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

Twelve Months Ended

December 31,

December 31,

2016

2015

2016

2015

Cash flows provided by operating activities

$

19,096

$

16,864

$

53,142

$

59,981

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

(6,058)

(2,338)

3,918

4,905

Non-cash expenses, including depreciation, amortization and restructuring

(10,259)

(11,342)

(104,559)

32,502

Income tax provision (benefit)

1,520

2,334

(4,364)

(69,432)

Interest expense, net

1,461

1,499

5,996

6,974

Income attributable to noncontrolling interest

(155)

(123)

(366)

(348)

Depreciation and amortization

8,014

8,171

31,751

33,661

EBITDA

13,619

15,065

(14,482)

68,243

Loss on extinguishment of debt

52

89

208

282

Goodwill impairment

—

—

73,920

—

Trade secret litigation costs ⁽¹⁾

—

—

—

34

Restructuring expense ⁽²⁾

—

—

7

89

Stock-based compensation

620

773

2,693

3,512

Adjusted EBITDA

$

14,291

$

15,927

$

62,346

$

72,160

⁽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.