Qnity Electronics Inc.

02/26/2026 | Press release | Distributed by Public on 02/26/2026 15:40

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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.
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.
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.
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
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 2025 2024 2023
Net sales $ 4,754 $ 4,335 $ 4,035
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 (1) % - % 9 % - % 8 % (2) % (1) % 12 % - % 9 %
Interconnect Solutions (2) - 14 - 12 (2) (1) 9 - 6
Total (1) % - % 11 % - % 10 % (2) % (1) % 10 % - % 7 %
Americas - % - % 13 % - % 13 % - % - % (4) % - % (4) %
EMEA 1
(1) 1 6 - 6 (2) - (1) - (3)
Asia Pacific (1) - 11 - 10 (2) (1) 14 - 11
Total (1) % - % 11 % - % 10 % (2) % (1) % 10 % - % 7 %
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.
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.
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.
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 2025 2024 2023
Net sales $ 2,642 $ 2,450 $ 2,251
Adjusted Operating EBITDA
$ 945 $ 884 $ 777
Equity in earnings of nonconsolidated affiliates $ 48 $ 40 $ 21
Semiconductor Technologies For the Years Ended December 31,
Percentage change from prior year 2025 2024
Change in Net Sales from Prior Period due to:
Local price & product mix
(1) % (2) %
Currency
- (1)
Volume
9 12
Portfolio & other
- -
Total
8 % 9 %
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.
INTERCONNECT SOLUTIONS
Interconnect Solutions For the Years Ended December 31,
In millions 2025 2024 2023
Net sales $ 2,112 $ 1,885 $ 1,784
Adjusted Operating EBITDA $ 539 $ 448 $ 333
Equity in losses of nonconsolidated affiliates $ (1) $ (3) $ (5)
Interconnect Solutions For the Years Ended December 31,
Percentage change from prior year 2025 2024
Change in Net Sales from Prior Period due to:
Local price & product mix
(2) % (2) %
Currency
- (1)
Volume
14 9
Portfolio & other
- -
Total
12 % 6 %
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.
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 $ 915 $ 166
Total debt $ 4,027 $ -
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 2024was $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.
The following table summarizes our cash flows:
Cash Flow Summary
For the Year ended December 31,
In millions
2025 2024 2023
Cash provided by (used for):
Operating activities $ 1,273 $ 1,061 $ 882
Investing activities $ (285) $ (172) $ (226)
Financing activities $ (248) $ (848) $ (628)
Effect of exchange rate changes on cash and cash equivalents $ 9 $ (14) $ (4)
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.
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 $ 1,000 5.750 % $ - - %
Unsecured Notes due 2033 750 6.250 % - - %
Other facilities:
Senior secured term loan facility due 2032 2,350 5.698 % - - %
Less: Unamortized debt discount and issuance costs 73 -
Less: Long-term debt due within one year
24 -
Total $ 4,003 $ -
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.
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.
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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