Element Solutions Inc

1. BACKGROUND AND BASIS OF PRESENTATION

Background

Element Solutions was incorporated in Delaware in January 2014 and its shares of common stock, par value $0.01 per share, trade on the New York Stock Exchange under the ticker symbol “ESI.”

Element Solutions is a leading global specialty chemicals technology company whose businesses supply a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, these innovative solutions enable customers' manufacturing processes in multiple high-value industries, including semiconductor fabrication, high-performance computing, automotive systems, consumer electronics, power electronics, communications and data storage infrastructure, aerospace and defense, industrial surface finishing and offshore energy. Element Solutions businesses provide products that, in substantially all cases, are consumed by customers as part of their production process, providing the Company with reliable and recurring revenue streams as the products are replenished in order to continue production. Element Solutions delivers its products to customers through its sales and service workforce, regional distributors and manufacturing representatives.

The Company's operations are organized intwo reportable segments: Electronics (MacDermid Alpha Electronics Solutions) and Specialties (Element Specialties). The reportable segments represent businesses for which separate financial information is utilized by the chief operating decision maker for the purpose of allocating resources and evaluating performance.

Electronics – The Electronics segment researches, formulates and sells specialty chemicals and material process technologies for all types of electronics hardware, from complex printed circuit board designs to advanced semiconductor packaging. In high-performance datacenters, mobile communications, computers, automobiles and aerospace equipment, its products are an integral part of the electronics manufacturing process and the functionality of end-products. The segment's "wet chemistries" for metallization, surface treatments and solderable finishes form the physical circuitry pathways, and its "assembly materials," such as surface mount technologies ("SMT"), pastes, fluxes and adhesives, join those pathways together. The segment provides specialty chemicals solutions through the following businesses: Assembly Solutions, Circuitry Solutions, Micromax and Semiconductor Solutions.

Specialties – The Specialties segment researches, formulates and sells specialty chemicals and material process technologies that enable or enhance the performance of high value products across diverse sectors from automotive to energy infrastructure to semiconductors and satellites. Its products include chemical systems that protect and decorate metal and plastic surfaces, chemistries used in water-based hydraulic control fluids for offshore energy production and rare or high-purity gases and advanced materials used in semiconductor fabrication, satellite systems, electrical transmission infrastructure and other end-markets. The segment provides specialty chemicals solutions through the following businesses: Industrial Solutions, EFC and Energy Solutions. On February 28, 2025, the Company completed the sale of its flexographic printing plate business, MacDermid Graphics Solutions.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and include the accounts of Element Solutions and all of its controlled subsidiaries. The Company consolidates the income, expenses, assets, liabilities and cash flows of its subsidiaries from the date it acquires control or becomes the primary beneficiary. All intercompany accounts and transactions have been eliminated upon consolidation.

In preparing the unaudited Condensed Consolidated Financial Statements in conformity with GAAP, management uses estimates and assumptions that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Management applies judgment based on its understanding and analysis of the relevant circumstances, including historical experience and future expectations. These judgments, by their nature, are subject to an inherent degree of uncertainty and, accordingly, actual results could differ significantly from these estimates and assumptions.

These unaudited Condensed Consolidated Financial Statements reflect all adjustments that are normal, recurring and necessary for a fair statement of the Company's financial position, results of operations and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2026. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company's Consolidated Financial Statements and related notes included in its 2025 Annual Report.

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

2. ACQUISITIONS

Micromax Acquisition

On February 2, 2026, the Company completed the Micromax Acquisition for a purchase price of approximately $493 million, net of cash and subject to adjustments. Micromax is a global supplier of advanced electronics inks and pastes and was acquired to complement the Company's electronics portfolio. This acquisition was funded with the proceeds from the Add-on Term Loans of $450 million, which closed simultaneously with the Micromax Acquisition, and borrowings under the Company's revolving credit facility. Micromax is reported in the Company’s Electronics segment.

