 31, 2024, up 14% compared with $777 million for the year ended December 31, 2023 primarily due to volume growth and the impact of higher production rates partially offset by higher employee compensation and select growth investments primarily within R&D.

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INTERCONNECT SOLUTIONS

Interconnect Solutions

For the Years Ended December 31,

In millions

Net sales

Adjusted Operating EBITDA

Equity in losses of nonconsolidated affiliates

Interconnect Solutions

For the Years Ended December 31,

Percentage change from prior year

Change in Net Sales from Prior Period due to:

Local price & product mix

Currency

Volume

Portfolio & other

Total

2025 Versus 2024

Interconnect Solutions net sales were $2,112 million for the year ended December 31, 2025, up 12% from $1,885 million for the year ended December 31, 2024. Net sales increased primarily due to a 14% increase in volume partially offset by a 2% decline in local price and product mix. The increase in sales volume was due to continued demand strength from AI driven technology ramps and new business gains in advanced packaging and thermal management applications.

Adjusted Operating EBITDA was $539 million for the year ended December 31, 2025, up 20% compared with $448 million for the year ended December 31, 2024 primarily due to an increase in sales volume, favorable mix and productivity gains partially offset by selective growth investments in SG&A and R&D.

2024 Versus 2023

Interconnect Solutions net sales were $1,885 million for the year ended December 31, 2024, up 6% from $1,784 million for the year ended December 31, 2023. Net sales increased primarily due to a 9% increase in volume partially offset by a 2% decline in local price and product mix, including the impact of lower pass-through metals, and a 1% unfavorable currency impact. Volume growth was driven by end market recovery led by AI driven technology ramps, improved PCB utilization and share gains. The unfavorable currency impact was primarily driven by the Japanese Yen and Chinese Yuan.

Adjusted Operating EBITDA was $448 million for the year ended December 31, 2024, up 35% compared with $333 million for the year ended December 31, 2023 primarily due to volume growth, the impact of higher production rates partially offset by higher employee compensation and select growth investments primarily within R&D.

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LIQUIDITY & CAPITAL RESOURCES

Overview

Historically, the Electronics business, as previously managed by DuPont, has generated positive cash flows from operations. Prior to Separation, a majority of such cash flows were transferred to DuPont in connection with our participation in DuPont’s cash pooling arrangements to manage liquidity and fund operations, the effect of which is presented as net parent investment in our Consolidated Financial Statements.

Upon Separation, we ceased participation in DuPont cash pooling arrangements and our cash and cash equivalents are held and used solely for our own operations. Our capital structure, long-term commitments and sources of liquidity are meaningfully different from our historical practices. We believe our existing cash and cash flows generated from operations and indebtedness incurred in conjunction with the Separation, discussed in detail below, and anticipated domestic cash and cash equivalents we retained at the completion of the Separation will be responsive to the needs of our current and planned operations for at least the next 12 months.

Sources of Liquidity

Our principal sources of liquidity include cash on hand, cash generated from operations, availability under the Senior Secured Revolving Facility (described in Note 14 to the Consolidated Financial Statements), and potential access to debt and equity capital markets. We believe we will meet longer-term expected future cash requirements and obligations through a combination of our cash flow from operations and issuances of equity securities or debt offerings, as needed.

Capital Allocation Priorities

The Company's financial objectives through 2028 include a disciplined capital allocation plan that focuses on driving organic growth, making strategic investments, pursuing opportunistic mergers and acquisitions, and returning capital to shareholders.

In millions

December 31, 2025

December 31, 2024

Cash and cash equivalents

Total debt

The Company's cash and cash equivalents at December 31, 2025 and December 31, 2024 were $915 million and $166 million, respectively. As of December 31, 2025, $640 million of cash and cash equivalents were held by subsidiaries in foreign countries. Cash and cash equivalents of $166 million as of December 31, 2024 represents cash on hand at certain foreign entities as a result of local requirements. For each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States. The Company held no investments in marketable securities at December 31, 2025 and 2024 . The increase in cash and cash equivalents at December 31, 2025 compared to December 31, 2024 was primarily driven by the establishment of cash balances through the completion of the Separation and Distribution.

