Qnity Electronics, Inc.Q
Qnity Electronics, Inc. Commitments Disclosure
COMMITMENTS AND CONTINGENT LIABILITIES
Litigation Matters
In the normal course of business, the Company is involved from time to time in various arbitrations, lawsuits, claims and other actions with respect to patent infringement claims, employment claims, including alleged wage and hour violations, and commercial claims.
The Company accrues for such matters where losses are deemed probable and reasonably estimable. There are other matters involving the Company for which a loss is deemed remote or reasonably possible, and, as a result, associated accruals have not been established. It is reasonably possible that some of these matters could result in future payments or costs in excess of the amounts accrued at December 31, 2025, but such excess amounts cannot be reasonably estimated. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.
Certain Indemnification Obligations to DuPont
In connection with the Separation, Qnity has been contractually allocated, and directly pays or indemnifies DuPont for, the Applicable Qnity Percentage of certain liabilities, including current or future 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. On December 2, 2025, Qnity 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 and the and the Legacy Liabilities Assignment Agreement (including adjustments therein related to estimated income tax benefits arising from the liabilities allocated to us). These liabilities were recorded as a reduction to "Additional paid-in capital" in the Consolidated Balance Sheets as of the Separation and Distribution Date.
As of December 31, 2025, the Company has recorded indemnification liabilities related to the legacy liabilities detailed above of $80 million within “Accrued and other current liabilities” and $110 million within “Other noncurrent obligations” within the Consolidated Balance Sheets. It is reasonably possible that the potential exposure of these indemnifications could range up to $86 million above the amount accrued at December 31, 2025. It is also possible that the Company could incur additional costs or losses that may be material to its financial condition and its cash flows beyond those amounts accrued for or believed to be reasonably possible at this time. Such excess amounts cannot be reasonably estimated.
Liabilities under the MOU
On January 22, 2021, DuPont, Corteva, Inc. ("Corteva"), EIDP Inc. (formerly known as E. I. du Pont de Nemours and Company) (“EIDP”) and The Chemours Company ("Chemours") entered into the MOU in which the parties have agreed to share certain costs associated with qualified potential future liabilities. The MOU will be in effect until the earlier to occur of (i) December 31, 2040, (ii) the day on which the aggregate amount of Qualified Spend, as defined in the MOU, is equal to $4 billion or (iii) a termination in accordance with the terms of the MOU.
The parties have agreed that, during the term of the MOU, Qualified Spend up to $4 billion will be borne 50% by Chemours and 50% by DuPont and Corteva. DuPont will bear 71% and Corteva will bear 29% of their 50% of Qualified Spend; accordingly, DuPont’s portion of the $2 billion is approximately $1.4 billion.
As of December 31, 2025, DuPont has borne Qualified Spend of approximately $700 million and has recorded an indemnification liability for probable and reasonably estimable future Qualified Spend of $185 million. Qnity has recorded an indemnification liability for such probable and reasonably estimable future Qualified Spend of $75 million which represents Applicable Qnity Percentage of 44% of DuPont's after-tax liability.
New Jersey
On August 3, 2025, DuPont, together with Chemours and Corteva and its subsidiary, EIDP, agreed to a proposed Judicial Consent Order (the “Consent Order”) with the State of New Jersey to resolve outstanding claims by the state pending against the companies related to legacy use of a wide variety of substances of concern for an aggregate cash settlement payment to the state of $875 million, payable over a period of 25 years. The first of the scheduled annual payments will be due within 30 days of Court approval of the Consent Order, but no earlier than January 31, 2026.
As of December 31, 2025, DuPont maintains a pre-tax charge of $177 million related to the proposed Consent Order. The Company has recorded $66 million for our contractually allocated portion of the recorded pre-tax charge. Additionally, DuPont recorded interest accretion of $9 million during the year ended December 31, 2025, resulting in a liability of $186 million as of December 31, 2025. Qnity has recorded $3 million for its contractually allocated portion of this accreted interest. We will share in the ongoing costs of maintaining a reserve fund in the event the remedial funding source for a site has been exhausted and the party responsible is not otherwise performing the required remediation.
Contingent upon the settlement being approved by the Court, DuPont and Corteva will purchase Chemours’ interest in future, if any, insurance proceeds related to PFAS claims. DuPont and Corteva will make the purchase by contributing a total of $150 million into an escrow fund (the “NJ Insurance Escrow”) to be applied to Chemours’ share of the settlement. In exchange, Chemours shall assign to DuPont and Corteva its rights to $150 million of PFAS-related insurance proceeds plus a fee equal to the lesser of (a) $35 million, or (b) $3 million plus interest (at prime minus 2%) on the unrecovered fraction of $150 million, until Chemours’ share of insurance recoveries fully recoups the purchase price.
The Company’s contractually allocated cash contribution in respect of the NJ Insurance Escrow will be $47 million, contingent upon the settlement being approved by the Court. The Company will also receive the Applicable Qnity Percentage of any insurance proceeds related to PFAS claims recovered.
The obligations of DuPont set forth in this section relating to the Settlement, including the cash payments, any remediation obligations (and related liabilities), and the establishment and maintenance of the reserve fund, and the purchase of Chemours’ interest in future insurance proceeds related to PFAS claims, in each case constitute, liabilities contractually allocated between us and DuPont based their respective Applicable Percentage under the Separation and Distribution Agreement. Accordingly, Qnity will indemnify DuPont, or remit directly to the relevant third party, the amount owed in respect of our share of such liabilities.
Other
As of December 31, 2025, DuPont has recorded liabilities related to business and operations, historical activities of DuPont, including environmental liabilities, and its present and former subsidiaries, for which the Company has recorded $46 million for its contractually allocated portion.
Guarantees
The Company entered into a cost sharing agreement (the “ESL Cost Sharing Agreement”) relating to the sharing of certain ownership and operating expenses at Experimental Station, where we will also be leasing space from DuPont under a separate operating lease. Under 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 Experimental Station. While the term of the ESL Cost Sharing Agreement will be perpetual, DuPont will be required to use commercially reasonable efforts to mitigate such ownership and operating expenses, and Qnity will not be responsible for the extent of any increase in Experimental Station ownership or operating expenses due to DuPont’s loss of rent from Qnity that may result if we terminate our separate operating lease at the site and DuPont is unable to secure a new tenant for our space. We will also not be responsible for any increase in Experimental Station ownership and operating expenses that may result from any decrease in use of space at Experimental Station by DuPont or its subsidiaries following the Spin-Off. The Company determined that our stand-ready obligation to reimburse DuPont under this agreement represents a guarantee under ASC 460 and recorded a liability within "Other noncurrent obligations" in the Consolidated Balance Sheets of $70 million as of the Separation Date as part of our distribution accounting in separation from DuPont based on our estimate of fair value. These liabilities were recorded as a reduction to "Additional paid-in capital" in the Consolidated Balance Sheets as of the Separation and Distribution Date. The Company has not been required to make a payment under this agreement to date. The carrying value of this liability at December 31, 2025, approximates the amount recorded at Separation.
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About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.