EFC Acquisition

On January 2, 2026, the Company completed the EFC Acquisition for a purchase price of approximately $367 million, net of cash and subject to adjustments, with an additional $16.1 million estimated fair value associated with a potential earn-out based on EFC's 2026 performance of up to $30.0 million cash or 1.16 million shares of the Company's common stock. EFC is a provider of high-purity specialty gases and other advanced materials and was acquired to complement the Company's industrial portfolio. This acquisition was funded with cash on hand. EFC is reported in the Company’s Specialties segment.

In connection with the EFC Acquisition, certain EFC executives were granted approximately 1.45 million performance-based RSUs with an aggregate grant date fair value of $37.5 million. These RSUs were granted intwo tranches with vesting subject to the achievement of EFC's Adjusted EBITDA performance targets for 2028 and 2030. The actual number of shares of the Company's common stock to be issued under these grants will range between 0% and 150% depending on the applicable Adjusted EBITDA performance level achieved in 2028 or 2030. If EFC's Adjusted EBITDA target level for any tranche is not achieved in the relevant year, the vesting of that tranche will be delayed byone year and EFC's Adjusted EBITDA generated that following year will be used to assess performance capped at 100%. As of March 31, 2026, the Company believes the achievement of these targets is probable and recognized $1.8 million of compensation expense for these awards in "Selling, technical, general and administrative" in the Condensed Consolidated Statement of Operations during the first quarter of 2026.

The following table summarizes the allocation of the purchase price of the Micromax and EFC Acquisitions (together, the "Acquisitions") to the identified assets acquired and liabilities assumed at the respective acquisition dates:

The excess of the cost of the Acquisitions over the net amounts assigned to the fair value of the assets acquired and the liabilities assumed was recorded as goodwill and represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. Substantially all of the goodwill for EFC and approximately $85.0 million for Micromax is expected to be deductible for tax purposes.

The fair value of the identifiable intangible assets recorded in conjunction with the Acquisitions was as follows:

The fair value of the identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows, either through the use of the multi-period excess earnings method or the relief-from-royalty method. Some of the more significant assumptions inherent in the development of intangible asset values include the amount and timing of projected future cash flows, the attrition rate and the discount rate selected to measure the risks inherent in the future cash flows.

The deferred income taxes reflect the tax effect of the differences between the carry-over tax basis and the fair value recorded in purchase accounting that are primarily associated with the recognition of identifiable intangible assets.

As of March 31, 2026, the purchase price allocation for each of the Acquisitions is preliminary. We expect to complete the purchase price allocation within the applicable one year measurement period.

The Acquisitions were not significant to our Condensed Consolidated Financial Statements; therefore, pro forma and post acquisition results of operations have not been presented.

3. INVENTORIES

The major components of inventory, on a net basis, were as follows:

4. PROPERTY, PLANT AND EQUIPMENT, NET

The major components of property, plant and equipment, net were as follows:

For the three months ended March 31, 2026 and 2025, the Company recorded depreciation expense of $14.5 million and $10.0 million, respectively.

5. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The changes in the carrying amount of goodwill by segment were as follows:

(1) Includes accumulated impairment losses of $46.6 million.

(2) The Company completed the Micromax Acquisition and the EFC Acquisition on February 2, 2026 and January 2, 2026, respectively. See Note 2, Acquisitions, to the unaudited Condensed Consolidated Financial Statements for further information.

Intangible Assets, Net

The major components of intangible assets, net were as follows:

For the three months ended March 31, 2026 and 2025, the Company recorded amortization expense on intangible assets of $28.0 million and $27.2 million, respectively.

In the fourth quarter of 2025, a milestone agreed to as part of the Kuprion Acquisition was achieved. As the technology developed met the accounting definition of an asset, the Company capitalized a $6.3 million developed technology intangible asset ($4.9 million milestone payment plus a gross up for deferred taxes of $1.4 million), which is being amortized over 10 years. While the milestone was achieved in the fourth quarter of 2025, the associated payment was made in the first quarter of 2026 and $4.9 million is included in "Acquisitions, net of cash acquired" as a cash outflow from investing activities in the Condensed Consolidated Statements of Cash Flows.

