ARC Document Solutions, Inc.

Non-GAAP Measures

Reconciliation of cash flows provided by operating activities to EBITDA and Adjusted EBITDA

(In thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Cash flows provided by operating activities

$

12,163

$

20,965

$

34,046

$

43,117

Changes in operating assets and liabilities, net of effect of business acquisitions

1,958

(5,101)

9,976

7,243

Non-cash expenses, including depreciation, amortization and goodwill impairment

(11,219)

64,472

(94,300)

43,844

Income tax provision (benefit)

2,162

(73,338)

(5,884)

(71,766)

Interest expense, net

1,563

1,679

4,535

5,475

Income attributable to the noncontrolling interest

(61)

(50)

(211)

(225)

Depreciation and amortization

7,857

8,415

23,737

25,490

EBITDA

14,423

17,042

(28,101)

53,178

Loss on extinguishment of debt

66

96

156

193

Goodwill impairment

—

—

73,920

—

Trade secret litigation costs⁽¹⁾

—

—

—

34

Restructuring expense⁽²⁾

—

4

7

89

Stock-based compensation

650

735

2,073

2,739

Adjusted EBITDA

$

15,139

$

17,877

$

48,055

$

56,233

⁽¹⁾  On February 1, 2013, we filed a civil complaint against a competitor and a former employee in the Superior Court of California for Orange County, which alleged, among other claims, the misappropriation of ARC trade secrets; namely, proprietary customer lists that were used to communicate with ARC customers in an attempt to unfairly acquire their business. In prior litigation with the competitor based on related facts, in 2007 the competitor entered into a settlement agreement and stipulated judgment, which included an injunction. We instituted this suit to stop the defendant from using similar unfair business practices against us in the Southern California market. The case proceeded to trial in May 2014, and a jury verdict was entered for the defendants. In the first quarter of 2015, we entered into a settlement and paid the defendant. Legal fees associated with the litigation were recorded as selling, general and administrative expense.

⁽²⁾  In October 2012, we initiated a restructuring plan which included the closure or downsizing of the Company's service center locations, as well as a reduction in headcount.  Restructuring expenses in 2016 and 2015 primarily consist of revised estimated lease termination and obligation costs resulting from facilities closed in 2013.