In this article, IBO examines free cash flow (FCF) for the first six months of 2013 at seven major publicly held instrument and lab product companies, and details how the companies are spending and plan to spend their cash. Excluding certain one-time payments, FCF (operating cash flow less net capital investments) for six of the seven companies was relatively unchanged or grew. Areas of investment included stock purchases, debt repayment and acquisitions.

Agilent, Illumina and Waters each recorded higher FCF for the first six months of the year. Illumina recorded the largest increase in FCF (see table, page 11), with it climbing 12%. This cash flow, together with the strong cash balance at the end of 2012, allowed Illumina to invest $345 million to purchase Verinata Health (see IBO 1/15/13), as well as finance $8.9 million in net share repurchases. In addition, the company’s cash balance jumped 81% for the first six months to $784 million due to the sale of certain securities.

Agilent’s FCF grew 8% for the half year. Agilent used the cash to repurchase net shares worth $151 million. The company plans to spend an additional $780 million to repurchase stock this fiscal year. The company also plans to use its cash flow for M&A and dividends. In the fiscal second quarter of 2012, Agilent began paying a quarterly dividend of $0.10 for the first time. This year, the company raised its quarterly dividend by 20% to $0.12. As of the end of the fiscal second quarter, Agilent’s cash balance was $2.5 billion.

Similar to Agilent, Waters expanded FCF in the first half of the year, improving it 4%. The company is using its cash to buy back stock, having spent $152 million in the first half on the net repurchase of shares.

Life Technologies reported a double-digit increase in FCF for the first six months, but this was due to the sale of certain capital assets. Excluding these gains, FCF remained relatively stable. The company’s use of cash in the first six months followed a similar pattern as in 2012. Life used the cash to reduce its share count and net borrowings, with $64 million in net share repurchases and net debt reduction of $207 million.

FCF for Thermo Fisher Scientific declined 17% in the first half of the year. Thermo was impacted by higher accounts receivables, which was primarily to support stronger sales growth, as well as tax payments and $41 million in restructuring activities. In preparation for the acquisition of Life Technologies (see IBO 4/15/13), the company spent $58 million to secure a $12.5 billion bridge loan, which will be financed upon closing of the acquisition. To avoid a potential credit downgrade and higher interest payments following the acquisition, Thermo will most likely use a portion of the combined $2.5 billion FCF to reduce debt. In fact, during the first quarter, Thermo suspended its stock buyback program until late 2015 to focus on debt reduction.

The cutback in financing and investing outflows boosted cash and cash equivalents by 66% from the beginning of the year to $1.4 billion. This included net proceeds of $82 million from the sale of common stock. However, the company paid out $108 million in dividends in the first half, an increase of 108%.

PerkinElmer’s FCF declined 80% in the first six months, as it was adversely affected by timing and nonrecurring payments, such as pension contributions, tax payments, prepaid royalties and restructuring. For the first six months, PerkinElmer spent $120 million in net stock repurchases, but increased net borrowing by $63 million. The company also maintained dividend payments totaling $16 million.

Bruker was the only company in the table to record a negative FCF for the first half of the year. It had minimal changes in share repurchase and debt reduction.