6. DEBT

The Company’s debt obligations consisted of the following:

(1) Term loans, net of unamortized discounts and debt issuance costs of $10.6 million and $5.9 million at March 31, 2026 and December 31, 2025, respectively. The effective interest rate was 4.5% at each of March 31, 2026 and December 31, 2025, including the effects of interest rate swaps and net investment hedges. See Note 7, Financial Instruments, to the unaudited Condensed Consolidated Financial Statements for further information regarding the Company's interest rate swaps and net investment hedges.

(2)Senior notes, net of unamortized debt issuance costs of $4.0 million and $4.4 million at March 31, 2026 and December 31, 2025, respectively. The effective interest rate was 4.1% at both March 31, 2026 and December 31, 2025.

Credit Agreement

The Company is a party to the Credit Agreement which, at March 31, 2026, provided for senior secured credit facilities consisting of a tranche of term loans B-3 of $1.29 billion maturing in 2030, and a revolving credit facility of $500 million, maturing in 2031. The Company's outstanding term loans bear interest at a per annum rate based on an adjusted one-month SOFR (as described in the Credit Agreement) plus a spread of 1.75%.

On February 2, 2026, the Company completed the syndication of $450 million of Add-on Term Loans and a 5-year $500 million senior secured revolving credit facility, which replaced its then existing $375 million revolving credit facility, upsizing the facility by $125 million and extending its maturity to 2031. The Add-on Term Loans have identical terms as the then existing term loans B-3, including a maturity date of December 18, 2030. The proceeds of the Add-on Term Loans were used to finance a portion of the purchase price of the Micromax Acquisition. Borrowings under the new revolving credit facility bear interest at Term SOFR (as defined in the Credit Agreement), subject to a rate floor of 0%, plus an applicable margin of 1.50% per annum.

Guarantees, Covenants and Events of Default

The obligations of the borrowers (the Company and its subsidiary, MacDermid, Incorporated) under the Credit Agreement are guaranteed, jointly and severally, by certain of their domestic subsidiaries and secured by a first-priority security interest in substantially all of their assets and the assets of the guarantors, including mortgages on material real property, subject to certain exceptions.

The Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including limitations on additional indebtedness, dividends, and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens on the assets of the borrowers or any guarantor, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions and dispositions. Subject to certain exceptions, to the extent the borrowers have total outstanding borrowings under the revolving credit facility greater than 30% of the commitment amount under the revolving credit facility, the Company's first lien net leverage ratio should not exceed 5.0 to 1.0, subject to a right to cure.

The borrowers are required to make mandatory prepayments of borrowings, subject to certain exceptions, as described in the Credit Agreement. In addition, the Credit Agreement contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the Credit Agreement may be accelerated and the lenders could foreclose on their security interests in the assets of the borrowers and the guarantors.

At March 31, 2026, the Company was in compliance with the debt covenants contained in the Credit Agreement and had full availability of its unused borrowing capacity of $408 million, net of letters of credit, under the revolving credit facility. The Company is required to pay a commitment fee on any undrawn portion of the revolving credit facility which is not material.

Senior Notes

3.875% USD Notes due 2028

The indenture governing the 3.875% USD Notes due 2028 provides for, among other things, customary affirmative and negative covenants, events of default and other customary provisions. The notes accrue interest at a rate of 3.875% per annum, payable semi-annually in arrears, on March 1 and September 1 of each year, and will mature on September 1, 2028, unless earlier repurchased or redeemed. Pursuant to the indenture, the Company has the option to redeem the 3.875% USD Notes due 2028 prior to their maturity, subject to, in certain cases, the payment of an applicable make-whole premium, or to repurchase them by any means other than a redemption, including by tender offer, open market purchases or negotiated transactions. The 3.875% USD Notes due 2028 are fully and unconditionally guaranteed on a senior unsecured basis by generally all of the Company’s domestic subsidiaries that guarantee the obligations of the borrowers under the Credit Agreement.