Total debt at December 31, 2025 and 2024 was $4.0 billion and zero, respectively. The increase was due to the issuance of the Notes in August 2025 and the Company entering into the Senior Secured Term Loan Facility in October 2025. See Note 14 to the Consolidated Financial Statements for additional information. As of December 31, 2025, the Company was in compliance with all applicable covenants included in the terms of its debt arrangements.

As of December 31, 2025, the Company is contractually obligated to make future cash payments of $4.1 billion and $1.7 billion associated with principal and interest, respectively, on debt obligations. Related to the principal, $24 million will be due in the next twelve months and the remainder will be due subsequent to 2026. The Company may address the principal payment with cash on hand, utilizing existing credit facilities, accessing the debt capital markets or a combination of any of them. Related to interest, $265 million will be due in the next twelve months and the remainder will be due subsequent to 2026.

Cash Flows

Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in the Consolidated Statements of Cash Flows exclude the effect of exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects.

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The following table summarizes our cash flows:

Cash Flow Summary

For the Year ended December 31,

In millions

Cash provided by (used for):

Operating activities

Investing activities

Financing activities

Effect of exchange rate changes on cash and cash equivalents

Cash Flows provided by Operating Activities

Cash generated from operating activities was $1,273 million, $1,061 million and $882 million in 2025, 2024 and 2023, respectively.

In 2025, cash flows provided by operating activities increased compared to 2024, primarily due to higher earnings and an increase in accounts payable and employee related liabilities. The increase in accounts payable were primarily due to year-over-year timing of payments. The increase in employee related liabilities was due to increase in vacation and bonus accruals when compared to the prior year.

In 2024, cash flows provided by operating activities increased compared to 2023, primarily from higher earnings and a decrease in net cash used for working capital. Changes in working capital were primarily driven by higher trade receivables due to increased sales, higher inventory based on business activity, as well as increased accounts payable due to year-over-year timing of payments.

Cash Flows used for Investing Activities

Cash used for investing activities was $285 million, $172 million and $226 million in 2025, 2024 and 2023, respectively.

The increase in cash used for investing activities in 2025 versus 2024 was attributable to increased capital expenditures in 2025 and nonrecurring activity in 2024 that included $15 million of proceeds from the sales of property and $13 million generated from other investing activities.

Cash used for investing activities in 2024 included $200 million of cash used for capital expenditures offset by $15 million of proceeds from sales of property and other assets and $13 million generated from other investing activities.

The change in investing activities in 2024 versus 2023 was primarily due to lower capital expenditures and an increase in cash generated from proceeds from sales of property and cash generated from other investing activities.

Cash Flows used for Financing Activities

Cash used for financing activities was $248 million, $848 million and $628 million in 2025, 2024 and 2023, respectively.

In 2025, cash used for financing activities decreased primarily attributable to cash proceeds from the issuance of long-term debt, fully offset by an increase in net transfers to DuPont as a result of completion of the Separation and Distribution and payments for debt issuance costs.

In 2024, cash used for financing activities increased compared to 2023 primarily due to an increase in net transfers to DuPont.

Dividends

On November 12, 2025 the Board of Directors declared a quarterly dividend of six cents ($0.06) per share for each share of issued and outstanding common stock of the Company. The dividend was paid on December 15, 2025, to stockholders of record on November 28, 2025.

On December 9, 2025 the Board of Directors declared a quarterly dividend of eight cents ($0.08) per share for each share of issued and outstanding common stock of the Company. The dividend will be payable on March 16, 2026 to stockholders of record on February 27, 2026.

The Company currently expects quarterly dividends to continue in future periods, although they remain subject to determination and declaration by the Board of Directors. The payment of future dividends, if any, will be based on several factors, including the Company’s financial performance, outlook and liquidity.

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Material Cash Requirements

In the normal course of business, we enter into contracts and commitments that oblige us to make payments in the future. Information regarding our obligations under lease, pension and commitments are provided in Note 16, Note 18 and Note 15, respectively, in the Consolidated Financial Statements for the years ended December 31, 2025, 2024 and 2023 contained elsewhere in this Annual Report.

