FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Six Months Ended

(in thousands)

June 30, 2016

June 27, 2015

CASH FLOWS FROM:

OPERATING ACTIVITIES:

Net income

$                  6,472

$                   4,812

Adjustments to reconcile net income to net cash provided by (used in)

    operating activities:

Depreciation and amortization

6,352

5,232

Compensation for stock options and restricted stock units

2,731

2,468

Provision for bad debts

574

410

Loss on disposal of assets

305

644

Write-down of inventories

1,440

1,505

Deferred income tax (benefit) expense

(261)

561

Income tax benefit from exercise of stock options

(70)

(286)

Change in operating assets and liabilities:

Decrease (increase) in:

Accounts receivable

13,818

11,820

Inventories

(4,918)

(15,097)

Prepaid expenses and other current assets

2,115

(1,948)

(Decrease) increase in:

Accounts payable and accrued liabilities

(1,596)

(12,636)

Income taxes payable

522

722

Customer deposits

(870)

(589)

Unearned service revenues

1,114

782

        Net cash provided by (used in) operating activities

27,728

(1,600)

INVESTING ACTIVITIES:

Purchases of property and equipment

(2,580)

(6,073)

Payments for intangible assets

(712)

(1,185)

Purchase of businesses acquired

-

(12,011)

        Net cash used in investing activities

(3,292)

(19,269)

 FINANCING ACTIVITIES:

Payments on capital leases

(4)

(5)

Income tax benefit from exercise of stock options

70

286

Proceeds from issuance of stock, net

513

2,175

        Net cash provided by financing activities

579

2,456

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

1,170

(300)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

26,185

(18,713)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

107,356

109,289

CASH AND CASH EQUIVALENTS, END OF PERIOD

$               133,541

$                 90,576