Lines of Credit and Other Debt Facilities

The Company has access to various revolving lines of credit, short-term debt facilities and overdraft facilities worldwide which are used to fund short-term cash needs. At March 31, 2026 the aggregate principal amount outstanding under such facilities totaled $85.0 million and there wereno material amounts outstanding under such facilities at December 31, 2025. The Company had letters of credit outstanding of $7.0 million at each of March 31, 2026 and December 31, 2025, which reduced the borrowings available under the various facilities. At March 31, 2026 and December 31, 2025, the availability under these facilities, including the revolving credit facility under the Credit Agreement, totaled approximately $436 million and $390 million, respectively, net of outstanding letters of credit.

7. FINANCIAL INSTRUMENTS

Derivatives and Hedging

In the normal course of business, the Company is exposed to risks relating to changes in interest rates, foreign currency exchange rates and commodity prices. Derivative financial instruments, such as interest rate swaps, net investment hedges, foreign currency exchange forward contracts and commodities derivative contracts are used to manage the risks associated with changes in the conditions of those markets. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company regularly monitors its derivative positions and the credit ratings of its counterparties and does not anticipate nonperformance on their part.

All derivatives are recognized in the Consolidated Balance Sheets at fair value. Realized gains and losses on foreign currency forward contracts, commodity derivative contracts and the net periodic payments from interest rate swaps and cross-currency swaps are reflected as "Cash flows from operating activities" in the Condensed Consolidated Statements of Cash Flows.

Interest Rate and Cross-Currency Swaps

The Company uses interest rate swaps and cross-currency swaps to reduce its exposure to interest rate risk and foreign currency risk. The Company has designated its interest rate swaps as cash flow hedges and its cross-currency swaps as net investment hedges of the foreign currency exposure of a portion of its net investment in euro functional subsidiaries. These swaps effectively convert the Company's outstanding term loans, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through their respective expiration dates.

In February 2026, the Company entered into new interest rate swaps and cross-currency swaps to effectively convert $350 million of the Add-on Term Loans, a U.S. dollar denominated debt obligation, into fixed-rate euro-denominated debt through December 2029.

The total notional value of the interest rate swaps and cross-currency swaps was $1.18 billion and $831 million at March 31, 2026 and December 31, 2025, respectively. As of March 31, 2026, approximately $694 million in notional value matures in December 2028 and approximately $485 million matures in December 2029. The remaining term loan notional value of approximately $108 million is not hedged. The net result of these hedges is an effective interest rate of approximately 4.5% at March 31, 2026 on the term loans B-3, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate and, to a lesser extent, fluctuations in SOFR.

Changes in the estimated fair value of interest rate swaps are recorded in "Accumulated other comprehensive loss" and reclassified to "Interest expense, net" in the Condensed Consolidated Statements of Operations as the underlying hedged item affects earnings. The fair value of the interest rate swaps was a net liability of $3.4 million and $11.0 million at March 31, 2026 and December 31, 2025, respectively.

Changes in the estimated fair value of cross-currency swaps are recorded in "Foreign currency translation" in "Accumulated other comprehensive loss." The fair value of the cross-currency swaps was a net liability of $37.6 million and $64.7 million at March 31, 2026 and December 31, 2025, respectively.

For the three months ended March 31, 2026, these interest rate swaps and cross-currency swaps were deemed highly effective. The Company expects to reclassify $0.1 million of expense from "Accumulated other comprehensive loss" to "Interest expense, net" in the Condensed Consolidated Statements of Operations within the next twelve months.

Foreign Currency

The Company conducts a significant portion of its business in currencies other than the U.S. dollar and certain subsidiaries conduct business in currencies other than their functional currency, which is typically their local currency. As a result, the Company’s operating results are impacted by foreign currency exchange rate volatility.