After the Spin-Off, we are incurring costs related to operating as a stand-alone public company and our costs under the agreements entered into in connection with the Separation and Distribution, including certain cost sharing arrangements as well as indemnification obligations. While these costs will be significant, the Company expects the generation of cash from operations and the ability to access the debt capital markets and other sources of liquidity will continue to provide sufficient liquidity and financial flexibility to meet the Company’s and its subsidiaries’ obligations as they come due. However, we are not able to predict the full extent or timing of our future obligations given the contingent nature of our indemnification obligations or macroeconomic related impacts which depend on uncertain and unpredictable future developments.

Long-Term Debt

December 31, 2025

December 31, 2024

In millions

Amount

Weighted Average Rate

Amount

Weighted Average Rate

Promissory notes and debentures:

Secured Notes due 2032

Unsecured Notes due 2033

Other facilities:

Senior secured term loan facility due 2032

Less: Unamortized debt discount and issuance costs

Less: Long-term debt due within one year

Total

See Note 14 in the Consolidated Financial Statements for further discussion on debt instruments.

Pension and Other Post-Employment Plans

The Company's funding policy is to contribute to defined benefit pension plans based on pension funding laws and local country requirements. Contributions exceeding funding requirements may be made at the Company's discretion. The Company expects to contribute approximately $6 million to its pension plans in 2026. The amount and timing of the Company’s actual future contributions will depend on applicable funding requirements, discount rates, investment performance, plan design, and various other factors, separations and distributions. See Note 18 to the Consolidated Financial Statements for additional information concerning the Company’s pension plans.

As of December 31, 2025, the Company is contractually obligated to make future cash contributions of $85 million related to pension and other post-employment benefit plans. Cash contributions of $6 million will be due in the next twelve months and the remainder will be due subsequent to 2026 with the majority due subsequent to 2031.

Other Contractual Obligations

Purchase obligations represents enforceable and legally binding agreements in excess of $1 million to purchase goods or services that specify fixed or minimum quantities; fixed minimum or variable price provisions; and the approximate timing of the agreement. As of December 31, 2025, the Company is contractually obligated to make future cash payments of $38 million related to purchase obligations, of which $23 million will be due in the next twelve months and the remainder will be due subsequent to 2026.

Lease obligations represents future finance and operating lease payments. As of December 31, 2025, obligations of future lease payments are $674 million, of which $65 million will be due in the next twelve months and remainder will be due subsequent to 2026.

As of December 31, 2025, the Company recorded indemnification liabilities for future payments due to DuPont of $461 million, of which $183 million will be due in the next twelve months and the remainder will be due subsequent to 2026. As of December 31, 2025, the Company recorded indemnification assets for future payments due from DuPont of $323 million, of which $205 million will be due in the next twelve months and the remainder will be due subsequent to 2026.

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Other miscellaneous obligations includes liabilities related to deferred compensation and other noncurrent liabilities. As of December 31, 2025, the Company is contractually obligated to make future cash payments of $53 million related to other miscellaneous obligations, the majority of which is due subsequent to 2026.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the Consolidated Financial Statements for a description of recent accounting pronouncements.

CRITICAL ACCOUNTING ESTIMATES

The Company’s significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. Management believes that the application of these policies on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.

The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts, including, but not limited to, receivable and inventory valuations, impairment of tangible and intangible assets, long-term employee benefit obligations, income taxes, restructuring liabilities, environmental matters and litigation. Management’s estimates are based on historical experience, facts and circumstances available at the time and various other assumptions that are believed to be reasonable. The Company reviews these matters and reflects changes in estimates as appropriate. Management believes that the following represent some of the more critical judgment areas in the application of the Company’s accounting policies which could have a material effect on the Company’s financial position, liquidity or results of operations.