At March 31, 2026, the Company held foreign currency forward contracts to purchase and sell various currencies to mitigate foreign currency exposure primarily with the U.S. dollar, euro and British pound. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting and, as a result, changes in the fair value of foreign currency forward contracts are recorded in the Condensed Consolidated Statements of Operations as "Other expense, net." The total notional value of foreign currency exchange forward contracts held at March 31, 2026 and December 31, 2025 was approximately $203 million and $133 million, respectively, with settlement dates generally withinone year. The fair value of the foreign currency forward contracts was a net current liability of $0.4 million and $0.9 million at March 31, 2026 and December 31, 2025, respectively.

Commodities

The Company enters into commodity derivative contracts for the purpose of mitigating its exposure to fluctuations in prices of certain metals used in the production of its finished goods. The Company held derivative contracts to purchase and sell various metals, primarily silver and tin, for a notional amount of $149 million and $91.4 million at March 31, 2026 and December 31, 2025, respectively. The fair value of the metals derivative contracts was a net current asset of $8.2 million and a net current liability of $13.5 million at March 31, 2026 and December 31, 2025, respectively. Substantially all contracts outstanding at March 31, 2026 have delivery dates withinone year. The Company has not designated these derivatives as hedging instruments and, accordingly, records changes in their fair values in the Condensed Consolidated Statements of Operations as "Other expense, net."

Fair Value Measurements

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis:

The fair values of Level 2 derivative assets and liabilities are determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates and consideration of counterparty credit risk.

The fair value of Level 3 contingent consideration represents a potential liability of up to $30.0 million cash or 1.16 million shares of the Company's common stock tied to EFC's expected achievement of Adjusted EBITDA performance metrics for fiscal year 2026. The fair value of the contingent consideration was derived using a Monte Carlo simulation model and the key assumptions included EFC's forecasted Adjusted EBITDA, expected volatility of the Company's stock price and the Company's stock price on the valuation date. From the closing date of the EFC Acquisition to March 31, 2026, the fair value of the contingent consideration increased by $5.9 million, which is recorded in "Selling, technical, general and administrative" in the Condensed Consolidated Statement of Operations.

There were no significant transfers of financial instruments between the fair value hierarchy levels for the three months ended March 31, 2026.

The carrying value and estimated fair value of the Company’s long-term debt both totaled $2.07 billion at March 31, 2026. At December 31, 2025, the carrying value and estimated fair value both totaled $1.63 billion, respectively. The carrying values noted above include unamortized discounts and debt issuance costs. The estimated fair value of long-term debt is measured using quoted market prices for similar instruments at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.

8. EARNINGS PER SHARE

A computation of weighted average shares of the Company's common stock outstanding and earnings per share for the three months ended March 31, 2026 and 2025 is as follows:

For the three months ended March 31, 2026 and 2025, the following securities were not included in the computation of diluted shares outstanding because either the effect would be anti-dilutive or the applicable performance targets were not yet met:

9. CONTINGENCIES, ENVIRONMENTAL AND LEGAL MATTERS

Environmental Matters

The Company is involved in various claims relating to environmental matters at current and former plants and waste management sites. At certain of these sites, the Company engages or participates in remedial and other environmental compliance activities. At other sites, the Company has been named as a potential responsible party pursuant to the federal Superfund Act and/or state Superfund laws comparable to the federal law for site remediation. After analyzing each individual site, considering the number of parties involved, the level of its potential liability or contribution relating to the other parties, the nature and magnitude of the hazardous waste involved, the method and extent of remediation, the potential insurance coverage, the estimated legal and consulting expense with respect to each site and the time period over which any costs would likely be incurred, the Company estimates the clean-up costs and related claims for each site. The estimates are based in part on discussions with other potential responsible parties, governmental agencies and engineering firms.