Legal Commitments and Contingencies

The Company’s results of operations could be affected by material litigation adverse to the Company, including patent infringement claims, employment claims, including alleged wage and hour violations, and commercial claims. The Company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Management makes adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates. In making determinations of likely outcomes of litigation matters, management considers many factors. These factors include, but are not limited to, the nature of specific claims including unasserted claims, the Company’s experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter’s current status. Considerable judgment is required in determining whether to establish a litigation accrual when an adverse judgment is rendered against the Company in a court proceeding. In such situations, the Company will not recognize a loss if, based upon a thorough review of all relevant facts and information, management believes that it is probable that the pending judgment will be successfully overturned on appeal. A detailed discussion of material litigation matters is contained in Note 15 to the Consolidated Financial Statements.

Income Taxes

Qnity is included in the combined U.S. federal, state and certain foreign income tax returns of the DuPont parent entity for periods prior to November 1, 2025 and files its own tax returns for periods after that date. For periods prior to November 1, 2025, we have adopted the separate return approach for purposes of our Consolidated Financial Statements. The income tax provisions and related deferred tax assets and liabilities reflected in our Consolidated Financial Statements have been estimated as if we were a separate taxpayer. The breadth of the Company’s operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes the Company will ultimately pay. The final taxes paid are dependent upon many factors, including ongoing federal, state and international tax audits in various jurisdictions in the normal course of business, negotiations with taxing authorities in various jurisdictions, and outcomes of tax litigation and resolution of disputes arising from income tax audits. The resolution of these uncertainties may result in adjustments to the Company’s tax assets and tax liabilities and could be material. The impact, if any, of these audits to the Company’s unrecognized tax benefits is not estimable.

Deferred income taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. The realization of these assets is dependent on generating future taxable income, as well as successful implementation of various tax planning strategies.

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Changes in facts and circumstances that alter the probability that the Company will realize deferred tax assets could result in deferred tax expense in the relevant period and could be material.

See Note 7 in the Consolidated Financial Statements for further information on income taxes.

Assessments of Long-Lived Assets and Goodwill

Assessment of the potential impairment of goodwill, other intangible assets, property, plant and equipment, investments in nonconsolidated affiliates and other assets is an integral part of the Company’s normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management’s best estimates at a particular point in time. The dynamic economic environments in which the Company’s diversified product lines operate, and key economic and product line assumptions with respect to projected selling prices, market growth and inflation rates, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized. In addition, the Company continually reviews its diverse portfolio of assets to ensure they are achieving their greatest potential and are aligned with the Company’s growth strategy. Strategic decisions involving a particular group of assets may trigger an assessment of the recoverability of the related assets. Such an assessment could result in impairment losses.

The Company performs its annual goodwill impairment testing during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value is below carrying value, at the reporting unit level, which is defined as the operating segment or one level below the operating segment. One level below the operating segment, or component, is a business in which discrete financial information is available and regularly reviewed by segment management. The Company aggregates certain components into reporting units based on economic similarities. As of December 31, 2025, the Company has two reporting units.

For purposes of goodwill impairment testing, the Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The qualitative evaluation is an assessment of factors, including reporting unit or asset specific operating results and cost factors, as well as industry, market and macroeconomic conditions, to determine whether it is more likely than not that the fair value of a reporting unit or asset is less than the respective carrying amount, including goodwill. If the Company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required.

If additional quantitative testing is performed, an impairment loss is recognized when the amount by which the carrying value of the reporting unit exceeds its fair value, limited to the amount of goodwill at the reporting unit. The Company determines fair values for each of the reporting units using a combination of the income approach and market approach.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each reporting unit. Management’s discounted cash flow model includes significant assumptions, including projected revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin, weighted average cost of capital, terminal growth rate and the tax rate. These key assumptions are determined through evaluation of the Company as a whole, underlying business fundamentals and industry risk. The Company derives its discount rates using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and in its internally developed forecasts.

Under the market approach, the Company applies the Guideline Public Company Method utilizing Level 3 unobservable inputs. Selected peer sets are based on close competitors, publicly traded companies and reviews of analysts’ reports, public filings and industry research. In selecting the EBITDA multiples and determining the fair value, the Company considers the size, growth and profitability of each reporting unit versus the relevant guideline public companies. When applicable, third-party purchase offers may be utilized to measure fair value.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

See Note 13 in the Consolidated Financial Statements for further information on goodwill.

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