The Company accrues for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current laws and existing technologies. The accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. The Company's environmental liabilities, which are included in the Condensed Consolidated Balance Sheets as "Accrued expenses and other current liabilities" and "Other liabilities," totaled $10.5 million and $9.6 million at March 31, 2026 and December 31, 2025, respectively, primarily driven by environmental remediation, clean-up costs and monitoring of sites that were either closed or disposed of in prior years. While uncertainty exists with respect to the amount and timing of its ultimate environmental liabilities, the Company does not currently anticipate any material losses in excess of the amount recorded. However, new information about the sites, such as results of investigations, could make it necessary for the Company to reassess its potential exposure related to these environmental matters.

As of the date hereof, the Company believes it is not practicable to provide an estimated range of reasonably possible environmental losses in excess of its recorded liabilities. As a result, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact that may be associated with these matters.

Legal Matters

From time to time, the Company is involved in various legal proceedings, investigations and/or claims in the normal course of its business. Although it cannot predict with certainty the ultimate resolution of these matters, which involve judgments that are inherently subjective, the Company believes that their resolutions, to the extent not covered by insurance, will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.

10. INCOME TAXES

The Company's quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, which includes the impact of foreign withholding tax accruals and uncertain tax positions, adjusted for discrete items, within the periods presented. The comparison of the Company's income tax provision between periods can be significantly impacted by the level and mix of earnings, losses by tax jurisdiction and discrete items.

For the three months ended March 31, 2026, the Company recognized income tax expense of $26.7 million as compared to $17.8 million in the same period for 2025. Income tax expense for the three months ended March 31, 2026, includes a continued U.S. benefit related to claiming foreign tax credits, a recurring benefit from a U.S. tax deduction related to foreign-derived deduction eligible income (commonly referred to as FDDEI) partially offset with foreign tax credit valuation allowances of $6.4 million and net Controlled Foreign Corporation tested income (commonly referred to as NCTI) including the impact of changes to the level and mix of earnings. The foreign tax credit valuation allowance was required after taking into account the impacts on projected future taxable income from the EFC and Micromax Acquisitions, including significant tax-basis amortization of acquired intangible property and increased interest expense from the Add-on Term Loans.

Income tax expense for the three months ended March 31, 2025, included a continued U.S. benefit related to claiming foreign tax credits and a benefit from a U.S. tax deduction related to foreign-derived intangible income (commonly referred to as FDII), partially offset by a $7.7 million multi-year tax settlement and the impact of changes to the level and mix of earnings.

On February 28, 2025, the Company completed the MGS Transaction and realized a gain on sale of $72.1 million as of March 31, 2025. This transaction resulted in a nominal tax impact which reduced the effective tax rate primarily due to the realization of a deferred tax asset and an offsetting release of a valuation allowance.

11. RELATED PARTY TRANSACTIONS

The Company is party to an Advisory Services Agreement with Mariposa Capital, LLC, an affiliate of one of its founder directors, whereby Mariposa Capital, LLC is entitled to receive an annual fee of $2.0 million and reimbursement for expenses, which are recorded in the Condensed Consolidated Statements of Operations as "Selling, technical, general and administrative" expense. This agreement is automatically renewed for successiveone-year terms unless either party notifies the other in writing of its intention not to renew no later than 90 days prior to the expiration of the applicable term.

12. SEGMENT INFORMATION

The Company's operations are organized intotwo reportable segments: Electronics and Specialties. These segments represent businesses for which separate financial information is utilized by the chief operating decision maker (CODM) for purposes of allocating resources and evaluating performance. The Company's CODM is the Chief Executive Officer.

The CODM utilizes net sales and Adjusted EBITDA to allocate resources predominantly in the annual budget and forecasting process. The CODM evaluates the performance of the operating segments by considering budget to actual variances when making decisions about allocating capital and personnel to the segments and determining the compensation of certain employees. Adjusted EBITDA for each segment is defined as EBITDA, as further adjusted for additional items included in earnings which the Company believes are not representative or indicative of each of its segments' ongoing business or are considered to be associated with the Company's capital structure. Adjusted EBITDA for each segment also includes an allocation of corporate costs, such as compensation expense and professional fees.

Disaggregated Net Sales

The following table summarizes disaggregated external net sales by product category: